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EX-32.1 - 2050 MOTORS, INC.ex32-1.htm
EX-31.2 - 2050 MOTORS, INC.ex31-2.htm
EX-31.1 - 2050 MOTORS, 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, 2018

 

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 No. 0-192227

 

2050 MOTORS, INC.

(Exact name of small business issuer as specified in its charter)

 

CALIFORNIA   5511   95-4040591

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

3420 Bunkerhill Drive

North Las Vegas, Nevada 89032

(Address of principal executive offices)

 

(702) 591-6029

(Registrant’s telephone number, including area code)

 

 

( 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, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

 

The number of shares of Common Stock, no par value, of the registrant outstanding at September 25, 2018, was 225,167,733.

 

 

 

 
 

 

2050 MOTORS, INC.

 

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2018

 

TABLE OF CONTENTS

 

  PAGE
   
Part I. FINANCIAL INFORMATION:  
   
Item 1. Financial Statements: 3
   
Condensed Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017 4
   
Condensed Statements of Operations (unaudited) for the Three and Six Months ended June 30, 2018 and 2017 5
   
Condensed Statements of Cash Flows (unaudited) for the Six Months ended June 30, 2018 and 2017 6
   
Notes to Condensed Financial Statements (unaudited) 7
   
Item 2. Management’s Discussion and Analysis and Plan of Operation 14
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
   
Item 4. Controls and Procedures 16
   
Part II. OTHER INFORMATION:  
   
Item 1. Legal Proceedings 17
   
Item 1A. Risk Factors 17
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
   
Item 3. Defaults Upon Senior Securities 17
   
Item 4. Mine Safety Disclosures 17
   
Item 5. Other Information 17
   
Item 6. Exhibits 17
   
SIGNATURES 18
   
EXHIBIT INDEX 19

 

2
 

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS

 

2050 MOTORS, INC.

 

INDEX TO FINANCIAL STATEMENTS

 

Condensed Balance Sheets, June 30, 2018 (unaudited) and December 31, 2017 4
   
Condensed Statements of Operations (unaudited), for the Three and Six Months ended June 30, 2018 and 2017 5
   
Condensed Statements of Cash Flows (unaudited), for the Six Months ended June 30, 2018 and 207 6
   
Notes to Condensed Financial Statements (unaudited) 7

 

3
 

 

2050 Motors, Inc.

Condensed Balance Sheets

 

   As of
June 30, 2018
   As of
December 31, 2017
 
   (unaudited)     
         
Assets          
           
Current Assets          
Cash  $9   $499 
           
Property and equipment, net   18,161    31,676 
           
Other assets:          
Vehicle deposits   24,405    24,405 
Other deposits   2,200    2,200 
Deferred equity issuance costs, net   -    18,750 
License   -    50,000 
           
Total other assets   26,605    95,355 
           
Total assets  $44,775   $127,530 
           
Liabilities and stockholders’ deficit          
           
Liabilities          
Accounts payable  $49,110   $42,817 
Tax payable   2,864    3,664 
Accrued interest on related loans payable   61,876    33,574 
Accrued interest on non-related loans payable   36,677    26,513 
Loans payable due to related parties, net   13,000    44,600 
Loans payable due to non-related parties, net   464,305    233,328 
Revolving line of credit from related party   3,794    63,354 
Derivative liability   852,769    1,030,132 
           
Total current liabilities   1,484,395    1,477,982 
           
Stockholders’ deficit          
Common stock; no par value   2,980,173    2,474,146 
Authorized: 1,000,000,000 shares at June 30, 2018, and 300,000,000 shares at December 31, 2017          
Issued and outstanding: 188,677,326 shares at June 30, 2018 and 47,860,512 shares at December 31, 2017          
Preferred stock; no par value   45,000    - 
Authorized: 10,000,000 shares, no par value;          
Issued and outstanding: 3,000,000 shares at June 30, 2018, and 0 shares at December 31, 2017          
Additional paid-in-capital   536,356    94,650 
Accumulated deficit   (5,126,149)   (4,059,248)
Common stock issuable   125,000    140,000 
           
Total stockholders’ deficit   (1,439,620)   (1,350,452)
           
Total liabilities and stockholders’ deficit  $44,775   $127,530 

 

The accompanying notes are an integral part of these financial statements

 

4
 

 

2050 Motors, Inc.

Statements of Operations

(unaudited)

 

   Three Months Ended   Six Months Ended 
   June 30 2018   June 30 2017   June 30, 2018   June 30, 2017 
                 
Operating revenue  $-   $-   $-   $- 
                     
Operating expenses:                    
                     
Research and development costs   -    3,550    -    6,550 
General and administrative   59,272    88,449    169,598    157,293 
Total operating expenses   59,272    91,999    169,598    163,843 
                     
