The accompanying notes are an integral part
of these unaudited consolidated financial statements
The accompanying notes are an integral part
of these unaudited consolidated financial statements
The accompanying notes are an
integral part of these unaudited consolidated financial statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION
OF BUSINESS
Next Group Holdings, Inc, (the “Company”)
was incorporated under the laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiaries,
both current and future. Its subsidiaries are Meimoun and Mammon, LLC (100% owned), Next Cala, Inc (94% owned), NxtGn, Inc. (65%
owned) and Next Mobile 360, Inc. (100% owned). Additionally, Next Cala, Inc. has a 60% interest in NextGlocal, a subsidiary
formed in May 2016.
On January 1, 2016, NGH completed an
Agreement and Plan of Merger (the “Merger Agreement”) with Pleasant Kids, Inc. (“Pleasant Kids”) and its
wholly owned subsidiary, NGH Acquisition Corp. (“Acquisition Sub”), pursuant to which NGH merged with Acquisition Sub
and Acquisition Sub was then merged into PLKD effective January 1, 2016. Under the terms of the Merger Agreement, the NGH shareholders
received shares of PLKD common stock such that the NGH shareholders received approximately 80% of the total common shares and 100%
of the preferred shares of PLKD issued and outstanding following the merger. Due to the nominal assets and limited operations of
PLKD prior to the merger, the transaction was accorded reverse recapitalization accounting treatment under the provision of Financial
Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805 whereby NGH became the accounting acquirer
(legal acquiree) and PLKD was treated as the accounting acquiree (legal acquirer). The historical financial records of the Company
are those of the accounting acquirer (NGH) adjusted to reflect the legal capital of the accounting acquire (PLKD).
As
the transaction was treated as a recapitalization, no intangibles, including goodwill, were recognized. Concurrent with the effective
date of the reverse recapitalization transaction, the Company adopted the fiscal year end of the accounting acquirer of December 31.
Meimoun and Mammon, LLC (“M&M”)
was formed under the laws of the State of Florida on May 21, 2001 as a real estate investment company. During the year ended December
31, 2010, M&M began winding down real estate operations and engaged in telecommunications services. M&M acquired telecom
registrations, licenses and authorities to provide telecom services to the retail and wholesale markets including sales of prepaid
long distance telecom services and Mobile Virtual Network Operator (MVNO) services. The services are sold under the brand name
Next Mobile 360 and through the subsidiary of the same name.
Next Cala, Inc, (“Cala”)
was formed under the laws of Florida on July 10, 2009 to the purpose of offering prepaid and reloadable debit cards to the retail
market. Cala serves consumers in the underbanked and unbanked populations through Incomm, a leading provider of payment remittance
services worldwide.
NxtGn, Inc. (“NxtGn”) was
formed under the laws of Florida on August 24, 2011 to develop a unique High Definition telepresence product (AVYDA) which allows
users to connect with celebrities, public figures, healthcare and education applications via a mobile phone, tablet or personal
computer.
On May 27, 2016, the Cala entered into
a Joint Venture Agreement (the “Agreement”) with Glocal Payments Solutions, Inc (“Glocal”) to form a joint
venture in which Cala has a 60% controlling interest and Glocal has a 40% interest. The Joint Venture will seek to launch and activate
up to 45,000 prepaid debit cards under the Cala brand by December 31, 2016 and 360,000 additional cards during the 2017 calendar
year. Either party may terminate the agreement at December 31, 2016 if certain objectives are not met.
On July 22, 2016, the Company completed
its acquisition of Transaction Processing Products, Inc. (“TPP”) which has a 64% interest in Accent InterMedia, LLC
(“AIM”) and no other assets or liabilities. AIM operates as a leading gift card provider and in business activities
very synergistic with those the Company is currently engaged in. The Company sold its interest in TPP during the three months ended
March 31, 2017 to an unaffiliated third party.
On August 10, 2016, M&M, a wholly
owned subsidiary of the Company, closed the acquisition of Tel3 from a related party. Tel3 provides prepaid international long
distance telephone services.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The accompanying
unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”) for reporting of interim financial information. Pursuant to such rules and regulations,
certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted. Accordingly, these statements do not include all the disclosures
normally required by accounting principles generally accepted in the United States for annual financial statements and should be
read in conjunction with the consolidated financial statements for the year ended December 31, 2016 and notes thereto and other
pertinent information contained in our annual report on form 10-K as filed with the Securities and Exchange Commission on July
3, 2017. The unaudited condensed consolidated statements of operations and cash flows for the three and nine months ended September
30, 2017 are not necessarily indicative of the consolidated results of operations or cash flows to be expected for any future period
or for the year ending December 31, 2017.
The accompanying
unaudited condensed consolidated financial statements have been prepared by management and in the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position
and results of operations as of the dates and for the periods presented.
Basis of Presentation
This summary of accounting policies
for the Company is presented to assist in understanding the Company’s financial statements. The Company uses the accrual
basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting)
and have been consistently applied in the preparation of the unaudited consolidated financial statements.
Use of Estimates
The preparation of unaudited condensed
consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the financial statements. Actual results could differ from those estimates. Estimates are used
when accounting for allowances for bad debts, stock based compensation collectability of loans receivable, potential impairment
losses of the capitalized license fee and fair value calculations related to embedded derivative features of outstanding convertible
notes payable.
Cash
For purposes of the statements of cash
flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents
to the extent the funds are not being held for investment purposes. The Company held no cash equivalents as of September 30, 2017
or December 31, 2016. As of September 30, 2017 and December 31, 2016, the Company did not hold cash with any one financial institution
in excess of the FDIC insured limit of $250,000.
Revenue recognition
The Company follows paragraph 605-10-S99
of the FASB
Accounting Standards Codification
for revenue recognition. The Company will recognize revenue when it is realized
or realizable and earned. The Company considers revenue realized or realizable and earned when all the following criteria are met:
(i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer,
(iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The Company primarily generates
revenues through the sale of prepaid calling minutes to consumers through its Tel3 division. While the Company collects payment
for such minutes in advance, revenue is recognized upon delivery to and consumption of minutes by the consumer. Next Cala generated
revenues from commissions earned from Incomm, a leading financial services provider during the three and nine months ended September
30, 2017 and 2016.
Property and equipment
Property and equipment are stated at
cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization using the straight-line
method over the estimated useful lives of the related assets, which range from three to five years.
Maintenance and
repair costs are expensed as they are incurred while renewals and improvements which extend the useful life of an asset are capitalized.
