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EX-32.2 - Intelligent Highway Solutions, Inc.ex32-2.htm
EX-32.1 - Intelligent Highway Solutions, Inc.ex32-1.htm
EX-31.2 - Intelligent Highway Solutions, Inc.ex31-2.htm
EX-31.1 - Intelligent Highway Solutions, Inc.ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2016

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______.

 

Commission File Number: 000-55154

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   30-0680119
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

9516 Rossport Way

Elk Grove, CA 95624

(Address of principal executive offices (Zip Code)

 

720) 460-1390

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year,

if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
     
Non-accelerated filer [  ] (do not check if smaller reporting company)   Smaller reporting company [X]
     
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 Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of June 30, 2017, there is 5,143,545,34 6shares of common stock, $0.00001 par value outstanding.

 

 

 

 
  

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

TABLE OF CONTENTS

FORM 10-Q REPORT

June 30, 2016

 

  Page
  Number
PART I - FINANCIAL INFORMATION  
   
Item 1. Unaudited Condensed Interim Financial Statements. 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 22
Item 4. Controls and Procedures. 23
     
PART II - OTHER INFORMATION  
   
Item 1. Legal Proceedings. 24
Item 1A. Risk Factors. 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 24
Item 3. Defaults Upon Senior Securities. 24
Item 4. Mine Safety Disclosures 24
Item 5. Other Information. 24
Item 6. Exhibits. 24
     
SIGNATURES 25

 

2
  

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

INTELLIGENT HIGHWAY SOLUTIONS

CONDENSED BALANCE SHEETS

 

   June 30, 2016   December 31, 2015 
   (Unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents  $198   $- 
Prepaid expenses   34,923    71,341 
Deferred loan costs, current   1,627    15,219 
Total current assets   36,748    86,560 
           
Property and equipment, net of accumulated depreciation of $9,756 and $18,713   1,237    4,958 
           
Total assets  $37,985   $91,518 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current liabilities          
Bank overdraft  $-   $2,981 
Accounts payable   214,648    176,694 
Accrued expenses and other liabilities   1,500,852    1,367,110 
Notes payable, current portion, net of discounts of $6,837 and $3,934   215,482    154,066 
Convertible notes payable, current portion, net of discounts of $31,930 and $177,863   940,084    799,976 
Notes payable, related party, current portion   7,396    7,000 
Derivative liability   868,635    1,005,791 
Accrued interest   212,961    148,655 
Total current liabilities   3,960,058    3,662,273 
           
           
Stockholders’ deficit          
Series A convertible preferred stock, $0.00001 par value; 10,000,000 shares authorized; 2,500,000 issued and outstanding at June 30, 2016 and December 31, 2015   25    25 
Common stock, $0.00001 par value; 10,000,000,000 shares authorized; 2,775,701,670 and 2,552,409,195 issued; 2,775,651,671 and 2,552,359,195 outstanding at June 30, 2016 and December 31, 2015   27,757    25,524 
Additional paid-in capital   6,997,178    6,974,608 
Treasury stock, 50,000 shares at $.084 per share   (4,200)   (4,200)
Accumulated deficit   (10,942,833)   (10,566,712)
Total stockholders’ deficit   (3,922,073)   (3,570,755)
           
Total liabilities and stockholders’ deficit  $37,985   $91,518 

 

See accompanying notes to unaudited condensed interim financial statements.

 

3
  

 

INTELLIGENT HIGHWAY SOLUTIONS

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2016   2015   2016   2015 
Revenue  $-   $8,612   $-   $191,886 
Cost of sales   -    10,033    -    149,004 
Gross profit   -    (1,421)   -    42,882 
                     
Operating expenses                    
Salaries and wages   41,442    43,095    79,621    82,369 
General and administrative   86,524    476,857    189,987    638,202 
Total operating expenses   127,966    519,952    269,608    720,571 
                     
Loss from operations   (127,966)   (521,373)   (269,608)   (677,689)
                     
Other income (expense)                    
Gain on extinguishment of debt   2,102    1,666    2,142    1,666 
Gain on sale of fixed assets   13,750    -    13,750    - 
Gain (loss) on derivative fair value adjustment   (51,977)   (351,073)   218,275    (488,110)
Penalties and settlements   -    (6,865)   -    (22,427)
Interest expense   (140,979)   (461,313)   (340,680)   (590,996)
Total other expense   (177,104)   (817,585)   (106,513)   (1,099,867)
                     
Loss before income taxes   (305,070)   (1,338,958)   (376,121)   (1,777,556)
                     
Income tax expense   -         -    - 
                     
Net loss  $(305,070)  $(1,338,958)  $(376,121)  $(1,777,556)
                     
Basic and diluted loss per common share  $(0.00)  $(0.03)  $(0.00)  $(0.05)
                     
Basic and diluted weighted average shares outstanding   2,775,651,670    45,206,521    2,751,681,576    38,888,866 

 

See accompanying notes to unaudited condensed interim financial statements.

