NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS — On September
10, 2013, Mobiquity Technologies, Inc. changed its name from Ace Marketing & Promotions, Inc. “the Company” or
“Mobiquity”). We operate through a wholly-owned U.S. subsidiary, named, Mobiquity Networks, Inc. Mobiquity Networks
owns 100% of Mobiquity Wireless S.L.U., a company incorporated in Spain. This corporation had an office in Spain to support our
U.S. operations, which office was closed in the fourth quarter of 2016. Ace Marketing, its legacy marketing and promotions business
was successfully sold on October 1, 2017, allowing us to focus our full attention to Mobiquity Networks.
Mobiquity Technologies, Inc., a New York
corporation (the “Company”), is the parent company of its operating subsidiary; Mobiquity Networks, Inc. (“Mobiquity
Networks”). The Company’s wholly-owned subsidiary, Mobiquity Networks has evolved and grown from a mobile advertising
technology company focused on driving Foot-traffic throughout its indoor network, into a mobile first, next generation, Software-as-a-Service
(SaaS) platform for data and advertising. The Company provides precise mobile location data and insights on consumer’s real-world
behavior on a single platform that’s easy to use and includes all the necessary features and tools required to run a successful
mobile ad campaign. Our goal is to help advertisers deliver the right message to the right person at the right time more efficiently
and effectively than ever before . Mobiquity Networks is seeking to implement several new revenue streams from its data collection
and analysis, including, but not limited to; Advertising, Data Licensing, Footfall Reporting, Attribution Reporting, Real Estate
Planning, Financial Forecasting and Custom Research.
GOING CONCERN - The accompanying condensed
financial statements have been prepared assuming the Company will continue as a going concern. The Company's continued existence
is dependent upon the Company's ability to obtain additional debt and/or equity financing to advance its new technology revenue
stream. The Company has incurred losses from continued operations for the nine months ended September 30, 2018 of $23,121,721.
As of September 30, 2018, the Company has an accumulated deficit of $88,108,196. The Company has had negative cash flows from operating
activities of $28,688,131, for the nine months ended September 30, 2018. These factors raise substantial doubt about the ability
of the Company to continue as a going concern.
Management has plans to address the Company’s
financial situation as follows:
In the near term, management plans to continue
to focus on raising the funds necessary to implement the Company’s business plan related to technology. Management will continue
to seek out equity and/or debt financing to obtain the capital required to meet the Company’s financial obligations. There
is no assurance, however, that lenders and investors will continue to advance capital to the Company or that the new business operations
will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability
raises doubts about the Company’s ability to continue as a going concern.
In the long term, management believes that
the Company’s projects and initiatives will be successful and will provide cash flow to the Company that will be used to
finance the Company’s future growth. However, there can be no assurances that the Company’s efforts to raise equity
and debt at acceptable terms or that the planned activities will be successful, or that the Company will ultimately attain profitability.
The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current
commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability
and cash flows from operations to sustain its operations.
PRINCIPLES OF CONSOLIDATION - The accompanying
consolidated financial statements include the accounts, of Mobiquity Technologies, Inc., formerly known as Ace Marketing &
Promotions, Inc., and its wholly owned subsidiary, Mobiquity Networks, Inc.
The Condensed Consolidated Balance Sheets
as of September 30, 2018 and December 31, 2017, the Condensed Consolidated Statements of Operations for the three months and nine
months ended September 30, 2018 and 2017 and the Condensed Statements of Cash Flows for the nine months ended September 30, 2018
and 2017 have been prepared by us without audit, and in accordance with the requirements of Form 10-Q and, therefore, they do not
include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash
flows in conformity with accounting principles generally accepted in the United States of America. In our opinion, the accompanying
unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly in all material respects
our financial position as of September 30, 2018, results of operations for the three months and nine months ended September 30,
2018 and 2017 and cash flows for the nine months ended September 30, 2018 and 2017. All such adjustments are of a normal recurring
nature. The results of operations and cash flows for the three months and nine months ended September 30, 2018 and 2017 are not
necessarily indicative of the results to be expected for the full year. We have evaluated subsequent events through the filing
of this Form 10-Q with the SEC and determined there have not been any events that have occurred that would require adjustments
to our unaudited Condensed Financial Statements.