At the time of retirement or disposal of property and equipment, the cost and related accumulated depreciation and amortization
are removed from the accounts and any resulting gain or loss is reflected in the consolidated results of operations.
Impairment of Long-Lived Assets
In accordance with ASC Topic 360, formerly
SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets,
the Company reviews its long-lived assets
for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable.
The assessment of possible impairment is based on the Company’s ability to recover the carrying value of its asset based
on estimates of its undiscounted future cash flows. If these estimated future cash flows are less than the carrying value of the
asset, an impairment charge is recognized for the difference between the asset’s estimated fair value and its carrying value.
There was no impairment losses recorded to long-lived assets during the three or nine months ended September 30, 2017 or 2016.
Non-Controlling Interest
The Company reports the non-controlling
interest in its majority owned subsidiaries in the consolidated balance sheets within the stockholders’ deficit section,
separately from the Company’s stockholders’ deficit. Non-controlling interest represents the non-controlling interest
holders’ proportionate share of the equity of the Company’s majority-owned subsidiaries. Non-controlling interest is
adjusted for the non-controlling interest holders’ proportionate share of the earnings or losses and other comprehensive
income (loss) and the non-controlling interest continues to be attributed its share of losses even if that attribution results
in a deficit non-controlling interest balance.
Derivative and Fair Value of Financial
Instruments
Fair value accounting requires bifurcation
of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their
fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt
host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement.
If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process
of these instruments as derivative financial instruments under ASC 815.
Once determined, derivative liabilities
are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded
in results of operations as an adjustment to fair value of derivatives.
Fair value of certain of the Company’s
financial instruments including cash, accounts receivable, account payable, accrued expenses, notes payables, and other accrued
liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with
ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value
in accordance with generally accepted accounting principles and expands disclosures about fair value investments.
Fair value, as defined in ASC 820, is
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or
most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the
risk of nonperformance, which includes, among other things, the Company’s credit risk.
Valuation techniques are generally classified
into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or
more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability,
and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use
of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting
measurement as follows:
Level 1: Quoted prices (unadjusted)
in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Quoted prices for similar assets
or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active;
inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or
corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inputs for the
asset or liability that are supported by little or no market activity, and that are significant to the fair values.
Fair value measurements are required
to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair
value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements
including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to
the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in
earnings, and a description of where those gains or losses included in earning are reported in the statement of income.
Except as discussed in
Note 7 –
Derivative Liabilities
the Company did not identify any other assets or liabilities that are required to be presented on the
consolidated balance sheet at fair value in accordance with ASC 825-10 as of September 30, 2017 or December 31, 2016.
Income Taxes
Income taxes are accounted for under
the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect
for the year in which those temporary differences are expected to be recovered or settled. Use of net operating loss carry forwards
for income tax purposes may be limited by Internal Revenue Code section 382 if a change of ownership occurs.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated
by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during
the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders
by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding
is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
At September 30, 2017, the Company had
eighteen outstanding convertible notes payable with conversion rights that are exercisable. The amount of outstanding principal
on these convertible notes total $984,624 plus accrued interest of $387,927 for total convertible debts as of September 30, 2017
of $1,327,551 representing 72,980,270 new dilutive common shares if converted at the applicable rates. The effects of these notes
have been included in net income per diluted share for the three and nine months ended September 30, 2017.
Dividends
The Company has not adopted any policy
regarding payment of dividends. No dividends have been paid during any of the periods shown.
As discussed in the report on form 8K
filed on May 18, 2016, the Company declared a special dividend on its outstanding common stock of one share of Class D Redeemable
Preferred Stock. Pursuant to the dividend, the special stock dividend will be distributed to owners of the Company’s
common stock as of the record date in a ratio of one share of Class D Redeemable Preferred Stock common stock for every 1 share
of common stock owned as of the record date. The Company originally had set the record date as June 10, 2016 but was later
modified to July 22, 2016. The Class D Preferred Stock must be redeemed within six months within six (6) months (or as soon thereafter
as permitted by law) following final resolution of the Corporation’s affiliates lawsuit against ViberMedia, Inc. (Next Communications,
Inc. and Nxtgn, Inc. v. Viber Media, Inc.) which is, as of the date of this filing, pending in U.S. District Court for the Southern
District of New York or any successor or other lawsuit relating to the subject matter thereof in which the Corporation (or any
successor-in-interest) is named as a plaintiff (the “Lawsuit”). The Designation fixes the redemption price of each
share of class D Preferred stock as the greater of par value or the amount obtained by dividing (a) 9.03 percent of the net proceeds
to the Corporation of the Lawsuit after payment of fees and expenses incurred in connection with such law suit and the resolution
of any creditor claims against Next Communications and all taxes on net income accrued or paid with respect to such amount,
by (b) the total number of shares of Class D Preferred stock issued and outstanding as of the Redemption Date, which amount shall
be rounded to the nearest whole cent.
The Company has accrued common stock
dividends payable of $30,000 as of September 30, 2017.
Advertising Costs
The Company’s policy regarding
advertising is to expense advertising when incurred.
Stock-Based Compensation
The Company accounts for equity instruments
issued to parties other than employees for acquiring goods or services under guidance of subtopic 505-50 of the FASB Accounting
Standards Codification (“Sub-topic 505-50”) and subtopic 718-20 for awards classified as equity to employees.
Derivative Liabilities
The Company records a debt discount
related to the issuance of convertible debts that have conversion features at adjustable rates. An instrument determined to be
a derivative liability is recorded at fair value with a debt discount being recorded up to the face value of the related convertible
note payable with any excess value being recognized as a day one loss on initial measurements of derivative liabilities. The debt
discount is amortized as interest expense over the life of the convertible notes. Changes in value of the derivative liabilities
that result from conversions of the underlying instrument to common stock are written off to additional paid in capital.
Related Parties
The registrant follows subtopic 850-10
of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the Related
parties include (a) affiliates of the registrant; (b) entities for which investments in their equity securities would be required,
absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted
for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts
that are managed by or under the trusteeship of management; (d) principal owners of the registrant; (e) management of the registrant;
(f) other parties with which the registrant may deal if one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate
interests; and (g) Other parties that can significantly influence the management or operating policies of the transacting parties
or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include
disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar
items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated
or combined financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s)
involved; (b) description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for
each of the periods for which income statements are presented, and such other information deemed necessary to an understanding
of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods
for which income statements are presented and the effects of any change in the method of establishing the terms from that used
in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if
not otherwise apparent, the terms and manner of settlement.
