MAPTELLIGENT, INC. - Quarter Report: 2018 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

Commission file number: 333-218746

(Exact name of Registrant as Specified in its Charter)

9480 S. Eastern Ave, Suite 205

 (Address of principal executive offices)

(Registrant's telephone number, including area code)

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:

  

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

Number of outstanding shares of common stock as of November 16, 2018 was 711,258,471.

 

 

LAS VEGAS XPRESS, INC.

TABLE OF CONTENTS

  

PART I   FINANCIAL INFORMATION

 

 LAS VEGAS XPRESS, INC.

(formerly X Rail Entertainment, Inc.)

 BALANCE SHEETS (Unaudited)

 

 LAS VEGAS XPRESS, INC.

(formerly X Rail Entertainment, Inc.)

STATEMENTS OF OPERATIONS

(Unaudited)

		Three months ended				Three months ended				Nine months ended				Nine months ended
		September 30,				September 30,				September 30,				September 30,
		2018				2017				2018				2017
Revenues			-			$	-			$	13,145			$	32,259
Cost of sales			-				-				(8,754	)			(46,051	)
Gross loss			-				-				4,391				(13,792	)
Operating Expenses:
Compensation and payroll taxes			1,370,921				137,569				3,989,669				391,274
Selling, general and administrative			42,408				72,429				167,875				272,977
Professional fees			178,147				101,313				609,996				565,438
Total expenses			1,591,476				311,311				4,767,540				1,229,689
Loss from operations			(1,591,476	)			(311,311	)			(4,763,149	)			(1,243,481	)
Other income (expense)
Excess derivative liability expense			-				-				1,317,269				-
Interest expense			(141,822	)			(133,630	)			(881,718	)			(727,727	)
Loss on disposal of assets			-				(629,270	)			-				(629,270	)
Gain (loss) on change in value of derivative liability			(2,625,026	)			1,764				(2,800,655	)			(7,789	)
Total other income (expense)			(2,766,848	)			(761,136	)			(2,365,104	)			(1,364,786	)
Net income (loss) from operations before provision for income taxes			(4,358,325	)			(1,072,447	)			(7,128,252	)			(2,608,267	)
Provision for income taxes			-				-				-				-
Net income (loss)		$	(4,358,325	)		$	(1,072,447	)		$	(7,128,252	)		$	(2,608,267	)
Net income (loss) per share, basic and diluted		$	(9.6214	)		$	(22.997	)		$	(2.703	)		$	(59.821	)
Weighted average number of common shares outstanding, basic and diluted			452,982				46,635				2,636,921				43,601

 

 

 LAS VEGAS XPRESS, INC.

(formerly X Rail Entertainment, Inc.)

STATEMENTS OF CASH FLOWS

 (Unaudited)

 

 LAS VEGAS XPRESS, INC.

(formerly X Rail Entertainment, Inc.)

STATEMENTS OF SHAREHOLDERS' EQUITY

 (Unaudited)

 

 LAS VEGAS XPRESS, INC.

(formerly X Rail Entertainment, Inc.)

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

 (Unaudited)

 

 

(1)           Organization and description of business

Summary of Significant Accounting Policies

Going Concern:

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has net losses of $7,128,252 for the nine months ended September 30, 2018.  The Company also has an accumulated deficit of $22,479,785, and a negative working capital of $5,260,535 as of September 30, 2018, as well as outstanding convertible notes payable of $454,700, before debt discount of $80,542.  Management believes that it will need additional equity or debt financing to be able to implement its business plan.  Given the lack of revenue, capital deficiency and negative working capital, there is substantial doubt about the Company's ability to continue as a going concern.

Management is attempting to raise additional equity and debt to sustain operations until it can market its services and achieves profitability.  The successful outcome of future activities cannot be determined at this time and there are no assurances that, if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive operating results.

The accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Basis of Financial Statement Presentation:

The accompanying unaudited interim financial statements of Las Vegas Xpress, Inc. (the "Company") have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. However, the results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other future period. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2017.

Risks and Uncertainties:

The Company operates in an industry that is subject to intense competition and potential government regulations.  Significant changes in regulations and the inability of the Company to establish contracts with rail services providers could have a materially adverse impact on the Company's operations.

 

Use of Estimates:

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

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As of September 30, 2018 and December 31, 2017, the Company had $3,259 and $56,983 in cash and cash equivalents, respectively.