ESTIMATES — The preparation of financial
statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS —
For certain of the Company’s financial instruments, including cash and equivalents, accounts receivable, accounts payable,
accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
FASB ASC Topic 820,
Fair Value
Measurements and Disclosures
, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC
Topic 825,
Financial Instruments
, defines fair value, and establishes a three-level valuation hierarchy for disclosures
of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated
balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their
fair values because of the short period of time between the origination of such instruments and their expected realization and
their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
The following are the hierarchical levels
of inputs to measure fair value:
|
•
|
Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
|
|
|
|
|
•
|
Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
|
|
•
|
Level 3 - Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The carrying amounts of the Company's financial
assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain
notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments.
The Company accounts for its derivative
liabilities, at fair value, on a recurring basis under level 3.
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Fair value of derivatives
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
9,453,401
|
|
|
$
|
9,453,401
|
|
Embedded Conversion Features
The Company evaluates embedded conversion
features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion
feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value
recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated
under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion feature.
Derivative Financial Instruments
The
Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting
related to 18 convertible notes issued totaling $3,609,000 which included a ratchet provision in the conversion price of
$0.02 or $0.30 or $0.035 or a price equal to the last equity transaction completed by the Company as part of a subscription agreement
.
The notes have maturity dates ranging from February 11, 2018 –July 31, 2018. The Company also has financial instruments that
are considered derivatives or contain embedded features subject to derivative accounting
related to 3,200,000 warrants which
included a ratchet provision in the conversion price of $0.50 as part of a conversion of preferred AAA shares, and 1,000,000 warrants
which included a ratchet provision in the conversion price of $0.055 as part of a placement fee related to a note.
Embedded
derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s
balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair
value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives
for convertible debentures and associated warrants using a multinomial lattice model as of September 30, 2018. The fair values
of the derivative instruments are measured each quarter, which resulted in a loss of $8,501,946 and derivative expense of $559,728
during the nine months ended September 30, 2018. As of September 30, 2018, the fair market value of the derivatives aggregated
$
10,375,228
using the following assumptions: estimated 0.08 to 4.8-year term, estimated
volatility of 163.71% to 394.26%, and a discount rate of 0.00% to 2.63%.
CASH AND CASH EQUIVALENTS — The Company
considers all highly liquid debt instruments with a maturity of three months or less, as well as bank money market accounts, to
be cash equivalents. As of September 30, 2018, and December 31, 2017, the balances were $185,574 and $56,470, respectively.
CONCENTRATION OF CREDIT RISK — Financial
instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables and
cash and cash equivalents.
Concentration of credit risk with respect
to trade receivables is generally diversified due to the large number of entities comprising the Company’s customer base
and their dispersion across geographic areas principally within the United States. The Company routinely addresses the financial
strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited. Our current receivables
at September 30, 2018 are with seven customers. Two customers constitute 83% of our sales.
The Company places its temporary cash investments
with high credit quality financial institutions. At times, the Company maintains bank account balances, which exceed FDIC limits.
As of September 30, 2018, and December 31, 2017, the Company did not exceed FDIC limits.
REVENUE RECOGNITION — The Company
recognized revenue on arrangements in accordance with FASB Codification Topic 606,
Revenue from Contracts with Customers
.
Revenue represents amounts earned for data licensing arrangements consisting of flat fee, per use basis or revenue share. Licensee
is sent data on a daily basis, has use of the data for a period of time based on the contract life between one month to one year.
We recognize revenues in the period in which the data transmission
is provided to the licensee.
Under these policies, the Company evaluates each of these criteria
as follows:
|
•
|
Evidence of an arrangement. We consider a signed insertion order or contract by the licensee or its agency to be evidence of an arrangement.
|
|
•
|
Delivery. Delivery is considered to occur daily with the transmission of the data from our network servers to the licensee.
|
|
•
|
Fixed or determinable fee. The Company recognizes revenue for data license arrangements ratably over the term of the insertion order or contract. Our arrangements with the licensee is noted in the signed contracts which specifies the price to be paid and due date of remittance. Contracts that include fixed-fee data transmission are invoiced upon acceptance of the insertion order or contract and billed at time of delivery. The Company’s terms as stated in the contracts. Final billing is based on usage of delivered data. At the end of the period (usually monthly) an acknowledgment of data amount delivered is sent to licensee, who then verifies usage and at the point a final invoice is generated.