 

4
  

 

INTELLIGENT HIGHWAY SOLUTIONS

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   Six Months Ended June 30, 
   2016   2015 
Cash flows from operating activities          
Net loss  $(376,121)  $(1,777,556)
Adjustments to reconcile net loss to net cash used in operating activities          
Common stock issued for services   -    154,853 
Common stock issued for penalties   -    20,610 
Depreciation   3,721    4,990 
(Gain) loss on derivative fair value adjustment   (218,275)   488,110 
Amortization of deferred loan costs   13,592    78,230 
Amortization of debt discount   214,623    188,105 
Amortization of prepaid expenses   36,418    36,518 
Expenses paid on behalf of company   -    48,312 
Excess derivative liability charged to interest   36,631    275,871 
Changes in operating assets and liabilities          
Contracts receivable   -    139,908 
Earnings in excess of billings   -    107,190 
Accounts payable   37,954    (17,862)
Accrued interest   64,306    35,079 
Accrued expenses and other liabilities   133,742    101,792 
Net cash used in operating activities   (53,409)   (115,850)
           
Cash flows from investing activities   -    - 
           
Cash flows from financing activities          
(Repayments on) proceeds from bank overdraft   (2,981)   - 
Repayments of convertible notes payable   -    (10,000)
Proceeds from notes payable   59,455    45,000 
Repayments of notes payable   (3,263)   - 
Repayment of related party notes payable   -    (6,000)
Net proceeds from related party payables   396    - 
Net cash provided by financing activities   53,607    29,000 
           
Change in cash and cash equivalents   198    (86,850)
Cash at beginning of period   -    95,251 
Cash at end of period  $198   $8,401 
           
Supplemental disclosures of cash flow information          
Cash paid for interest  $-   $9,000 
Cash paid for income taxes  $-   $- 
           
Supplemental disclosure of non-cash financing activities:          
Common stock issued for note conversion  $5,825   $54,208 
Debt discount on convertible notes  $83,122   $332,800 
Initial measurements of derivative liabilities  $100,097   $598,671 

 

See accompanying notes to unaudited condensed interim financial statements.

 

5
  

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

Notes to Unaudited Condensed Financial Statements

June 30, 2016

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization, Nature of Business and Trade Name

 

Intelligent Highway Solutions, Inc. (the “Company” or “IHS”) was formed on April 22, 2011. IHS is a technology based intelligent highway solutions contractor. Through June 30, 2013, the Company’s primary focus was in the California transportation market providing services that range from providing labor, materials, and related equipment for corrective service and maintenance services for the State’s transportation infrastructure. Since that time, the Company has devoted its time to electrical service contracts. Additionally, the Company intends to develop transportation technology services that enable vehicles, roads, traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler safety and convenience.

 

NOTE 2 – UNADUITED CONDENSED INTERIM FINANCIAL STATEMENTS

 

The accompanying unaudited condensed interim financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the period ended June 30, 2016 and for all periods presented herein, have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2015 audited financial statements. The results of operations for the period ended June 30, 2016 are not necessarily indicative of the operating results for the full year.

 

NOTE 3 – GOING CONCERN

 

The Company’s unaudited condensed interim financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying unaudited condensed interim financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

6
  

 

NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial condition and results of operations during the period in which such changes occurred.

 

Actual results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.

 

Cash

 

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The company does not have cash equivalents as of June 30, 2016.

 

Property, Plant and Equipment

 

Property and equipment are carried at cost. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.

 

Depreciation is computed over the estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:

 

    Estimated
Useful Life
 
Furniture and fixtures   3 - 5 years 
Machinery and equipment   5 years 
Vehicles   5 years 

 

7
  

 

For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For financial statements purposes, depreciation is computed under the straight-line method. Balances of each asset class as of June 30, 2016 and December 31, 2015 were:

 

   June 30, 2016   December 31, 2015 
Machinery and equipment  $2,149   $2,149 
Furniture and fixtures   6,273    6,273 
Vehicles   2,571    15,249 
Sub Total  $10,993   $23,671 
Accumulated depreciation   (9,756)   (18,713)
Total  $1,237   $4,958 

 

Depreciation expense for the six months ended June 30, 2016 and 2015 was $3,271 and $4,990, respectively.

 

Accrued Expenses and Other Liabilities

 

Accrued expenses and other liabilities consisted of the following at June 30, 2016 and December 31, 2015:

 

   June 30, 2016   December 31, 2015 
Payroll tax liabilities   761,396   $758,773 
Other payroll accruals   100,654    45,851 
Federal and state income taxes payable   128,741    128,741 
Other   509,971    433,745 
Total  $1,500,852   $1,367,110 

 

Other accrued expenses mainly consist of accrued consulting fees due to management and other consulting firms.

 

Revenues and Cost of Revenues

 

Revenues from fixed-price and cost-plus contracts are recognized on the percentage of completion method, whereby revenues on long-term contracts are recorded on the basis of the Company’s estimates of the percentage of completion of contracts based on the ratio of the actual cost incurred to total estimated costs. This cost-to-cost method is used because management considers it to be the best available measure of progress on these contracts. Revenues from cost-plus-fee contracts are recognized on the basis of costs incurred during the period plus the fee earned, measured on the cost-to-cost method.

 

Cost of revenues include all direct material, sub-contract, labor, and certain other direct costs, as well as those indirect costs related to contract performance, such as indirect labor and fringe benefits. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changed in job performance, job conditions and estimated profitability may result in revisions to cost and income, which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes in estimates in the current period. Claims for additional contract revenue are recognized when realization of the claim in probable and the amount can be reasonably determined.

 

Cost of sales totaled $0 and $10,033 and $0 and $149,004 during the three and six months ended June 30, 2016 and 2015, respectively.

 

Fair Value Measurements

 

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

 

8
  

 

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

 

Derivative Liabilities

 

The Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates. The debt discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features. The debt discount will be accreted by recording additional non-cash gains and losses related to the change in fair market values of derivative liabilities over the life of the convertible notes

 

Net Loss Per Share

 

Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the specified period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and potential common shares during the specified period. For the three and six months ended June 30, 2016 and 2015 potential common shares are not included in the diluted net loss per share calculation as their effect would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. There were 12,930,676,025 such potentially dilutive shares excluded for the three and six months ended June 30, 2016.

