ITEM
1. FINANCIAL STATEMENTS
LIFELOGGER
TECHNOLOGIES CORP.
March
31, 2016 and 2015
Index
to Financial Statements
LIFELOGGER
TECHNOLOGIES CORP.
BALANCE
SHEETS
|
|
As of
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
12,958
|
|
|
$
|
131,699
|
|
Prepaid expenses
|
|
|
7,291
|
|
|
|
10,319
|
|
Deferred financing costs
|
|
|
250,000
|
|
|
|
3,453
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
270,249
|
|
|
|
145,471
|
|
|
|
|
|
|
|
|
|
|
Furniture and Fixtures
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
|
9,578
|
|
|
|
9,578
|
|
Accumulated depreciation
|
|
|
(1,710
|
)
|
|
|
(1,368
|
)
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures, net
|
|
|
7,868
|
|
|
|
8,210
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
278,117
|
|
|
$
|
153,681
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
172,924
|
|
|
$
|
118,737
|
|
Due to related party
|
|
|
49,243
|
|
|
|
2,310
|
|
Note payable
|
|
|
111,153
|
|
|
|
-
|
|
Note payable - commitment fee
|
|
|
250,000
|
|
|
|
-
|
|
Note payable
|
|
|
-
|
|
|
|
135,000
|
|
Note payable, net of unamortized discount of $267,015
|
|
|
271,543
|
|
|
|
189,921
|
|
Derivative liablity - notes
|
|
|
173,596
|
|
|
|
53,392
|
|
Derivative liablity - warrants
|
|
|
110,947
|
|
|
|
52,873
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,139,406
|
|
|
|
552,233
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,139,406
|
|
|
|
552,233
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock par value $0.001: 5,000,000 shares authorized; None issued
or outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock par value $0.001: 120,000,000 shares authorized; 84,867,084
and 82,430,503 shares issued and outstanding, respectively
|
|
|
84,867
|
|
|
|
82,431
|
|
Additional paid-in capital
|
|
|
1,572,081
|
|
|
|
847,804
|
|
Accumulated deficit
|
|
|
(2,518,237
|
)
|
|
|
(1,328,787
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
|
|
(861,289
|
)
|
|
|
(398,552
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
278,117
|
|
|
$
|
153,681
|
|
See
accompanying notes to the financial statements.
LIFELOGGER
TECHNOLOGIES CORP.
STATEMENTS
OF OPERATIONS
(Unaudited)
|
|
For the three months ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
121,662
|
|
|
|
119,906
|
|
Advertising and promotions
|
|
|
3,639
|
|
|
|
8,900
|
|
Consulting -related parties
|
|
|
25,200
|
|
|
|
36,440
|
|
Consulting - other
|
|
|
82,521
|
|
|
|
67,829
|
|
Stock based compensation
|
|
|
170,774
|
|
|
|
-
|
|
General and administrative
|
|
|
52,216
|
|
|
|
57,188
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
456,012
|
|
|
|
290,263
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(456,012
|
)
|
|
|
(290,263
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Change in fair value of derivative-warrants
|
|
|
(58,074
|
)
|
|
|
-
|
|
Change in fair value of derivative-notes
|
|
|
(45,618
|
)
|
|
|
-
|
|
Loss on extinguishment of debt
|
|
|
(499,081
|
)
|
|
|
-
|
|
Interest expense
|
|
|
(130,665
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(733,438
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax provision
|
|
|
(1,189,450
|
)
|
|
|
(290,263
|
)
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,189,450
|
)
|
|
$
|
(290,263
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Per Common Share:
|
|
|
|
|
|
|
|
|
- Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
- Basic and Diluted
|
|
|
83,130,239
|
|
|
|
81,854,998
|
|
See
accompanying notes to the financial statements.
LIFELOGGER
TECHNOLOGIES CORP.
STATEMENT
OF CHANGE IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE INTERIM PERIOD ENDED MARCH 31, 2016 AND DECEMBER 31, 2015
(Unaudited)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common
stock par value $0.001
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
|
81,000,000
|
|
|
$
|
81,000
|
|
|
$
|
(26,623
|
)
|
|
$
|
(56,366
|
)
|
|
$
|
(1,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash, at $0.60 per share
|
|
|
841,666
|
|
|
|
842
|
|
|
|
504,158
|
|
|
|
|
|
|
|
505,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(185,883
|
)
|
|
|
(185,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
|
81,841,666
|
|
|
$
|
81,842
|
|
|
$
|
477,535
|
|
|
$
|
(242,249
|
)
|
|
$
|
317,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
240,000
|
|
|
|
240
|
|
|
|
106,736
|
|
|
|
|
|
|
|
106,976
|
|
Common stock issued for cash, at $0.43 per share
|
|
|
348,837
|
|
|
|
349
|
|
|
|
149,651
|
|
|
|
|
|
|
|
150,000
|
|
Options granted for consultant
|
|
|
|
|
|
|
|
|
|
|
113,882
|
|
|
|
|
|
|
|
113,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,086,538
|
)
|
|
|
(1,086,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2015
|
|
|
82,430,503
|
|
|
$
|
82,431
|
|
|
$
|
847,804
|
|
|
$
|
(1,328,787
|
)
|
|
$
|
(398,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debt
|
|
|
1,808,288
|
|
|
|
1,808
|
|
|
|
495,470
|
|
|
|
|
|
|
|
497,278
|
|
Options granted for consultant
|
|
|
|
|
|
|
|
|
|
|
170,774
|
|
|
|
|
|
|
|
170,774
|
|
Common stock issued for debt
|
|
|
628,293
|
|
|
|
628
|
|
|
|
58,033
|
|
|
|
|
|
|
|
58,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,189,450
|
)
|
|
|
(1,189,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2016
|
|
|
84,867,084
|
|
|
$
|
84,867
|
|
|
$
|
1,572,081
|
|
|
$
|
(2,518,237
|
)
|
|
$
|
(861,289
|
)
|
See
accompanying notes to the financial statements.
