Annual report pursuant to Section 13 and 15(d)

Litigation

v3.10.0.1
Litigation
9 Months Ended 12 Months Ended
Sep. 30, 2017
Dec. 31, 2017
Commitments and Contingencies Disclosure [Abstract]    
Litigation

Note 11 – Litigation

 

 

The Company may become involved in legal proceedings in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. (see litigation Note 14 to the December 31, 2017 consolidated financial statements included in this document and subsequent events Note 16).

Note 14 – Litigation

 

Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties, other than those listed below. As of the date of this Annual Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.

 

Prior to the Company’s investment in CelLynx Inc., on July 19, 2010 certain claims for unpaid wages were filed against CelLynx, Inc.. Judgments were obtained commencing in August 2011 for back wages by some of its former employees. Some of those claims have been partially paid and others were expected to be paid in the normal course of business or were to be otherwise defended. Those claims have now been incorporated into California Labor Commission awards in favor of those former employees. Those awards total approximately $263,000 depending on interest charges. As of December 31, 2017, and 2016, the Company has accrued $263,000 in its consolidated financial statements associated to these awards.

 

On May 7, 2015, the Company’s registered records office in Nevada received a complaint filed in the Los Angeles Superior Court against 5BARz International, Inc. by IRTH Communications LLC claiming breach of contract and claiming unpaid fees, interest and expense claims in the amount of $82,040. IRTH Communications LLC vs 5BARz International, Inc. SCI124140 (County of Los Angeles – West Judicial District). On August 5, 2015, the Company received a default judgment in the amount of $84,947 including costs and interest. On August 19, 2015, the Company paid $5,000 related to the judgment. On December 30, 2015, the Company partially settled the amount due by delivery of 500,000 shares of common stock with a value at the date of issue of $70,000. However, the value of that stock was $45,000 at the date six months from the date of issue. At December 31, 2016 and 2017, the company’s consolidated financial statements reflect a balance of $35,000 due under this judgment. The Company is negotiating a settlement of this remaining amount.

 

On May 13, 2015, the Company received a complaint filed in the Superior Court of the State of California, County of San Diego against 5BARz International Inc, and Daniel Bland, by Assured Wireless International Corp. claiming breach of contract and claiming unpaid fees and interest of $171,159, plus penalties. Assured Wireless vs. 5BARz International Inc, and Daniel Bland 37-2015-00012766-CU-BC-CTL (County of San Diego). On June 29, 2016, the parties entered into a settlement agreement for the payment of $170,000, of which $40,000 was paid at the settlement date. At that date, Daniel Bland was released as a defendant in the action. At December 31, 2016, $130,000 remains unpaid and a stipulated judgement was issued under the settlement agreement which is accrued as payable in the consolidated financial statements. The said stipulated judgement has been transferred to a third party Ramona Featherby dba California Judicial Recovery Specialists. On October 18, 2018, the Company entered into a settlement agreement to settle the judgment by way of payment of $105,000, paid over a period of five months. On October 19, 2018, the Company paid $25,000 and has 4 monthly installments due of $20,000 each. At each of December 31, 2016 and 2017, the balance reflected in the consolidated financial statements of the Company was $130,000 (see subsequent events note 16 to the December 31, 2017 consolidated financial statements included in this document).

 