 

Reclassification of Prior Period Presentation

 

Certain amounts have been reclassified on the December 31, 2015 balance sheet to conform to current period presentation. Specifically, long term prepaid expenses of $34,965 have been reclassified as current prepaid expenses and a $3,000 contra-liability for related party payables has been removed from current notes payable and is included in related party payables. These reclassifications have no impact on net loss.

 

Recent Accounting Pronouncements

 

In February 2015, the FASB issued ASC 2015-02, “Consolidation (Topic 810) - Amendments to the Consolidation Analysis.” This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for fiscal years beginning after December 15, 2015, and requires either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. The Company adopted has this standard and determined it does not have a significant impact on its consolidated financial statements.

 

In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period Adjustments.” This update eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard should be applied prospectively to measurement period adjustments that occur after the effective date. The new standard is effective for interim and annual periods beginning after December 15, 2015 and early adoption is permitted. The Company has adopted this guidance and the adoption of this guidance did not have an impact on the Company’s results of operations, financial position, or cash flows for the three or six months ended March 31, 2017 or 2016.

 

9
  

 

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.The amendments in this update simplify several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted the new guidance on January 1, 2017. The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital. However, as the Company has a full valuation allowance against its deferred tax asset, a corresponding adjustment was recorded to increase the valuation allowance.

 

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment”. The amendments in this update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update will have a material impact on the consolidated financial statements.

 

Management believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.

 

NOTE 5 – DERIVATIVE LIABILITIES

 

As discussed in Note 3, on a recurring basis, we measure certain financial assets and liabilities based upon the fair value hierarchy. The following table presents information about the Company’s liabilities measured at fair value as of June 30, 2016 and December 31, 2015:

 

   Level 1   Level 2   Level 3   Fair Value at
June 30, 2016
 
Liabilities                    
Derivative Liability  $-   $868,635   $-   $868,635 

 

   Level 1   Level 2   Level 3   Fair Value at
December 31, 2015
 
Liabilities                    
Derivative Liability  $-   $1,005,791   $-   $1,005,791 

 

As of June 30, 2016 the Company had a $868,635 derivative liability balance on the balance sheet and recorded a gain from derivative liability fair value adjustment of $218,275 during the six months ended June 30, 2016 and a loss from derivative liability fair value adjustment of $51,977 during the three months ended June 30, 2016. The Company assessed its outstanding convertible notes payable as summarized in Note 8 – Convertible Notes Payable and determined certain convertible notes payable with variable conversion features contain embedded derivatives and are therefore accounted for at fair value under ASC 920, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments.

 

Utilizing Level 2 Inputs, the Company recorded fair market value adjustments related to convertible notes payable for the six months ended June 30, 2016 and 2015 of $218,275 and $488,110, respectively. The fair market value adjustments were calculated utilizing the Black-Sholes method using the following assumptions: risk free rates ranging between 0.20% - 0.45%, dividend yield of 0%, expected lives ranging between .02 and 1 year, and volatility between 105% and 243%.

 

A summary of the activity of the derivative liability is shown below:

 

Balance at December 31, 2015  $1,005,791 
Derivative liabilities recorded   100,097 
Change due to note conversion   (18,978)
Fair value adjustment   (218,275)
Balance at June 30, 2016  $868,635 

 

NOTE 6 – CONCENTRATIONS OF RISK

 

Our revenues during the three and six months ended June 30, 2015 were generated completely from two clients. The loss of either of these clients will have a material adverse impact on our business. There were no revenues earned during the three or six months ended June 30, 2016.

 

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NOTE 7 – NOTES PAYABLE

 

The Company has entered into various debt agreements to fund operations. A summary of outstanding non-convertible notes payable is as follows:

 

   June 30, 2016   December 31, 2015 
Note payable to non-related party, unsecured, due on September 1, 2014, interest rate of 0%. Currently in default. Principal due on demand.  $20,000   $20,000 
Note payable to non-related party, unsecured, due on December 31, 2014, interest rate of 0%. Currently in default. Principal due on demand.   5,000    5,000 
Note payable to non-related party, secured by vehicles owned by the Company, due on October 22, 2016, interest rate of 15%. Principal and accrued interest due on demand.   100,000    100,000 
Note payable to non-related party, unsecured, due on April 29, 2016, interest rate of 8%. Currently in default. Principal and accrued interest due on demand.   33,000    33,000 
Note payable to non-related party, unsecured, due on June 22, 2016, interest rate of 8%. Currently in default. Principal and accrued interest due on demand.   35,215    - 
Sale of future receivable to non-related party, secured by future accounts receivable, due on December 31, 2016. Principal due as future accounts receivable are collected.   29,104    - 
Total principal outstanding   222,319    158,000 
Less: debt discounts   (6,837)   (3,934)
Total balance  $215,482   $154,066 

 

Required principal payments from June 30, 2016 forward are as follows:

 

2016  $222,319 
2017   - 
2018   - 
2019   - 
2020   - 
Total  $222,319 

 

There was $17,065 and $7,083 of accrued interest payable on non-convertible notes payable as of June 30, 2016 and December 31, 2015.