LIFELOGGER
TECHNOLOGIES CORP.
STATEMENTS
OF CASH FLOWS
(Unaudited)
|
|
For the three months ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,189,450
|
)
|
|
$
|
(290,263
|
)
|
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expenses
|
|
|
342
|
|
|
|
342
|
|
Shares issued for consulting services
|
|
|
-
|
|
|
|
16,000
|
|
Stock based compensation
|
|
|
170,774
|
|
|
|
-
|
|
Interest expense recognized through accretion of discount on debt
|
|
|
70,663
|
|
|
|
-
|
|
Original issue discount on new financing
|
|
|
26,653
|
|
|
|
|
|
Interest expense recognized through amortization of deferred financing costs
|
|
|
3,453
|
|
|
|
-
|
|
Change in fair value of derivative liabilities-notes
|
|
|
45,618
|
|
|
|
-
|
|
Change in fair value of derivative liabilities-warrants
|
|
|
58,074
|
|
|
|
-
|
|
Extinguishment of debt
|
|
|
499,081
|
|
|
|
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
93,021
|
|
Prepaid expenses
|
|
|
3,028
|
|
|
|
6,396
|
|
Accounts payable and accrued expenses
|
|
|
54,187
|
|
|
|
17,260
|
|
Accounts payable - related party
|
|
|
46,933
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(210,644
|
)
|
|
|
(157,244
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of Capital Assets
|
|
|
-
|
|
|
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Financing Activities
|
|
|
-
|
|
|
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Common shares issued for interest expense
|
|
|
7,403
|
|
|
|
|
|
Proceeds from note payable
|
|
|
84,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
91,903
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash
|
|
|
(118,741
|
)
|
|
|
(157,576
|
)
|
|
|
|
|
|
|
|
|
|
Cash - Beginning of Reporting Period
|
|
|
131,699
|
|
|
|
238,747
|
|
|
|
|
|
|
|
|
|
|
Cash - End of Reporting Period
|
|
$
|
12,958
|
|
|
$
|
81,171
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income Tax Paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Conversion of debt to equity
|
|
$
|
58,661
|
|
|
$
|
-
|
|
Issuance of common stocks for settlement of notes
payable and accrued interest
|
|
$
|
497,278
|
|
|
$
|
-
|
|
Financing cost
|
|
$
|
246,547
|
|
|
$
|
-
|
|
See
accompanying notes to the financial statements.
LIFELOGGER
TECHNOLOGIES CORP.
March
31, 2016 and 2015
Notes
to the Financial Statements
(Unaudited)
Note
1 - Organization and Operations
Lifelogger
Technologies Corp. (“we,” “us,” “our,” or the “Company”) was incorporated under
the laws of the State of Nevada on June 4, 2012 under the name Snap Online Marketing Inc. The Company changed its name effective
as of January 31, 2014 and is engaged in the development and commercialization of a lifelogging camera and lifelogging-focused
software tools that involve the process of collecting, organizing, perusing and sharing personal data.
Note
2 - Summary of Significant Accounting Policies
Basis
of Presentation - Unaudited Interim Financial Information
The
accompanying unaudited interim financial statements and related notes have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules
and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are,
in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim
results are not necessarily indicative of the results for the full fiscal year. These unaudited interim consolidated financial
statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2015 and
notes thereto contained in the information as part of the Company’s Annual Report on Form 10-K, which was filed with the
Securities and Exchange Commission on April 8, 2016.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
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.
Critical
accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and
judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact
of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates
and assumptions affecting the financial statements were:
(i)
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Assumption
as a going concern
: Management assumes that the Company will continue as a going concern, which contemplates continuity
of operations, realization of assets, and liquidation of liabilities in the normal course of business.
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(ii)
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Allowance
for doubtful accounts
: Management’s estimate of the allowance for doubtful accounts is based on historical sales,
historical loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that
may affect a client’s ability to pay. The Company evaluated the key factors and assumptions used to develop the allowance
in determining that it is reasonable in relation to the financial statements taken as a whole.
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(iii)
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Valuation
allowance for deferred tax assets
: Management assumes that the realization of the Company’s net deferred tax assets
resulting from its net operating loss (“NOL”) carry-forwards for Federal income tax purposes that may be offset
against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net
loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has
incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily
operations by way of a public or private offering, among other factors.
|
These
significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached
to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Management
bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the
financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.
Management
regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes
in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those
estimates are adjusted accordingly.
Actual
results could differ from those estimates.
Fair
Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37
establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three
(3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical
assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by
Paragraph 820-10-35-37 are described below:
Level
1
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
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Level
2
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
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Level
3
|
Pricing
inputs that are generally observable inputs and not corroborated by market data.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses, accounts payable and
accrued expenses approximate their fair value because of the short maturity of those instruments.