|
|
•
|
Collection is deemed reasonably assured. We deem collection reasonably assured if we expect that the licensee will be able to pay the amounts under the arrangement as payments become due. Collection is deemed not reasonably assured when a licensee is perceived to be in financial distress, which may be evidenced by weak industry conditions, a bankruptcy filing, or previously billed amounts that are past due. If we determine that collection is not reasonably assured, then we would defer the revenue and recognize the revenue upon cash collection.
|
|
•
|
No other warranties and or obligations are implied or due once the data transmission has been completed with the licensee.
|
MOBIQUITY NETWORKS — Revenue is recognized
with the billing of an advertising contract or data sale. The customer signs a contract directly with us for an advertising campaign
with mutually agreed upon term and is billed on the start date of the advertising campaign, which are normally in short duration
periods. The second type of revenue is through the licensing of our data. Revenue from data can occur in two ways; the first is
a direct feed, which is billed at the end of each month. The second way is through the purchasing of audience segments. When an
audience segment is purchased, we bill the buyer upon delivery, which is usually 1-2 days for the order date.
ALLOWANCE FOR DOUBTFUL ACCOUNTS —
Management must make estimates of the collectability of accounts receivable. Management specifically analyzes accounts receivable
and analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in
customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. As of September 30, 2018, and December
31, 2017, allowance for doubtful accounts were $0 and $0, respectively.
PROPERTY AND EQUIPMENT — Property
and equipment are stated at cost. Depreciation is expensed using the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are being amortized using the straight-line method over the estimated useful lives of the
related assets or the remaining term of the lease. The costs of additions and improvements, which substantially extend the useful
life of a particular asset, are capitalized. Repair and maintenance costs are charged to expense. When assets are sold or otherwise
disposed of, the cost and related accumulated depreciation are removed from the account and the gain or loss on disposition is
reflected in operating income.
LONG LIVED ASSETS — Long-lived assets
such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate
that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based
on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets,
if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its
undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the
asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at
a rate commensurate with the risk associated with the recovery of the assets. The Company recognized no impairment losses for the
period ended September 30, 2018.
PATENTS and TRADEMARKS — Patents
and trademarks developed during the prior years were capitalized for the period of development and testing. Expenditures during
the planning stage and after implementation have been expensed in accordance with ASC 985.
ADVERTISING COSTS — Advertising costs
are expensed as incurred. For the quarter ended September 30, 2018 and for the year ended December 31, 2017, there were no advertising
costs.
ACCOUNTING FOR STOCK BASED COMPENSATION
— Stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the
requisite service period. The Company uses the Black-Sholes option-pricing model to determine fair value of the awards, which involves
certain subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock
options before exercising them (“expected term”), the estimated volatility of the Company’s common stock price
over the expected term (“volatility”) and the number of options for which vesting requirements will not be completed
(“forfeitures”). Changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation,
and the related amount recognized on the consolidated statements of operations. Refer to Note 8 “Stock Option Plans”
in the Notes to Consolidated Financial Statements in this report for a more detailed discussion.
BENEFICIAL CONVERSION FEATURES —
Debt instruments that contain a beneficial conversion feature are recorded as deemed interest to the holders of the convertible
debt instruments. The beneficial conversion is calculated as the difference between the fair values of the underlying common stock
less the proceeds that have been received for the debt instrument limited to the value received.
INCOME TAXES — Deferred income taxes
are recognized for temporary differences between financial statement and income tax basis of assets and liabilities for which income
tax or tax benefits are expected to be realized in future years. A valuation allowance is established to reduce deferred tax assets,
if it is more likely than not, that all or some portion of such deferred tax assets will not be realized. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
—
Revenue from Contracts with Customers (Topic 606)
. The Company adopted Revenue Recognition Standard, ASC 606 on
January 1, 2018 and after for the recognition for our revenue policy.
We have completed our assessment of the
impact under the new revenue standard on our condensed financial statements. Based on our assessment, we have concluded that our
financial statements will not be materially impacted upon adoption.
NOTE 2: LOSS PER SHARE
Basic loss per common share is computed
by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Dilutive loss per
share gives effect to stock options and warrants, which are considered to be dilutive common stock equivalents. Basic loss per
common share was computed by dividing net loss by the weighted average number of shares of common stock outstanding. The number
of common shares potentially issuable upon the exercise of certain options and warrants that were excluded from the diluted loss
per common share calculation was approximately 372,553,914 because they are anti-dilutive as a result of a net loss for the nine
months ended September 30, 2018.