 

11
  

 

NOTE 8 – CONVERTIBLE NOTES PAYABLE

 

The Company has entered into various convertible debt agreements to fund operations. A summary of outstanding convertible notes payable is as follows:

 

   June 30, 2016   December 31, 2015 
Convertible note payable to non-related party, unsecured, interest of 10%, due on February 13, 2015. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.  $50,000   $50,000 
Convertible note payable to non-related party, unsecured, interest of 10%, due on April 8, 2016. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.   15,000    15,000 
Convertible note payable to non-related party, unsecured, interest of 10%, due on March 21, 2016. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.   30,000    30,000 
Convertible note payable to non-related party, unsecured, interest of 10%, due on May 9, 2015. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.   50,000    50,000 
Convertible note payable to non-related party, unsecured, interest of 10%, due on November 4, 2015. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.   25,000    25,000 
Convertible note payable to non-related party, unsecured, interest of 10%, due on July 15, 2015. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.   50,000    50,000 
Convertible note payable to non-related party, unsecured, interest of 10%, due on September 3, 2015. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.   25,000    25,000 
Convertible note payable to non-related party, unsecured, interest of 10%, due on October 31, 2015. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.   25,000    25,000 
Convertible note payable to non-related party, unsecured, interest of 10%, due on October 21, 2015. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.   20,000    20,000 
Convertible note payable to non-related party, unsecured, interest of 10%, due on December 30, 2015. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.   45,000    45,000 
Convertible note payable to non-related party, unsecured, interest of 10%, due on March 26, 2016. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.   25,000    25,000 
Convertible note payable to non-related party, unsecured, interest of 10%, due on April 26, 2013. Currently in default. May be converted at the option of the holder into common stock at a rate of $0.30 per share. Payable on demand.   30,000    30,000 
Convertible note payable to non-related party, interest of 10%, unsecured, due on June 11, 2016. Currently in default. May be converted at the option of the holder into common stock at a price equal to a 50% discount from the lowest trading price during the five days prior to conversion. The Company may not repay the convertible note in cash.   59,800    59,800 

 

12
  

 

Convertible note payable to non-related party, interest rate of 10%, unsecured, due on December 12, 2015. Currently in default. May be converted at the option of the holder into common stock at a price equal to a 40% discount from the lowest closing bid price during the fifteen days prior to conversion. The Company may not repay the convertible note in cash.   55,000    55,000 
Convertible note payable to non-related party, interest rate of 10%, unsecured, due on July 7, 2016. May be converted at the option of the holder into common stock at a price equal to a 40% discount from the lowest closing bid price during the fifteen days prior to conversion. The Company may not repay the convertible note in cash.   27,466    27,466 
Convertible note payable to non-related party, interest rate of 12%, unsecured, due on May 15, 2016. Currently in default. May be converted at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.   20,904    21,564 
Convertible note payable to non-related party, interest rate of 10%, unsecured, due on June 25, 2016. Currently in default. May be converted at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.   5,500    5,500 
Convertible note payable to non-related party, interest rate of 8%, unsecured, due on July 7, 2016. May be converted at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.   77,947    77,947 
Convertible note payable to non-related party, interest rate of 8%, unsecured, due on July 7, 2016. May be converted at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.   80,236    80,236 
Convertible note payable to non-related party, interest rate of 10, unsecured, due on June 15, 2016. Currently in default. May be converted at the option of the holder into common stock at a price equal to a 45% discount from the lowest intra-day trading price of the Company’s common stock during the twenty trading days prior to conversion. The Company may not repay the convertible note in cash.   11,500    11,500 
Convertible note payable to non-related party, interest rate of 12%, unsecured, due on May 19, 2016. May be converted at the option of the holder into common stock at a price equal to a 50% discount from the average of the three lowest trading prices during days prior to conversion. The Company may not repay the convertible note in cash.   60,000    60,000 
Convertible note payable to non-related party, interest rate of 12%, unsecured, due on September 30, 2016. May be converted at the option of the holder into common stock at a price equal to a 50% discount from the average of the three lowest trading prices during days prior to conversion. The Company may not repay the convertible note in cash.   47,000    47,000 
Convertible note payable to non-related party, interest rate of 12%, unsecured, due on August 19, 2015. Currently in default. May be converted at the option of the holder into common stock at a price equal to a 50% discount from the average of the three lowest trading prices during days prior to conversion. The Company may not repay the convertible note in cash.   16,018    21,183 
Convertible note payable to non-related party, interest rate of 22%, unsecured, due on October 12, 2015. Currently in default. May be converted at the option of the holder into common stock at a price equal to a 50% discount from the lowest trading price during the twenty days prior to conversion. The Company may not repay the convertible note in cash.   58,941    58,941 

 

13
  

 

Convertible note payable to non-related party, interest rate of 12%, unsecured, due on August 30, 2016. May be converted at the option of the holder into common stock at a price equal to a 50% discount from the lowest trading price during the twenty days prior to conversion. The Company may not repay the convertible note in cash.   36,000    36,000 
Convertible note payable to non-related party, interest rate of 15%, default interest rate of 22%, unsecured, due on September 11, 2015. Currently in default. May be converted at the option of the holder into common stock at a price equal to a 60% discount from the average of the three lowest trading prices during the twenty five days prior to conversion. The Company may not repay the convertible note in cash.   16,651    16,651 
Convertible note payable to non-related party, interest rate of 22%, unsecured, due on October 28, 2015. Currently in default. May be converted at the option of the holder into common stock at a price equal to a 60% discount from the average of the three lowest trading prices during the twenty five trading days prior to conversion. The Company may not repay the convertible note in cash.   9,050    9,050 
Total principal outstanding   972,014    977,839 
Less: debt discounts   (31,930)   (177,863)
Total balance  $940,084   $799,976 

 

Required principal payments from June 30, 2016 forward are as follows:

 

2016  $972,014 
2017   - 
2018   - 
2019   - 
2020   - 
Total  $972,014 

 

There was $195,896 and $141,572 of accrued interest payable on convertible notes payable as of June 30, 2016 and December 31, 2015.