Transactions
involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of
competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply
that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions
unless such representations can be substantiated.
The
Company includes fair value information in the notes to financial statements when the fair value of its financial instruments
is different from the book value. When the book value approximates fair value, no additional disclosure is made.
Valuation
of Derivatives
The
Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded
components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and
Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance
sheet date. The change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or
exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is
reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under
ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. We analyzed the
derivative financial instruments in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked
financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would
enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument
that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock.
A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted
for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s
own stock. First, the instrument’s contingent exercise provisions, if any, must be evaluated, followed by an evaluation
of the instrument’s settlement provisions. The Company utilized multinomial lattice models that value the derivative liability
based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial
Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or
settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.
The
derivative liabilities result in a reduction of the initial carrying amount (as unamortized discount) of the Convertible Notes.
This derivative liability is marked-to-market each quarter with the change in fair value recorded in the income statement. Unamortized
discount is amortized to interest expense using the effective interest method over the life of the Convertible Note.
Fair
Value of Financial Instruments
The
Company includes fair value information in the notes to financial statements when the fair value of its financial instruments
is different from the book value. When the book value approximates fair value, no additional disclosure is made.
Cash
Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents. There
were no cash equivalents as at March 31, 2016.
Furniture
and Fixtures
Furniture
and fixtures are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are
charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective
estimated residual values) over the estimated useful lives of the respective assets as follows:
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Estimated
Useful Life
(Years)
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Furniture
and fixture
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7
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Upon
sale or retirement, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected
in the statements of operations.
Related
Parties
The
Company 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 Company (“Affiliate” means, with respect to
any specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled
by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act);
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 Company; e. management of the Company; f. other parties with which the Company 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 financial statements is not required in those statements. The disclosures shall 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. a 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.
Commitments
and contingencies
The
Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and
such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that
are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived
merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought therein.
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 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.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would
be disclosed.
Revenue
Recognition
The
Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes
revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all
of 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 derives its revenues from sales contracts with its customer with revenues being generated upon rendering of services.
Persuasive evidence of an arrangement is demonstrated via invoice; service is considered provided when the service is delivered
to the customers; and the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate
sales rebate, discount, or volume incentive.
Equity
Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The
Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under the guidance
of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).
Pursuant
to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee
enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments),
then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement
date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement
is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized
as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to
ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return
for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement
for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such
an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof)
of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in
which equity instruments are transferred to other than employees in exchange for goods or services.
Pursuant
to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable
by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee
achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and
in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of
paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock
option that the counterparty has the right to exercise expires unexercised.
Pursuant
to ASC Paragraphs 505-50-30-2 and 505-50-30-11 share-based payment transactions with non-employees shall be measured at the fair
value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement
assumptions as of the earlier of the following dates, referred to as the measurement date: (a) The date at which a commitment
for performance by the counterparty to earn the equity instruments is reached (a performance commitment); or (b) The date at which
the counterparty’s performance is complete. If the Company’s common shares are traded in one of the national exchanges
the grant-date share price of the Company’s common stock will be used to measure the fair value of the common shares issued,
however, if the Company’s common shares are thinly traded the use of share prices established in the Company’s most
recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate
than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid
and asked quotes and lack of consistent trading in the market.
Pursuant
to ASC Paragraph 718-10-55-21 if an observable market price is not available for a share option or similar instrument with the
same or similar terms and conditions, an entity shall estimate the fair value of that instrument using a valuation technique or
model that meets the requirements in paragraph 718-10-55-11 and takes into account, at a minimum, all of the following factors:
a.
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The
exercise price of the option.
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b.
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The
expected term of the option, taking into account both the contractual term of the option and the effects of employees’
expected exercise and post-vesting employment termination behavior: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB
Accounting Standards Codification the expected term of share options and similar instruments represents the period of time
the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the
instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The
Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation
or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the
expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to
provide a reasonable basis upon which to estimate expected term.
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c.
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The
current price of the underlying share.
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d.
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The
expected volatility of the price of the underlying share for the expected term of the option. Pursuant to ASC Paragraph 718-10-55-25
a newly publicly traded entity might base expectations about future volatility on the average volatilities of similar entities
for an appropriate period following their going public. A nonpublic entity might base its expected volatility on the average
volatilities of otherwise similar public entities. For purposes of identifying otherwise similar entities, an entity would
likely consider characteristics such as industry, stage of life cycle, size, and financial leverage. Because of the effects
of diversification that are present in an industry sector index, the volatility of an index should not be substituted for
the average of volatilities of otherwise similar entities in a fair value measurement. Pursuant to paragraph 718-10-S99-1
if shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate
than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially
inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. The Company
uses the average historical volatility of the comparable companies over the expected term of the share options or similar
instruments as its expected volatility.
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e.
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The
expected dividends on the underlying share for the expected term of the option. The expected dividend yield is based on the
Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term
of the share options and similar instruments.
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f.
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The
risk-free interest rate(s) for the expected term of the option. Pursuant to ASC 718-10-55-28 a U.S. entity issuing an option
on its own shares must use as the risk-free interest rates the implied yields currently available from the U.S. Treasury zero-coupon
yield curve over the contractual term of the option if the entity is using a lattice model incorporating the option’s
contractual term. If the entity is using a closed-form model, the risk-free interest rate is the implied yield currently available
on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model.