Property and Equipment:

Property and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives of approximately five years once the individual assets are placed in service.  The Company expenses all purchases of equipment with individual costs of under $500, and these amounts are not material to the financial statements. As of September 30, 2018, we recorded the rail cars on the balance sheet at $125,000, net of accumulated depreciation. The rail cars are currently not depreciated as they are not in service and not ready to run. The rail cars require substantial investment to retrofit.

Long-Lived Assets:

In accordance with FASB ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.  The Company's management believes there has been no impairment of its long-lived assets during the nine months ended September 30, 2018, or 2017.  There can be no assurance, however, that market conditions will not change or demand for the Company's business model will continue.  Either of these could result in future impairment of long-lived assets. No impairment loss was recognized for the nine months ended September 30, 2018 and 2017.

Related Parties

 

The Company follows ASC 850, "Related Party Disclosures," for the identification of related parties and disclosure of related party transactions (see Note 4).

Income Taxes:

Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The deferred tax assets of the Company relate primarily to operating loss carryforwards for federal income tax purposes. A full valuation allowance for deferred tax assets has been provided because the Company believes it is not more likely than not that the deferred tax asset will be realized. Realization of deferred tax assets is dependent on the Company generating sufficient taxable income in future periods.

 

The Company periodically evaluates its tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits.  As of September 30, 2018, and December 31, 2017, the Company has not established a liability for uncertain tax positions.

Basic and Diluted Loss per Share:

In accordance with Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") 260, "Earnings per Share," the basic income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period.  Diluted earnings per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock.  Common stock equivalents have not been included in the earnings per share computation for the nine months ended September 30, 2018, and 2017 as the amounts are anti-dilutive.  As of September 30, 2018, the Company had 2,996 outstanding warrants and convertible debt of $454,700, before debt discount of $80,542, which were all excluded from the computation as they were anti-dilutive and are convertible into 23,552,877 shares of common stock. As of December 31, 2017, the Company had 2,996 outstanding warrants and convertible debt of $369,900, before debt discount of $324,121, which were all excluded from the computation as they were anti-dilutive.

 

Revenue Recognition

 

The Company recognizes revenue from the sale of products and services in accordance with ASC 606,"Revenue Recognition" following the five steps procedure:

Step 1: Identify the contract(s) with customers

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to performance obligations

Step 5: Recognize revenue when the entity satisfies a performance obligation

 

The Company recognizes revenue when it satisfies its obligation by transferring control of the good or service to the customer. A performance obligation is satisfied over time if one of the following criteria are met:

 

 

Since the Company's revenues are generated when products are sold with no remaining obligations on the part of the Company, revenue is recognized at the time of sale.

 Fair Value of Financial Instruments

 

The Company's financial instruments consist primarily of cash, prepaid expense, deferred financing cost, accounts payable and accrued liabilities, accrued expenses, convertible notes and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

 

The Company adopted ASC Topic 820, Fair Value Measurements ("ASC Topic 820"), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

 

The three-level hierarchy for fair value measurements is defined as follows:

 

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; 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 other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;

 

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement

 

The following table summarizes fair value measurements by level at September 30, 2018, and December 31, 2017, measured at fair value on a recurring basis:

 

Share Based Payments:

The Company issues stock, options, and warrants as share-based compensation to employees and non-employees.

The Company accounts for its share-based compensation to employees in accordance FASB ASC 718.  Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. 

During the nine months ended September 30, 2018 and 2017, the Company incurred $3,500,025 and $0 in stock-based compensation to employees and directors.

The Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50 "Equity - Based Payments to Non-Employees." Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance completion date. For interim periods, the fair value is estimated and the percentage of completion is applied to that estimate to determine the cumulative expense recorded.

 

The Company values stock compensation based on the market price on the measurement date. As described above, for employees this is the date of grant, and for non-employees, this is the date of performance completion.

The Company values warrants using the Black-Scholes option pricing model.  Assumptions used to value options and warrants issued during the nine months ended September 30, 2018 were as follows:

During the nine months ended September 30, 2018 and 2017, the Company incurred $230,000 and $130,000 for common stock issued for outside services.

New Accounting Pronouncements:

 

None.

 

(3)           Property and Equipment

Property and equipment consisted of the following.

Based on management analysis as of September 30, 2018 and December 31, 2017, there is no indication of impairment.