NOTE 3: CONVERTIBLE DEBT AND DERIVATIVE
LIABILITIES
Summary of Convertible Promissory Notes:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
CAVU Notes, net
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Berg Note
|
|
|
50,000
|
|
|
|
50,000
|
|
Secured and unsecured Notes net of discounts of $52,523 for September 30, 2018 and $234,502 for December 31, 2017
|
|
|
4,731,523
|
|
|
|
2,999,498
|
|
Total Debt
|
|
|
4,881,523
|
|
|
|
3,149,498
|
|
Current portion of debt
|
|
|
4,881,523
|
|
|
|
3,149,498
|
|
Long-term portion of debt
|
|
$
|
–
|
|
|
$
|
–
|
|
In the first quarter of 2018, the Company
entered into agreements with non-affiliated persons to provide $1,000,000 of short term secured debt financing in four monthly
tranches. The Company will issue in connection with each tranche, a six-month secured convertible promissory note. In connection
with this transaction, the Company agreed to issue an origination fee of 1,000,000 shares of restricted common stock. Alexander
Capital L.P. acted as Placement Agent and Advisor for this transaction. Each of these new notes are on the terms of the Company's
10% Senior Secured debt.
The Company's 10% Senior Secured Debt consists
of 19 convertible notes issued totaling $4,234,000. These notes mature 6 months from the date of issuance, accrue interest at 10%,
and had a base conversion price of $0.05. As of September 30, 2018, the 10% Senior Secured Debt notes are in default for breach
of covenants due to notes which have matured during the period not being settled. The default on these notes triggered an increase
in the interest rate from 10% to 24% on the principal balance, a 9% late fee being charged on interest accrued, and a variable
conversion price equal to 50% of the lowest volume weighted average price in the 30 days prior to conversion. On February 27, 2018
the Company reduced the base conversion price from $0.05 to $0.02. The Company accounted for this modification per ASC 470-50 "Modifications
and Extinguishments". Due to the variable rate in effect from the default provisions of the 10% Senior Secured Debt notes
this reduction in base conversion price had no material change on the value of the notes.
In the second quarter of 2018, the Company
borrowed $375,000 from investors, including $125,000 from the Chairman of the Company. A total of 10,500,000 shares of common stock
were issued as origination fees. The principal of the loans are due and payable the earlier of July 31, 2018 or upon the completion
of a financing of at least $1,000,000
.
The notes are in default for breach of covenants due to the notes which have matured
during the period not being settled.
A recap of the derivative liability is as follows:
Derivative Liability 2018
|
Beginning balance
|
|
$
|
(666,123
|
)
|
New Issuances
|
|
|
(559,728
|
)
|
Discount on new issuances
|
|
|
(647,431
|
)
|
Gain (Loss) on revaluation of derivative liability
|
|
|
(8,501,946
|
)
|
Ending balance
|
|
$
|
(10,375,228
|
)
|
NOTE 4: STOCKHOLDERS’ (DEFICIT)
Shares issued for Original Interest Discount
During the quarter ended September 30,
2018, the Company issued 10,500,000 shares of common stock at a price per share between $0.04 and $0.05 for original issue discount
on receipt of $375,000 in unsecured convertible promissory notes.
On September 20, 2018, the Company entered
into a strategic investment transaction with Glen Eagles Acquisitions LP (“GEA”). As part of the strategic investment,
the Company received 4,500,000 shares of Gopher Protocol Inc. common stock (traded in the OTC Market under the symbol “GOPH”)
and cash in exchange for 150,000,000 shares of its restricted common stock. There was also an origination fee of 15,000,000 shares
of its restricted common stock paid to GEA by the Company in connection with this transaction. There were no commissions or finder’s
fees paid by the Company in connection with this transaction.