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Pursuant
to ASC paragraph 505-50-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable
equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received
(that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement
date and no entry should be recorded.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with FASB ASC Topic 718, “
Compensation – Stock Compensation
.”
FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the
grant date and recognize the expense over the employee’s requisite service period. The Company recognizes in the statement
of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
There were 6,000,000 options outstanding as of March 31, 2016 and December 31, 2015.
Research
and Development
The
Company follows paragraph 730-10-25-1 of the FASB Accounting Standards Codification (formerly Statement of Financial Accounting
Standards No. 2,
“Accounting for Research and Development Costs”
) and paragraph 730-20-25-11 of the FASB Accounting
Standards Codification (formerly Statement of Financial Accounting Standards No. 68
“Research and Development Arrangements”
) for research and development costs. Research and development costs are charged to expense as incurred. Research and development
costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research
and development equipment, material and testing costs for research and development as well as research and development arrangements
with unrelated third party research and development institutions.
Deferred
Tax Assets and Income Tax Provision
The
Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely
than not that the assets will not be realized.
Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the statements of operations in the period that includes the enactment date.
The
Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13
addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the
financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based
on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph
740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim
periods and requires increased disclosures.
The
estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying
balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred
tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.
Management
makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous
estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in
these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual
taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Tax
years that remain subject to examination by major tax jurisdictions
The
Company discloses tax years that remain subject to examination by major tax jurisdictions pursuant to the ASC Paragraph 740-10-50-15.
Earnings
per Share
Earnings
Per Share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term
is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards
Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available
to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the
period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred
stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned)
from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation
of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect
the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options
or warrants.
Pursuant
to ASC Paragraphs 260-10-45-45-21 through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate
or exercise price from the standpoint of the security holder. The dilutive effect of outstanding call options and warrants (and
their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method
unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied.
Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts, and partially paid
stock subscriptions (see paragraph 260-10-55-23). Anti-dilutive contracts, such as purchased put options and purchased call options,
shall be excluded from diluted EPS. Under the treasury stock method: a. Exercise of options and warrants shall be assumed at the
beginning of the period (or at time of issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from
exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29
and 260-10-55-4 through 55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number
of shares assumed purchased) shall be included in the denominator of the diluted EPS computation.
The
computation of basic and diluted loss per share for the Three months ended March 31, 2016 and 2015 excludes the common stock equivalents
of the following potentially dilutive securities because their inclusion would be anti-dilutive (the number of potentially dilutive
securities issuable upon conversion of our convertible debt with a variable conversion rate is computed using the market price
of our common stock during as of the last trading day of the reporting period):
●
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Stock
Warrants (Exercise price - $0.2625/share) – 850,000 common stock equivalents
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●
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Convertible
Debt (Conversion price - $0.18/share) –2,397,261common stock equivalents
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●
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Convertible
Debt (Conversion price - $0.24/share) –463,138 common stock equivalents
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|
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●
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Stock
options (exercise price -$0.20/share) – 6,000,000 common stock equivalents.
|
There
were no potentially dilutive shares outstanding for the reporting period ended March 31, 2016 or December 31, 2015.
Cash
Flows Reporting
The
Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash
receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions
of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25
of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile
it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and
payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income
that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency
cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held
in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents
and separately provides information about investing and financing activities not resulting in cash receipts or payments in the
period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.
Subsequent
Events
The
Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent
events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU
2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when
they are widely distributed to users, such as through filing them on EDGAR.
Recently
issued accounting pronouncements
In
May 2014, the FASB issued the FASB Accounting Standards Update No. 2014-09 “
Revenue from Contracts with Customers (Topic
606)” (“ASU 2014-09”)
This
guidance amends the existing FASB Accounting Standards Codification, creating a new Topic 606,
Revenue from Contracts with
Customer.
The core principle of the guidance is 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.
To
achieve that core principle, an entity should apply the following steps:
1.
|
Identify
the contract(s) with the customer
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2.
|
Identify
the performance obligations in the contract
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|
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3.
|
Determine
the transaction price
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4.
|
Allocate
the transaction price to the performance obligations in the contract
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5.
|
Recognize
revenue when (or as) the entity satisfies a performance obligations
|
The
ASU also provides guidance on disclosures that should be provided to enable financial statement users to understand the nature,
amount, timing, and uncertainty of revenue recognition and cash flows arising from contracts with customers. Qualitative and quantitative
information is required about the following:
1.
|
Contracts
with customers
- including revenue and impairments recognized, disaggregation of revenue, and information about contract
balances and performance obligations (including the transaction price allocated to the remaining performance obligations)
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2.
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Significant
judgments and changes in judgments
- determining the timing of satisfaction of performance obligations (over time or at
a point in time), and determining the transaction price and amounts allocated to performance obligations.
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3.
|
Assets
recognized from the costs to obtain or fulfill a contract.
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ASU
2014-09 is effective for periods beginning after December 15, 2016, including interim reporting periods within that reporting
period for all public entities. Early application is not permitted.
In
June 2014, the FASB issued the FASB Accounting Standards Update No. 2014-12 “
Compensation-Stock Compensation (Topic 718)
:
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the
Requisite Service Period” (“ASU 2014-12”).
The
amendments clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance
target could be achieved after the requisite service period. The Update requires that a performance target that affects vesting
and that could be achieved after the requisite service period be treated as a performance condition. The performance target should
not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in
which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable
to the period(s) for which the requisite service has already been rendered.