(4)           Related Party Notes Payable

A summary of outstanding notes payable is as follows:

 

		September 30,				December 31,
		2018				2017
Promissory note, dated  December 15, 2015, bearing interest at 10% annually, payable on demand		$	50,010			$	49,910
Promissory note, dated  December 15, 2015, bearing interest at 10% annually, payable on demand			39,101				39,101
Promissory note, dated  December 15, 2015, bearing interest at 10% annually, payable on demand			69,794				74,044
Promissory note, dated  September 30, 2015, bearing no interest, payable on demand			192,940				154,998
Promissory note, dated  September 30, 2017, bearing 10% interest, payable on demand			59,044				53,700
Promissory note, dated  September 30, 2017, bearing 10% interest, payable on demand			3,200				7,400
		$	$ 414,089			$	379,153

During the nine months ended September 30, 2018, the Company repaid $4,200 of promissory note dated September 30, 2017 to Wanda Witoslawski (the Chief Financial Officer of the Company), leaving the balance outstanding of $3,200 as of September 30, 2018.

During the nine months ended September 30, 2018, the Company borrowed $100 of promissory note dated December 15, 2015 to Wanda Witoslawski (the Chief Financial Officer of the Company), leaving the balance outstanding of $50,010 as of September 30, 2018.

During the nine months ended September 30, 2018, the Company borrowed $37,942 of promissory note dated September 30, 2017 to Las Vegas Railway Express, Inc., leaving the balance outstanding of $192,940 as of September 30, 2018.

During the nine months ended September 30, 2018, the Company added $5,344 to the promissory note dated September 30, 2017 to Allegheny Nevada Holdings Corporation (Michael A. Barron, the CEO and President of the Company, is a 100% owner and President of Allegheny Nevada Holdings Corporation), leaving the balance outstanding of $59,044 as of September 30, 2018.

During the nine months ended September 30, 2018, the Company repaid $4,250 of promissory note dated December 15, 2015 to Dianne David, leaving the balance outstanding of $69,794 as of September 30, 2018.

 

(5)           Convertible Notes Payable

The following summarizes the book value of the convertible notes payable outstanding as of September 30, 2018 and December 31, 2017:

 

(6)           Notes Payable

On June 27, 2018, the Company issued a promissory note to an investor for $4,100 payable by December 27, 2018 with $615 in interest expense.     

    

On September 28, 2018, the Company issued a promissory note to the investor for $1,900 payable by March 27, 2019 with $285 in interest expense.      

(7)           Derivative Instruments

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, "Derivatives and Hedging," and determined that the convertible notes should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

 

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of September 30, 2018 and December 31, 2017. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note and warrant is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in September 30, 2018 and December 31, 2017:

 

The Company valued the conversion feature using the Black-Scholes valuation model. The fair value of the derivative liability for all the notes that became convertible as of September 30, 2018 amounted to $3,452,179. During the nine months ended September 30, 2018, $80,542 of the value assigned to the derivative liability was recognized as a debt discount to the convertible notes and $1,135,539 was recorded as loss on change in fair value of derivative liability.

 

	Nine Months Ended September 30, 2018				Year Ended December 31, 2017
	Conversion Feature				Conversion Feature
	of				of
	Notes Payable				Notes Payable
Beginning balance, January 1			1,787,063				-
Additional issuances			-				1,079,942
Change in value of derivative liability			2,800,655				707,121
Excess derivative liability expense			(1,135,539	)			-
Ending balance		$	3,452,179			$	1,787,063

(8)           Equity

The Company is authorized to issue 10,000,000,000 shares of common stock and 1,000,000 shares of preferred A, 10,000 shares of preferred A-2, 1,000,000 shares of preferred B and 1,000 shares of preferred C class.  The increase in authorized shares of common stock from 500,000,000 to 1,000,000,000 was approved by the shareholders and Board of Directors on September 27, 2017. The increase from 1,000,000,000 to 3,000,000,000 shares was effective December 12, 2017, the increase from 3,000,000,000 to 5,000,000,000 shares was effective March 21, 2018 and the increase from 5,000,000,000 to 10,000,000,000 was effective May 17, 2018.

As of September 17, 2018, a reverse stock split in the ratio 5,000 for 1 share and the name change from X Rail Entertainment, Inc. to Las Vegas Xpress, Inc. was effective.

 

During the nine months ended September 30, 2018, the Company issued an aggregate of 90,769,617 shares of common stock for compensation of $3,505,927 and 10,025,000 shares of common stock for outside services of $230,000. During the nine months ended September 30, 2017, the Company issued an aggregate of 292 shares of common stock for services resulting in an expense of $130,000. 