 

The Company has recorded a derivative liability for each convertible note payable with a variable conversion rate. See Note 5 for further discussion.

 

14
  

 

NOTE 9 – RELATED PARTY TRANSACTIONS

 

We have engaged an entity controlled by the director of the Company to perform consulting services related to the development of new technologies. Payments to this party totaled $0 and $5,409 during the six months ended June 30, 2016 and 2015, respectively.

 

During the year ended December 31, 2014, the Company received an interest free $8,000 loan from a related party to fund operations. The loan is unsecured, due on demand and as such is included in current liabilities. There was $5,000 due as of June 30, 2016 and December 31, 2015, respectively.

 

During the year ended December 31, 2014, the Company received an interest free $2,000 loan from a related party to fund operations. The related party made additional advances of $396 during the six months ended June 30, 2016. The loan is unsecured, due on demand and as such is included in current liabilities. There was $2,396 and $2,000 due as of June 30, 2016 and December 31, 2015, respectively.

 

NOTE 10 – STOCKHOLDERS’ DEFICIT

 

The Company is authorized to issue up to 10,000,000,000 shares of $0.00001 par value common stock and 50,000,000 shares of $0.0001 par value blank check preferred stock of which 10,000,000 has been designated as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock may be converted to common stock at the option of the holder at the greater of one share of common for each share of Series A Convertible Preferred Stock or the par value of the stock divided by a 10% discount from the volume weighted average price of the common stock of the preceding ten trading days. During the six month ended June 30, 2016, the Company issued a total of 223,292,475 shares of common stock for the conversion of $5,825 of outstanding principal on convertible notes payable. All conversions were performed under the contractual terms of the respective notes payable.

 

There were 2,775,701,670 and 2,552,409,195 common shares issued and 2,775,651,671 and 2,552,359,195 outstanding at June 30, 2016 and December 31, 2015, respectively.

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

The Company could become a party to various legal actions arising in the ordinary course of business. Matters that are probable of unfavorable outcomes to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, the Company’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters.

 

As of the date of this report, except as described below, there are no material pending legal proceedings to which the Company is a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental authorities.

 

Payroll Tax Liabilities

 

As of June 30, 2016 and December 31, 2015 the Company had accrued $761,396 and 758,773, in payroll tax liabilities. The payment of these liabilities has not been made due to our limited profitability. Due to the uncertainty regarding our future profitability, it is difficult to predict our ability to pay these liabilities. As a result, a federal tax lien has been levied that will have to be satisfied.

 

Federal Income Tax Liability

 

On January 29, 2015, we received a notification from the Internal Revenue Service (the “IRS”) regarding deficiencies in our tax return for the year ended December 31, 2011. The notice was the result of not filing our tax return for the year then ended and included the results of an IRS examination which yielded an income tax amount due of $92,804 plus penalties and interest totaling $34,337 for a total amount due of $127,141. While we believe we will be able to successfully reduce the tax liability and assessed penalties to zero or near zero due to our net loss sustained during the year ended December 31, 2011, the possibility exists we will be unsuccessful and could face an assessment for the full amount of $127,141. There is no accrued liability for this potential payout as of December 31, 2015 or June 30, 2016 given the inestimable nature of the outcome at this point.

 

15
  

 

NOTE 12 – STOCK OPTIONS

 

The following table summarizes all stock option activity for the six month period ending June 30, 2016:

 

   Shares   Weighted-
Average
Exercise Price
Per Share
 
Outstanding, December 31, 2015   631,905   $0.30 
Granted   -    - 
Exercised   -    - 
Forfeited   -    - 
Expired   (266,667)   0.30 
Outstanding, June 30, 2016   365,238   $0.30 

 

The following table discloses information regarding outstanding and exercisable options at June 30, 2016:

 

    Outstanding   Exercisable 
Exercise
Prices
   Number of
Option Shares
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Life
(Years)
   Number of
Option Shares
   Weighted
Average
Exercise
Price
 
$0.30    365,238   $0.30    1.89    365,238   $0.30 
      365,238   $0.30    1.89    365,238   $0.30 

 

In determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:

 

   June 30, 2016 
Expected term of options granted   2 - 5 years 
Expected volatility range   394 - 408%
Range of risk-free interest rates   1.70 – 1.73%
Expected dividend yield   0%

 

NOTE 13 – EQUITY LINE OF CREDIT

 

On August 6, 2015, the Company entered into line of credit whereby it has the right to sell to the investor up to $5,000,000 of common stock over a period of 24 months. The Company may sell up to $100,000 of common stock, but not less than $5,000, at any time at is sole discretion by issuing a put notice to the investor. The sales price of the stock will be equal to a 30% discount from the average of the lowest two closing bid prices in the preceding five trading days. There is a minimum of ten trading days between put notices. The agreement requires the Company to issue 3% of the total credit line, or $150,000, in common stock with an issue price equal to the average of the daily volume weighted average prices of the Company’s common stock during the five business days immediately preceding the due date of the issuance. The Company did not exercise its rights under the agreement during the period ended June 30, 2016.

 

16
  

 

NOTE 14 – SUBSEQUENT EVENTS

 

Common Stock Issuances

 

On various dates through June 30, 2017, the Company issued a total of 1,791,282,420 common shares for the conversion of a total of $87,289 of outstanding principal on convertible notes payable. All conversions were done under contractual terms within each respective convertible note payable.

 

On various dates through June 30, 2017, the Company issued a total of 316,611,256 common shares for the conversion of a total of $17,160 of outstanding accrued interest on convertible notes payable. All conversions were done under contractual terms within each respective convertible note payable.