Net loss from operations   (59,272)   (91,999)   (169,598)   (163,843)
                     
Interest expense   (416,526)   (153,846)   (667,565)   (280,683)
Impairment loss   -    -    (50,000)     
Derivative liability gain/(loss)   1,062,611    80,971    (1,706)   231,064 
Debt conversion gain/(loss)   (163,246)   -    (179,980)   - 
Debt settlement gain/(loss)   -    -    948    - 
Other income, net   1,000    -    1,000    - 
                     
Income/(loss) before income taxes   424,567    (164,874)   (1,066,901)   (213,462)
                     
Provision for income taxes   -    -    -    - 
                     
Net income/(loss)  $424,567   $(164,874)  $(1,066,901)  $(213,462)
                     
Net income/(loss) per share, basic and diluted  $0.00   $(0.00)  $(0.01)  $(0.01)
                     
Weighted average common equivalent shares outstanding, basic and diluted   156,656,836    38,351,812    115,578,342    37,842,642 

 

The accompanying notes are an integral part of these financial statements

 

5
 

 

2050 Motors, Inc.

Statements of Cash Flows

(unaudited)

 

   Six Months Ended 
   June 30, 2018   June 30, 2017 
       
Cash flows provided by (used for) operating activities:          
Net loss  $(1,066,901)  $(213,462)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:          
Depreciation   13,516    18,220 
Amortization of debt discount   142,167    99,551 
Amortization of deferred finance costs   9,950    13,702 
Capitalization of unpaid officer salaries   -    24,000 
Impairment loss   50,000    - 
Penalty interest expense on non-related loan payables   276,299    - 
Debt settlement loss   179,980    - 
Issuance of common stock for services   12,500    10,839 
Issuance of common stock for interest on cash advance   -    839 
Issuance of preferred stock for services   45,000    - 
Derivative liability adjustment   1,706    (231,064)
Interest expense from initial derivative liability   160,386    110,464 
Changes in assets and liabilities:          
Increase (decrease) in assets and liabilities:          
Accounts payable   6,293    15,336 
Income tax payable   (800)   - 
Accrued interest on loans payable   60,981    20,327 
Deferred expenses   -    (244)
           
Net cash used for operating activities   (108,923)   (131,492)
           
Cash flows provided by (used for) by financing activities:          
Payments made on related party advances   -    (32,500)
Proceeds from non-related loans   114,500    150,000 
Payments made on revolving line of credit from related party   (6,067)   - 
Proceeds from issuance of common stock   -    2,250 
           
Net cash provided by (used for) financing activities   108,433    119,750 
           
Net increase in cash   (490)   (11,742)
Cash, beginning of year   499    11,766 
           
Cash, end of period  $9   $24 
           
Supplemental disclosure of cash flow information -          
           
Amortization of deferred finance cost from non-cash transaction  $18,750   $13,702 
Common stock issued for debt  $478,527   $90,164 
Debt discount from convertible loan  $89,389   $103,199 
Reclassification of derivative liability  $500,987   $- 
Interest paid  $33,848   $9,084 

 

The accompanying notes are an integral part of these financial statements

 

6
 

 

2050 MOTORS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1 – BASIS OF PRESENTATION AND ORGANIZATION

 

2050 Motors, Inc., (the “Company”) was incorporated on October 9, 2012, in the state of California to import, market, and sell electric cars manufactured in China. On October 25, 2012, 2050 Motors, Inc., entered into an agreement with Jiangsu Aoxin New Energy Automobile Co., Ltd., (“Aoxin”), located in Jiangsu, China, for the distribution in the United States of a new electric automobile, known as the e-Go EV.

 

The condensed interim financial statements included herein, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

 

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2017. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods are not indicative of annual results.

 

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

We adopted ASC Topic 820, “Fair Value Measurements and Disclosures,”, which requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of valuation hierarchy are defined as follows:

 

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 inputs to the valuation methodology are unobservable in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

Derivative Financial Instruments-Level 3

 

Derivatives are recorded on the condensed balance sheet at fair value. The conversion features of the convertible notes are embedded derivatives and are separately valued and accounted for on the balance sheet with changes in fair value recognized during the period of change as a separate component of other income/expense. We use the binomial option-pricing model for determining the fair value of our derivatives. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income.