Accounts Receivable
Accounts receivable balances are established
for amounts owed to the Company from its customers from the sales of services and products. The Company closely monitors the collectability
of outstanding accounts receivable and provide an allowance for doubtful accounts based on estimated collections of outstanding
amounts.
License Fee
The Company entered into an agreement
with a certain vendor whereby it obtained a license to market and distribute certain closed loop general purpose reloadable debit
cards for an initial term of three years. The Company remitted $250,000 as a license fee in connection with the agreement which
it is recognizing over the initial term of the agreement on a straight line basis. The unamortized balance of the license fee was
$55,556 and $118,056 as of September 30, 2017 and December 31, 2016, respectively.
Investments
The Company accounts for equity investments
under ASC 321. Equity investments with a readily determinable market price are measured at fair value as of the date of the financial
statements with any unrealized gains or losses being recognized in current period income or loss.
During the three months ended September 30,
2017, the Company accepted 50,000 shares of common stock in a publicly traded company as a referral fee. The Company classified
these securities as available for sale and recorded the initial market value of the shares received as other income during the
nine months ended September 30, 2017 and in accordance with
ASC 321-10-35 Investments
any gains or losses recognized are
recorded through other income or loss. On the date of receipt, the common stock was valued at $11 per share, equal to the close
price of the security, for a total of $550,000 and recorded the value of the shares as other income. The Company marked the securities
to market as of the reporting date which was $11 per share for a total balance of $550,000 as of September 30, 2017. There were
no additional gains or losses recognized in other income or loss on investments available for sale during the three or nine months
ended September 30, 2017 and 2016.
Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting
Standards Update (“ASU”) ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”),
that outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-year deferral of the effective
date of ASU 2014-09 to the beginning of 2018 for public companies, with an option that would permit companies to adopt the standard
as early as the original effective date of 2017. The updated standard will replace most existing revenue recognition guidance in
U.S. GAAP. ASU 2014-09 may be adopted either retrospectively or on a modified retrospective basis whereby it would be applied to
new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up
adjustment recorded to beginning retained earnings at the effective date for those contracts. The updated standard is effective
for us in the first quarter of 2018 and we do not plan to early adopt. We have not yet selected a transition method and we are
currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU
No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and
liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative
disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash
flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted.
The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial position or results of operations.
In March 2016, the FASB issued ASU No.
2016-08, “Revenue from Contracts with Customers - Principal versus Agent Considerations.” This Update provides clarifying
guidance regarding the application of ASU No. 2014-09 - Revenue From Contracts with Customers when another party, along with the
reporting entity, is involved in providing a good or a service to a customer. In these circumstances, an entity is required to
determine whether the nature of its promise is to provide that good or service to the customer (that is, the entity is a principal)
or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The
amendments in the Update clarify the implementation guidance on principal versus agent considerations. The Update is effective,
along with ASU 2014-09, for annual and interim periods beginning after December 15, 2017. The adoption of ASU 2016- 08 is not expected
to have a material impact on our consolidated financial position or results of operations.
In March 2016, the FASB issued ASU No.
2016-09, “Compensation - Stock Compensation (Topic 718)” (“ASU 2016- 09”). ASU 2016-09 requires an entity
to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal
years beginning after December 15, 2016, with early adoption permitted. The Company has implemented ASU 2016-09 effective January
1, 2017.
In April 2016, the FASB issued ASU 2016-10,
“Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU
2016-1O”). The amendments in this update clarify the following two aspects to Topic 606: identifying performance obligations
and the licensing implementation guidance, while retaining the related principles for those areas. The entity first identifies
the promised goods or services in the contract and reduce the cost and complexity. An entity evaluates whether promised goods and
services are distinct. Topic 606 includes implementation guidance on determining whether an entity’s promise to grant a license
provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time)
or a right to access the entity’s intellectual property (which is satisfied over time). The Company is currently evaluating
ASU 2016-10 and its impact on its consolidated financial statements or disclosures.
In June 2016, the FASB issued ASU No.
2016-13, “Financial Instruments – Credit Losses (Topic 326).” For most financial assets, such as trade and other
receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit
loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for
the Company at the beginning of fiscal year 2019. Entities are required to apply the provisions of the standard through a cumulative-effect
adjustment to retained earnings as of the effective date. We are currently evaluating the impact of the adoption of ASU 2016-02
on our consolidated financial statements.
In August 2016, the FASB issued ASU
2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230)”, which provides guidance for
eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective retrospectively
for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods.
Early adoption is permitted. The new standard is effective for the Company at the beginning of fiscal year 2018. We are currently
evaluating the impact of adopting this ASU on our consolidated financial statements and do not expect adoption to have a material
impact.
In November 2015, the FASB issued ASU
No. 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires that all deferred tax liabilities
and assets be classified as noncurrent amounts on the balance sheet. ASU 2015-17 will be effective for interim and annuals periods
beginning after December 15, 2016 and may be applied prospectively or retrospectively. Early adoption of the standard is permitted.
The new standard is effective for the Company at the beginning of fiscal year 2017. There was no impact on the Company’s
unaudited condensed consolidated financial statements as the Company does not currently have a deferred tax asset or liability.
Other accounting standards that have
been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not
expected to have a material impact on our financial statements upon adoption.
NOTE 3 – GOING CONCERN
The Company’s unaudited condensed
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business.
The Company had a net income
before non-controlling interest of $51,243 and a loss of $4,765,328 and net cash used in operating activities of $384,716 and $967,736,
for the nine months ended September 30, 2017 and 2016, respectively. The Company has a working capital deficit of $7,151,084 and
$9,759,119, and an accumulated deficit of $13,436,542 and $13,499,303 as of September 30, 2017 and December 31, 2016, respectively.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of
twelve months from the date of issuance of this report. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The Company has a minimum cash balance
available for payment of ongoing operating expense, has experienced losses from operations since inception, and it does not have
a source of revenue sufficient to cover its operating costs. Its continued existence is dependent upon its ability to continue
to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or
equity financing will be available, or will be available on terms acceptable to the Company.
Management plans to fund operations
through additional debt and equity financing. Debt instruments may be convertible or non-convertible and will vary based on the
Company’s needs and financing options available at such times.
NOTE 4 – NOTES PAYABLE AND
CONVERTIBLE NOTES PAYABLE
Notes Payable
During the nine months ended September
30, 2017, the Company entered into two separate loans to be paid by collection of its future accounts receivable and secured by
substantially all assets of the Company including accounts receivable, cash, equipment, intangible assets, inventory and other
receivables. The first loan resulted in cash proceeds $125,000 to the Company for future payments totaling $168,750 from future
receivables and requires daily repayments of $1,339. The second resulted in cash proceeds of $50,000 for future payments totaling
$68,000 from future receivables and requires daily cash repayments of $540. There was $91,395 due for the agreements as of September
30, 2017 included in current notes payable.
