Securities registered under Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
None
None
Securities registered under Section 12(g) of the Act:
Common Stock, $0.0001 par value per share
(Title of class)
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 ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically 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 ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
(Do not check if a smaller reporting company)
Emerging growth company
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as the latest practicable date: 841,184,289 shares of common stock, par value $0.0001, were outstanding on August 24, 2020.
Series A, Redeemable Preferred Stock - Related Party - $0.0001 par value, 20,000,000 shares authorized 5,000,000 shares issued and outstanding, respectively
5,000
5,000
Stockholders' Deficit
Common stock, $0.0001 par value, 20,000,000,000 shares authorized 841,184,289 shares issued and outstanding, respectively
84,119
84,119
Additional paid-in capital
3,780,562
3,762,039
Accumulated deficit
(4,610,090
)
(4,573,287
)
Total Stockholders' Deficit
(745,409
)
(727,129
)
Liabilities and Stockholders' Deficit
$
5,648
$
44,342
The accompanying condensed notes are an integral part of these consolidated financial statements
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Note 1 - Organization and Nature of Operations
Organization
Force Protection Video Equipment Corp., together with its wholly owned subsidiary, Cobraxtreme HD Corp. (collectively, “we”, “us”, “our” or the “Company”), sells video and audio capture devices and accessories to consumers and law enforcement. The Company was incorporated on March 11, 2011, under the laws of the State of Florida. Cobraxtreme HD Corp. was incorporated under the laws of the State of North Carolina on September 19, 2017 and currently is non-operating. On February 2, 2015, the Company changed its name to Force Protection Video Equipment Corp.
The Company’s fiscal year end is April 30.
Basis of Presentation
Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) for interim financial information and with the instructions to Article 8-03 of Regulation S-X.
Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. Certain information and note disclosure normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted from these statements pursuant to such accounting principles and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements.
These unaudited consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to the consolidated financial statements for the year ended April 30, 2019 of the Company which were included in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on July 24, 2020.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Liquidity and Going Concern
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying unaudited consolidated financial statements, for the six months ended October 31, 2019, the Company had:
·
Net loss from operations of $36,803
·
Net cash used in operations was $29,151
Additionally, at October 31, 2019, the Company had:
·
Accumulated deficit of $4,610,090,
·
Stockholders’ deficit of $745,409; and
·
Working capital deficit of $740,409
The Company is currently in default on certain convertible debt instruments. In September and October 2019, the Company reached an agreement to settle certain of its in-default convertible notes, loans, and related accrued interest (See Note 4 for additional changes to the Company’s convertible notes and term note). Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.
The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its goods and services to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis.
In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flow and cash usage forecasts for the period ending October 31, 2019, and our current capital structure including equity-based instruments and our obligations and debts.
We expect that our existing cash and cash equivalents as of October 31, 2019, will not be sufficient to enable us to fund our anticipated level of operations based on our current operating plans, through the second quarter of fiscal year end 2021. Accordingly, we will require additional capital to fund our operations. We anticipate raising additional capital through the private and public sales of our equity or debt securities, or a combination thereof. Although management believes that such capital sources will be available, there can be no assurance that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms acceptable to us.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
At October 31, 2019, the Company had $3,166 in cash. If we do not raise sufficient capital in a timely manner, among other things, we may be forced scale back our operations or cease operations all together.
During the six months ended October 31, 2019, the Company was able to raise $160,356 in gross proceeds in convertible promissory notes ($132,856) and a term note ($27,500). The Company’s capital-raising efforts are ongoing, and the Company has undertaken the following to reduce its burn rate: an ongoing review and reduction of monthly operating expenses. If sufficient capital cannot be raised during fiscal year 2020, the Company will continue its plans of curtailing operations by reducing discretionary spending and staffing levels and attempting to operate by only pursuing activities for which it has external financial support. However, there can be no assurance that such external financial support will be sufficient to maintain even limited operations or that the Company will be able to raise additional funds on acceptable terms, or at all. In such a case, the Company might be required to enter into unfavorable agreements or, if that is not possible, be unable to continue operations to the extent practicable.
Because COVID-19 infections have been reported throughout the United States, certain federal, state, and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future.
The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our business, financial condition, and results of operations.
The significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time. In light of the COVID-19 pandemic, the Company has taken proactive steps to manage its costs and discretionary spending.
These factors create substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
These consolidated financial statements have been prepared in accordance with US GAAP and include the accounts of the Company and its wholly owned subsidiary, Cobraxtreme HD Corp. All intercompany transactions and balances have been eliminated.
Business Segments
The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it has one operating segment due to business similarities and similar economic characteristics.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Significant estimates during the six months ended October 31, 2019 include estimated useful life and related impairment of property and equipment, valuation of operating lease right-of-use (“ROU”) assets and liabilities and the related lease termination and estimates of current and deferred income taxes and deferred tax valuation allowance.
Fair Value of Financial Instruments
The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows:
·
Level 1 —Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;
·
Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and
·
Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
Although the Company believes that the recorded fair value of our financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.
The Company’s financial instruments, including cash, net accounts receivable, accounts payable and accrued expenses, are carried at historical cost. At October 31, 2019 and April 30, 2019, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (“fair value option”). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Concentrations of Risk
During the six months ended October 31, 2019 and 2018, the following customers accounted for greater than 10% of sales as follows:
Six Months Ended
Customer
October 31, 2019
October 31, 2018
A
18
%
-
Total
18
%
-
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents. At October 31, 2019 and April 30, 2019, the Company did not have any cash equivalents.
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. There were no balances in excess of FDIC insured levels and the Company has not experienced any losses in such accounts through October 31, 2019 and April 30, 2019, respectively.