 

7
 

 

Assets and liabilities measured at fair value are as follows as of June 30, 2018

 

   Total   Level 1   Level 2   Level 3 
Liabilities                
Derivative liability  $852,769   $       -   $       -   $852,769 
Total liabilities measured at fair value  $852,769   $-   $-   $852,769 

 

Assets and liabilities measured at fair value are as follows as of December 31, 2017:

 

   Total   Level 1   Level 2   Level 3 
Liabilities                
Derivative liability  $1,030,132   $      -   $      -   $1,030,132 
Total liabilities measured at fair value  $1,030,132   $-   $-   $1,030,132 

 

The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value:

 

Balance as of December 31, 2017  $1,030,132 
Fair value of derivative liabilities issued   281,387 
Loss on change in derivative liabilities   42,237 
Reclassify to equity upon payoff or conversion   (500,987)
Balance as of June 30, 2018  $852,769 

 

Earnings Per Share (EPS)

 

Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later). During the three month and six month periods ended June 30, 2018 and 2017, the Company incurred losses. Therefore, the effect of any common stock equivalents is anti- dilutive during those periods.

 

Concentration of Credit Risk

 

Cash is mainly maintained by one highly qualified institution in the United States. At various times, such amounts are in excess of federally insured limits. Management does not believe that the Company is subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. The Company has not experienced any losses on our deposits of cash.

 

Recently Adopted Accounting Policies:

 

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).

 

The new revenue standards became effective for the Company on January 1, 2018 and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.

 

8
 

 

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for interim periods and fiscal years beginning after December 15, 2017, and early application is permitted. The implementation of ASU 2017-09 did not have a material effect on the Company’s consolidated financial statements.

 

Recently Issued Accounting Pronouncements

 

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. We are evaluating the impact this guidance will have on our financial position and statement of operations.

 

In July 2017, the FASB issued ASU No. 2017-11 Part I, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). ASU 2017-11 Part I changes the classification analysis of certain equity linked financial instruments with down round features. ASU 2017-11 Part I is effective, for public business entities, for interim periods and fiscal years beginning after December 15, 2018, and early application is permitted. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on its consolidated financial statements.

 

Reclassification

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.

 

Note 3 – GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate the continuation of the Company as a going concern. The Company reported accumulated deficit of $5,126,149 as of June 30, 2018. The Company also had a negative working capital of $1,484,386 and $1,477,483, respectively, for the six month period ended June 30, 2018 and for the year ended December 31, 2017. To date, these losses and deficiencies have been financed principally through the issuance of common stock, loans from related parties and from third parties.

 

In view of the matters described, there is substantial doubt as to the Company’s ability to continue as a going concern without a significant infusion of capital. We anticipate that we will have to raise additional capital to fund operations over the next 12 months. To the extent that we are required to raise additional funds to acquire properties, and to cover costs of operations, we intend to do so through additional offerings of debt or equity securities. There are no commitments or arrangements for other offerings in place, no guaranties that any such financings would be forthcoming, or as to the terms of any such financings. Any future financing will involve substantial dilution to existing investors.

 

Note 4 – VEHICLE DEPOSITS

 

Vehicle deposit of $24,405, as of June 30, 2018 and December 31, 2017, represents one prototype test model for delivery into the United States when the specifications are completed for an advanced crash test known in the Automobile Safety Industry as the “overlap crash test”.

 

Note 5 – LICENSE AGREEMENT

 

In 2012 and 2013, the Company made a total payment of $50,000 and signed an exclusive license agreement with Aoxin to import, assemble and manufacture the advanced carbon fiber electric vehicle, the eGo EV model. The cost of this license agreement has been recognized as a longterm asset and is evaluated, by management, for impairment losses at each reporting period. As of June 30, 2018 and December 31, 2017, impairment losses of $50,000 and 0, respectively, have been identified by the management.

 

9
 

 

Note 6 – LOANS PAYABLE DUE TO RELATED PARTIES

 

All the notes are unsecured and bear interest at the rate of 12%. All the notes are in default.

 

June 30, 2018   December 31, 2017   Date of note  Due Date
$3,000   $17,100   July 1, 2017  November 1, 2017
$-   $17,500   September 27, 2017  November 1, 2017
$10,000   $10,000   October 1, 2016  April 1, 2018
$13,000   $44,600       

  

During the six months period ended June 30, 2018, the related party converted a $17,500 note and part of the $17,100 note into 12,640,000 shares of common stock. These two notes were in default and the Company accrued a penalty of $100 per day of default interest on each note. During the three month periods ended June 30, 2018 and 2017, the Company accrued $18,200 and $0 as penalty interest in the accompanying financial statements. During the six month periods ended June 30, 2018 and 2017, the Company accrued $36,200 and $0 as penalty in the accompanying financial statements. These two loans also had options attached to them to purchase 2,000,000 shares of common stock at an exercise price of $0.015 per share, which are being recorded as a derivative liability. The options are still outstanding. The Company revalued the derivative liability for the options as of June 30, 2018 to be $2,400.

 

During the three month periods ended June 30, 2018 and 2017, the Company recorded interest of $19,376 and $3,637 on the related party loans. During the six month periods ended June 30, 2018 and 2017, the Company recorded interest of $29,919 and $7,571 on the related party loans.