 

On various dates through June 30, 2017, the Company issued a total of 260,000,000 common shares for services provided by consultants. The shares were valued using the closing price on the dates of issuance which was from $0.0001 to $0.0002 per share resulting in a total value of $42,000.

 

Convertible Notes Payable

 

On April 25, 2017, the Company executed a securities purchase agreement with an existing convertible noteholder to enter into an additional $21,230 of convertible notes payable with each carrying a 10% original issue discount resulting in net cash borrowings of $19,300 being available to the Company. The note is carries interest at 12% and each tranche of cash received is due nine months after receipt. The note is convertible into shares of the Company’s common stock at a rate equal to a 42% discount from the lowest intra-day trading price for the Company’s common stock during the twenty days prior to conversion. The Company has received all of the available cash borrowings under the convertible note payable resulting in $21,230 being outstanding as of June 30, 2017.

 

On May 10, 2017, the Company executed a securities purchase agreement with an existing convertible noteholder to enter into an additional $11,250 of convertible notes payable with and original issue discount totaling $1,500 resulting in net cash borrowings of $9,750 being available to the Company. The note is carries interest at 12% and each tranche of cash received is due nine months after receipt. The note is convertible into shares of the Company’s common stock at a rate equal to a 42% discount from the lowest intra-day trading price for the Company’s common stock during the twenty days prior to conversion. The Company has received all of the available cash borrowings under the convertible note payable resulting in $11,250 being outstanding as of June 30, 2017.

 

Acquisition and Financing

 

On March 9, 2017, the Company, through a newly created special purpose entity, executed a share purchase agreement to acquire all outstanding ownership interests in Crescent Construction Company, Inc. a full service general contracting firm for total consideration of $1,800,000. The agreement requires a cash payment of $500,000 at closing plus a note payable for $1,300,000. The note carries interest of 6%, matures on March 31, 2022 and requires equal quarterly payments of $152,693.

 

As part of the transaction, the Company entered into a revolving credit facility to borrow up to $5,000,000 of which $1,500,000 as advanced to the Company upon closing. Of the $1,500,000 advanced to the Company, $631,855 was paid for the seller and financier’s closing costs resulting in net cash to the Company of $868,145. The credit line carries an interest rate of 12% per annum and requires repayment based on cash collected from clients which are required to be sent to a lockbox maintained by the financier of which the net receipts after required payments to the financier under the credit facility agreement will be provided to the Company. The Company also issued a total of 7,500,000 shares of series A convertible preferred stock to the financier as part of the transaction.

 

17
  

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Cautionary Notice Regarding Forward Looking Statements

 

The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

 

This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

 

Overview

 

Intelligent Highway Solutions, Inc. (the “Company” or “IHS”) was formed in April 22, 2011; IHS is a technology based intelligent highway solutions contractor. The Company’s primarily focus is in the California transportation market providing services that range from providing labor, materials, and related equipment for corrective service and maintenance services for the state’s transportation infrastructure. Additionally, the Company intends to develop transportation technology services that enable vehicles, roads, traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler safety and convenience. While the Company develops technologies related to transportation, it will accept general electrical contracting work as a revenue source.

 

Plan of Operations

 

On August 22, 2013, the Company entered into a distribution agreement (the “Distribution Agreement”) with SCS Lighting Solutions Inc. (“SCS”), whereby SCS appointed the Company as its exclusive distributer of SCS products in Sacramento, California and other locations, as determined by both parties in the future. The SCS products include standard lighting solutions, as well as custom lighting products for indoor and outdoor applications. The Distribution Agreement is no longer exclusive.

 

The Distribution Agreement’s term automatically renews for one (1) year increments, unless either party elects to terminate the Agreement by giving not less than sixty (60) days’ notice prior to the end of the current term.

 

On March 19, 2014, the Company announced it had received a significant purchase order from Honeywell International Inc. (“Honeywell”) for the installation of a temperature control system and associated sensors in a state owned office building in Alameda, California.

 

On July 1, 2014, the Company announced it had received a second purchase order from Honeywell. The purchase order is for additional work in office buildings owned by the State of California.

 

These purchase orders with Honeywell were the Company’s sole source of income in 2014. The Honeywell project was completed during the first quarter of 2015 and a new electrical contracting project started shortly thereafter. We will continue to accept general electrical contracting projects while we develop technologies related to our planned business of intelligent transportation services.

 

Results of Operations

 

Revenue

 

We did not generate revenue during the three or six months ended June 30, 2016. All revenue during the three ans six months ended June 30, 2015 was generated from our agreements in place with Honeywell.

 

18
  

 

Three months ended June 30, 2016 and 2015

 

   Three months ended June 30,     
   2016   2015   Change 
Revenue  $-   $8,612   $(8,612)

 

Revenues for the three months ended June 30, 2016 were $0 compared to $8,612 during the same period in 2015. The decrease in revenue was the result of the Company not engaging in any new projects during the current period.

 

Six months ended June 30, 2016 and 2015

 

   Six months ended June 30,     
   2016   2015   Change 
Revenue  $-   $191,886   $(191,886)

 

Revenues for the six months ended June 30, 2016 were $0 compared to $191,886 during the same period in 2015. The decrease in revenue was the result of the Company not engaging in any new projects during the current period.

 

Cost of Goods Sold

 

Cost of revenues include all direct material, sub-contract, labor, and certain other direct costs, as well as those indirect costs related to contract performance, such as indirect labor and fringe benefits.