On May 1, 2017, the Company received a
loan from an unrelated party for $25,000. The loan is due on demand and as such is included in current notes payable. The note
does not accrue interest and had a principal balance due of $25,000 as of September 30, 2017.
Convertible Notes Payable
The Company has entered into a series
of convertible notes payable to fund operations. While with differing noteholders, the terms of the outstanding convertible notes
are substantially similar and accrue interest at 8% annually with a default interest rate of 24% and allow for the conversion of
outstanding principal and interest to common stock at a price equal to a 45% to 50% from the lowest trading price in the preceding
20 days. The convertible notes outstanding contain cross default features and the Company defaulted on all notes in November 2016.
In February 2017, the Company agreed
with certain noteholders to extend a redemption freeze agreement whereby the convertible note holders agreed to not convert outstanding
principal and accrued interest into common stock for a period of 60 days. Upon the expiration of these agreements, a 90 day extension
was executed whereby the noteholders agreed to not convert additional amounts through the first week of July 2017. Under the terms
of the extension, each noteholder was granted the right to convert a limited amount of outstanding principal to common stock at
a rate equal to the stated rate in the convertible note payable but not less than $0.02 per share and extended the due dates of
the notes to July 2017. These agreements were extended again through August 23, 2017.
On September 18, 2017, the Company agreed
with Noteholder 3 to make monthly cash repayments of $9,234 over a period of eight months. If the Company repays 70% of the total
outstanding principal no later than December 31, 2017, the remaining 30% principal balance will be converted to common stock at
a rate equal to $0.05 per share after June 18, 2018. If the Company fails to repay 70% of the outstanding principal by December
31, 2017, the noteholder may convert the unpaid balance to common stock at $0.02 per share after June 18, 2018.
On October 9, 2017, the Company agreed
with Noteholder 4 to make monthly cash repayments of $11,000 over a period of eight months. If the Company repays 70% of the total
outstanding principal no later than December 31, 2017, the remaining 30% principal balance will be converted to common stock at
a rate equal to $0.05 per share after June 18, 2018. If the Company fails to repay 70% of the outstanding principal by December
31, 2017, the noteholder may convert the unpaid balance to common stock at $0.02 per share after June 18, 2018. Additionally, the
Company agreed to use 30% of any gross proceeds raised in any financing to retire outstanding principal due.
On October 9, 2017, the Company agreed
with Noteholder 1 to make monthly cash repayments of $44,000 over a period of eight months. If the Company repays 70% of the total
outstanding principal no later than December 31, 2017, the remaining 30% principal balance will be converted to common stock at
a rate equal to $0.05 per share after June 18, 2018. If the Company fails to repay 70% of the outstanding principal by December
31, 2017, the noteholder may convert the unpaid balance to common stock at $0.02 per share after June 18, 2018. Additionally, the
Company agreed to use 30% of any gross proceeds raised in any financing to retire outstanding principal due.
The following table summarizes all convertible
notes payable activity for the nine months ended September 30, 2017:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Original Principal
|
|
|
Balance, December 31, 2016
|
|
|
Advances
|
|
|
Conversions to Common Stock
|
|
|
Principal Balance,
September 30, 2017
|
|
Noteholder 1
|
|
11/25/2015
|
|
11/24/2016
|
|
$
|
82,500
|
|
|
$
|
82,500
|
|
|
$
|
-
|
|
|
$
|
(35,971
|
)
|
|
$
|
46,529
|
|
Noteholder 1
|
|
12/21/2015
|
|
12/21/2016
|
|
|
27,000
|
|
|
|
27,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,000
|
|
Noteholder 1
|
|
1/15/2016
|
|
1/15/2017
|
|
|
131,250
|
|
|
|
131,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
131,250
|
|
Noteholder 1
|
|
3/8/2016
|
|
3/8/2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
82,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,500
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
82,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,500
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
82,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,500
|
|
Noteholder 1
|
|
5/16/2016
|
|
5/16/2017
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
(60,000
|
)
|
|
|
40,000
|
|
Noteholder 1
|
|
7/22/2016
|
|
7/22/2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Noteholder 1
|
|
8/2/2016
|
|
8/2/2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Noteholder 2
|
|
11/20/2015
|
|
11/20/2016
|
|
|
37,000
|
|
|
|
37,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,000
|
|
Noteholder 3
|
|
3/8/2016
|
|
3/8/2017
|
|
|
50,000
|
|
|
|
14,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,000
|
|
Noteholder 3
|
|
5/16/2016
|
|
5/16/2017
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
(77,500
|
)
|
|
|
22,500
|
|
Noteholder 3
|
|
7/22/2016
|
|
7/22/2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Noteholder 3
|
|
3/8/2016
|
|
3/8/2017
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
|
-
|
|
Noteholder 4
|
|
1/19/2016
|
|
1/15/2017
|
|
|
131,250
|
|
|
|
131,250
|
|
|
|
-
|
|
|
|
(22,704
|
)
|
|
|
108,546
|
|
Noteholder 4
|
|
3/9/2016
|
|
3/8/2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
(16,098
|
)
|
|
|
33,902
|
|
Noteholder 5
|
|
11/9/2015
|
|
11/9/2016
|
|
|
100,000
|
|
|
|
61,397
|
|
|
|
-
|
|
|
|
(12,500
|
)
|
|
|
48,897
|
|
Noteholder 6
|
|
11/2/2016
|
|
11/2/2017
|
|
|
52,500
|
|
|
|
52,500
|
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
|
27,500
|
|
Noteholder 7
|
|
1/2/2017
|
|
8/2/2017
|
|
|
70,000
|
|
|
|
-
|
|
|
|
70,000
|
|
|
|
(70,000
|
)
|
|
|
-
|
|
Totals
|
|
|
|
|
|
$
|
1,404,000
|
|
|
$
|
1,259,397
|
|
|
$
|
70,000
|
|
|
$
|
(344,773
|
)
|
|
$
|
984,624
|
|
The following is a summary of all convertible
notes outstanding as of September 30, 2017:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Principal
|
|
|
Discount
|
|
|
Unamortized Debt Issue Costs
|
|
|
Carrying Value
|
|
|
Accrued Interest
|
|
Noteholder 1
|
|
11/25/2015
|
|
11/24/2016
|
|
$
|
46,529
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
46,529
|
|
|
$
|
22,912
|
|
Noteholder 1
|
|
12/21/2015
|
|
12/21/2016
|
|
|
27,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,000
|
|
|
|
10,776
|
|
Noteholder 1
|
|
1/15/2016
|
|
1/15/2017
|
|
|
131,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
131,250
|
|
|
|
51,666
|
|
Noteholder 1
|
|
3/8/2016
|
|