The
amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December
15, 2015. Earlier adoption is permitted and the Company has elected to implement the guidance in its quarter ended September 30,
2014.
In
August 2014, the FASB issued the FASB Accounting Standards Update No. 2014-15 “Presentation of Financial Statements-Going
Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU
2014-15”).
In
connection with preparing financial statements for each annual and interim reporting period, an entity’s management should
evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued (or within one
year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should
be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are
issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s
ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that
it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the
financial statements are issued (or available to be issued). The term probable is used consistently with its use in Topic 450,
Contingencies.
When
management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going
concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate
the substantial doubt. The mitigating effect of management’s plans should be considered only to the extent that (1) it is
probable that the plans will be effectively implemented and, if so, (2) it is probable that the plans will mitigate the conditions
or events that raise substantial doubt about the entity’s ability to continue as a going concern.
If
conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial
doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables
users of the financial statements to understand all of the following (or refer to similar information disclosed elsewhere in the
footnotes):
a.
|
Principal
conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before
consideration of management’s plans)
|
|
|
b.
|
Management’s
evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations.
|
|
|
c.
|
Management’s
plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.
|
If
conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt
is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating
that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date
that the financial statements are issued (or available to be issued). Additionally, the entity should disclose information that
enables users of the financial statements to understand all of the following:
a.
|
Principal
conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
|
|
|
b.
|
Management’s
evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations.
|
|
|
c.
|
Management’s
plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability
to continue as a going concern.
|
The
amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim
periods thereafter. Early application is permitted.
In
November 2014, the FASB issued the FASB Accounting Standards Update No. 2014-16 “
Derivatives and Hedging (Topic 815)
:
Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or
to Equity” (“ASU 2014-16”).
The amendments in ASU No. 2014-16 clarify that an entity must take into account
all relevant terms and features when reviewing the nature of the host contract. Additionally, the amendments state that no one
term or feature would define the host contract’s economic characteristics and risks. Instead, the economic characteristics
and risks of the hybrid financial instrument as a whole would determine the nature of the host contract. The amendments in this
Update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2015. Early adoption, including adoption in an interim period, is permitted.
In
January 2015, the FASB issued the FASB Accounting Standards Update No. 2015-01 “
Income Statement-Extraordinary and Unusual
Items (Subtopic 225-20)
:
Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”
(“ASU 2015-01”).
This Update eliminates from GAAP the concept of extraordinary items and the requirements in Subtopic
225-20 for reporting entities to separately classify, present, and disclose extraordinary events and transactions. The amendments
in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.
Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying financial statements.
Note
3 - Going Concern
The
Company has elected to adopt early application of Accounting Standards Update No. 2014-15,
“Presentation of Financial
Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern (“ASU 2014-15”)
.
The
financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity
of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
reflected in the financial statements, the Company had an accumulated deficit of $2,518,237 at March 31 2016, a net loss of $1,189,450
and net cash used in operating activities of $210,644 for the reporting period then ended. These factors raise substantial doubt
about the Company’s ability to continue as a going concern.
The
Company is attempting to further implement its business plan and generate sufficient revenue; however, its cash position may not
be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement
its business plan and generate sufficient revenue and in its ability to raise additional funds by way of a public or private offering,
there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability
to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public
or private offering.
The
financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
Note
4 – Note Payable
On
July 20, 2015 the Company entered into a securities purchase agreement (the “SPA”) with Glamis Capital SA (“Glamis”),
whereby Glamis agreed to invest $200,000 (the “Purchase Price”) in our Company in exchange for the Note (as defined
below). Pursuant to the SPA, we issued a promissory note to Glamis on July 20, 2015 (the “Issuance Date”) in the original
principal amount of $200,000.00, which bears interest at 10% per annum (the “Note”).
The
Purchase Price for the Note was funded as follows: (1) $70,000 on the Issuance Date and $65,000 on August 24, 2015. The principal
from each funding date, coupled with the accrued and unpaid interest relating to that principal amount, is due and payable one
year from the respective funding date (each a “Maturity Date”). Any amount of principal or interest that is due under
the Note, which is not paid by the respective Maturity Date, will bear interest at 14% per annum until it is paid. The Note can
be prepaid by the Company at any time while the Note is outstanding. In the event that the Company closes a future financing of
at least $1,000,000 while the Note is outstanding, the Company would become obligated to pay all amounts outstanding under the
Note within a reasonable time after such closing.
On November 12, 2015, the Company amended
the SPA it entered into with Glamis to limit the amount Glamis is obligated to advance to the Company under the Glamis Note to
$135,000 and amend the Note to reflect a principal balance of $135,000 after giving effect to an August 24, 2015 payment by Glamis
to the Company of $65,000 under the Note. No further advances will be made by Glamis to the Company under the Note.
On
November 12, 2015, the Company amended the SPA it entered into with Glamis to limit the amount Glamis is obligated to advance
to the Company under the Glamis Note to $135,000 and amend the Note to reflect a principal balance of $135,000 after giving effect
to an August 24, 2015 payment by Glamis to the Company of $65,000 under the Note. No further advances will be made by Glamis to
the Company under the Note.