Accounts Receivable
Credit is extended to customers based on an evaluation of their financial condition and other factors. Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Accounts determined to be uncollectible are charged to operations when that determination is made. Interest is not accrued on overdue accounts receivable. The Company does not require collateral.
Allowance for doubtful accounts was $0 and $0 at October 31, 2019 and April 30, 2019, respectively.
Inventory
The Company’s inventory is comprised of finished goods and primarily includes cameras and recording equipment. The Company’s inventory is stated at the lower of cost or market and expensed to cost of revenues upon sale using the average-cost method. The Company also makes prepayments against the future delivery of inventory classified as prepaid inventory. The Company plans to become a drop ship third-party seller that will reduce the need to carry inventory.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
During the three months ended October 31, 2019 and 2018, the Company wrote down $0 and $0, respectively, of obsolete inventory.
During the six months ended October 31, 2019 and 2018, the Company wrote down $0 and $112,736, respectively, of obsolete inventory.
Long-lived Assets
Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists. Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in the Company’s stock price for a sustained period of time; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.
If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets ranging from three to seven years.
Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment.
On May 1, 2019, the Company and its landlord mutually agreed to terminate the outstanding office lease. All related property and equipment at that time was determined to be impaired.
During the three months ended October 31, 2019 and 2018, the Company recorded impairment losses of property and equipment of $0 and $0, respectively.
During the six months ended October 31, 2019 and 2018, the Company recorded impairment losses of property and equipment of $6,274 and $0, respectively. See Notes 3 and 5.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Right of Use Assets and Lease Obligations
The Right of Use (“ROU”) Asset and Lease Liability reflect the present value of the Company’s estimated future minimum lease payments over the lease term, which may include options that are reasonably assured of being exercised, discounted using a collateralized incremental borrowing rate.
Typically, renewal options are considered reasonably assured of being exercised if the associated asset lives of the building or leasehold improvements exceed that of the initial lease term, and the Company’s operations remains strong. Therefore, the Right of Use Asset and Lease Liability may include an assumption on renewal options that have not yet been exercised by the Company.
Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.
On May 1, 2019, the Company and its landlord mutually agreed to terminate the outstanding office lease. The Company had an ROU asset of $29,208 and a lease liability of $29,811 at the date of termination, resulting in a gain on lease termination of $603. See Note 5.
Derivative Liabilities
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic No. 480, (“ASC 480”), “Distinguishing Liabilities from Equity” and FASB ASC Topic No. 815, (“ASC 815”) “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. The Company uses a Black-Scholes option pricing model to determine fair value.
Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment, or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on debt extinguishment recognized in the Company’s consolidated statements of operations
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
The Company has adopted ASU 2017-11, “Earnings per share (Topic 260)”, provided that when determining whether certain financial instruments should be classified as liability or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. If a down round feature on the conversion option embedded in the note is triggered, the Company will evaluate whether a beneficial conversion feature exists, the Company will record the amount as a debt discount and will amortize it over the remaining term of the debt.
If the down round feature in the warrants that are classified as equity is triggered, the Company will recognize the effect of the down round as a deemed dividend, which will reduce the income available to common stockholders.
At October 31, 2019 and April 2019, the Company did not have any derivative liabilities.
Stock Warrant Liability
The Company accounts for certain stock warrants outstanding as a liability at fair value and adjusts the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s consolidated statements of operations. The fair value of the warrants issued by the Company are estimated using a Black-Scholes option pricing model, at each measurement date.
At October 31, 2019 and April 2019, the Company did not have any warrant liabilities.
Debt Discounts (Derivative Liabilities)
The Company accounts for debt discounts originating in connection with conversion features that remain embedded in the related notes (ASC 815) in accordance with ASC 470-20, Debt with Conversion and Other Options. These costs are classified as a component of debt discount on the consolidated balance sheets as a direct deduction from the debt liability. The Company amortizes these costs over the term of the related debt agreement as interest expense (accretion) - debt discount, in the consolidated statements of operations.
At October 31, 2019 and April 2019, the Company did not have any debt discounts recorded in connection with any derivative or stock warrant liabilities.
Beneficial Conversion Features and Debt Discounts
For instruments that are not considered liabilities under ASC 480 or ASC 815, the Company applies ASC 470-20 to convertible securities with beneficial conversion features that must be settled in stock and to those that give the issuer a choice in settling the obligation in either stock or cash. ASC 470-20 requires that the beneficial conversion feature should be valued at the commitment date as the difference between the conversion price and the fair market value of the common stock (whereby the conversion price is lower than the fair market value) into which the security is convertible, multiplied by the number of shares into which the security is convertible. This amount is recorded as a debt discount and amortized over the life of the debt. ASC 470-20 further limits this debt discount amount to the proceeds allocated to the convertible instrument.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Revenue Recognition
Our revenue is generated from the sale of products consisting primarily of video and audio capture devices and accessories.Payment or invoicing typically occurs upon shipment and the term between invoicing and when payment is due is not significant. Revenue is recorded net of discounts and promotions and is disaggregated based on significant product lines. See Note 7 for segments and geographic data.
ASC Topic 606 is a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to our customers at an amount that reflects the consideration that we expect to receive. Application of ASC Topic 606 requires us to use more judgment and make more estimates than under former guidance. Application of ASC Topic 606 requires a five-step model applicable to all product offerings revenue streams as follows:
Identification of the contract, or contracts, with a customer
A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit or financial information pertaining to the customer.
Identification of the performance obligations in the contract
Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
When a contract includes multiple promised goods or services, we apply judgment to determine whether the promised goods or services are capable of being distinct and are distinct within the context of the contract. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.
Determination of the transaction price
The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods or services to our customer. We estimate any variable consideration included in the transaction price using the expected value method that requires the use of significant estimates for discounts, cancellation periods, refunds and returns. Variable consideration is described in detail below.
