NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND
BASIS OF PRESENTATION
Two Hands Corporation (formerly Innovative
Product Opportunities Inc.) (the "Company") was incorporated on April 3, 2009 in the State of Delaware and established
a fiscal year end of December 31.
From inception (April 3, 2009) until
June 30, 2014 our business was a product development firm creating products designed, prototyped and produced in numerous industries
including consumer and household goods, office products, furniture, and toys.
On March 1, 2012 the Company entered
into a license agreement with Szar International, Inc. (dba Cigar & Spirits Magazine) (“Cigar & Spirits”).
The agreement granted the Company the right to market the products of Cigar & Spirits including but not limited to the sales,
promotion, and advertising vehicles of the Magazine. On July 8, 2013, The Company received written notice that Cigar & Spirits
will cancel the license agreement on August 1, 2013.
Since July 1, 2014, our business is a research
and product development firm. Over the past few years we have specialized in computer vision and gesture recognition technologies.
We have leveraged our relationship with our product development team of programmers and designers to implement our vision for building
a state of the art co-parenting application.
The Two Hands Application launched
on July 25, 2018.
On February 20, 2019, the Company
announced the launch of its application, Two Hands Gone, a new encrypted messaging app.
The Company is also in the business
of working with other independent contractors to build brand awareness campaigns for clients and their products. The Company provides
assistance in building brand awareness for the products it sells through its internet website, out-of-home, mobile, online and
other media outlets as required. Additionally, the Company develops the creative media to support the client’s media buys.
The Company also assists Clients in developing and assisting in matters of developing brand strategies and discussions pertaining
thereof. The Company executes and/or oversee the research, planning, pricing, creative development, tracking and deployment of
all online and out-of-home advertising projects needed to promote client products and services.
On January 17, 2019, the Company entered
into an agreement to purchase a 100% interest in the Colombian License held by Plantro Inc S.A.S. The transaction is subject to
the Company’s satisfaction that it can acquire the License free and clear of all encumbrances, completion of due diligence,
receipt of any third-party consents and there being no material adverse change in the License. The Company has agreed to issue
ten million (10,000,000) restricted shares of its common stock and pay a royalty of 15% of net income, calculated in accordance
with US GAAP, earned from the License to Plantro Inc S.A.S. The transaction was originally expected to close on February 15, 2019.
On February 27, 2019, the Company announced the closing of the transaction was extended to the week of April 4, 2019 to satisfy
the conditions placed on Plantro Inc S.A.S. We currently believe that the transaction will close by the end of the second quarter
of 2019.
The operations of the business are carried
on by a 100% owned subsidiary, I8 Interactive Corporation, a company incorporated under the laws of Canada.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION
The accompanying financial statements
of Two Hands Corporation have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange
Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete financial statements. The financial statements should
be read in conjunction with the annual financial statements for the year ended December 31, 2018 of Two Hands Corporation in our
Form 10-K filed on April 1, 2019.
The interim financial statements present
the balance sheets, statements of operations and cash flows of Two Hands Corporation. The financial statements have been prepared
in accordance with accounting principles generally accepted in the United States.
The interim financial information
is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of March
31, 2019 and the results of operations and cash flows presented herein have been included in the financial statements. All
such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results of
operations for the full year.
Reclassification
On the condensed consolidated
statements of operations for the three months ended March 31, 2018, stock-based compensation – salaries of $231,500 and
general and administration expense of $173,600 previously reported separately were combined and reported as general and
administration expense of $405,100.
GOING CONCERN
The Company's financial statements are
prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization
of assets and the liquidation of liabilities in the normal course of business. During the three months ended March 31, 2019, the
Company incurred a net loss of $1,638,972 and used cash in operating activities of $109,335, and at March 31, 2019, had a stockholders’
deficit of $926,022. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going
concern within one year of the date that the financial statements are issued. The Company will be dependent upon the raising of
additional capital through placement of its common stock in order to implement its business plan. There can be no assurance that
the Company will be successful in this situation. Accordingly, these factors raise substantial doubt as to the Company's ability
to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or amounts and classifications of liabilities that might result from this uncertainty. We are currently
funding our operations by way of cash advances from our Chief Executive Officer, note holders, shareholders and others; however,
we do not have any oral or written agreements with them or others to loan or advance funds to us. There can be no assurances that
we will be able to receive loans or advances from them or other persons in the future.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary, I8 Interactive Corporation. All intercompany transactions
and balances have been eliminated in consolidation.