On September 4, 2018, Gopher Protocol
Inc. (the “Gopher”) and the Company entered an Agreement (the “MOBQ Agreement”) pursuant to which the
parties exchanged equity interest in each of the companies. In accordance with the Agreement, Gopher will receive 1,000 shares
of the Company’s restricted Series AAAA Preferred Stock (the “the Company Preferred Stock”) in consideration
of Gopher’s concurrent sale and issuance to the Company of 10,000,000 shares of Gopher’s restricted Common Stock (the
“Gopher Common Stock”). The shares of Company Preferred Stock are convertible into an aggregate of up to 100,000,000
shares of the Company common stock (the “Company Common Stock”) and 150,000,000 common stock purchase warrants (the
“Company Warrants”). The Company Warrants shall have a term of 5-years from the date of grant and shall be exercisable
at a price of $0.12 per share and the shares of the Company Preferred Stock shall not be convertible into shares of the Company
Common Stock and the Company Warrants shall not be contemporaneously granted until after the Company’s Board of Directors
and stockholders shall have increased the authorized number of shares of the Company’s common stock to a number sufficient
to accommodate a reserve in Gopher’s favor of 250,000,000 shares of the Company’s common stock. The Company Preferred
Stock shall have immediate voting rights equal to the number of shares of the Company Common Stock into which they may be converted,
not including the shares of the Company’s common stock underlying the Company Warrants (the “Company Warrant Shares”).
A fee of 10,000,000 shares of the Company’s common stock and warrants to purchase 15,000,000 shares was issued in connection
with the transaction. The closing occurred on September 4, 2018.
The Company agreed that for a period beginning immediately
upon the six (6)-month anniversary of the date hereof and ending on the twenty-four (24)-month anniversary of the date hereof
(the “Leak-Out Period”), The Company shall have the right to sell or otherwise transfer into the public markets on any
given day up to 20,000 shares of Gopher Common Stock. The Company may transfer all or a portion of the shares
of Gopher Common Stock otherwise at any time, so long as the receiving party adheres to the above Leak-Out Period.
NOTE 5: STOCK-BASED COMPENSATION
Compensation costs related to share-based
payment transactions, including employee stock options, are recognized in the financial statements utilizing the straight-line
method for the cost of these awards.
The Company's results for the three-month
period ended September 30, 2018 and 2017 include employee and investor share-based compensation expense totaling $1,435,208 and
$91,271, respectively. The Company's results for the nine-month period ended September 30, 2018 and 2017 include employee share-based
compensation expense totaling $1,762,613 and $516,629, respectively. Such amounts have been included in the Condensed Consolidated
Statements of Operations within selling, general and administrative expenses. No income tax benefit has been recognized in the
statement of operations for share-based compensation arrangements due to a history of operating losses.
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Employee stock-based compensation - option grants
|
|
$
|
–
|
|
|
$
|
92,171
|
|
|
$
|
273,945
|
|
|
$
|
394,129
|
|
Employee stock-based compensation - stock grants
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Non-Employee stock-based compensation - option grants
|
|
|
–
|
|
|
|
–
|
|
|
|
53,460
|
|
|
|
11,500
|
|
Non-Employee stock-based compensation - stock grants
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Non-Employee stock-based compensation-stock warrant
|
|
|
1,435,208
|
|
|
|
–
|
|
|
|
1,435,208
|
|
|
|
111,000
|
|
Total
|
|
$
|
1,435,208
|
|
|
$
|
92,171
|
|
|
$
|
1,762,613
|
|
|
$
|
516,629
|
|
NOTE 6: STOCK OPTION PLAN
In the first quarter of 2016, the Board
approved, and stockholders ratified a 2016 Employee Benefit and Consulting Services Compensation Plan covering 10,000,000 shares
(the “2016 Plan”) and approving moving all options which exceeded the 2009 Plan limits to the 2016 Plan.
All stock options under the Plans are granted
at or above the fair market value of the common stock at the grant date. Employee and non-employee stock options vest over varying
periods and generally expire either 5 or 10 years from the grant date. The fair value of options at the date of grant was estimated
using the Black-Scholes option pricing model. For option grants, the Company will take into consideration payments subject to the
provisions of ASC 718 "Stock Compensation", previously Revised SFAS No. 123 "Share-Based Payment" (“SFAS
123 (R)"). The fair values of these restricted stock awards are equal to the market value of the Company's stock on the date
of grant, after taking into certain discounts. The expected volatility is based upon historical volatility of our stock and other
contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise of
options for all employees. Previously, such assumptions were determined based on historical data.