On
March 1, 2016 the Company finalized a settlement of debt owed to Glamis Capital SA through a conversion into common stock of the
Company. The total debt of $135,000 plus accrued and unpaid interest of $7,403 for a total of $142,403 was converted into 1,808,288
common stock par value $.0001 based on an average of the previous 20 days close price of the common stock of the company discounted
by 25% for a price of $.074875 per share. The loss on extinguishment of this debt was determined to be $354,876 based on the date
of the debt settlement agreement of February 24, 2016 and the closing stock price on that date to be $.0275.
Amendment
to Convertible Promissory Note
On
March 9, 2016 the Company entered into an amendment to the Convertible Promissory Note it issued to Old Main Capital, LLC (“Old
Main”) on September 8, 2015 (the “Convertible Note Amendment”). Under the terms of the Convertible Note Amendment,
we revised the note to remove the equity condition limitations, removed the amortization payment requirements and to permit voluntary
conversions in common stock. We also revised the conversion price to mean the lesser of (a) the closing price of our common stock
on September 8, 2015 or (b) 60% of the lowest traded price of our common stock for the 15 consecutive trading days ending on the
trading day that is immediately prior to any applicable conversion date. The amendment was accounted for using the extinguishment
of debt method.
Securities
Purchase Agreement and Convertible Note Issued to Old Main Capital, LLC
On
March 9, 2016 (the “Issuance Date”) we closed on the transaction contemplated by the securities purchase agreement
(the “SPA”) we entered into with Old Main Capital, LLC (“Old Main”), whereby Old Main agreed to purchase
from the Company a convertible promissory note (the “Note”) in the original principal amount of $296,153 for $269,500,
net of an original issuance discount of $26,653 (the “Purchase Price”). The Note bears interest at the rate of 10%
per annum. The Purchase Price will be paid as follows: (i) $84,500 was paid in cash to us on March 12, 2016 (ii) $100,000 within
30 days after the after the first payment and (iii) $85,000 within 30 days of the second payment. The principal from each funding
date and the accrued and unpaid interest relating to that principal amount is due and payable on March 9, 2017 (the “Maturity
Date”). Any amount of principal or interest that is due under the Note which is not paid by the Maturity Date will bear
interest at the rate of 24% per annum until it is paid and subject to further increase as discussed below.
Beginning
6 months after the Issuance Date, we are required to make bi-weekly amortization payments (one payment every 2 weeks), consisting
of 1/12
th
of the outstanding principal and interest, until the Note is no longer outstanding (each a “Bi-Weekly
Payment”). Such Bi-Weekly Payments may be made in cash, or in our common stock (“Common Stock”) if certain equity
conditions are satisfied. Such equity conditions include but are not limited to an average daily dollar volume of the Common Stock
greater than $30,000 for the 20 trading days prior to a Bi-Weekly Payment. If the equity conditions are satisfied, and we decide
to make a Bi-Weekly payment in Common Stock, then the shares of Common Stock to be delivered shall be calculated as follows: the
amount of the Bi-Weekly Payment divided by the Base Conversion Price (as defined below). The Base Conversion Price shall equal
the lower of (i) the closing price of the Common Stock on March 9, 2016, or (ii) 70% of the lowest VWAP of the Common Stock for
the 15 trading days immediately prior to the date of the Bi-Weekly Payment.
The
Note can be prepaid by us at any time while the Note is outstanding, at a prepayment price of 125% multiplied by the outstanding
principal and interest of the Note, subject to Old Main’s discretionary acceptance. If an event of default occurs under
the Note, which is not cured within three business days, then upon Old Main’s provision of notice to the Company of the
occurrence of such event of default, the Company shall within three business days of such default notice, pay the total amount
outstanding under the Note in cash (including principal, accrued and unpaid interest, applicable penalties (including default
multipliers). In the event that the Company does not pay the total amount outstanding within three (3) business days of such default
notice, then the total amount outstanding under the Note (post-default amount) at that time shall increase by 50%, and on the
fourth business day after such default notice (the “Second Amortization Payment Date”), the Company shall begin to
make weekly amortization payments (for the avoidance of doubt, weekly shall mean every week) (each a “Weekly Payment”),
in (1) cash to Old Main or (2) Common Stock at a price per share equal to the lesser of (i) the closing price of our common stock
on March 9, 2016 or (ii) 52% of the lowest VWAP of the Common Stock for the 15 consecutive Trading Days ending on the Trading
Day that is immediately prior to the applicable conversion date. Each Weekly Payment shall consist of the greater of (i) $10,000.00
of value under the Note or (ii) 1/24th of the total outstanding amount under this Note as of the Second Amortization Payment Date,
including the principal, accrued and unpaid interest (prorated through the entire pay-off period), and any applicable penalties.
The note was accessed for derivative accounting treatment and concluded not to be a derivative liability due to the fact that
convertibility is with the company not the note holder.
On
March 9, 2016, we issued an 8% convertible promissory note in the principal amount of $250,000 to Old Main as a commitment fee
for entering into a term sheet whereby Old Main agreed to provide us with up to $5,000,000 in financing over a 24 month period
through the purchase of our common stock. The proposed equity line will be subject to certain conditions, including, but not limited
to, our filing of a Registration Statement covering the resale of the securities issued to Old Main and our continued compliance
with the disclosure requirements under the Securities Exchange Act of 1934, as amended. Old Main’s commitment to provide
funding under the equity line of credit is subject to us entering into a definitive and binding agreement related to the proposed
equity line of credit. The terms and conditions of the $250,000 note are substantially identical to the $269,500 note discussed
above except the interest rate which is 8% per annum, half of which is guaranteed and the total amount of interest due on the
Note for a period of six months is deemed earned as of the date the note was issued. All interest payments will be payable in
cash, or subject to certain equity conditions in cash or common stock in the Company’s discretion. Accrued and unpaid interest
shall be due on payable on each conversion date and on the date the note matures, or as otherwise provided for in the note.