Allocation of the transaction price to the performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative Stand-Alone Selling Price (“SSP,”) basis. We determine SSP based on the price at which the performance obligation would be sold separately. If the SSP is not observable, we estimate the SSP based on available information, including market conditions and any applicable internally approved pricing guidelines.
Recognition of revenue when, or as, we satisfy a performance obligation
We recognize revenue at the point in time that the related performance obligation is satisfied by transferring the promised goods or services to our customer.
Principal versus Agent Considerations
When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC Topic 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Our evaluation to determine if we control the goods or services within ASC Topic 606 includes the following indicators:
We are primarily responsible for fulfilling the promise to provide the specified good or service
When we are primarily responsible for providing the goods and services, such as when the other party is acting on our behalf, we have indication that we are the principal to the transaction. We consider if we may terminate our relationship with the other party at any time without penalty or without permission from our customer.
We have risk before the specified good or service have been transferred to a customer or after transfer of control to the customer.
We may commit to obtaining the services of another party with or without an existing contract with our customer. In these situations, we have risk of loss as principal for any amount due to the other party regardless of the amount(s) we earn as revenue from our customer.
The entity has discretion in establishing the price for the specified good or service
We have discretion in establishing the price our customer pays for the specified goods or services.
Contract Liabilities
Contract liabilities consist of customer advance payments and billings in excess of revenue recognized. We may receive payments from our customers in advance of completing our performance obligations. We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms. Contract liabilities have been historically low and are generally recorded as current liabilities on our consolidated financial statements when the time to fulfill the performance obligations under terms of our contracts is less than one year. We have no Long-term contract liabilities which would represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Practical Expedients and Exemptions:
We have elected certain practical expedients and policy elections as permitted under ASC Topic 606 as follows:
·
We applied the transitional guidance to contracts that were not complete at the date of our initial application of ASC Topic 606 on January 1, 2018.
·
We adopted the practical expedient related to not adjusting the promised amount of consideration for the effects of a significant financing component if the period between transfer of product and customer payment is expected to be less than one year at the time of contract inception;
·
We made the accounting policy election to not assess promised goods or services as performance obligations if they are immaterial in the context of the contract with the customer;
·
We made the accounting policy election to exclude any sales and similar taxes from the transaction price; and
·
We adopted the practical expedient not to disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Cost of Revenues
Cost of revenues represents costs directly related to the production, manufacturing and freight-in of the Company’s product inventory purchased from third-party manufacturers.
Income Taxes
The Company accounts for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of October 31, 2019, and April 30, 2019, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were recorded for the three and six months ended October 31, 2019 and 2018.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Marketing and Advertising Costs
Marketing and advertising costs are expensed as incurred.
The Company recognized $804 and $1,703 in marketing and advertising costs during the three months ended October 31, 2019 and 2018, respectively, and are included as a component of general and administrative expense in the consolidated statements of operations.
The Company recognized $3,776 and $7,184 in marketing and advertising costs during the six months ended October 31, 2019 and 2018, respectively, and are included as a component of general and administrative expense in the consolidated statements of operations.
Stock-Based Compensation
We account for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
We use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
When determining fair value, the Company considers the following assumptions in the Black-Scholes model:
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
There were no stock option grants during the three and six months ended October 31, 2019 and 2018, respectively. Additionally, there were no stock options issued, outstanding or exercisable as of October 31, 2019 and April 30, 2019, respectively.
Common stock awards
The Company may grant common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or the fair value of the awards granted, whichever is more reliably measurable. The fair value measurement date of these awards is generally the date the performance of services is complete. The fair value of the awards is recognized on a straight-line basis as services are rendered. The share-based payments related to common stock awards for the settlement of services provided by non-employees is recorded in accordance with ASU 2018-07 (June 2018) on the consolidated statement of operations in the same manner and charged to the same account as if such settlements had been made in cash.
There were no stock awards granted during the three and six months ended October 31, 2019 and 2018, respectively.
Stock Warrants
In connection with certain financing, consulting and collaboration arrangements, the Company may issue warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants are recorded at fair value as expense over the requisite service period or at the date of issuance if there is not a service period.
There were no warrants grants during the three and six months ended October 31, 2019 and 2018, respectively. Additionally, there were no warrants issued, outstanding or exercisable as of October 31, 2019 and April 30, 2019, respectively.
Basic and diluted loss per share
Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares may consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
The following potentially dilutive equity securities outstanding as of October 31, 2019 and 2018 were not included in the computation of dilutive loss per common share because the effect would have been anti-dilutive:
October 31, 2019
October 31, 2018
Convertible notes (P&I)
6,739,747,705
8,934,509,335
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Recently Issued Accounting Standards
Changes to accounting principles are established by the FASB in the form of ASUs to the FASB’s Codification. We consider the applicability and impact of all ASUs on our financial position, results of operations, cash flows, or presentation thereof. Described below are ASUs that are not yet effective, but may be applicable to our financial position, results of operations, cash flows, or presentation thereof. ASUs not listed below were assessed and determined to not be applicable to our financial position, results of operations, cash flows, or presentation thereof.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02 (with amendments issued in 2018), which changes the accounting for leases and requires expanded disclosures about leasing activities. This new guidance also requires lessees to recognize a ROU asset and a lease liability at the commencement date for all leases with terms greater than twelve months. Accounting by lessors is largely unchanged. ASU 2016-02 is effective for fiscal periods beginning after December 15, 2018. We adopted ASU 2016-02 on January 1, 2019 using the modified retrospective optional transition method. Thus, the standard was applied starting January 1, 2019 and prior periods were not restated.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
We applied the package of practical expedients permitted under the transition guidance. As a result, we did not reassess the identification, classification and initial direct costs of leases commencing before the effective date. We also applied the practical expedient to not separate lease and non-lease components to all new leases as well as leases commencing before the effective date. See Note 5.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” This guidance simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for fiscal periods beginning after December 31, 2019.