During the nine months ended September 30, 2018, the Company issued 292,052 shares of common stock for note and interest conversion of $192,588.  During the nine months ended September 30, 2017 the Company issued 4,346 shares of common stock for the conversion of $88,395 of outstanding notes payable and interest.

There were no warrants exercised during the nine months ended September 30, 2018. During the nine months ended September 30, 2017, the Company issued 2,400 shares of common stock for the exercise of warrant.  

During the nine months ended September 30, 2018, the Company has issued 53,000 shares of common stock for cash of $53,000.  During the nine months ended September 30, 2017, the Company issued 2,324 shares of common stock for cash of $421,000.

During the nine months ended September 30, 2017, the Company cancelled 2 shares of preferred stock series A-2 issued to Michael Barron and issued to him 4 shares of preferred stock series C. Each share of preferred stock series C is not convertible into common stock shares. Total aggregate issued shares of series C preferred stock, at any given time, have voting rights equal to four times the sum of the total number of shares of common stock and total number of shares of preferred stock series A, A-2 and B which are issued and outstanding at the time of voting.

Warrants

 

The Company accounted for the issuance of warrants in conjunction from the issuance of convertible notes as an equity instrument and recognized the warrants under the Black-Scholes valuation model based on the company's market share price on the grant date. The warrants were granted for compensation.

 

The below table summarizes warrant activity during the nine months ended September 30, 2018:

 

 

The fair value of each warrant on the date of grant is estimated using the Black-Scholes option valuation model. The following weighted-average assumptions were used for options granted during the nine months ended September 30, 2018 and 2017:

 

 

The following table summarizes information relating to outstanding and exercisable warrants as of September 30, 2018:

 

 

Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company's stock exceeded the exercise price of the warrants at September 30, 2018, for those warrants for which the quoted market price was in excess of the exercise price ("in-the-money" warrants). As of September 30, 2018, the aggregate intrinsic value of warrants outstanding was $0 based on the closing market price of $0.15 on September 30, 2018.

The Company values warrants using the Black-Scholes option pricing model.  Assumptions used in the Black-Scholes model to value options and warrants issued during the nine months ended September 30, 2018 were as follows:
        

 

(9)          Related Party Transactions

During the nine months ended September 30, 2018, the Company repaid $4,200 of promissory note dated September 30, 2017 to Wanda Witoslawski (the Chief Financial Officer of the Company), leaving the balance outstanding of $3,200 as of September 30, 2018.

During the nine months ended September 30, 2018, the Company borrowed $100 of promissory note dated December 15, 2015 from Wanda Witoslawski (the Chief Financial Officer of the Company), leaving the balance outstanding of $50,010 as of September 30, 2018.

During the nine months ended September 30, 2018, the Company borrowed $37,942 of promissory note dated September 30, 2017 to Las Vegas Railway Express, Inc., leaving the balance outstanding of $192,940 as of September 30, 2018.

During the nine months ended September 30, 2018, the Company added $5,344 to the promissory note dated September 30, 2017 to Allegheny Nevada Holdings Corporation (Michael A. Barron, the CEO and President of the Company, is a 100% owner and President of Allegheny Nevada Holdings Corporation), leaving the balance outstanding of $59,044 as of September 30, 2018.

During the nine months ended September 30, 2018, the Company repaid $4,250 of promissory note dated December 15, 2015 to Dianne David, leaving the balance outstanding of $69,794 as of September 30, 2018.

           
(10)         Subsequent Events

In October 2018, the Company issued 550,000,000 shares of common stock for compensation to management and 60,000,000 shares of common stock for outside services.

 

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

Forward-Looking Statements

 

This Quarterly Report contains forward-looking statements about the Company's business, financial condition and prospects that reflect management's assumptions and beliefs based on information currently available. There can be no assurance that the expectations indicated by such forward-looking statements will be realized. If any of management's assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, Las Vegas Xpress, Inc., actual results may differ materially from those indicated by the forward- looking statements.

 

The key factors that are not within the Company's control and that may have a direct bearing on operating results include, but are not limited to, managements' ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry, as well as the risk factors identified in the Company's filings.

When used in this Report, words such as, "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar expressions are intended to identify and qualify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions. However, the forward-looking statements contained herein are not covered by the safe harbors created by Section 21E of the Securities Exchange Act of 1934.  

       

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere herein.