 

The Company determined the derivative liability of the options using the Binomial model. The variables used for the Binomial model are as listed below:

 

  Volatility: 326%
     
  Risk free rate of return: 1.93%
     
  Expected term: 3-6 months

 

Note 7 – CONVERTIBLE NOTE PAYABLES

 

The Company had several convertible note payables with unrelated third parties with interest rates ranging between 10% and 12%. These notes had a conversion feature such that the Company could not ensure it would have adequate authorized shares to meet all possible conversion demands, hence, the conversion option has been treated as a derivative liability in the accompanying interim financial statements. As of June 30, 2018 and December 31, 2017, the Company had the following convertible notes outstanding:

 

   Balance as of   Balance as of    
Issuance Date  06/30/18   12/31/17   Due Date
February 12, 2016  $25,000   $25,000   December 31, 2018
October 26, 2016   10,042*   49,200   January 26, 2018
November 1, 2016   -    40,000   July 29, 2017
January 6, 2017   347,832*   85,750   February 6, 2018
April 21, 2017   -    23,000   January 30, 2018
May 31, 2017   -    28,000   March 15, 2018
July 25, 2017   -    28,000   April 30, 2018
September 15, 2017   12,899    25,000   September 15, 2018
November 13, 2017   19,181    19,181   August 30, 2018
November 14, 2017   27,000    27,000   November 14, 2018
January 24, 2018   35,000    -   October 30, 2018
February 22, 2018   43,000    -   November 30, 2018
April 11, 2018   15,000    -   January 30, 2019
April 27, 2018   21,500    -   February 15, 2019
Total convertible notes payable   556,454    350,131    
Less: Debt discount and deferred financing fee   (92,149)   (116,803)   
Convertible note payables, net  $464,305   $233,328    

 

*Note is currently in default

 

The note issued on January 6, 2017 is in default and under the terms of the convertible promissory note, the Company is liable to pay 150% of the then outstanding principal and interest plus additional penalties for certain covenants that are breached. Included in the note balance of $347,832 as of June 30, 2018, are penalties totaling $276,299 relating to the default of this note.

 

10
 

 

During the six month period ended June 30, 2018, the Company recorded conversion of $184,476 of notes payable into 93,176,814 shares of common stock. The Company recorded a loss on conversion of debt of $163,246 and $179,980 during the three and six months periods ended June 30, 2018. The Company had no such conversions during the three and six months periods ended June 30, 2017.

 

The derivative liability for all the remaining convertible notes was recalculated on June 30, 2018 to be $835,378 and the loss on change in derivative liability of $31,583, for the six months period ended June 30, 2018, was recorded on the accompanying financial statements.

 

The variables used for the Binomial model are as listed below:

 

    December 31, 2017  June 30, 2018 
  Volatility: 253% - 286%  Volatility: 326%
        
  Risk free rate of return: 1.28%- 1.76%  Risk free rate of return: 1.93%- 2.22%
        
  Expected term: 1-11 months  Expected term: 2-10 months

 

The Company amortized a debt discount of $69,649 and $54,633, respectively, during the three month periods ended June 30, 2018 and 2017 and $140,744 and $105,161, respectively, during the six month periods ended June 30, 2018 and 2017. The Company amortized the finance fee of $2,908 and $7,842, respectively, during the three month periods ended June 30, 2018 and 2017 and $9,950 and $13,702, respectively, during the six month periods ended June 30, 2018 and 2017. Interest expense accrued on non-related convertible notes was $21,057 and $44,885 for the three month periods ended June 30, 2018 and 2017, respectively, and $33,492, and $55,954 for the six month periods ended June 30, 2018 and 2017, respectively. During the six month period ended June 30, 2018, the note holders converted $478,527 of debt into 129,816,814 shares of common stock.

 

Note 8 – COMMITMENTS AND CONTINGENCIES

 

Effective March 1, 2014, the Company signed a lease for four thousand square feet of industrial space in North Las Vegas. The term of the lease is for three years and cost $2,200 per month. The lease expired on April 30, 2017 and the Company is now on a month to month lease

 

Rent expense amounted to $6,600 and $6,539 for the three month periods ended June 30, 2018 and 2017, respectively. Rent expense amounted to $13,400 and $12,956 for the six month periods ended June 30, 2018 and 2017, respectively.

 

According to the license agreement signed between the Company and Aoxin, in order to maintain exclusive rights for the United States (US), the Company is required to purchase and sell certain amount of eGo EV model vehicles per year for a certain period of time starting from the completion of the requirements established by the United States Department of Transportation’s protocols for the eGo EV model. The table below demonstrates the required amount of vehicles that the company needs to sell per year.

 

First year   2,000 
Second year   6,000 
Third year   12,000 
Fourth year   24,000 
Fifth year   48,000 
TOTAL   92,000 

 

As part of the license agreement, the Company is committed to pay expenses related to any required airbag testing procedures. The cost of these airbags could be as little as $500,000 or as much as $2 million.