Early adoption is permitted. We adopted ASU 2017-04 and it did not have a material impact on our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, “Improvements to Non-employee Share-Based Payment Accounting.” This guidance expands the scope of Topic 718 “Compensation - Stock Compensation” to include share-based payment transactions for acquiring goods and services from non-employees, but excludes awards granted in conjunction with selling goods or services to a customer as part of a contract accounted for under ASC 606, “Revenue from Contracts with Customers.” The adoption of ASU 2018-07 did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement”, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13 during the quarter ended January 31, 2020 and its adoption did not have any material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which amends ASC 350-40, “Intangibles - Goodwill and Other - Internal-Use Software.” The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and requires the capitalized implementation costs to be expensed over the term of the hosting arrangement. The accounting for the service element of a hosting arrangement that is a service contract is not affected. ASU 2018-15 is effective for fiscal periods beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-15, effective January 1, 2019, did not have a material impact on our consolidated financial statements.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Recent Accounting Updates Not Yet Effective
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this guidance.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This guidance updates existing guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. We do not expect the adoption of ASU 2016-13 will have a material impact on our consolidated financial statements.
Note 3 – Property and Equipment
Property and equipment consisted of the following:
Estimated Useful
October 31, 2019
April 30, 2019
Lives (Years)
Furniture and fixtures
$
-
$
9,656
5 - 7
Computers and office equipment
-
4,226
3 - 5
Leasehold improvements
-
1,775
Life of lease
-
15,657
Accumulated depreciation
-
(9,383
)
Total property and equipment - net
$
-
$
6,274
Depreciation expense for the three months ended October 31, 2019 and 2018 was $0 and $1,757, respectively.
Depreciation expense for the six months ended October 31, 2019 and 2018 was $0 and $3,127, respectively.
On May 1, 2019, the Company recorded an impairment loss of $6,274.See Note 5 regarding related ROU lease liability termination.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Note 4 – Debt
Convertible Notes Payable
The Company has issued numerous convertible promissory notes. In certain cases, these notes contained conversion features that require a discount to the market price based upon a formula using the Company’s stock prices. The Company has determined that each convertible promissory note conversion feature is indexed to the Company’s stock, which is an input to a fair value measurement of a fixed-for-fixed option on equity shares. Thus, the conversion feature of the notes meets the scope exception under FASB Accounting Standards Codification (“ASC”) 815-40-15-7 and treatment under ASC 470-20 – “Debt with Conversion and Other Options” is appropriate.
The following represents a summary of the Company’s lenders, key terms of the debt and outstanding balances at October 31, 2019 and April 30, 2019, respectively.
60% of the lowest trading price twenty (20) days immediately preceding conversion
Conversion Restriction
Ownership cannot exceed 4.99%
Prepayment Penalty (P&I)
130%
Default Penalty (P&I)
150%
Common Share Reserve
Three (3) times the possible shares needed upon conversion
Effective May 1, 2019, the lender amended the conversion price for all outstanding notes to a fixed price of$0.0003. As a result of this amendment, the Company determined that the present value of the cash flows of the outstanding debt were similar (less than 10%) to the present value of the cash flows of the new debt.
The Company had no debt issuance costs left to amortize from the prior outstanding, in-default notes. Additionally, in connection with the change in conversion price, there were no fees paid to the lender or other third parties.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
The change in terms (conversion price fixed at $0.0003) resulted in a debt modification, accordingly, there is no effect for financial reporting.
Additionally, on May 1, 2019, the lenders amended all of their 8% convertible promissory notes previously outstanding as well as those issued after May 1, 2019 to suspend the default provision which would allow for a default penalty of 150% on the outstanding principal and accrued interest at the time of default and upon the lender accelerating the amounts due.The notes, while in default, have not been accelerated for payment. The lender has reserved the right to reinstate the default provision at their discretion.
Power Up Lending Group Ltd. (“Power Up”) - Convertible Notes (3 Notes)
Term of Convertible Notes
Approximately 9 months
Maturity Dates
November 16, 2017 – December 15, 2018
Interest Rate
12%
Default Interest Rate
22%
Collateral
Unsecured
Conversion Discount
61% of the average of the lowest two (2) trading prices twenty (20) days immediately preceding conversion
Conversion Restriction #1
Ownership cannot exceed 4.99%
Conversion Restriction #2
Not convertible until 180 days after issuance of convertible note
Prepayment Penalty (P&I)
115% - 140% (within 1st 180 days of note being outstanding)
Default Penalty (P&I)
150%
Common Share Reserve
N/A
Adar Bays, LLC (“Adar”) - Convertible Note (1 Note)
Term of Convertible Notes
Approximately 12 months
Maturity Dates
March 5, 2018 – March 5, 2019
Interest Rate
8%
Default Interest Rate
24%
Collateral
Unsecured
Conversion Discount
60% of the lowest trading price twenty (20) days immediately preceding conversion
Conversion Restriction
Not convertible until 180 days after issuance of convertible note
Prepayment Penalty (P&I)
N/A
Default Penalty (P&I)
N/A
Common Share Reserve
Three (3) times the possible shares needed upon conversion
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Red Diamond Partners, LLC (“Red”) – Convertible Notes (12 Notes)
Issuance Date of Convertible Notes
October 11, 2019 – July 23, 2020
Term of Convertible Notes
Approximately 6 months
Maturity Dates
April 11, 2020 – January 23, 2021
Gross Proceeds
$211,806
Interest Rate
8%
Default Interest Rate
24%
Collateral
Unsecured
Conversion Feature
Fixed at $0.0003
Conversion Restriction
Ownership cannot exceed 4.99%
Prepayment Penalty (P&I)
130%
Default Penalty (P&I)
150%
Common Share Reserve
Three (3) times the possible shares needed upon conversion
Red Diamond Partners, LLC (“Red”) – Term Note (1 Note)
Issuance Date of Note
October 11, 2019
Term of Note
Approximately 6 months
Maturity Date
April 11, 2020
Gross Proceeds
$27,500
Interest Rate
5%
Default Interest Rate
24%
Collateral
5,000,000 shares, Series A, Redeemable Preferred Stock – all held by the Company’s CEO
Conversion Feature
None
Conversion Restriction
N/A
Prepayment Penalty (P&I)
130%
Default Penalty (P&I)
N/A
Common Share Reserve
N/A
As of August 24, 2020, the term note of $27,500 was in default.