USE OF ESTIMATES AND ASSUMPTIONS
Preparation of the financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash
flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less
accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense when incurred, while
renewals and betterments that materially extend the life of an asset are capitalized.
The costs of assets sold, retired, or otherwise
disposed of, and the related allowance for depreciation, are eliminated from the accounts, and any resulting gain or loss is recognized
in the results from operations. Depreciation is provided over the estimated useful lives of the assets, which are as follows:
Computer equipment
|
50% declining balance over a three year useful life
|
In the year of acquisition, one half the normal
rate of depreciation is provided.
REVENUE RECOGNITION
In accordance with ASC 606,
revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized
reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services. The
provisions of ASC 606 include a five-step process by which we determine revenue recognition, depicting the transfer of goods
or services to customers in amounts reflecting the payment to which we expect to be entitled in exchange for those goods or
services. ASC 606 requires us to apply the following steps: (1) identify the contract with the customer; (2) identify the
performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the
performance obligations in the contract; and (5) recognize revenue when, or as, we satisfy the performance obligation.
During the three months ended March
31, 2019 and 2018, the Company had revenue of $0 and $170,852, respectively. During 2018 100% of revenue was earned from one customer.
The contract with this customer ended in November 2018. The Company recognized revenue from services provided for brand awareness
campaigns for the client and their products. Revenue is recognized based on time spent on the project at an agreed upon hourly
rate and as recoverable disbursements are incurred.
RESEARCH AND DEVELOPMENT COSTS
We incurred research and development
costs primarily to the development of Two Hands gone application. Research and development costs are comprised primarily of contract
labor and services.
Software development costs are included
in research and development and are expensed as incurred. FASB ASC Topic 350
Intangibles—Goodwill and Other
requires
that software development costs incurred subsequent to reaching technological feasibility be capitalized, if material. If the process
of developing a new product or major enhancement does not include a detailed program design, technological feasibility is determined
only after completion of a working model. To date, the period between achieving technological feasibility and the general availability
of such software has been short, and the software development costs qualifying for capitalization have been insignificant. The
Company recorded research and development expense of $0 and $0 for the three months ended March 31, 2019 and 2018, respectively.
INCOME TAXES
The Company accounts for income taxes
in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("FASB ASC")
740, Income Taxes. Under the assets and liability method of FASB ASC 740, 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. 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. The Company provides a valuation
allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
NET LOSS PER SHARE
Basic net income (loss) per share includes
no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share is computed by dividing earnings available to common shareholders
by the weighted average number of common shares outstanding for the period increased to include the number of additional common
shares that would have been outstanding if potentially dilutive securities had been issued. At March 31, 2019 and 2018, we excluded
the common stock issuable upon conversion of non-redeemable convertible notes, convertible notes, stock payable and warrants of
7,170,399,180 shares and 3,335,502,947 shares, respectively, as their effect would have been anti-dilutive.
FOREIGN CURRENCY TRANSLATION
The financial statements are presented
in the Company’s functional currency which is the United States dollars. In accordance with FASB ASC 830, Foreign Currency
Matters, foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign
exchange rates which prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at exchange rates
prevailing at the transaction date. Revenue and expenses are translated at average rates of exchange during the periods presented.
Related translation adjustments are reported as a separate component of stockholders' deficit, whereas gains or losses resulting
from foreign currency transactions are included in results of operations.
STOCK-BASED COMPENSATION
The Company accounts for stock incentive
awards issued to employees and non-employees in accordance with FASB ASC 718, Stock Compensation. Accordingly, stock-based compensation
is measured at the grant date, based on the fair value of the award. Stock-based awards to employees are recognized as an expense
over the requisite service period, or upon the occurrence of certain vesting events. Additionally, stock-based awards to non-employees
are expensed over the period in which the related services are rendered.
FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC Topic 820 defines fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value measurements.