Business Overview

 

Las Vegas Xpress, Inc. is in the specialty passenger train business and has three operating divisions, The X Train, currently in the planning stages, will be an excursion railroad between metropolitan areas and resort/casino destinations, X Wine Railroads, which is a rail excursion from metropolitan areas to wine regions, and Club X Train, currently in the planning stages, will be a riders membership club for X Train customers.

X Train

X Wine Railroad

The Company's X Wine Railroad service from LA Union Station to Santa Barbara California runs on a scheduled basis, once a month on Saturdays, with individual riders (retail) as well as charters for corporate outings and special events. It began running from February 2017 to May 2017 and then again on November 4, 2017. Service is planned to run in 2018 from February to November. The X Wine Railroad provides a unique wine tasting experience to riders who take the train aboard special period classic railcars and an excursion to the Los Olivos wine area of Southern California. Over 250 private wineries reside in the area and the X Wine Railroad provides private access to these vineyards on an exclusive basis. Ticket prices are $369 per person, all inclusive. X Wine Railroad provides an all-inclusive day trip including a gourmet breakfast, wine tasting in the wineries, wine and cheese lunch at the wineries, and a gourmet dinner on the train's return trip.

Club X Train

Club X Train, which is still in the planning stage, will be a one stop shop for all Las Vegas rooms, activities, tours, show tickets and packages. Las Vegas shows, hotel rooms, tours, nightclubs and attractions will all available for members of ClubXTrain.com. This will be the only site riders need to plan their Vegas vacation getaway.

We anticipate that when a customer purchases a train ticket on either the X Train (once it commences operations) or any of the X Wine Railroad excursions, such tickets will include enrollment in our Club X membership club. Members will receive points from each excursion they ride and will be provided discounts on products and services we provide. The more they ride, the more points they will receive. Club X train will the customer's ticket within Vegas for access to nightclubs, hosted bottle service, pool parties, gentlemen's clubs and the Club X Train Crawl: a high end to visiting three nightclubs in one night. Customers will outline their desired plan for the evening and Club X Train will take care of arranging all the details.  We expect to commence offering Club X Train service when the X Train commences running, currently anticipated to be January 2019.

Critical Accounting Policies

The preparation of our condensed financial statements and notes thereto requires management to make estimates and assumptions that affect the amounts and disclosures reported within those financial statements. On an ongoing basis, management evaluates its estimates, including those related to impairment of long-lived assets, contingencies, litigation and income taxes.  Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances.  Actual results under circumstances and conditions different than those assumed could result in differences from the estimated amounts in the financial statements. There have been no material changes to these policies during the fiscal year.

Results of Operations for the Three Months Ended September 30, 2018 as Compared to the Three Months Ended September 30, 2017

The following is a comparison of the results of operations for the three months ended September 30, 2018 and 2017.

 

 

Revenue

During the three months ended September 30, 2018 and 2017, the Company has not generated any revenue.

Operating Expenses

Compensation expense increased by $1,233,352, or 896.5%, during the three months ended September 30, 2018 as compared to the three months ended September 30, 2017.  The increase in compensation expense was primarily due to issuances of stock to management.  Selling, general and administrative expenses decreased by $30,021, or 41.4%, during the three months ended September 30, 2018 as compared to the same period in 2017 primarily due to decrease in travel and office expenses. Professional fees increased by $76,834, or 75.8%, during 2018 as compared to 2017 due primarily to increases in consulting services paid with shares.  

 

Other (Expense) Income

 

Derivative expense decreased by $2,626,790 during the quarter ended September 30, 2018 as compared to the same period in 2017 due to lower stock price and change in derivative liability.  Interest expense increased by $8,192, or 6.1%, due to higher expense in convertible promissory notes.

Results of Operations for the Nine Months Ended September 30, 2018 as Compared to the Nine Months Ended September 30, 2017

The following is a comparison of the results of operations for the nine months ended September 30, 2018 and 2017.
                                   

Revenue

During the nine months ended September 30, 2018 and 2017, the Company generated some revenue from operating the wine train in Santa Barbara, CA. Gross profit increased by $18,183, or 131.8% during the nine months ended September 30, 2018 compared to the same period in 2017 due to higher ticket prices and lower costs.  Revenue was generated from selling train tickets, food and beverage and wine tours.