3/8/2017
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
17,786
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,500
|
|
|
|
28,733
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,500
|
|
|
|
28,733
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,500
|
|
|
|
28,733
|
|
Noteholder 1
|
|
5/16/2016
|
|
5/16/2017
|
|
|
40,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,000
|
|
|
|
30,873
|
|
Noteholder 1
|
|
7/22/2016
|
|
7/22/2017
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
10,751
|
|
Noteholder 1
|
|
8/2/2016
|
|
8/2/2017
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
10,630
|
|
Noteholder 2
|
|
11/20/2015
|
|
11/20/2016
|
|
|
37,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,000
|
|
|
|
10,607
|
|
Noteholder 3
|
|
3/8/2016
|
|
3/8/2017
|
|
|
14,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,000
|
|
|
|
8,713
|
|
Noteholder 3
|
|
5/16/2016
|
|
5/16/2017
|
|
|
22,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,500
|
|
|
|
28,559
|
|
Noteholder 3
|
|
7/22/2016
|
|
7/22/2017
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
10,751
|
|
Noteholder 3
|
|
3/8/2016
|
|
3/8/2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Noteholder 4
|
|
1/19/2016
|
|
1/15/2017
|
|
|
108,546
|
|
|
|
-
|
|
|
|
-
|
|
|
|
108,546
|
|
|
|
43,687
|
|
Noteholder 4
|
|
3/9/2016
|
|
3/8/2017
|
|
|
33,902
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,902
|
|
|
|
11,839
|
|
Noteholder 5
|
|
11/9/2015
|
|
11/9/2016
|
|
|
48,897
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,897
|
|
|
|
26,852
|
|
Noteholder 6
|
|
11/2/2016
|
|
11/2/2017
|
|
|
27,500
|
|
|
|
(2,664
|
)
|
|
|
-
|
|
|
|
24,836
|
|
|
|
5,326
|
|
Noteholder 7
|
|
1/2/2017
|
|
8/2/2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Totals
|
|
|
|
|
|
$
|
984,624
|
|
|
$
|
(2,664
|
)
|
|
$
|
-
|
|
|
$
|
981,960
|
|
|
$
|
387,927
|
|
Accrued Interest
There was $387,927 and $207,951 of
accrued interest due on all convertible notes as of September 30, 2017 and December 31, 2016, respectively which is included in
accounts payable and accrued liabilities on the balance sheet (see
Note 8 – Accounts Payable and Accrued Liabilities)
.
NOTE 5 – DERIVATIVE LIABILITIES
The Company analyzed the conversion
features of the convertible notes payable as discussed in Note 4 for derivative accounting consideration under ASC 815-15 “Derivatives
and Hedging” and determined that the embedded conversion features should be classified as a derivative liability because
the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that
the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity
treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note
is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement
period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value
carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the
Black-Scholes option pricing model. The aggregate fair value of the derivative at the reverse capitalization date of the
convertible notes payable and certain outstanding option grants was $1,236,007 which was recorded as a derivative liability on
the balance sheet.
As of September 30, 2017, the Company
had a $1,143,186 derivative liability balance on the balance sheet and recorded a loss from derivative liability fair value adjustment
of $161,746 during the nine months ended September 30, 2017. The derivative liability activity comes from convertible
notes payable as discussed in Note 4. In addition to derivative liabilities associated with convertible notes payable, the Company
recorded a derivative liability due to a ratchet strike price feature associated with the options issued in the sale of TPP. The
options are exercisable at $0.18 per share unless the Company’s common stock is quoted at a price greater than $0.50 per
share at which point the options are exercisable at $0.001 per share.
A summary of outstanding derivative
liabilities as of September 30, 2017 is as follows:
Holder
|
|
Derivative Balance
|
|
Noteholder 1
|
|
$
|
39,944
|
|
Noteholder 1
|
|
|
23,179
|
|
Noteholder 1
|
|
|
112,676
|
|
Noteholder 1
|
|
|
42,924
|
|
Noteholder 1
|
|
|
70,825
|
|
Noteholder 1
|
|
|
70,825
|
|
Noteholder 1
|
|
|
70,825
|
|
Noteholder 1
|
|
|
34,339
|
|
Noteholder 1
|
|
|
42,924
|
|
Noteholder 1
|
|
|
42,924
|
|
Noteholder 2
|
|
|
31,764
|
|
Noteholder 3
|
|
|
12,019
|
|
Noteholder 3
|
|
|
19,316
|
|
Noteholder 3
|
|
|
42,924
|
|
Noteholder 4
|
|
|
93,185
|
|
Noteholder 4
|
|
|
29,104
|
|
Noteholder 5
|
|
|
93,636
|
|
Option Holder
|
|
|
223,500
|
|
Noteholder 6
|
|
|
46,353
|
|
Total
|
|
$
|
1,143,186
|
|
The value of the embedded derivative
liabilities for the convertible notes payable and outstanding option awards was determined using the Black-Scholes option pricing
model based on the following assumptions:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Expected volatility
|
|
|
72% - 796
|
%
|
|
|
155% - 871
|
%
|
Expected term
|
|
|
.09 - 2.50 years
|
|
|
|
.19 – 2.54 years
|
|
Risk free rate
|
|
|
0.96% - 1.62
|
%
|
|
|
.51% - 1.47
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
A summary of the changes in derivative
liabilities balance for the nine months ended September 30, 2017 is as follows:
Fair Value of Embedded Derivative Liabilities:
|
|
|
|
Balance, December 31, 2016
|
|
$
|
1,210,281
|
|
Initial measurement of derivative liabilities
|
|
|
328,932
|
|
Change in fair market value
|
|
|
161,746
|
|
Write off to additional paid in capital due to conversion
|
|
|
(557,773
|
)
|
Balance, September 30, 2017
|
|
$
|
1,143,186
|
|
NOTE 6 – STOCK OPTIONS
The following table summarizes all stock
option activity for the nine months ended September 30, 2017:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
Outstanding, December 31, 2016
|
|
|
17,500,000
|
|
|
$
|
0.18
|
|
Granted
|
|
|
7,500,000
|
|
|
|
0.18
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(7,500,000
|
)
|
|
|
(0.18
|
)
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, September 30, 2017
|
|
|
17,500,000
|
|
|
$
|
0.18
|
|
The following table discloses information
regarding outstanding and exercisable options at September 30, 2017:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise
Prices
|
|
|
Number of
Option Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Life
(Years)
|
|
|
Number of
Option Shares
|
|
|
Weighted Average
Exercise Price
|
|
$
|
0.18
|
|
|
|
17,500,000
|
|
|
$
|
0.18
|
|
|
|
3.23
|
|
|
|
10,833,334
|
|
|
$
|
0.18
|
|
|
|
|
|
|
17,500,000
|
|
|
$
|
0.18
|
|
|
|
3.23
|
|
|
|
10,833,334
|
|
|
$
|
0.18
|
|
On May 31, 2016, the Company issued
10,000,000 options to a board member pursuant to its agreement with the member. One third of the 10,000,000 options issued vested
immediately upon execution of the related agreement, resulting in an immediate stock based expense of $558,323 being recognized.