On March 10, 2016, a complaint was filed in the Eleventh Judicial Circuit Court in Miami-Dade County, Florida, against 5BARz International, Inc. and certain officers and employees of the Company by Group 10 Holdings, LLC, a lender by way of convertible debenture, claiming breach of contract, fraud, negligent misrepresentation and unjust enrichment, claiming $110,000 plus interest at 12%. Group 10 Holdings vs 5BARz International, Inc. et all 2016-005597 CA 01. On July 12, 2016, the Company entered into a settlement agreement with the plaintiff for the settlement of the claim for an aggregate of $153,000. The balance is to be paid by way of a series of payments, commencing 7 days from the settlement date, each in the amount of $35,000. At each payment date the Company has the option of paying the amount due in cash, or in common stock at the then market value of the stock. The holder is restricted on a daily basis to a maximum sale of up to 15% of daily volume. On July 14, 2016, 333,333 of common shares were issued at a price of $0.105 per share in lieu of $35,000 cash. On August 4, 2016, an additional 448,717 common shares were issued at a price of $0.078, on November 1, 2016, the Company made an additional payment of $35,000 comprised of 416,666 shares at a price of $0.084 per share and on December 7, 2016, the Company made a further payment of 594,228 shares at a price of $.0589 per share and on December 29, 2016 a further 673,077 at $0.052 was issued. At December 31, 2016, an unpaid balance of $13,289 was reflected as payable in the consolidated financial statements as a result of a true up provision based upon actual sales proceeds. On February 6, 2017 the Company issued a final 234,447 shares at $0.052 for aggregate proceeds of $12,191 to settle the note payable in full and dismissal of the lawsuit with prejudice. At December 31, 2017 the balance due was nil.

  

On April 11, 2016, a complaint was filed in the Supreme Court of the State of New York, County of New York, against 5BARz International Inc. and Daniel Bland by R Squared Partners LLC., a lender by way of convertible note. The complaint alleges breach of contract, requests injunctive relief and tortious interference with Contract. The Company had borrowed $100,000 on June 2, 2015, pursuant to a Securities Purchase Agreement which included a convertible note agreement and the issuance of a warrant to acquire 3,000,000 shares at a price of $0.05 per share, with a cashless exercise. The Company repaid interest on the note on July 1, 2015 of $933 as required and repaid the loan principal of $100,000 on August 13, 2015 by wire transfer. Further, on September 1, 2015, the Company issued 29,340 shares as final payout of the note via conversion into shares pursuant to the note terms. Upon payout, R Squared refused to cancel the note payable and return the cancelled note to the Company as required by the contract. On March 15, 2016, R Squared issued a cashless exercise notice of the warrant for 1,903,021 common shares. Further, R Squared indicated that a further $100,000 was due under the note which is disputed by the Company. At December 31, 2016 and 2017, the Company has no amount due as payable to R Squared. The Company reflects the 3,000,000 warrants in the name of R Squared issued and outstanding in the consolidated financial statements December 31, 2016 and 2017. The warrants expire May 15, 2020. On January 8, 2019 a summary judgment was issued in the R Squared Partners, LLC vs 5BARz International, Inc., and Daniel Bland law suit. The summary judgment was awarded without opposition as the parties were actively engaged in settlement negotiations. Accordingly, the Company is filing a motion to vacate the order and or granting a motion to renew. The judgment awarded an interim order for breach of contract in the sum of $380,571 plus late fees in the amount of $2,987 accruing daily from March 16, 2016. The Company’s advisors hold that the judgment is based upon an agreement that charges interest at usury rates, illegal in the State of New York (see subsequent events note 16 to the December 31, 2017 consolidated financial statements included in this document).

 

On April 22, 2016, a complaint was filed in the Supreme Court of the State of New York, County of New York, against 5BARz International Inc. by Firstfire Global Opportunity Fund, a lender by way of convertible note. The complaint alleges breach of contract, requests injunctive relief and tortious interference with Contract. The Company had borrowed $100,000 on June 2, 2015. The Company repaid interest on the note on July 1, 2015 of $1,167 and repaid the loan principal of $100,000 on August 5, 2015 by wire transfer. Further, on August 5, 2015 the Company issued 24,000 shares as final payout of the note interest via conversion into shares pursuant to the note terms. First Fire Global Opportunity Fund has made demand on the Company for an additional amount of $100,000 due under the note and exercise of warrants. The Company disputes the claims for additional amounts due, the Company filed an answer to the complaint on May 31, 2016. On August 11, 2016, the Company entered into a settlement agreement with the plaintiff and issued 750,000 common shares in settlement with restrictive legend on the shares to be released, 250,000 shares each of August, September and October 2016. On December 31, 2016 and 2017, the balance due under the note and warrant agreement was nil.