 

Three months ended June 30, 2016 and 2015

 

   Three months ended June 30,     
   2016   2015   Change 
Labor  $-   $1,728   $(1,728)
Fuel   -    -    - 
Vehicle Lease   -    7,110    (7,110)
Other   -    1,195    (1,195)
Total  $-   $10,033   $(10,033)

 

Cost of goods sold for the three months ended June 30, 2016 were $0 compared to $10,033 during the same period in 2015. The decrease was the result of the Company not engaging in any new projects during the current period.

 

Six months ended June 30, 2016 and 2015

 

   Six months ended June 30,     
   2016   2015   Change 
Labor  $-   $110,415   $(110,415)
Fuel   -    2,018    (2,018)
Vehicle Lease   -    15,519    (15,519)
Other   -    21,052    (21,052)
Total  $-   $149,004   $(149,004)

 

Cost of goods sold for the six months ended June 30, 2016 were $0 compared to $149,004 during the same period in 2015. The decrease was the result of the Company not engaging in any new projects during the current period.

 

19
  

 

Operating Expenses

 

Three months ended June 30, 2016 and 2015

 

   Three months ended June 30,     
   2016   2015   Change 
Salaries and wages  $41,442   $43,095   $(1,653)
Professional services   82,716    304,827    (222,111)
Other   3,808    172,030    (168,222)
Total  $127,966   $519,952   $(391,986)

 

Operating expenses for the three months ended June 30, 2016 were $127,966 compared to $519,952 for the three months ended June 30, 2015. The decrease of $391,986 or 75% is the result of the Company’s limited operations during the three month ended June 30, 2016 when compared to the same period in the prior year. Specifically, professional services decreased by $222,111 in 2016 when compared to 2015 as the result of stock awards granted to consultants during 2015 that did not exist in 2016. The decrease in other operating expenses of $168,222 is driven by bad debt expense of $139,483 during the three months ended June 30, 2015 compared to $0 during the three months ended June 30, 2016.

 

Six months ended June 30, 2016 and 2015

 

   Six months ended June 30,     
   2016   2015   Change 
Salaries and wages  $79,621   $82,369   $(2,748)
Professional services   179,663    434,494    (254,831)
Other   10,324    203,708    (193,384)
Total  $269,608   $720,571   $(450,963)

 

Operating expenses for the six months ended June 30, 2016 were $269,608 compared to $720,574 for the six months ended June 30, 2015. The decrease of $450,963 or 63% is the result of the Company’s limited operations during the six months ended June 30, 2016 when compared to the same period in the prior year. Specifically, professional services decreased by $254,831 in 2016 when compared to 2015 as the result of stock awards granted to consultants during 2015 that did not exist in 2016. The decrease in other operating expenses of $193,384 is driven by bad debt expense of $139,483 during the six months ended June 30, 2015 compared to $0 during the six months ended June 30, 2016.

 

20
  

 

Other Income and Expenses

 

Three months ended June 30, 2016 and 2015

 

   Three months ended June 30,     
   2016   2015   Change 
Interest expense, net  $(140,979)  $(461,313)  $320,334 
Gain on extinguishment of debt   2,102    1,666    436 
Penalties   -    (6,865)   6,865 
Gain on sale of fixed assets   13,750    -    13,750 
Loss on derivative fair value adjustment   (51,977)   (351,073)   299,096 
Total  $(177,104)  $(817,585)  $640,481 

 

Other income and expense during the three months ended June 30, 2016 was a net expense of $177,104 compared to a net expense of $817,585 during the three months ended June 30, 2015. The decrease in net expense of $640,481 or 78% was the result of decreased interest expense from the excess value of derivative liabilities upon initial measurement and the recognition of deferred loan costs being higher in 2015 when compared to 2016.

 

Six months ended June 30, 2016 and 2015

 

   Six months ended June 30,     
   2016   2015   Change 
Interest expense, net  $(340,680)  $(590,996)  $250,316 
Gain on extinguishment of debt   2,142    1,666    476 
Penalties   -    (22,427)   22,427 
Gain on sale of fixed assets   13,750    -    13,750 
Gain (loss) on derivative fair value adjustment   218,275    (488,110)   706,385 
Total  $(106,513)  $(1,099,867)  $993,354 

 

Other income and expense during the six months ended June 30, 2016 was a net expense of $106,513 compared to a net expense of $1,099,867 during the six months ended June 30, 2015. The decrease in net expense of $993,354 or 90% was the result of interest expense from the excess value of derivative liabilities upon initial measurement and the recognition of deferred loan costs being higher in 2015 when compared to 2016.

 

Net Loss

 

Three months ended June 30, 2016 and 2015

 

   Three months ended June 30,     
   2016   2015   Change 
Net loss  $(305,070)  $(1,338,958)  $1,033,888 

 

Net loss for the three months ended June 30, 2016 was $305,070 compared to $1,338,958 for the three months ended June 30, 2015. The decrease in net loss during the three months ended June 30, 2016 is attributable to the decreased business operations in the current period when compared to the same period in the prior year.

 

Six months ended June 30, 2016 and 2015

 

   Six months ended June 30,     
   2016   2015   Change 
Net loss  $(376,121)  $(1,777,556)  $1,401,435 

 

Net loss for the six months ended June 30, 2016 was $376,121 compared to $1,777,556 for the six months ended June 30, 2015. The decrease in net loss during the six months ended June 30, 2016 is attributable to the decreased business operations in the current period when compared to the same period in the prior year.

 

21
  

 

Liquidity and Capital Resources

 

As of June 30, 2016, we had cash of $198, total current assets of $36,748 and total current liabilities of $3,960,058 creating a working capital deficit of $3,923,310. Current assets consisted of $198 in cash, $34,923 of prepaid expenses and current deferred loan costs of $1,627. Current liabilities consisted of accounts payable $214,648, current notes payable net of discounts of $215,482, current convertible notes payable net of discounts of $940,084, a derivative liability of $868,635, accrued interest of $212,961, related party notes payable of $7,396 and accrued expenses and other liabilities of $1,500,852.