Beginning
six months after the date of the note, the Company is required to begin to make bi-weekly amortization payments (for the avoidance
of doubt, bi-weekly shall mean every two weeks), in cash to Old Main until the note is repaid in full. Each bi-weekly payment
shall consist of at least l/12th of the total outstanding amount under the note as of the amortization payment date, including
the principal, accrued and unpaid interest (prorated through the entire pay-off period pursuant to this paragraph), and any applicable
penalties. The Company may make a bi-weekly payment to Old Main in the Company’s common stock, in the event that the equity
conditions provided for in the note are satisfied. The maturity date of the note in March 9, 2017.
Note
5 – Derivative Liability
In
connection with the sale of debt or equity instruments, the Company may sell options or warrants to purchase our common stock.
In certain circumstances, these options or warrants may be classified as derivative liabilities, rather than as equity. Additionally,
the debt or equity instruments may contain embedded derivative instruments, such as embedded derivative features which in certain
circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative
instrument liability.
The
Company’s derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair
value of the derivative liability recorded as charges or credits to income in the period in which the changes occur. For options,
warrants and bifurcated embedded derivative features that are accounted for as derivative instrument liabilities, the Company
estimates fair value using either quoted market prices of financial instruments with similar characteristics or other valuation
techniques. The valuation techniques require assumptions related to the remaining term of the instruments and risk-free rates
of return, our current common stock price and expected dividend yield, and the expected volatility of our common stock price over
the life of the instrument.
The
following table summarizes the warrant derivative liabilities activity for the period ending March 31, 2016:
Description
|
|
Derivative
Liabilities
|
|
Fair value at December 31, 2015
|
|
$
|
106,265
|
|
Change due to Issuances
Change due to debt extinguishment
|
|
|
91,070
|
|
Change due to Exercise/Conversion
|
|
|
(16,484
|
)
|
Change in Fair Value
|
|
|
103,692
|
|
Fair value at March 31, 2016
|
|
$
|
284,543
|
|
For
the period ended March 31, 2016, net derivative expense was $103,692.
The
lattice methodology was used to value the embedded derivatives within the convertible note and the warrants issued, with the following
assumptions.
Assumptions
|
|
March
31, 2016
|
|
Dividend yield
|
|
|
0.00
|
%
|
Risk-free rate for term
|
|
|
0.21-1.68
|
%
|
Volatility
|
|
|
121.7-154.1
|
%
|
Maturity dates
|
|
|
.44-4.44
years
|
|
Stock Price
|
|
|
0.18
|
|
During
the quarter ending March 31, 2016, the Company amended the derivative notes on March 9, 2016. The amendment included revising
the “Alternate Conversion Price to mean 60% of the lowest traded price of the common stock for the 15 consecutive trading
days prior to the conversion date. The derivative liability increased by $91,070 due to the amendment which was booked as an additional
debt discount.
During
the quarter ending September 30, 2015, the Company issued 850,000 warrants to an investor as part of their Securities Purchase
Agreement in which the investor acquired a Convertible Note. The warrants have an exercise price of $0.2625 and a five-year term.
The warrants are treated as derivative liabilities since the holder has anti-dilution protections that will re-price the warrant
upon the issuance of lower priced equity linked instruments by the Company for the period of 180 days after issuance. The fair
value of the derivative liability related to these warrants at issuance was valued at $169,270 and was booked as a debt discount
to the Convertible Note and booked as a derivative liability on the balance sheet. The embedded conversion feature of the Convertible
Note is treated as a derivative liability since the conversion price is reset upon a fundamental transaction event. The fair value
of the derivative liability related to the embedded conversion feature was valued at $92,659 and was booked as a debt discount
(up to the amount of the note, with the excess expensed as interest expense).
Note
6 – Convertible Debt
Old
Main Capital, LLC – September 2015:
On
September 14, 2015 (the “Issuance Date”), the Company closed on the transactions contemplated by the securities purchase
agreement (the “SPA”) with Old Main Capital, LLC (“Old Main”), whereby Old Main agreed to invest $450,000.00
(the “Purchase Price”) in our Company in exchange for the Note (as defined below) and Warrants (as defined below).
Pursuant to the SPA, we issued a promissory note to Old Main, in the original principal amount of $473,864.00, which bears interest
at 10% per annum (the “September 2015 Note”). The Purchase Price will be paid as follows: (1) $250,000.00 funded in
cash to us on the Issuance Date, (2) the remaining $200,000.00 within 30 days after the Issuance Date. The principal from each
funding date, coupled with the accrued and unpaid interest relating to that principal amount, is due and payable on September
8, 2016 (the “Maturity Date”). Any amount of principal or interest that is due under the September 2015 Note, which
is not paid by the Maturity Date, will bear interest at the rate of 24% per annum until it is paid.