 

On May 31, 2016, a complaint was filed in the United States District Court, Eastern District of New York, against 5BARz International, Inc. by LG Capital Funding, LLC, a lender by way of convertible note issued on June 18, 2015, in the principal amount of $52,500. The complaint alleges that the Company failed to deliver 1,699,580 shares pursuant to a notice of conversion, and seeks preliminary and permanent injunctive relief, damages and attorney fees. The Company has responded with an initial Memorandum of Law on June 24, 2016, in opposition to the Plaintiffs motion for permanent injunctive relief. The Company has accrued an amount of $64,609 due to the lender pursuant to the terms of the convertible note agreement at December 31, 2016. On December 31, 2017, the Company reflected a balance due to the lender of $75,616. On September 6, 2018, an order was entered which awarded damages of $110,472, plus legal fees. The additional amount of $34,856 has been accrued in the 2018 fiscal year.

 

On July 6, 2016, a complaint was filed in the District Court of Dallas County Texas, (DC-16-08001), against 5BARz International, Inc., and certain officers of the Company by JSJ Investments, Inc, a lender by way of convertible note in the principal amount of $104,500. The complaint alleged breach of contract, promissory estoppel as to note, and tortious interference with contract. On May 31, 2017, the Company and plaintiff entered into a mediation and settled the law suit by agreement to pay $200,000 in shares at market over six equal monthly payments. The Company paid by way of shares four payments from June to October 2017 in the aggregate amount of $133,332.

On February 9, 2018 a final judgment was issued by the Dallas County District court for damages of $92,174 plus attorney fees of $15,275. At December 31, 2016, the balance reflected as payable in the consolidated financial statements of the Company was $177,424, and on December 31, 2017 that balance after the payments addressed above was $66,668. The increase of $25,506, plus legal fees pursuant to court order was reflected in 2018. On September 7, 2018, the Company paid an additional $30,000 pursuant to a payment schedule negotiated with the lender for the balance due.

  

On August 4, 2016, a complaint was filed in the United States District Court, Southern District of New York, against 5BARz International, Inc. by Union Capital LLC, a lender by way of convertible note in the principal amount of $100,000. The complaint alleged that the Company failed to deliver 4,299,689 shares pursuant to a notice of conversion, and seeks an order for specific performance, breach of contract, damages and attorney fees. On October 5, 2016, the Company issued 4,299,689 shares in full settlement of the note. On November 5, 2016, the parties entered into a settlement agreement providing mutual releases. The settlement agreement provides for an additional $25,000 payment to be made by November 22, 2016. At December 31, 2016, the balance of $25,000 remained unpaid and is accrued as a liability in the consolidated financial statements. On May 9, 2017, the Company was required by court order to pay legal fees and damages in the aggregate amount of $48,414 and the case was dismissed. On July 26, 2017, a court ordered receiver was appointed to collect the unpaid balance. On August 23, 2017, the Company paid $63,712 in legal fees and costs in full and final settlement of the unpaid amounts. The balance due at December 31, 2017 is nil.  

 

On August 5, 2016, a complaint was filed in the United States District Court, Southern District of New York, against 5BARz International, Inc. by Adar Bays LLC, a lender by way of convertible note in the principal amount of $52,500. The complaint alleged that the Company failed to deliver 184,775 shares pursuant to a notice of conversion, and seeks an order for injunctive relief, damages and attorney fees. On October 27, 2016, the Company and plaintiff negotiated a settlement agreement for payment of $83,733 in cash or shares over four months as well as a payment of 184,775 shares issued upon signing of the agreement. On November 3, 2016, the company delivered the 184,775 shares pursuant to the settlement agreement, valued at $5,000. On December 6, 2016, having filed a 10Q, the Company sought permission from plaintiff to commence payments in shares under the settlement agreement and issued the remaining shares. Plaintiff refused receipt of settlement shares pursuant to the settlement agreement and has sought summary judgement pursuant to the terms of the note. At December 31, 2016, the Company has reflected a principal and interest amount of $83,733. On May 16, 2017, the Company issued 1,674,666 shares to be available for trading over three months. The plaintiff refused to accept the shares in settlement of the debt. On August 16, 2018, a court order was issued for the settlement of the claims by petitioner in the amount of $58,514 plus interest, calculated to the date of order. On December 31, 2017, the principal and interest due pursuant to the court order is $82,803, which is reflected in the consolidated financial statements. The additional interest accrued in 2018 to the date of the court order was $7,220, which is reflected in the 2018 interest expense.