 

As of December 31, 2015, we had no cash, total current assets of $86,560 and total current liabilities of $3,662,273 creating a working capital deficit of $3,575,713. Current assets consisted of $71,341 of prepaid expenses and current deferred loan costs of $15,219. Current liabilities consisted of a bank overdraft of $2,981, accounts payable $176,694, current notes payable net of discounts of $154,066, current convertible notes payable net of discounts of $799,976, a derivative liability of $1,005,791, accrued interest of $148,655, related party notes payable of $7,000 and accrued expenses and other liabilities of $1,367,110.

 

We expect our cash needs to fund operations during the twelve months to be approximately $175,000. The Company will need additional financing to continue operations in 2017 and beyond which management anticipates will be generated from short term related party loans, convertible notes with non-related parties and non-convertible notes with non-related parties.

 

Cash Flows from Operating Activities

 

Cash flows used in operating activities during the six months ended June 30, 2016 was $53,409 which consisted of a net loss of $376,121, non-cash expenses and gains of $86,710 and negative changes in working capital of $236,002. Net cash used in operating activities during the same period in 2015 was $115,850 which consisted of a net loss of $1,777,556, non-cash expenses and gains of $1,295,599 and negative changes in working capital of $366,107.

 

Cash Flows from Investing Activities

 

During the six months ended June 30, 2016 and 2015, we used $-0- of cash in investing activities.

 

Cash Flows from Financing Activities

 

Cash provided by financing activities during the six months ended June 30, 2016 was $53,607 which consisted of proceeds from notes payable of $59,455, repayments of notes payable of $3,263, repayments of bank overdrafts of $2,981 and proceeds from related party notes payable of $396. Cash provided by financing activities during the same period in 2015 was $29,000 and consisted of repayments of convertible notes payable of $10,000, repayments of related party payables of $6,000 and proceeds from notes payable of $45,000.

 

Going Concern

 

Based on our financial history since inception, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. We have generated very little revenue and have limited tangible assets. Our company has a limited operating history. Our company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to on a profitable basis. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

 

Management plans to continue to fund operations via short term related party loans and additional convertible as well as non-convertible debt from non-related parties.

  

Recent Accounting Pronouncements

 

The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.

 

Critical Accounting Policies

 

There have been no changes in the Company’s significant accounting policies for the six months ended June 30, 2016 as compared to those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on May 12, 2017.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a Smaller Reporting Company and are not required to provide the information under this item.

 

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Item 4. Controls and Procedures.

 

Disclosure of controls and procedures.

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) (the Company’s principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are not effective to ensure that: (1) information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and (2) that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2016. The framework used by management in making that assessment was the criteria set forth in the document entitled ” Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our CEO and Interim CFO have determined and concluded that, as of June 3, 2016, the Company’s internal control over financial reporting was not effective.

 

As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board (“PCAOB”), a material weakness is a deficiency or combination of deficiencies that result in a more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of June 30 ,2016:

 

  (1) Lack of an independent audit committee or audit committee financial expert. Although our board of directors serves as the audit committee it has no independent directors. Further, we have not identified an audit committee financial expert on our board of directors. These factors are counter to corporate governance practices as defined by the various stock exchanges and may lead to less supervision over management.

 

We do not have sufficient experience from our accounting personnel with the requisite U.S. GAAP public company reporting experience that is necessary for adequate controls and procedures.

 

Our management determined that these deficiencies constituted material weaknesses.

 

Due to our small size, we were not able to immediately take any action to remediate these material weaknesses but plan to address these items in the near future. Notwithstanding the assessment that our Internal Controls over Financial Reporting was not effective and that there were material weaknesses identified herein, we believe that our consolidated financial statements contained in this report fairly present our financial position, results of operations, and cash flows for the quarter covered thereby in all material respects.

 

Changes in internal controls over financial reporting.

 

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

  

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors.

 

We are a Smaller Reporting Company and are not required to provide the information under this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the six months ended June 30, 2016, the Company issued a total of 223,292,475 shares of common stock for the conversion of $5,825 of outstanding principal on convertible notes payable.

 

The above shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our common stock qualified for exemption under Section 4(2) since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, manner of the issuance and number of shares issued. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, the investors had the necessary investment intent as required by Section 4(2) since they either: (1) agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering”; or (2) received shares pursuant to conversions of notes and the notes themselves had been held for longer than 6 months prior to conversion into unrestricted shares. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures.

 

Not applicable

 

Item 5. Other Information.

 

None

 

Item 6. Exhibits.

 

Exhibit    
Number   Exhibit Title
     
31.1*   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of Principal Financial Office pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1+   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2+   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS *   XBRL Instance Document
     
101.SCH *   XBRL Taxonomy Schema
     
101.CAL *   XBRL Taxonomy Calculation Linkbase
     
101.DEF *   XBRL Taxonomy Definition Linkbase
     
101.LAB *   XBRL Taxonomy Label Linkbase
     
101.PRE *   XBRL Taxonomy Presentation Linkbase

 

* Filed herewith.

 

+ In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  INTELLIGENT HIGHWAY SOLUTIONS, INC.
   
Date: June 29, 2017 By: /s/ Devon Jones
    Devon Jones
    Chief Executive Officer
    (Principal Executive Officer)
     
Date: June 29, 2017 By: /s/ Philip Kirkland
    Philip Kirkland
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

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