 

The Company may from time to time, become a party to various legal proceedings, arising in the ordinary course of business. The Company investigates these claims as they arise. Management does not believe, based on current knowledge, that there were any such claims outstanding as of June 30, 2018.

 

Note 9 – REVOLVING LINE OF CREDIT- RELATED PARTY

 

The Company has a revolving line of credit agreement with a related party. The line amount is $100,000 and carries interest at 12% per annum, due on December 31, 2018 with a conversion option for the restricted common stock of the Company. The note is convertible at 50% of the Average Market Price for the 15 previous trading days before the conversion notice date. During the year ended December 31, 2017, the related party assigned $30,000 of the loan to an unrelated third party on the same terms.

 

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During the six month period ended June 30, 2018, the Company made cash payments totaling $17,400, of which $6,067 was applied to principal and $11,333 to accrued interest. In addition, 24,000,000 shares of common stock was converted for the reduction of $59,957 in principal and $43 in accrued interest during the six month period ended June 30, 2018.

 

The derivative liability was recalculated on June 30, 2018 as $14,991 and the difference in the value recorded as a change in derivative liability in the income statement. The Company amortized a debt discount of $20,464 and $34,894, respectively, during the three and six-month periods ended June 30, 2018. Interest expense of $879 and $2,976 was accrued on the convertible loan during the three and six month periods ended June 30, 2018. As of June 30, 2018 and December 31, 2017, the balance outstanding on the loan was $5,376 and $71,400, respectively. The loan has an extended maturity date of December 31, 2018.

 

Note 10 – EQUITY

 

During the year ended December 31, 2016, the Company agreed to issue 3,200,000 shares for services at a price between $0.157 to $0.075, for a total of $256,480. Additionally, the Company agreed to issue 825,000 shares of common stock for marketing services at a per share price of $0.1497 for a total consideration of $125,000. As of June 30, 2018, these shares are yet to be issued and have been recorded as common stock issuable.

 

During the six month period ended June 30, 2018, the Company increased the authorized share capital of the Company from 300 million to 1 billion shares of common stock.

 

During the six month period ended June 30, 2018, the Company issued 3 million shares of preferred stock to the prior president of the Company, valued at the fair market value of $45,000.

 

During the six month period ended June 30, 2018, the Company issued 5 million shares of common stock, valued at the fair market value of $12,500, for services.

 

During the six month period ended June 30, 2018, the Company issued 93,176,814 shares of common stock to affect the conversions of various convertible note payables amounting to $184,476 and accrued interest of $22,472 on the same and recorded a net loss on debt settlement of $158,380 for the difference with the agreed conversion price.

 

During the six month period ended June 30, 2018, the Company issued 24,000,000 shares of common stock to affect the conversions of related party line of credit and accrued interest on same and recorded a loss on debt settlement of $21,600 for the difference with the agreed conversion price.

 

During the six month period ended June 30, 2018, the Company issued 12,640,000 shares of common stock to affect the conversions of related party loan amounting to $31,600.

 

During the six month period ended June 30, 2018, several convertible notes matured and were converted and the embedded feature on the same of $503,356, was reclassed as equity.

 

During the six month period ended June 30, 2018, the Company reclassified $42,900 from equity to derivative liability for the embedded feature on the options and warrants attached to convertible loans and related party notes.

 

During the six month period ended June 30, 2018, the Company amortized $18,750 for the equity offering costs.

 

During the six month period ended June 30, 2018, the Company issued 6,000,000 shares of common stock for $15,000 cash received during the year ended December 31, 2017. These shares were recorded as shares to be issued in the prior period.

 

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Note 11 – WARRANTS AND OPTIONS

 

As of June 30, 2018, there were 2,000,000 options outstanding and exercisable, issued in relation with loans payable due to related parties. Each whole share purchase option has an exercise price of $0.015 per common share. The options were evaluated for purposes of classification between liability and equity. The options contain features that would require a liability classification and are therefore recorded as derivative liability. The Binomial model was used to estimate the fair value of $2,400 for the options. Following inputs were used for the Binomial model:

 

Options   2,000,000 
Term   3-6 months 
Exercise price  $0.015 
Volatility   285%-326% 
Risk Free Interest Rate   1.73%-1.93% 
Fair Value  $2,400 

 

As of June 30, 2018, there were 250,000 warrants outstanding and exercisable, issued in relation with a convertible note payable. Each whole share purchase option has an exercise price of $0.015 per common share. The warrants were evaluated for purposes of classification between liability and equity. The warrants contain features that would require a liability classification and are therefore recorded as derivative liability. The Binomial model was used to estimate the fair value of $900 for the Warrants. The following inputs were used for the Binomial model:

 

Warrants   250,000 
Term   3 Years 
Exercise price  $0.10 
Volatility   285%
Risk Free Interest Rate   2.33%
Fair Value  $900 

 

Note 12 – SUBSEQUENT EVENTS

 

On July 23, 2018, the Company borrowed $21,000 pursuant to a convertible note agreement bearing an interest rate of 12% per annum and with a maturity date of April 30, 2019.