The lender has not called this debt and is not seeking to foreclose on the collateral and obtain the 5,000,000 shares of Series A, Redeemable, Preferred Stock. See Note 6.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
The following is a summary of the Company’s convertible notes and related accrued interest (included as a component of accounts payable and accrued expenses) at October 31, 2019:
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Convertible Note Settlements
(A) Power Up Lending Group Ltd.
On October 8, 2019, the Company executed a settlement agreement for $60,000. All outstanding notes and accrued interest totaling $129,938 were paid in three installments:
1.
October 11, 2019 for $30,000,
2.
October 24, 2019 for $15,000; and
3.
November 19, 2019 for $15,000
For the fiscal year end April 30, 2020, the Company recognized a gain on debt settlement (principal and interest) of $69,938.
(B) Adar Bays, LLC
On October 3, 2019, the Company executed a settlement agreement for $74,750. All outstanding notes and accrued interest totaling $65,619 were paid in three installments:
1.
October 11, 2019 for $37,000,
2.
October 24, 2019 for $18,750; and
3.
November 26, 2019 for $18,750
For the fiscal year end April 30, 2020, the Company recognized a loss on debt settlement (principal and interest) of $8,881.
Gain on debt settlement – net, related to convertible notes and related accrued interest for the fiscal year end April 30, 2020 was $61,057.
Loan Settlement
On September 4, 2019, the Company executed a settlement agreement with Strategic Funding Source, Inc. for $27,226. The outstanding balance of the loan was $28,200. Payment was made on October 18, 2019.
For the fiscal year end April 30, 2020, the Company recognized a gain on debt settlement (principal and interest) of $974.
Total gain on debt settlement – net, related to convertible notes and related accrued interest and the loan above for the fiscal year end April 30, 2020 was $62,031, of which $974 was recognized during the six months ended October 31, 2019.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
Note 5 – Commitments and Contingencies
Product Warranties
The Company’s manufacturer(s) provide the Company with a 2-year warranty. The Company products are sold with a 1-year manufacturer’s warranty. The Company offers a 1-year extended warranty for a fee. The extended warranty expires at the end of the second year from the date of purchase with warranty costs during the two-year period being born by the manufacturer. As a result, the Company has no, or limited warranty liability exposure.
Right of Use Assets and Liabilities (“ROU”)
In February 2016, the FASB issued ASU No. 2016-02 (“ASC 842”), “Leases”, to require lessees to recognize all leases, with certain exceptions, on the balance sheet, while recognition on the statement of operations will remain similar to current lease accounting. Subsequently, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842”, “Leases”, ASU No. 2018-11, “Targeted Improvements”, ASU No. 2018-20, “Narrow-Scope Improvements for Lessors”, and ASU 2019-01, “Codification Improvements”, to clarify and amend the guidance in ASU No. 2016-02. ASC 842 eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. This standard is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company early adopted the provisions of ASC 842 during the fiscal year ended April 30, 2018.
On November 15, 2017, the Company entered into a lease for office space. The lease expires on November 30, 2020 and includes an option to extend the lease an additional term of three years.
During fiscal year 2018, the Company determined the ROU Asset and lease liability to be $51,063 which compares to the total, undiscounted cash flow payments of the initial three-year term of $61,200. As of April 30, 2018, since the right of use asset and lease liability were the same, no adjustment to retained earnings was required. The company determined that there was no discount rate implicit in the lease. Thus, the Company used its incremental borrowing rate of 12% to discount the lease payments in the determination of the ROU asset and related lease liability.
Rent is $1,650 per month and is increased each anniversary by 3%. The Company paid a $1,650 security deposit. In connection with the lease termination noted below, the $1,650 deposit was recognized as rent expense on May 1, 2019.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
On May 1, 2019, the Company and its landlord mutually agreed to terminate the outstanding lease. The following summarizes the lease termination:
Operating lease assets - termination date - May 1, 2019
$
29,208
Operating lease liabilities - termination date - May 1, 2019
29,811
Operating lease assets and (liability) - net - termination date - May 1, 2019
(603
)
Gain on lease termination
603
Operating lease assets and liability - net - October 31, 2019
$
-
We recognized lease expense on a straight-line basis over the term of our operating leases, as reported within “general and administrative” expense on the accompanying Consolidated Statements of Operations.
During the three months ended October 31, 2019 and 2018, operating lease expense was $0 and $5,100, respectively.
During the six months ended October 31, 2019 and 2018, operating lease expense was $0 and $10,200, respectively.