Operating Expenses

Compensation expense increased by $3,598,395, or 919.7%, during the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017.  The increase in compensation expense was primarily due to issuances of stock to management.  Selling, general and administrative expenses decreased by $105,102, or 38.5%, during the nine months ended September 30, 2018 as compared to the same period in 2017 primarily due to decrease in travel and office expenses. Professional fees increased by $44,558, or 7.9%, during 2018 as compared to 2017 due primarily to increase in consulting services.  

 

Other (Expense) Income

 

Interest expense increased by $153,991, or 21.2%, during the nine months ended September 30, 2018 as compared to the same period in 2017 due to issuances of conversion of certain promissory notes.  During the nine months ended September 30, 2018, the Company accrued loss on change in fair value of derivative liability of $2,800,655. During the nine months ended September 30, 2017 there was a loss was $7,789. Gain on change in derivative liability increased by $1,317,269, or 100.0% as compared to the same period in 2017, due to change in market price of the stock.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support asset growth, satisfy disbursement needs, maintain reserve requirements and otherwise operate on an ongoing basis. The Company has limited operating revenues and is currently dependent on debt financing and sale of equity to fund operations. 

 

As shown in the accompanying financial statements, the Company has net losses of $7,128,252 for the nine months ended September 30, 2018 and $2,608,267 for the nine months ended September 30, 2017.  The Company also has an accumulated deficit of $22,479,785 and a negative working capital of $5,260,535 as of September 30, 2018, as well as outstanding convertible notes payable of $454,700, before debt discount of $80,542.  Management believes that it will need additional equity or debt financing to be able to implement its business plan.  Given the lack of significant revenue, capital deficiency and negative working capital, there is substantial doubt about the Company's ability to continue as a going concern.

We believe that the successful growth and operation of our business is dependent upon our ability to do the following:

 

 

Management is attempting to raise additional equity and debt to acquire several operating passenger rail operations which will sustain operations until it can market its services and achieves profitability.  The successful outcome of future activities cannot be determined at this time and there are no assurances that, if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive operating results.

       
Cash Flows

Net cash used in operating activities for the nine months ended September 30, 2018 and 2017 were $230,410 and $1,535,657, respectively.  Cash used in operating activities for the nine months ended September 30, 2018 and 2017 were primarily due to net losses of $7,128,252 and $2,608,267, respectively.  During the nine months ended September 30, 2018, the net loss included significant non-cash expenses of $3,505,927 in stock issued for compensation, $80,542 in amortization of discounts on notes payable, $400,000 in warrants expense, $2,800,655 in derivative expense related to convertible notes payable, $1,198,263 in changes in operating assets and liabilities.  During the nine months ended September 30, 2017, the net loss included significant non-cash expenses of $130,000 in stock issued for services and $156,330 in amortization of discounts on notes payable, $499,196 in warrants expense and $171,800 in changes in operating assets and liabilities.

There was no net cash used in investing activities during the nine months ended September 30, 2018.  Net cash used in investing activities during the nine months ended September 30, 2017 was $708,160 primarily due to the capitalized costs towards the rail cars. 

 

Net cash provided by financing activities for the nine months ended September 30, 2018 amounted to $176,686, which consisted of $225,000 in proceeds from the issuance of convertible notes payable, $8,450 in repayments on related party notes payable and $140,200 in repayments on convertible notes payable. Net cash provided by financing activities for the nine months ended September 30, 2017 was $630,028 which consisted of $19,100 in proceeds from convertible notes payable, $53,344 in repayments on related party notes payable, $145,272 in proceeds from related party notes payable and $421,000 from proceeds from stock purchases.  

Description of Indebtedness

For a complete description of our outstanding debt as of September 30, 2018 and December 31, 2017, see Notes 4 and 5 to the financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item. 

 

Item 4.   Controls and Procedures.

 

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of September 30, 2018. In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2018, our disclosure controls and procedures were not effective.

Our management is responsible for the integrity and objectivity of all information presented in this Quarterly Report on Form 10-Q. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgments. Management believes the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements fairly represent the Company's financial position and results of operations.

 

There were no changes during the three months ended September 30, 2018 in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations and 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.

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

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

During the nine months ended September 30, 2018, the Company issued shares of its common stock as follows:

 

 

The above referenced issuances were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.

Item 3.  Default Upon Senior Securities

As of September 30, 2018 we are not in default on any of our borrowings.

Item 4.  Mine Safety Disclosures

Not applicable to our Company.

Item 5.  Other Information.

 

None

 

Item 6.  Exhibits.

 

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 hereunto duly authorized.

 

 

 

 

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