The remaining shares of the issuance vest based on performance milestones which the Company believes is 80% likely of occurring
resulting in stock based expense of $558,328 during the year ended December 31, 2016, at which point there was a 50% probability
of attainment, and $334,997 during the nine months ended September 30, 2017 at which point the probability of attainment was updated
to 80%. The remaining fair value of the unvested shares of $223,331 will be recognized according to the estimated probability of
the performance obligations being achieved.
On July 14, 2016, the Company issued
7,500,000 options as part of its acquisition of TPP. The options were exercisable for a period of three years and carried an exercise
price of $0.18 per share. The options carried a ratchet pricing feature whereby they become exercisable at $0.001 per share if
the Company’s common stock trades at a price greater than $0.50 per share. The options carried a value of $898,490 which
was recorded as a derivative liability as discussed in
Note 5 – Derivative Liabilities
. On March 31, 2017, the Company,
as part of its sale of TPP, cancelled these options and reissued 7,500,000 options that are exercisable for a period of three years
and carry an exercise price of $0.18 per share. The options carry a ratchet pricing feature whereby they become exercisable at
$0.05 per share if the Company’s common stock trades at a price greater than $0.50 per share.
The Company issued 1,000,000 stock options
exercisable at $1.00 pursuant to its agreement with Glocal. This agreement was amended on August 9, 2016 in which the option owners
forfeited these options. The fair value of the 1,000,000 stock options granted with an exercise price of $1.00 was amortized through
the forfeiture resulting in stock based compensation expense of $14,166.
Total stock based compensation expense
was $334,997 and $1,123,735 during the nine months ended September 30, 2017 and 2016 leaving an unrecognized expense of $223,331
as of September 30, 2017. In determining the compensation cost of the stock options granted, the fair value of each option grant
has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations
are summarized as follows:
|
|
September 30,
2017
|
|
Expected term of options granted
|
|
|
0 - 5 years
|
|
Expected volatility range
|
|
|
778
- 850
|
%
|
Range of risk-free interest rates
|
|
|
0.82 - 1.41
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
NOTE 7 – RELATED PARTY TRANSACTIONS
The Company follows the provisions of
ASC 850—
Related Party Transactions & Disclosures
relating to the identification of related parties and disclosure
of related party transactions.
Our financial statements include disclosures
of material related party transactions, other than expense allowances, and other similar items in the ordinary course of business.
The disclosures include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions
to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such
other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the
dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change
in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties
as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
The Company has had extensive dealings
with related parties including those in which our Chief Executive Officer holds a significant ownership interest as well as an
executive position during the nine months ended September 30, 2017 and 2016. Due to our operational losses, the Company has relied
to a large extent on funding received from Next Communications, Inc., an organization in which our Chief Executive Officer and
Chairman holds a controlling equity interest and our Chief Executive Officer holds an executive position.
With the exception of the Company’s
purchase of a 9% interest in Next Cala, Inc. from a related party as described below, amounts scheduled below as “due to
related parties” and “due from related parties” have not had their terms, including amounts, collection or repayment
terms or similar provisions memorialized in formalized written agreements.
Related party balances at September 30, 2017 and December
31, 2016 consisted of the following:
Due from related parties
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
(a) Glocal Card Services
|
|
|
36,000
|
|
|
|
36,000
|
|
Total Due from related parties
|
|
$
|
36,000
|
|
|
$
|
36,000
|
|
Due to related parties
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
(b) Due to Next Communications, Inc.
|
|
$
|
3,119,851
|
|
|
$
|
2,961,271
|
|
(c) Due to Asiya Communications SAPI de C.V.
|
|
|
5,998
|
|
|
|
95,120
|
|
(d) Michael DePrado
|
|
|
99,604
|
|
|
|
99,604
|
|
Total Due from related parties
|
|
$
|
3,225,453
|
|
|
$
|
3,155,995
|
|
(a)
|
Glocal Card Services is our partner in the Glocal Joint Venture and is considered a related party because of our business relationship with them
|
|
|
(b)
|
Next Communication, Inc. is a corporation in which our Chief Executive Officer holds a controlling interest and serves as the Chief Executive Officer. (See
Note 11 – Commitments and Contingencies
)
|
|
|
(c)
|
Asiya Communications SAPI de C.V.is a telecommunications company organized under the laws of Mexico, in which our Chief Executive Officer holds a substantial interest and is involved in active management.
|
|
|
(d)
|
Michael DePrado is our Chief Operating Officer and Chief Financial Officer
|
During the nine months ended September
30, 2017 and 2016, the Company recorded interest expense of $179,008 and $180,845 using an interest rate equal to that on the outstanding
convertible notes payable as discussed in
Note 6 – Convertible Notes Payable
as imputed interest on the related party
payable due to Next Communications. The interest was immediately forgiven by the related party and recorded to additional paid
in capital.
Notes Payable, Related Party
During the year ended December 31, 2014,
the Company entered into two notes with its President to purchase his interest in Next Cala, Inc. and separately his voting control
in Next Cala. Inc. During the nine months ended September 30, 2017, the outstanding principal and accrued interest totaling $294,923
was converted to 8,900,000 shares of common stock.
Accounts Receivable, Related Party
The Company had outstanding accounts receivable
of $199,894 from related parties as of September 30, 2017 of which $197,840 was due from Next Communications and $2,054 was due
from Asiya Communications SAPI de C.V. The accounts receivable arose from the sale of wholesale telecommunications minutes to
these entities.