NOTE 6 – SERIES A, REDEEMABLE PREFERRED STOCK – RELATED PARTY
As of October 31, 2019 and April 30, 2019, respectively, there were 5,000,000 shares of $0.0001 par value, Series A, Redeemable Preferred Stock outstanding held by the Company’s Chief Executive Officer (“CEO”). The Preferred Stock pays no dividends and has no conversion rights into common stock. Each share of Preferred Stock is entitled to 200 votes per share and is redeemable in whole, but not in part, at the option of the holder for $0.0001 per share. Due to the redemption feature being at the option of the holder, the Company classifies the purchase price in the temporary equity section of the balance sheet.
See Note 4 regarding these 5,000,000 shares serving as collateral for a debt issuance to Red Diamond Partners, LLC (“Red”) on October 11, 2019 for $27,500.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
NOTE 7 – REVENUES
All of the Company’s revenues are derived from business in North America. The following tables disaggregate our revenue by major product line, types of customers, and timing of revenue recognition for the six months ended October 31, 2019 and 2018, respectively:
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
NOTE 8 - STOCKHOLDER’S DEFICIT
October 31, 2019
During the six months ended October 31, 2019, the Company’s CEO forgave accrued payroll of $18,523.Since the forgiveness occurred with a related party, accordingly, there can be no gain or loss, this results in a contribution to equity.
October 31, 2018
During the six months ended October 31, 2018, the Company had the following activity:
·
On May 17, 2018, the Company filed its Amended Articles of Incorporation which increased its authorized common stock to 20,000,000,000 shares and its Series A Preferred to 20,000,000 shares, with no changes in par value. The increase in the common stock was made necessary because of the reserves required by the Company’s holders of convertible notes,
·
Issued 570,451,868 shares of common stock in satisfaction of loan debt and related accrued interest, having a fair value of $110,711; and
·
Recorded a debt discount of $92,198 on convertible promissory notes due to a beneficial conversion feature.
NOTE 9 – RELATED PARTY TRANSACTIONS
Shareholder advances (repayments)
From time to time, the Company receives advances from and repays such advances to the Company’s CEO for working capital purposes and to repay indebtedness. The advances are non-interest bearing, unsecured and due on demand.
October 31, 2019
During the six months ended October 31, 2019, the Company repaid $2,500, resulting in an outstanding balance of $12,150.
October 31, 2018
During the six months ended October 31, 2018, the Company received proceeds of $6,000.
FORCE PROTECTION VIDEO EQUIPMENT CORP. AND SUBSIDIARY
CONDENSED NOTES TO UNAUDITED C ONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2019
NOTE 10 - SUBSEQUENT EVENTS
The following is a summary of the Company’s convertible notes payable and related accrued interest (included as a component of accounts payable and accrued expenses) for the fiscal year end April 30, 2020 and July 31, 2020:
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our April 30, 2019 Annual Report on Form 10-K.
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our estimates of our financial results and our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to several risks, uncertainties, and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission (the “SEC”) with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
As used herein, the “Company,” “our,” “we,” or “us” and similar terms refers to Enhance-Your-Reputation.com, Inc. unless the context indicates otherwise.
Overview
The Company is in the business of selling video and audio capture devices initially targeted to law enforcement agencies. The Company has established a web site at www.forceprovideo.com whereby customers can view the Company’s products and place orders. We believe that given recent current events between law enforcement agencies and the public, which has been widely reported by the media, there is a significant market opportunity for the Company’s products.
Our video and audio capture devices are compact, ergonomic, tamperproof, and designed to capture HD video and/or audio on demand enabling our customers to capture content while engaged in a wide range of activity. We also sell accessories that enhance the functionality and versatility of our products, including mounts, such as the helmet, handlebar, roll bar and tripod mounts, as well as mounts that enable users to wear the camera on their bodies, such as the wrist housing, chest harness and head strap. Other accessories include spare batteries, charging accessories and memory drives. Our products are marketed primarily to law enforcement due to their unique need to capture important events in the course of their duties.
Our primary hardware products consist of our undercover surveillance devices which are restricted sales items to law enforcement agencies, the LE10 Law Enforcement Video Recorder, the LE15 and LE50 and the Recon 2000 HD Body Cams and evidence software as well as the SC1 Sunglass Camera.
Distribution
Customers purchase products from our website and by telephone order. All products are shipped from our manufacturer to our facility in North Carolina where we process and ship product to our customers using Federal Express or United Parcel Services. Customers pay all shipping charges.
Marketing
Currently, our sales and marketing efforts include print marketing catalogs featuring our products to state and local law enforcement agencies. We create and deliver brochures and catalogs to state and local law enforcement, every four (4) weeks, using U.S. Mail.
Results of Operations
As of October 31, 2019, we had total assets of $5,648 and total liabilities of $746,057. Since our inception to October 31, 2019, we have an accumulated a deficit of $4,610,090. We anticipate that we will continue to incur losses for the foreseeable future. Our financial statements have been prepared assuming that we will continue as a going concern. We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through the sale of equity or debt securities.
Three and Six Months Ended October 31, 2019, compared to the Three and Six Months ended October 31, 2018
For the Three Months Ended October 31,
2019
2018
$ Change
% Change
Revenues
$
9,895
$
45,130
$
(35,235
)
-78
%
1
Gross profit (loss)
$
7,386
$
(90,937
)
$
98,323
-108
%
2
General and administrative expenses
$
6,913
$
74,473
$
(67,560
)
-91
%
3
Total other income (expense) - net
$
(24,129
)
$
(77,001
)
$
52,872
-69
%
4
__________
1
Revenues decreased due to lack of expected sales and a reduction in marketing and advertising.
2
The gross loss in 2018 was related to the impairment of inventory of $112,736. Overall, however, in 2019, there was a decrease in the volume of higher margin products. Additionally, during the three months ended October 31, 2019, the Company stopped carrying inventory, and as a result, only had cost of revenues related to items purchased and immediately sold, thus reflecting a gross profit. The Company does not have sufficient cash resources to keep inventory on hand, which prevents the Company from making potential sales. The Company anticipates fluctuations in the mix of its product sales and expects its gross margin to fluctuate due to changes in product mix.