Included in the ASC Topic 820 framework
is a three level valuation inputs hierarchy with Level 1 being inputs and transactions that can be effectively fully observed by
market participants spanning to Level 3 where estimates are unobservable by market participants outside of the Company and must
be estimated using assumptions developed by the Company. The Company discloses the lowest level input significant to each category
of asset or liability valued within the scope of ASC Topic 820 and the valuation method as exchange, income or use. The Company
uses inputs which are as observable as possible and the methods most applicable to the specific situation of each company or valued
item.
The Company’s financial instruments
such as cash, accounts payable and accrued liabilities, non-redeemable convertible notes, notes payable and due to related parties
are reported at cost, which approximates fair value due to the short-term nature of these financial instruments.
Derivative liabilities are measured at fair value on a recurring basis using Level 3 inputs.
The
following table presents assets and liabilities that are measured and recognized at fair value as of March 31, 2019 on a recurring
basis:
|
|
|
Fair Value as of March
31, 2019
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
Derivative
liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
455,237
|
|
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2016, the FASB issued ASU
No. 2016-02,
Leases.
ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on
the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting
periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required
for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements, with certain practical expedients available. The adoption of ASU 2016-02 on January 1, 2019
did not have a material impact since the Company on the date of adoption had short-term leases and elected not to apply the recognition
requirement.
Other recent accounting pronouncements issued
by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future
consolidated financial statements.
NOTE 3 – NON-REDEEMABLE CONVERTIBLE
NOTES
On June 10, 2014, the Company
agreed to amend and add certain terms to unsecured, non-interest bearing, due on demand notes payable issued to The Cellular
Connection Ltd. during the period from February 22, 2013 to June 10, 2014 with a total carrying value $42,189. The issue
price of the Note is $42,189 with a face value of $54,193 and the Note has an original maturity date of December 31, 2014
which is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at a
fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a
portion of the Company assets up to 200% of the face value of the Note. The outstanding face value of the Note shall increase
by another 20% on January 1, 2020 and again on each one year anniversary of the Note until the Note has been paid in full.
During the three months ended March 31, 2019, the Company elected to convert $900 of principal and interest into 9,000,000
shares of common stock of the Company at a fixed conversion prices of $0.0001 per share. This conversion resulted in a loss
on debt settlement of $737,100 due to the requirement to record the share issuance at fair value on the date the shares were
issued. The condensed consolidated statement of operations includes interest expense of $586 and $722 for the three months
ended March 31, 2019 and 2018, respectively. At March 31, 2019 and December 31, 2018, the carrying amount of the Note is
$11,578 (face value of $13,370 less $1,792 unamortized discount) and $11,892 (face value of $11,892 less $0 unamortized
discount), respectively.
On September 1, 2016, Doug Clark, former
Chief Executive Officer and related party, assigned the Side Letter Agreement (“Note”) dated June 10, 2014 with a total
carrying value $382,016 to DC Design Inc. (“DC Design”). In addition on September 1, 2016, the Company entered into
an amended Side Letter Agreement with DC Design to amend and add certain terms to the Side Letter Agreement and advances from the
period from June 25, 2014 to December 24, 2014. Under the terms of the amended Side Letter Agreement, the issue price of the Note
is $174,252 with an interest rate 20% per annum and an original maturity date of December 31, 2017 which is subject to automatic
renewal. At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.003 per
share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200%
of the face value of the note. The outstanding face value of the Note shall increase by another 20% on January 1, 2020 and again
on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations
includes interest expense of $1,130 and $7,353 for the three months ended March 31, 2019 and 2018, respectively. At March 31, 2019
and December 31, 2018, the carrying amount of the Note is $24,054 (face value of $27,508 less $3,454 unamortized discount) and
$22,923 (face value of $22,923 less $0 unamortized discount), respectively.
On January 8, 2018, the Company entered
into a Side Letter Agreement (“Note”) with The Cellular Connection Ltd., to amend and add certain terms to unsecured,
non-interest bearing, due on demand notes payable totaling $14,930 issued by the Company during the period of June 2014 and December
2017. The issue price of the Note is $14,930 with a face value of $17,916 and the Note has an original maturity date of December
31, 2018 which is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at
a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion
of the Company assets up to 200% of the face value of the Note. The outstanding face value of the Note shall increase by another
20% on January 1, 2020 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated
statement of operations includes interest expense of $874 and $693 for the three months ended March 31, 2019 and 2018, respectively.