 

On July 31, 2018, the Company issued 2,000,000 shares of Series B Convertible Preferred Stock to officers and directors for services rendered, totaling $2,000.

 

On various dates between August 3 and August 10, 2018, the Company issued 36,490,407 shares of common stock to affect the conversion of $34,301 of convertible notes payable and $812 of accrued interest on the same.

 

On August 1, 2018, the Company obtained shareholder consent for the approval of an amendment to the Company’s certificate of incorporation to increase the authorized shares of common stock, no par value, of the Company from 1,000,000,000 to 3,000,000,000.

 

As of August 2, 2018, the Company continues to negotiate with a note holder who sent the Company a legal notice, dated June 25, 2018, demanding approximately $404,000, from the note holder for defaulting on the loan. The Company continues to incur a penalty of $2,000 per day until the filing of the 10-Q for the period ending June 30, 2018.

 

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Item 2. Management’s Discussion and Analysis or Plan of Operation

 

Plan of Operations

 

This 10−Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the audited consolidated financial statements and accompanying notes and the other financial information appearing elsewhere in this report. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.

 

Plan of Operation

 

Prior to the completion of the acquisition of 2050 Motors, Inc., a Nevada corporation, (“2050 Motors”) on May 2, 2014, the Company was a public “shell” company with nominal assets whose sole business was to identify, evaluate, and investigate various companies to acquire or with which to merge. Upon consummation of the transaction with 2050 Motors, the Company’s business became the business of 2050 Motors, which is the Company’s sole operating subsidiary. Our principal business objective for the next 12 months will be to achieve long-term growth through 2050 Motors.

 

The Company completed the acquisition of all of the issued and outstanding capital stock of 2050 Motors on May 2, 2014. The acquisition was effected pursuant to the terms of a Plan and Agreement of Reorganization (the “Agreement”) entered into on February 5, 2014, by and between the Company, 2050 Motors and Certain Shareholders of 2050 Motors. Pursuant to the terms of the Agreement, the Company acquired all of the outstanding shares of capital stock of 2050 Motors in exchange for 24,994,670 post-split shares of the Company’s common stock (aggregating approximately 82% of its issued and outstanding common stock).

 

2050 Motors principal activity is the importation and the marketing and selling of electric automobiles. 2050 Motors, Inc. has an exclusive license, subject to minimum sales requirements, to import, market and sell in the United States, Puerto Rico, the US Territories and Peru, the “e-Go” lightweight carbon fiber all-electric vehicle design and electric light truck, manufactured by Jiangsu Aoxin New Energy Automobile Co., LTD (“Aoxin Automobile”) located in the Peoples Republic of China (“PRC”). Aoxin Automobile is a wholly-owned subsidiary of Dongfeng Motors Corporation (“Dongfeng Motor”) which is one of the largest automobile manufacturers in China, producing over 3.76 million cars and trucks in 2012. Aoxin Automobile was funded by Dongfeng Motors to develop and manufacture a lightweight, super-efficient, carbon fiber e-Go EV electric car (“e-Go EV”).

 

2050 Motors intends to import vehicles completely fabricated and assembled in China from Aoxin Automobile. 2050 Motors will market the e-Go EV vehicles in designated markets and is not expected to need any raw materials, components or equipment, except spare parts which will be supplied by Aoxin Automobile. However, the e-Go EV and all of its parts and equipment must be DOT approved. After the demonstration vehicles are delivered to the USA, some of the existing parts of the e-Go EV may or may not meet DOT specifications. Aoxin Automobile has made every effort to build the e-Go EV according to American standards. However, there is no certainty that all the parts will be DOT approved. 2050 Motors may elect to secure replacement parts here in the USA or in China for installation either in the United States or in China, if required.

 

2050 Motors intends to initially sell the e-Go EV to a network of customers primarily in the Las Vegas, Nevada area. 2050 Motors plans to establish a service and parts center, which would be separate from the Showroom. The Showroom facility will be at an area with high volume of people in Las Vegas, where visitors to the city can directly view the e-Go EV. 2050 Motors may also elect to sell the e-Go EV at selected distributors in the Las Vegas Area, which have already provided letters of interest to sell our vehicles. 2050 Motors’ initial plan is not to sell the vehicle outside of the Las Vegas vicinity, consisting of an area within a radius of 100 miles. This is the Company’s current marketing plan in order to effectively market to and support people that work and/or live in Las Vegas. In the metropolitan area of Las Vegas the population equals 1.9 million.