3
General and administrative costs include costs related to personnel, professional fees, travel and entertainment, public company costs, product development, insurance, and other office related costs. The decrease is primarily due to decreased professional, personnel, and travel costs as business has slumped. Additionally, sales and marketing costs include costs to promote and sell our products. Sales and marketing costs during the three months ended October 31, 2019 and 2018 were $804 and $1,703, respectively. The decrease of $899 coincides with the Company’s lack of available cash resources.
4
Other income and expense during 2018, primarily consisted of interest expense on the Company's debt as well the accretion of debt discount on various convertible promissory notes. While in 2019, the Company continued to reflect interest on its debt, the Company also recognized a gain on debt settlement of $974 related to the elimination of the Strategic Funding loan. All convertible debt that contained debt discounts had been fully accreted as of April 30, 2019.
Revenues decreased due to lack of expected sales and a reduction in marketing and advertising.
6
The gross loss in 2018 was related to the impairment of inventory of $112,736.Overall, however, in 2019, there was a decrease in the volume of higher margin products. Additionally, during the six months ended October 31, 2019, the Company stopped carrying inventory, and as a result, only had cost of revenues related to items purchased and immediately sold, thus reflecting a gross profit. The Company does not have sufficient cash resources to keep inventory on hand, which prevents the Company from making potential sales. The Company anticipates fluctuations in the mix of its product sales and expects its gross margin to fluctuate due to changes in product mix.
7
General and administrative costs include costs related to personnel, professional fees, travel and entertainment, public company costs, product development, insurance, and other office related costs. The decrease is primarily due to decreased professional, personnel, and travel costs as business has slumped. Additionally, sales and marketing costs include costs to promote and sell our products. Sales and marketing costs during the three months ended October 31, 2019 and 2018 were $3,776 and $7,184, respectively. The decrease of $3,408 coincides with the Company’s lack of available cash resources.
8
Other income and expense during 2018, primarily consisted of interest expense on the Company's debt as well the accretion of debt discount on various convertible promissory notes. While in 2019, the Company continued to reflect interest on its debt, the Company also recognized a gain on debt settlement of $974 related to the Strategic Funding loan. All convertible debt that contained debt discounts had been fully accreted as of April 30, 2019. During the six months ended October 31, 2019, the Company recognized a gain on ROU lease liability termination of $603 and a related impairment charge of $6,274 for the property and equipment that was no longer being used for operations.
Liquidity and Working Capital
Our principal source of liquidity is cash in the bank. As of October 31, 2019, our current assets totaled $5,648, of which $3,166 was cash on hand. The Company also has accounts receivable of $2,482. These conditions raise doubt about our ability to continue as a going concern. Management recognizes that in order for us to meet our capital requirements, and continue to operate, additional financing will be necessary. We expect to raise additional funds through private or public equity investment in order to expand the range and scope of business operations. We will try to raise additional funds through private or public equity but there is no assurance that such additional funds will be available for us to finance our operations on acceptable terms, if at all. If we are unable to raise additional capital or generate positive cash flow, it is unlikely that we will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
For the six months ended October 31, 2019, net cash flows used in operating activities was $29,151, which primarily related to recognition of prepaid interest of $10,234, impairment of property and equipment of $6,274 and gain on debt settlement of a loan of $974, compared to net cash used in operating activities of $36,781 for the six months ended October 31, 2018, which primarily consisted of accretion of debt discount of $113,422 and the impairment of inventory of $112,736.
For the six months ended October 31, 2019, net cash flows used in investing activities was $0, compared to $0 for the three months ended October 31,2018.
For the six months ended October 31, 2019, net cash flows provided by financing activities were $31,920 primarily related to proceeds and repayments of debt of $34,420 and the repayment of a related party advance for $2,500, compared to the six months ended October 31, 2018, which reflected net cash provided by financing activities of $35,972, primarily related to proceeds and repayments of debt of $29,972 and proceeds from a shareholder advance of $6,000.
During the period October 11, 2019 through July 23, 2020, the Company issued to Red Diamond Partners, LLC, unsecured, 8% convertible notes for $211,806 and a 5% note for $27,500 which is secured by all 5,000,000 issued and outstanding shares of Series A, Redeemable Preferred Stock, held by the Company’s Chief Executive Officer. As of the date these financial statements were issued, the Company was in default on approximately $500,000 of multiple convertible promissory notes and $27,500 in a single term loan note. All related accrued interest under these notes approximating $170,000 is also in default.
The note for $27,500, has not been called for payment and to date no action has been taken seeking the underlying collateral of 5,000,000 shares of Series A, Redeemable, Preferred Stock. Should the lender seek the collateral, this would result in a change of control of the Company due to the voting control currently held by the Company’s Chief Executive Officer.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
See Note 2 to our Condensed Consolidated Financial Statements for more information regarding recent accounting pronouncements and their impact to our condensed consolidated results of operations and financial position.
As of October 31, 2019, under the direction of the Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a — 15(e) under the Securities Exchange Act of 1934, as amended. Based on the evaluation of these controls and procedures required by paragraph (b) of Sec. 240.13a-15 or 240.15d-15 the disclosure controls and procedures have been found to be ineffective.
The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the securities Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s assessment of ineffectiveness is due to the following:
(1) Lack of segregation of duties. Management has found it necessary to limit the Company’s administrative staffing in order to conserve cash, until the Company’s level of business activity increases. As a result, there is limited segregation of duties amongst the employees, and the Company has identified this as a material weakness in the Company’s internal controls. The Company intends to remedy this material weakness by hiring additional employees and reallocating duties, including responsibilities for financial reporting, among the employees as soon as there are sufficient resources available. However, until such time, this material weakness will continue to exist. Despite the limited number of employees and limited segregation of duties, management believes that the Company is capable of following its disclosure controls and procedures effectively.