Revenues (Related Party)
The Company generated revenues from
related parties of $155,174 and $12,758 during the three months ended September 30, 2017 and 2016 and $232,605 and $12,818 during
the nine months ended September 30, 2017 and 2016 as itemized below.
|
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Next Communications, Inc.
|
|
$
|
155,174
|
|
|
$
|
-
|
|
|
$
|
226,840
|
|
|
$
|
-
|
|
Asiya Communications SAPI de C.V.
|
|
|
-
|
|
|
|
81
|
|
|
|
1,972
|
|
|
|
81
|
|
Next Cala 360
|
|
|
-
|
|
|
|
12,677
|
|
|
|
3,793
|
|
|
|
12,737
|
|
Total
|
|
$
|
155,174
|
|
|
$
|
12,758
|
|
|
$
|
232,605
|
|
|
$
|
12,818
|
|
NOTE 8 – ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES
Accounts payable and accrued liabilities
consisted of the following as of September 30, 2017:
Trade payables
|
|
$
|
1,024,564
|
|
Accrued expenses
|
|
|
138,836
|
|
Accrued interest, notes payable
|
|
|
4,810
|
|
Accrued interest, convertible notes payable
|
|
|
387,927
|
|
Accrued salaries and wages
|
|
|
141,387
|
|
Total
|
|
$
|
1,697,524
|
|
During the year ended December 31, 2014,
a former employee, Franjose Yglesias-Bertheau of Pleasant Kids (PLKD) filed lawsuit against PLKD claiming unpaid wages of $622,968
and was initially awarded that amount in a judgement. However, the judgement was later revised and the Company settled for $80,000
in March 2017 for which the Company paid $10,000 cash and entered into a convertible note payable for $70,000. The note was fully
converted during the nine months ended September 30, 2017 leaving a payable balance of $0 outstanding as of September 30, 2017.
NOTE 9 – STOCKHOLDERS’
EQUITY
Preferred Stock
At the time of incorporation, the Company
was authorized to issue 60,000,000 shares of preferred stock with a par value of $0.001 of which 50,000,000 was designated Series
A and 10,000,000 as Series B. With the completion of the recapitalization as discussed in Note 2, the outstanding Series A preferred
shares were cancelled leaving a balance outstanding of Preferred Series A of -0-.
The Company has 10,000,000 shares of
Preferred Stock designated as Series B. The Series B Preferred Stock is not convertible into Common Stock at any time and is not
entitled to dividends of any kind or liquidation, dissolution rights of any kind. The holders of Series B Preferred Stock shall
be entitled to 1,000 votes for each share of Series B Stock that is held when voting together with holders of the Common Stock.
The Company has 36,000,000 shares of
Preferred Stock designated as Series D. The Class D Preferred Stock must be redeemed within six(6) months (or as soon thereafter
as permitted by law) following final resolution of the Corporation’s affiliates lawsuit against ViberMedia , Inc. (Next Communications,
Inc. and Nxtgn, Inc. v. Viber Media, Inc.) which is, as of the date of this filing, pending in U.S. District Court for the Southern
District of New York or any successor or other lawsuit relating to the subject matter thereof in which the Corporation (or any
successor-in-interest) is named as a plaintiff (the “Lawsuit”). There were no Series D Preferred shares issued or outstanding
as of September 30, 2017 or December 31, 2016.
Common Stock
Effective November 20, 2015 the Company
amended its Articles of Incorporation to decrease the common shares authorized from 9,500,000,000 to 360,000,000 with a par value
of $0.001.
During the nine months ended September
30, 2017, the Company issued 18,059,865 shares of commons stock for the conversion of $344,744 of principal of convertible notes
payable and 967,045 shares for the conversion of $19,341 of accrued interest. The conversion of principal and accrued interest
on convertible notes payable to common stock were done so at the contractual terms of each respective agreement. Additionally,
the Company issued 8,449,654 common shares valued at $280,000 as repayment of a non-convertible related party loan and 450,346
common shares valued at $14,932 as repayment of non-convertible related party accrued interest. The related party is an officer
of the Company. The fair value of the shares issued as repayment of the related party payable was $338,200 using the close price
of $0.038 per share on the date of the transaction resulting in an excess fair value of shares issued upon conversion of $43,277
which was recorded as compensation expense. The Company also issued 12,809,091 shares of common stock valued at $720,200 for services
were valued using the close price of the Company’s common stock on the date of issuance as quoted on the OTCBB.
Summary of common stock activity for the nine months ended September 30, 2017
|
|
Outstanding shares
|
|
Balance, December 31, 2016
|
|
|
249,225,683
|
|
Shares issued for services
|
|
|
12,809,091
|
|
Shares issued as repayment of related party loan and accrued interest (a)
|
|
|
8,900,000
|
|
Shares issued for conversion of convertible notes payable and accrued interest (b)
|
|
|
19,026,910
|
|
Balance, September 30, 2017
|
|
|
289,961,684
|
|
(a)
|
Shares issued as repayment of outstanding loan principal of $280,000 plus accrued interest of $14,923. The lender did not have conversion rights to convert the principal to common stock. However, the lender agreed to accept shares in lieu of cash repayment.
|
(b)
|
Shares issued in connection with outstanding convertible notes payable and convertible accrued interest on convertible notes payable in accordance with contractual terms of noteholders as discussed in
Note 6 – Convertible Notes Payable
.
|
As of September 30, 2017, the Company has
289,961,684 common shares outstanding, a total of 72,980,270 common share equivalents as discussed in
Note 2 – Summary
of Significant Accounting Policies and Basis of Presentation.
With 360,000,000 shares authorized, there are insufficient common
shares in treasury to meet all of the Company’s common share equivalents obligations. All of the common share equivalents,
or 72,980,270, arise from outstanding convertible notes payable as discussed in
Note 2 – Summary of Significant Accounting
Policies and Basis of Presentation
and
Note 4 – Notes Payable and Convertible Notes Payable
and as such have
been recognized as a debt obligation in conjunction with the underlying derivative liabilities as discussed in
Note 5 –
Derivative Liabilities
.
NOTE 10 – CUSTOMER CONCENTRATION
Sales to Next Communications, a related
party as discussed in
Note 7 – Related Party Transactions
, generated $155,174 and $226,840 of revenue during the three
and nine months ended September 30, 2017 which represented 25% and 13% of total revenues during those periods.
The Company did not have any one customer
account for more than 10% of its revenues during the three or nine months ended September 30, 2016.