 

On September 19, 2016, a complaint was filed in the Superior Court of the State of California, for the County of San Diego against 5BARz International, Inc. by Richard Rajabi claiming $163,637 for breach of contract. The Company has filed an answer and counter claim in this matter. On December 31, 2016, the consolidated financial statements reflect an unpaid balance of $148,037. On October 18, 2017, a settlement agreement and stipulation for entry of judgment was entered into by the parties for full settlement of the claims by payment by the Company of $25,850. The settlement provided for payments on October 18, 2017 of $5,000, on November 16, 2017 a payment of $10,000 and a final payment of $10,850 on December 16, 2016. At December 31, 2017, the consolidated financial statements reflect an unpaid balance of $10,850 which was paid on January 12, 2018.

 

On December 1, 2016, a complaint was filed in the United States District Court, Southern District of New York, against 5BARz International, Inc., by Blue Citi LLC, a lender by way of convertible note in the principal amount of $110,000, entered into on August 26, 2015. On March 10, 2016, the Company and Blue Citi entered into a settlement agreement for the payment of $168,065 in eight monthly payments for settlement of the note. The Company paid four payments in the aggregate amount of $84,032 to Blue Citi LLC. Upon receipt of the fourth payment, Blue Citi filed a law suit claiming breach of contract, requesting specific performance under the original note agreement and in the alternative breach of contract under the settlement agreement. At December 31, 2016, the Company reflected a balance due of $84,033. On August 31, 2017, pursuant to court order, the Company delivered 1,857,777 shares at a price of $0.045 per share in further settlement of an additional $83,600 and attorney’s fees of $18,988. Accordingly, the Company has paid $167,632 on the $110,000 note. In response, the Company filed a cross motion to vacate that order and to dismiss the lawsuit on the basis that the Note violates New York’s laws against criminal usury. On September 19, 2018, the New York District Court denied this cross motion yet pointed out that it is possible that the New York Court of Appeals will see the issue differently. The District court ordered $180,204 in damages, $116,950 in prejudgment interest and $5,837 in attorney fees. On October 30, 2018, the Company filed a notice of appeal in the United States Court of Appeals, Second Circuit, 1:16-cv-09027-VEC, which appeals that decision and order of the District Court, granting the Petitioners motion and further appealed the denial of the district court to vacate the prior order for the issuance of 1,857,777 shares and denying the dismissal of the lawsuit on the basis that the note violates New York law on the basis of criminal usury. On December 31, 2017, the financial statement reflects a provision for loss on this matter in the amount of $321,979. Should the Company prevail in the court of appeal, a refund of $83,600 would be required from the plaintiff.

  

On March 16, 2017, Alta Sorrento Office Center, LLC filed a complaint in the Superior Court of California, County of San Diego, central division, Alta Sorrento Office Center vs. 5BARz International, Inc. case number 37-2017-00009385-CU-UD-CTL. The complaint alleges that unpaid rent, interest and common area fees in the amount of $48,951 are due and payable by the plaintiff and seeks prejudgment right to possession, of the premises at suites 140 and 200, 9444 Waples Street, in San Diego, California. At December 31, 2016, unpaid rent of $24,422 has been accrued as payable in these consolidated financial statements. On January 4, 2017, the Company paid for December 31, 2016 rent $24,073. The Company has filed an answer to the complaint on April 9, 2017 and entered into a stipulated amount due to be paid to June 30, 2017 in the amount of $195,245. That amount is not paid, and the offices were surrendered to the landlord. At December 31, 2017, the Company reflects a provision for loss on this matter in the amount of $295,595.

  

In addition to the above, the Company may become involved in legal proceedings in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.