At March 31, 2019 and December 31, 2018, the carrying amount of the Note is $18,790 (face value of $21,499 less $2,709 unamortized
discount) and $17,916 (face value of $19,716 less $0 unamortized discount), respectively.
On January 8, 2018, the Company entered
into a Side Letter Agreement (“Note”) with Stuart Turk, to amend and add certain terms to unsecured, non-interest bearing,
due on demand notes payable totaling $244,065 issued by the Company during the period of July 2014 and December 2017. The issue
price of the Note is $244,065 with a face value of $292,878 and the Note has an original maturity date of December 31, 2018 which
is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at a fixed conversion
price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company
assets up to 200% of the face value of the Note. The outstanding face value of the Note shall increase by another 20% on January
1, 2020 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement
of operations includes interest expense of $14,443 and $11,317 for the three months ended March 31, 2019 and 2018, respectively.
At March 31, 2019 and December 31, 2018, the carrying amount of the Note is $307,322 (face value of $351,454 less $44,132 unamortized
discount) and $292,879 (face value of $292,879 less $0 unamortized discount), respectively.
On April 12, 2018, the Company entered
into a Side Letter Agreement (“Note”) with Jordan Turk to amend and add certain terms to unsecured, non-interest bearing,
due on demand notes payable totaling $45,000 issued by the Company during the period of March 19, 2018 to April 12, 2018. The issue
price of the Note is $45,000 with a face value of $54,000 and the Note has an original maturity date of December 31, 2018 which
is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at a fixed conversion
price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company
assets up to 200% of the face value of the Note. The outstanding face value of the Note shall increase by another 20% on January
1, 2020 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement
of operations includes interest expense of $2,663 and $0 for the three months ended March 31, 2019 and 2018, respectively. At March
31, 2019 and December 31, 2018, the carrying amount of the Note is $56,663 (face value of $64,800 less $8,137 unamortized discount)
and $54,000 (face value of $54,000 less $0 unamortized discount), respectively.
On May 10, 2018, the Company entered
into a Side Letter Agreement (“Note”) with Jordan Turk to amend and add certain terms to unsecured, non-interest bearing,
due on demand notes payable totaling $35,000 issued by the Company on May 9, 2018. The issue price of the Note is $35,000 with
a face value of $42,000 and the Note has an original maturity date of December 31, 2018 which is subject to automatic renewal.
At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.0001 per share of
the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face
value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20%
on January 1, 2019. The outstanding face value of the Note shall increase by another 20% on January 1, 2020 and again on each one
year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations includes
interest expense of $2,071 and $0 for the three months ended March 31, 2019 and 2018, respectively. At March 31, 2019 and December
31, 2018, the carrying amount of the Note is $44,071 (face value of $50,400 less $6,329 unamortized discount) and $42,000 (face
value of $42,000 less $0 unamortized discount), respectively.
On September 13, 2018, the Company entered
into a Side Letter Agreement (“Note”) with Jordan Turk to amend and add certain terms to unsecured, non-interest bearing,
due on demand notes payable totaling $40,000 issued by the Company during the period of July 10 to September 13, 2018. The issue
price of the Note is $40,000 with a face value of $48,000 and the Note has an original maturity date of December 31, 2018 which
is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at a fixed conversion
price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company
assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the
Note shall increase by 20% on January 1, 2019. The outstanding face value of the Note shall increase by another 20% on January
1, 2020 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement
of operations includes interest expense of $2,367 and $0 for the three months ended March 31, 2019 and 2018, respectively. At March
31, 2019 and December 31, 2018, the carrying amount of the Note is $50,367 (face value of $57,600 less $7,233 unamortized discount)
and $48,000 (face value of $48,000 less $0 unamortized discount), respectively.
On January 31, 2019, the Company entered
into a Side Letter Agreement (“Note”) with Stuart Turk to amend and add certain terms to unsecured, non-interest bearing,
due on demand notes payable totaling $106,968 issued by the Company during the period of January 3, 2018 to December 28, 2018.