The Company generated all of its revenues
from the sale of telecommunications minutes, both at wholesale and retail, during the three and nine months ended September 30,
2017.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
On April 7, 2016, the Company executed an agreement
with a third party to provide market awareness services for the Company. The agreement requires 1% of the outstanding common share
equivalent to be issued to the third party when the market capitalization of the Company reaches $500,000,000 and an additional
1% when it reached $750,000,000. The probability of this event is uncertain at present and the Company has not accrued a contingent
loss as of September 30, 2017, or December 31, 2016 as a result.
On October 14, 2014, one of our
operating subsidiaries, NxtGn, Inc. and Next Communications, Inc., an entity controlled by our CEO, (collectively the “Plaintiffs”)
filed suit in the United States District Court for the Southern district of New York against Viber Media, Inc. Plaintiffs
filed an Amended Complaint asserting four claims: misappropriation of a business idea, misappropriation of trade secrets, breach
of contract, and unjust enrichment. Viber moved the Court to dismiss the Amended Complaint. On March 30, 2016, U.S.
District Judge Richard Sullivan issued an opinion and order on Viber’s motion to Dismiss. Specifically, Judge Sullivan
ordered that Viber’s motion to dismiss is granted on Plaintiffs’ misappropriation of a business idea claim, but denied
as to their misappropriation of trade secrets, breach of contract, and unjust enrichment claims. The Company has appealed the
court’s decision to dismiss. The Company has not accrued any gains or losses associated with this case as it would be a
contingent gain and recorded when received.
On September 20, 2016, the Company received
a notice it has been named as a defendant in a suit brought against Next Communications, an entity controlled by our CEO. In addition
to being named a defendant, it was requested the Company provide certain documents for the discovery process. Due to the original
suit being filed against a related party and not against the Company or its subsidiaries, we believe it likely the Company and
its subsidiaries be dismissed as defendants and has not accrued a contingent loss as of September 30, 2017 as a result.
On July 6, 2017, the Company
received notice that an existing legal claim against Accent InterMedia (“AIM”) had been amended to include
claims against the Company. The claims brought against the Company include failure to comply with certain judgments for
collection of funds by the plaintiff while having a controlling interest in AIM via its ownership of Transaction Processing
Products (“TPP”). The Company believes the amended case is without merit and that, per its agreement to sell its
interest in TPP, any claims brought against AIM or TPP would be the responsibilities of the current interest holders. Due to
the original suit being filed against AIM and amended to include the Company after it disposed of its interest in TPP, which
had a controlling interest in AIM, we believe it likely the Company and its subsidiaries be dismissed as defendants. As a
result, no contingent loss as been accrued as of September 30, 2017.
In November 2017, the Company
received a demand from legal counsel of Ridge Resources regarding the physical issuance of 8,900,000. The common shares are accounted
for as issued during the nine months ended September 30, 2017 when the obligation to issue the shares arose however have yet to
be physically issued. The Company intends to issue these shares when certain common share reserves associated with its convertible
notes payable are released. The Company has not accrued a contingent loss associated with this demand as it expects to remedy
the physical issuance before the end of 2017.
NOTE 12 – SUBSEQUENT EVENTS
Common Stock Issuances
On various dates through November 10,
2017, the Company issued a total of 7,913,851 shares of common stock for the conversion of $146,250 of outstanding principal and
1,047,123 shares of common stock for the conversion of $20,942 of outstanding interest on convertible notes payable. All conversions
were performed at the contractual terms within each respective convertible note. The Company also issued 2,500,000 shares of common
stock for cash proceeds of $64,000.
Redemption Agreements on Convertible
Notes Payable
As discussed in
Note 4 – Convertible
Notes Payable
, the Company entered into the following agreements with convertible noteholders:
On October 9, 2017, the Company agreed
with Noteholder 4 to make monthly cash repayments of $11,000 over a period of eight months. If the Company repays 70% of the total
outstanding principal no later than December 31, 2017, the remaining 30% principal balance will be converted to common stock at
a rate equal to $0.05 per share after June 18, 2018. If the Company fails to repay 70% of the outstanding principal by December
31, 2017, the noteholder may convert the unpaid balance to common stock at $0.02 per share after June 18, 2018. Additionally, the
Company agreed to use 30% of any gross proceeds raised in any financing to retire outstanding principal due.
On October 9, 2017, the Company agreed
with Noteholder 1 to make monthly cash repayments of $44,000 over a period of eight months. If the Company repays 70% of the total
outstanding principal no later than December 31, 2017, the remaining 30% principal balance will be converted to common stock at
a rate equal to $0.05 per share after June 18, 2018. If the Company fails to repay 70% of the outstanding principal by December
31, 2017, the noteholder may convert the unpaid balance to common stock at $0.02 per share after June 18, 2018. Additionally,
the Company agreed to use 30% of any gross proceeds raised in any financing to retire outstanding principal due.
Acquisition of Limecom, Inc.
As discussed in an 8K filed with the Securities
Exchange Commission on October 26, 2017, on October 24, 2017, the Company received 100% of all outstanding shares of Limecom, Inc.,
as per the acquisition agreement which was effective as of October 20, 2017. The Company, through its wholly-owned subsidiary,
Next Group Acquisition Inc., purchased all of the issued and outstanding shares of LimeCom Inc. (“LimeCom”), a Florida
corporation, from Heritage Ventures Limited (“Heritage”). LimeCom is engaged in the global telecommunications business.
The Stock Purchase Agreement with Heritage provided for the payment of 51,804,809 shares of Next Group Holdings, Inc. restricted
common stock and the sum of $2,000,000 for the shares of LimeCom. The cash component of the purchase price is payable within eight
months from the closing date. 10,360,800 shares of NXGH stock will be held in escrow for a period of eight months in the event
that any unknown or undisclosed claims are made against LimeCom. The Company is required to deliver the shares of stock to the
Purchaser and the Escrow Agent within ten days of the closing date. As of November 20, 2017, the Company had not yet delivered
the 51,804,809 shares of common stock to Heritage and escrow agent as required by the stock purchase agreement. The seller has
agreed to extend the date for delivery of the shares to December 1, 2017.
The acquisition further provides that LimeCom
must achieve $125,000,000 in revenues in fiscal year 2017 and $2,500,000 in EBITA. In the event that Limecom does not achieve these
amounts, the Company will pay according to the formula written in the acquisition agreement. The Company and Heritage have a mutual
right of rescission if the $2,000,000 is not paid or any unknown or undisclosed material claims are made against Limecom. as set
forth in the agreement.
As a part of the agreement, Orlando Taddeo,
President and CEO of LimeCom, will be appointed as a director of the Company.