 

2050 Motors is a development stage company with no operating history and may never be able to carry out its business plan or achieve any revenues or profitability. 2050 Motors was established in October 2012 and it has not generated any revenues nor has it realized a profit from its operations to date, and there is little likelihood that it will generate any revenues or realize any profits in the short term. Any profitability in the future from its business will be dependent upon the successful marketing and sales of the e-Go EV. 2050 Motors may not be able to successfully carry out its business plan. There can be no assurance that it will ever achieve any revenues or profitability. Accordingly, its prospects must be considered in light of the risks, expenses, and difficulties frequently encountered in establishing a new business, especially one in the automobile industry, and therefore it is a highly speculative venture involving significant financial risk.

 

Research by Aoxin Automobile over the past five years developed this advanced all-electric vehicle. The e-Go EV is a five passenger sedan which weighs only 1,450 lbs with its battery pack included. It will be the first vehicle of this advanced type to be sold in the price range of less than $35,000.

 

The body components are built out of carbon fiber which is five times stronger than steel and one third its weight constructed over a strong ultralight aluminum frame chassis and race car suspension. This ensures that the vehicle will be one of the safest and strongest ever built for the consumer market. It will also be the most efficient vehicle ever built, capable of achieving 200+ miles to the gallon energy equivalent. 2050 Motors projects expenses associated with its business over the next 6 months to be approximately $1,000,000. The primary cost component will be related to meeting the crash testing requirements of the DOT.

 

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Costs and Resources

 

The Company is currently pursuing additional funding resources that will enable it to maintain its current and planned operations through the next 12 months. The Company anticipates, however, that it will need to raise additional capital in order to sustain and grow its operations over the next few years.

 

To the extent that the Company’s capital resources are insufficient to meet current or planned operating requirements, the Company will seek additional funds through equity or debt financing, collaborative or other arrangements with corporate partners, licensees or others, and from other sources, which may have the effect of diluting the holdings of existing shareholders. The Company has no current arrangements with respect to, or sources of, such additional financing and the Company does not anticipate that existing shareholders will provide any portion of the Company’s future financing requirements. No assurance can be given that additional financing will be available when needed or that such financing will be available on terms acceptable to the Company. If adequate funds are not available, the Company may be required to delay or terminate expenditures for certain of its programs that it would otherwise seek to develop and commercialize. This would have a material adverse effect on the Company.

 

Results of Operation for the six months ended June 30, 2018 and 2017

 

During the six months ended June 30, 2018 and 2017, the Company had no operating revenues. During the six months ended June 30, 2018, the Company incurred operating expenses of $169,598 consisting primarily of R&D expenses, consulting fees and travel expenses and other general and administrative costs. For the six months ended June 30, 2018, these operating losses combined with a non-operating loss of $897,303 resulted in net loss of $1,066,901. For the six months ended June 30, 2017, the Company had operating losses of $163,843 and a non-operating loss of $49,619 for a net loss of $213,462. As of June 30, 2018, the Company had a stockholders’ deficit of $1,439,620 compared to a stockholders’ deficit of $1,350,452 as of December 31, 2017. The increase in stockholders’ equity for the six months ending June 30, 2018 was due to the net loss of $1,066,901, the issuance of $478,527 of common stock for the reduction of debt, the issuance of $12,500 of common stock and $45,000 of preferred stock for services, and the increase of $441,706 in additional paid-in-capital.

 

Equity and Capital Resources

 

We have incurred losses since the inception of our business and as of June 30, 2018, had an accumulated deficit of $5,126,149. As of June 30, 2018, the Company had cash balance of $9 and a negative working capital of $1,484,386.

 

To date, we have funded our operations through short-term debt and equity financing. During the six months ended June 30, 2018 the Company received $114,500 of borrowed funds from non-related parties. In addition, during this period the Company issued 129,816,814 shares of common stock for $478,528 reduction of debt.

 

We expect our expenses will continue to increase during the foreseeable future as a result of increased operational expenses and the development of our automobile business. However, we do not expect to start generating revenues from our operations for another 12 months. Consequently, we are dependent on the proceeds from future debt or equity investments to sustain our operations and implement our business plan. If we are unable to raise sufficient capital, we will be required to delay or forego some portion of our business plan, which would have a material adverse affect on our anticipated results from operations and financial condition. There is no assurance that we will be able to obtain necessary amounts of additional capital or that our estimates of our capital requirements will prove to be accurate. As of the date of this Report we did not have any commitments from any source to provide such additional capital. Even if we are able to secure outside financing, it may not be available in the amounts or the times when we require. Furthermore, such financing would likely take the form of bank loans, private placement of debt or equity securities or some combination of these. The issuance of additional equity securities would dilute the stock ownership of current investors while incurring loans, leases or debt would increase our capital requirements and possible loss of valuable assets if such obligations were not repaid in accordance with their terms.