The issue price of the Note is $106,968 with a face value of $128,362 and the Note has an original maturity date of December 31,
2019 which is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at a fixed
conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of
the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face
amount of the Note shall increase by 20% on January 1, 2020. The outstanding face value of the Note shall increase by another 20%
on January 1, 2021 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated
statement of operations includes interest expense of $3,779 and $0 for the three months ended March 31, 2019 and 2018, respectively.
At March 31, 2019 and December 31, 2018, the carrying amount of the Note is $110,747 (face value of $128,362 less $17,615 unamortized
discount) and $0, respectively.
On January 31, 2019, the Company entered
into a Side Letter Agreement (“Note”) with The Cellular Connection Ltd. to amend and add certain terms to unsecured,
non-interest bearing, due on demand notes payable totaling $20,885 issued by the Company during the period of January 23, 2018
to October 16, 2018. The issue price of the Note is $20,885 with a face value of $25,062 and the Note has an original maturity
date of December 31, 2019 which is subject to automatic renewal. At the option of the Company, the Company may convert principal
and interest at a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender
to secure a portion of the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date,
the outstanding face amount of the Note shall increase by 20% on January 1, 2020. The outstanding face value of the Note shall
increase by another 20% on January 1, 2021 and again on each one year anniversary of the Note until the Note has been paid in full.
The condensed consolidated statement of operations includes interest expense of $740 and $0 for the three months ended March 31,
2019 and 2018, respectively. At March 31, 2019 and December 31, 2018, the carrying amount of the Note is $21,625 (face value of
$25,062 less $3,437 unamortized discount) and $0, respectively.
NOTE 4 – NOTES PAYABLE
As of March 31, 2019 and December 31,
2018, notes payable due to Stuart Turk, Jordan Turk and The Cellular Connection Limited, a corporation controlled by Stuart Turk,
totaling $62,239 and $127,853, respectively, were outstanding. The balances are non-interest bearing, unsecured and have no specified
terms of repayment.
NOTE 5 – CONVERTIBLE NOTE
On March 1,
2019, the Company entered into a Securities Purchase Agreement with Firstfire Global Opportunities Fund, LLC, (“Holder”)
relating to the issuance and sale of a Senior Convertible Note (the “Note”) with an original principal amount of $200,000
less an original issue discount of $20,000 and transaction costs of $5,000 bearing a 7% annual interest rate and maturing September
1, 2020 for $175,000 in cash. The Note and accrued interest, at the option of the Holder, is convertible into common shares of
the Company at $0.10 per share. After 180 days after the issue date, the Note together with any unpaid accrued interest is convertible
into shares of common stock of the Company at the Holder’s option at the lessor of (i) $0.10 per share or (ii) a variable
conversion price calculated at 65% of the market price defined as the lowest trading price during the ten trading day period ending
on the latest trading day prior to the conversion date. The Company may prepay the Note in cash, if repaid within 90 days of date
of issue, at 115% of the original principal amount plus interest, between 90 days and 120 days at 120% of the original principal
amount plus interest and between 120 days and 180 days at 130% of the original principal amount plus interest. Thereafter, the
Company does not have the right of prepayment. At March 31, 2019, the Note was recorded at amortized cost of $1,152 comprising
of principal of $200,000 plus accrued interest of $1,151 less debt discount of $199,999.
NOTE 6 - CONVERTIBLE PROMISSORY NOTE
DERIVATIVE LIABILITY
The Senior Convertible Note with Firstfire
Global Opportunities Fund, LLC with an issue date of March 1, 2019 was accounted for under ASC 815. The variable conversion
price is not considered predominately based on a fixed monetary amount settleable with a variable number of shares due to the volatility
and trading volume of the Company’s common stock. The Company’s convertible promissory note derivative liabilities
have been measured at fair value at March 1, 2019 and March 31, 2019 using the binomial model.