The weighted average assumptions made in
calculating the fair values of options granted during the three and nine months ended September 30, 2018 and 2017 are as follows:
|
|
Three Months Ended
September 30
|
|
|
Nine Months Ended
September 30
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Expected volatility
|
|
|
0.00%
|
|
|
|
0.00%
|
|
|
|
0.00%
|
|
|
|
146.77%
|
|
Expected dividend yield
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Risk-free interest rate
|
|
|
0.00%
|
|
|
|
0.00%
|
|
|
|
0.00%
|
|
|
|
1.89%
|
|
Expected term (in years)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5.00
|
|
|
|
Share
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, January 1, 2018
|
|
|
17,515,001
|
|
|
|
0.39
|
|
|
|
4.43
|
|
|
$
|
–
|
|
Granted
|
|
|
19,250,000
|
|
|
|
0.05
|
|
|
|
4.50
|
|
|
|
–
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled & Expired
|
|
|
(11,765,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2018
|
|
|
25,000,000
|
|
|
|
0.12
|
|
|
|
4.03
|
|
|
$
|
994,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, September 30, 2018
|
|
|
25,000,000
|
|
|
|
0.12
|
|
|
|
4.03
|
|
|
$
|
994,500
|
|
The weighted-average grant-date fair value
of options granted during the nine months ended September 30, 2018 and 2017 was $0.12 and $0.05, respectively.
The aggregate intrinsic value of options
outstanding and options exercisable at September 30, 2018 is calculated as the difference between the exercise price of the underlying
options and the market price of the Company's common stock for the shares that had exercise prices, that were lower than the $0.10
closing price of the Company's common stock on September 30, 2018.
As of September 30, 2018, the fair value
of unamortized compensation cost related to unvested stock option awards is $0.
The weighted average assumptions made in
calculating the fair value of warrants granted during the three and nine months ended September 30, 2018 and 2017 are as follows:
|
|
Three Months Ended
September 30
|
|
|
Nine Months Ended
September 30
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Expected volatility
|
|
|
158.00%
|
|
|
|
0.00%
|
|
|
|
158.00%
|
|
|
|
151.49%
|
|
Expected dividend yield
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Risk-free interest rate
|
|
|
2.83%
|
|
|
|
0.00%
|
|
|
|
2.83%
|
|
|
|
1.88%
|
|
Expected term (in years)
|
|
|
5.00
|
|
|
|
–
|
|
|
|
5.00
|
|
|
|
4.75
|
|
|
|
Share
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining Contractual
Term
|
|
|
Aggregate Intrinsic
Value
|
|
Outstanding, January 1, 2018
|
|
|
11,814,167
|
|
|
$
|
0.20
|
|
|
|
2.58
|
|
|
$
|
–
|
|
Granted
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
(1,040,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2018
|
|
|
17,291,667
|
|
|
$
|
0.15
|
|
|
|
3.60
|
|
|
|
304,000
|
|
Warrants exercisable, September 30, 2018
|
|
|
28,065,834
|
|
|
$
|
0.15
|
|
|
|
3.60
|
|
|
|
304,000
|
|
NOTE 7: COMMITMENTS AND CONTINGENCIES
COMMITMENTS –
In March of 2014, we entered into
a month-to-month lease agreement for approximately 400 square feet of office space located in Manhattan, NY at a monthly
cost of $3,700. In May of 2015, we moved to a larger location with the same landlord on a month to month basis for $4,700
each month. In 2017 the Company is leasing on a month-to-month basis two fully furnished executive suites in Manhattan at
a monthly cost of approximately $6,600. These executive suites are located at 85 Broadway, 16
th
Floor, Suites
16-035 and 16-040, New York, NY 10010. In July of 2018, we entered into a month-to-month agreement for office space located
at 315 Hudson Street in Manhattan NY at a monthly cost of $3,000.
There are currently no minimum future rentals
under non-cancelable lease commitments.
Rent and real estate tax expense was approximately
$9,000 and $36,499 for the quarters ended September 30, 2018 and 2017, respectively, and approximately $42,387 and $1,090,118,
respectively for the nine months ended September 30, 2018 and 2017.
Transactions with major customers
During the quarter ended September 30,
2018, two customers accounted for approximately 84% of revenues. During the quarter ended September 30, 2017, two customers accounted
for 100% of revenues. During the nine months ended September 30, 2018, two customers accounted for approximately 86% of revenues.
During the nine months ended September 30, 2017, two customers accounted for 96% of revenues.
NOTE 8: SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company
has analyzed its operations subsequent to September 30, 2018 to the date these financial statements were issued, and has determined
that it does not have any material subsequent events to disclose in these financial statements, except as follows:
In October of 2018, the Company received
six equity subscription agreements totaling $800,000, which include 50% warrant coverage, at an exercise price of $0.12 with an
expiration date of September 30, 2023.