 

Delinquent Loans

 

As of June 30, 2018, the Company is delinquent in its payments on loans owing to four different lenders, totaling $129,575 in principal and $70,550 in accrued interest for an aggregate amount of $200,125. The Company is in discussions with the lenders to extend the maturity dates or to convert all or part into the company’s common stock. There is no assurance that these discussions will result in amicable settlements. Any legal action by any one of the lenders could have a material adverse effect on the Company and its ability to continue operations.

 

On June 25, 2018, the Company received a legal notice demanding approximately $404,000, from the note holder for defaulting on the loan. The Company is still trying to negotiate the terms with the note holder.

 

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Off-balance Sheet Arrangements

 

Since our inception through December 31, 2016, we have not engaged in any off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

As a “small reporting company” we are not required to provide this information under this item pursuant to Regulation S-K.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report on Form 10-Q, our President (principal executive officer) and our Chief Financial Officer performed an evaluation of the effectiveness of and the operation of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our President and Chief Financial Officer each concluded that as of the end of the period covered by this report on Form 10-Q, our disclosure controls and procedures are not effective in timely alerting them to material information relating to 2050 Motors, Inc. required to be included in our Exchange Act filings.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the quarter ended March 31, 2018 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.

 

On May 21, 2018, the Company received, from one of its lenders, a notice of default based upon the Company’s failure to timely file its Form 10-Q for the quarter ended March 31, 2018. Under the default provisions of the Note, the immediate payment of the entire principal of the Note together with accrued interest and accrued default interest is due and payable. The Company has had discussions with the lender and believes that with the filing of this Report the demand notice for immediate payment will be withdrawn. There is no assurance that this will occur. Failure of the lender to withdraw such notice will cause severe and material damage to the Company’s ability to continue in business.

 

As of August 2, 2018, the Company continues to negotiate with a note holder who sent the Company a legal notice, dated June 25, 2018, demanding approximately $404,000, from the note holder for defaulting on the loan. The Company continues to incur a penalty of $2,000 per day until the filing of the 10-Q for the period ending June 30, 2018.

 

Item 1A. Risk Factors.

 

As a “smaller reporting company”, we are not required to provide this information under this item pursuant to Regulation S-K..

 

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

 

For the three month period ended June 30, 2018, the Company issued 74,862,700 shares of its common stock to 7 lenders pursuant to requests by such lenders to convert accrued interest owing on, and to partially convert principal of, outstanding convertible notes.

 

On July 31, 2018, the Company issued 2,000,000 shares of Series B Convertible Preferred Stock to officers and directors for services rendered, totaling $2,000.

 

On various dates between August 3 and August 10, 2018, the Company issued 36,490,407 shares of common stock to affect the conversion of $34,301 of convertible notes payable and $812 of accrued interest on the same.

 

On May 4, 2018, the Company issued 6,000,000 shares of common stock for $15,000 cash.

 

On May 4, 2018, the Company issued 5,000,000 shares of common stock for services rendered to three affiliates and two consultants for a total consideration of $12,500.

 

We relied upon Section 4(2) and Regulation D of the Securities Act of 1933, as amended, for the issuances of the securities listed above. No commissions were paid regarding the share issuance and the share certificates were issued with a Rule 144 restrictive legend.

 

Item 3. Defaults Upon Senior Securities.

 

As of June 30, 2018, the Company was delinquent in its payments on loans owing to four different lenders in the aggregate amount of $200,125, including principal and interest. The Company is in discussions with all such lenders to extend the maturity dates or to convert all or part into the company’s common stock. There is no assurance that these discussions will result in amicable settlements. Any legal action by any one of the lenders could have a material adverse effect on the Company and it ability to continue operations.

 

The Company does not currently have sufficient liquidity to repay the indebtedness. While the Company does not expect the noteholders to accelerate the indebtedness, the noteholders may do so at any time, or may initiate foreclosure actions, or seek any other remedies permitted by the terms of the notes and applicable law. Should the holders of the Company’s indebtedness seek to accelerate the indebtedness upon an event of default, the Company could be required to discontinue or significantly reduce the scope of its operations if no other means of financing its operations are or become available.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None

 

Item 6. Exhibits.

 

(a) Exhibits.

 

Exhibit   Item
     
31.1*   Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
     
31.2*   Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
     
32.1*   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

*Filed herewith.

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  2050 MOTORS, INC.
   
Date: October 11, 2018 /s/ William Fowler
  William Fowler, President
  (Principal Executive Officer)
   
Date: October 11, 2018 /s/ William Fowler
  William Fowler, Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit   Item
     
31.1*   Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
     
31.2*   Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
     
32.1*   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

*Filed herewith.

 

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