(2) Lack of in-house US GAAP Expertise. Our current accounting personnel perform adequately in the basic accounting and recordkeeping function. However, our operations and business practices include complex technical accounting issues that are outside the routine basic functions. These technical accounting issues are complex and require significant expertise to ensure that the accounting and reporting are accurate and in accordance with generally accepted accounting principles.
(3) Lack of formal documentation. We maintain very informal controls over the billing and invoicing procedures. As a result, invoicing delays have occurred. This is a significant material weakness in the billing cycle because this will cause inaccuracies in the ultimate completion of the sale, which is the collection of cash. Also, sales cutoff complications could arise due to these delays in billing. Bills should be sent to customers as soon as possible to expedite payment and otherwise keep the accounting system current.
Changes in internal controls
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that 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.
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 or our Common Stock, in which an adverse decision could have a material adverse effect.
Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1 of our Annual Report on Form 10-K for the year ended April 30, 2019. The risks described in our Form 10-K and this Report are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on the Company. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.
There have been no material changes to the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended April 30, 2019 other than the following:
We face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our research and development, operations, sales, and financial results.
Our business could be adversely impacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments could cause disruption to our operations and sales activities. Our third-party manufacturers, third-party distributors, and our customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions which could adversely affect our business, operations and customer relationships. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones or customer commitments.
There were no unregistered sales of the Company's equity securities during the quarter ended October 31, 2019 that were not previously reported in a Current Report on Form 8-K except as listed below. Except where noted, all of the securities discussed in this Part II, Item 2 were all issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
During the three months ended October 31, 2019, the Company issued no shares of common stock.
On May 1, 2019, the Company and its landlord mutually agreed to terminate the outstanding lease. The Company had an outstanding ROU lease liability of $29,811 at the date of termination resulting in a gain on lease termination of $603.
B.
Effective May 1, 2019, RDW Capital, LLC and Red Diamond Partners, LLC (“the lenders”) amended the conversion price for all outstanding notes to a fixed price of$0.0003. As a result of this amendment, the Company determined that the present value of the cash flows of the outstanding debt were similar (less than 10%) to the present value of the cash flows of the new debt.
The Company had no debt issuance costs left to amortize from the prior outstanding, in-default notes. Additionally, in connection with the change in conversion price, there were no fees paid to the lender or other third parties. The change in terms (conversion price fixed at $0.0003) resulted in a debt modification, accordingly, there is no effect for financial reporting.
Additionally, on May 1, 2019, the lenders amended all of their 8% convertible promissory notes previously outstanding as well as those issued after May 1, 2019 to suspend the default provision which would allow for a default penalty of 150% on the outstanding principal and accrued interest at the time of default and upon the lender accelerating the amounts due. The notes, while in default, have not been accelerated for payment. The lender has reserved the right to reinstate the default provision at their discretion.
Finally, on May 1, 2019, the lender has an outstanding, in default, 5% term note for $27,500. The lender has not called this debt and is not seeking to foreclose on the collateral and obtain the 5,000,000 shares of Series A, Redeemable, Preferred Stock.
On October 8, 2019, the Company executed a settlement agreement for $60,000. All outstanding notes and accrued interest totaling $129,938 were paid in three installments:
(i)
October 11, 2019 for $30,000,
(ii)
October 24, 2019 for $15,000; and
(iii)
November 19, 2019 for $15,000
For the fiscal year end April 30, 2020, the Company recognized a gain on debt settlement (principal and interest) of $69,938.
(2)
Adar Bays, LLC
On October 3, 2019, the Company executed a settlement agreement for $74,750. All outstanding notes and accrued interest totaling $65,619 were paid in three installments:
(i)
October 11, 2019 for $37,000,
(ii)
October 24, 2019 for $18,750; and
(iii)
November 26, 2019 for $18,750
For the fiscal year end April 30, 2020, the Company recognized a loss on debt settlement (principal and interest) of $8,881.
Gain on debt settlement – net, related to convertible notes and related accrued interest for the fiscal year end April 30, 2020 was $61,057.
D.
Loan Settlement
On September 4, 2019, the Company executed a settlement agreement with Strategic Funding Source, Inc. for $27,226. The outstanding balance of the loan was $28,200.Payment was made on October 18, 2019.
For the fiscal year end April 30, 2020, the Company recognized a gain on debt settlement (principal and interest) of $974.
Total gain on debt settlements – net, related to convertible notes and related accrued interest and the loan above for the fiscal year end April 30, 2020 was $62,031, of which $974 was recognized during the six months ended October 31, 2019.
E.
During the six months ended October 31, 2019, the Company’s CEO forgave accrued payroll of $18,523.Since the forgiveness occurred with a related party, accordingly there can be no gain or loss, this results in a charge to equity.
From time to time, the Company receives advances from and repays such advances to the Company’s CEO for working capital purposes and to repay indebtedness. The advances are non-interest bearing, unsecured and due on demand.
During the six months ended October 31, 2019, the Company repaid $2,500, resulting in an outstanding balance of $12,150.
(a) The exhibits required to be filed herewith by Item 601 of Regulation S-K, as described in the following index of exhibits, are incorporated herein by reference, as follows:
** Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
In accordance with Section 13 or 15(d) of the Securities Act of 1933, as amended, the Company caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
Force Protection Video Equipment Corp.
(Registrant)
August 24, 2020
By: /s/ Paul Feldman
Paul Feldman
Chief Executive Officer,
Chief Financial Officer and Director
48
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