The inputs into the binomial models
are as follows:
|
|
March 1, 2019
|
|
March 31, 2019
|
Closing share price
|
|
$
|
0.07
|
|
|
$
|
0.08
|
|
Conversion price
|
|
$
|
0.0364
|
|
|
$
|
0.0423
|
|
Risk free rate
|
|
|
2.55
|
%
|
|
|
2.40
|
%
|
Expected volatility
|
|
|
403
|
%
|
|
|
405
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life
|
|
|
1.51 years
|
|
|
|
1.42 years
|
|
The fair value of the conversion option
derivative liability is $380,919, of which $175,000 was recorded as a debt discount and the remainder of $205,919 was recorded
as initial derivative expense, and $376,534 at March 1, 2019 and March 31, 2019, respectively. The decrease in the fair value of
the conversion option derivative liability of $4,385 is recorded as a gain in the unaudited condensed consolidated statements of
operations for the three months ended March 31, 2019.
NOTE 7 – WARRANT LIABILITY
In conjunction with the issuance of
the Senior Convertible Note with Firstfire Global Opportunities Fund, LLC (the “Note”) on March 1, 2019, the Company
issued 1,000,000 warrants with an exercise price of $0.20 and a term of two years. The warrants are subject to down round and other
anti-dilution protections. The warrant is tainted and classified as a liability as a result of the issuance of the Note since there
is a possibility during the life of the warrant the Company would not have enough authorized shares available if the warrant is
exercised. The Company’s warrant liability has been measured at fair value at March 1, 2019 and March 31, 2019 using the
binomial model.
The inputs into the binomial models
are as follows:
|
|
March 1, 2019
|
|
March 31, 2019
|
Closing share price
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
Exercise price
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Risk free rate
|
|
|
2.27
|
%
|
|
|
1.93
|
%
|
Expected volatility
|
|
|
364
|
%
|
|
|
370
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life
|
|
|
2.0 years
|
|
|
|
1.93 years
|
|
The fair value of the
warrant liability is $68,798, which was recorded as initial derivative expense, and $78,703 at March 1, 2019
and March 31, 2019, respectively. The increase in the fair value of the warrant liability of $9,905 is recorded as a loss in
the unaudited condensed consolidated statements of operations for the three months ended March 31, 2019.
NOTE 8 – RELATED PARTY TRANSACTIONS
As of March 31, 2019 and 2018, advances
and accrued salary of $118,378 and $52,671, respectively, were due to Nadav Elituv, the Company's Chief Executive Officer. The
balance is non-interest bearing, unsecured and have no specified terms of repayment.
Employment Agreements
On July 1, 2017, the Company executed
an employment agreement for the period from July 1, 2017 to June 30, 2018 with Nadav Elituv, the Chief Executive Officer of the
Company whereby the Company shall pay 20,000 shares of Common Stock of the Company with a fair value of $926,000 ($46.30 per share).
On September 10, 2018, the Company executed
an employment agreement for the period from July 1, 2018 to June 30, 2019 with Nadav Elituv, the Chief Executive Officer of the
Company whereby the Company shall pay 50,000,000 shares of Common Stock of the Company and an annual salary of $151,200 payable
monthly on the first day of each month from available funds.
Stock-based compensation – salaries
expense related to these employment agreements for the three months ended March 31, 2019 and 2018 is $277,372 and $231,500, respectively.
Stock-based compensation – salaries expense is recognized ratably over the requisite service period. At March 31, 2019, 9,317,406
shares of common stock under the September 10, 2018 employment agreement has not vested.
NOTE 9- STOCKHOLDERS’ DEFICIT
The Company is authorized to issue
an aggregate of 3,000,000,000 common shares with a par value of $0.0001 per share and 1,000,000 shares of preferred stock with
a par value of $0.0001 per share. On August 6, 2013, the Company filed a Certificate of Designation with the Delaware Secretary
of State thereby designating two hundred thousand (200,000) shares as Series A Convertible Preferred Stock. No preferred shares
have been issued.
During three months ended March 31,
2019, the Company elected to convert $900 of principal and interest of non-redeemable convertible notes into 9,000,000 shares of
common stock of the Company valued at 738,000 ($0.082 per share). The conversions resulted in a loss on settlement of debt of $737,100.
Shares to be issued
As at March 31, 2019 and December 31,
2018, the Company had an obligation to issue 20,682,594 shares of common stock and 11,467,577 shares of common stock, respectively,
for stock-based compensation –salaries (see Note 8). In addition, at March 31, 2019, the company had an obligation to issue
100,000 shares of common stock for stock based compensation – services.