Beginning
6 months after the Issuance Date, we are required to make bi-weekly amortization payments (one payment every 2 weeks), consisting
of 1/12
th
of the outstanding principal and interest, until the September 2015 Note is on longer outstanding (each a
“Bi-Weekly Payment”). Such Bi-Weekly Payments may be made in cash, or in our common stock (“Common Stock”)
if certain equity conditions are satisfied. Such equity conditions include but are not limited to an average daily dollar volume
of the Common Stock greater than $25,000 for the 20 trading days prior to a Bi-Weekly Payment. If the equity conditions are satisfied,
and we decide to make a Bi-Weekly payment in Common Stock, then the shares of Common Stock to be delivered shall be calculated
as follows: the amount of the Bi-Weekly Payment divided by the Base Conversion Price (as defined below). The Base Conversion Price
shall equal the lower of (i) the closing price of the Common Stock on September 8, 2015, or (ii) 70% of the average of the lowest
VWAP of the Common Stock for the 15 trading days immediately prior to the date of the Bi-Weekly Payment. Additionally, Old Main
has the right at any time to convert amounts owed under the September 2015 Note into Common Stock at the closing price of the
Common Stock on September 8, 2015. If an event of default under the September 2015 Note occurs, Old Main has the right to convert
amounts owed under the September 2015 Note into Common Stock at 52% multiplied by the lowest VWAP of the Common Stock for the
15 trading days immediately prior to the applicable conversion date.
The
September 2015 Note can be prepaid by us at any time while the September 2015 Note is outstanding, at a prepayment price of 125%
multiplied by the outstanding principal and interest of the September 2015 Note, subject to Old Main’s discretionary acceptance.
If an event of default occurs under the September 2015 Note, which is not cured within 10 business days, Old Main has the option
to require our redemption of the September 2015 Note in cash at a redemption price of 130% multiplied by the outstanding principal
and interest of the September 2015 Note. The September 2015 Note contains representations, warranties, events of default, beneficial
ownership limitations, and other provisions that are customary of similar instruments.
Effective
on March 9, 2016, the September 2015 Note was amended whereby the conversion price in effect on any Conversion Date shall be equal
to the lesser of the (i) closing price of the Common Stock on September 8, 2015 (“Fixed Conversion Price”), or (ii)
60% of the lowest traded price of the Common Stock for the 15 consecutive trading days ending on the trading day that is immediately
prior to the applicable Conversion Date. All such determinations will be appropriately adjusted for any stock dividend, stock
split, stock combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock
during such measuring period. This amendment triggered an extinguishment of the debt since the change in the fair value of the
embedded derivative exceeded 10% of the carrying value of the debt. The Company booked a $144,205 loss on extinguishment based
on the amendment.
In
conjunction with the issuance of the September 2015 Note, we simultaneously issued 850,000 common stock purchase warrants to Old
Main (the “Warrants”). The Warrants may be exercised by Old Main at any time in the 5-year period following the issuance.
The exercise price for each share of the Common Stock is equal to the closing price of the Common Stock on September 8, 2015.
Following
is an analysis of convertible debt issued to Old Main Capital at March 31, 2016:
|
|
March
31, 2016
|
|
Contractual balance
|
|
$
|
431,508
|
|
Less unamortized discount
|
|
|
(159,965
|
)
|
|
|
|
|
|
Convertible debt
|
|
$
|
271,543
|
|
This
note is a derivative because it contains an embedded conversion feature that resets the conversion price upon a fundamental transaction
event. The Company recorded a debt discount based on the original issue discount, the embedded derivative, and the derivative
warrant issued The debt discount is being amortized over the term of the convertible debt.
Note
7 - Fair Value of Financial Instruments.
The
Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued liabilities and convertible
debt. The estimated fair value of cash, accounts payable and accrued liabilities approximate their carrying amounts due to the
short-term nature of these instruments.
The
Company utilizes various types of financing to fund its business needs, including convertible debt with warrants attached. The
Company reviews its warrants and conversion features of securities issued as to whether they are freestanding or contain an embedded
derivative and, if so, whether they are classified as a liability at each reporting period until the amount is settled and reclassified
into equity with changes in fair value recognized in current earnings. At March 31, 2016, the Company had convertible debt and
warrants to purchase common stock. The fair value of the warrants and the embedded conversion feature of the convertible debt
is classified as a liability. Some of these units have embedded conversion features that are treated as a discount on the notes.
Such financial instruments are initially recorded at fair value and amortized to interest expense over the life of the debt using
the effective interest method.
Inputs
used in the valuation to derive fair value are classified based on a fair value hierarchy which distinguishes between assumptions
based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of
three levels:
Level
one — Quoted market prices in active markets for identical assets or liabilities;
Level
two — Inputs other than level one inputs that are either directly or indirectly observable; and
Level
three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect
those assumptions that a market participant would use.
Determining
which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy
disclosures each quarter. The Company’s derivative liability is measured at fair value on a recurring basis. The Company
classifies the fair value of these convertible notes and warrants derivative liability under level three. The Company’s
settlement payable is measured at fair value on a recurring basis based on the most recent settlement offer. The Company classifies
the fair value of the settlement payable under level three. The Company’s rescission liability is measured at fair value
on a recurring basis based on the most recent stock price. The Company classifies the fair value of the rescission liability under
level one.
Based
on ASC Topic 815 and related guidance, the Company concluded the common stock purchase warrants are required to be accounted for
as derivatives as of the issue date due to a reset feature on the exercise price. At the date of issuance warrant derivative liabilities
were measured at fair value using either quoted market prices of financial instruments with similar characteristics or other valuation
techniques. The Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values
of these derivatives reflected in the consolidated statements of operations as “Gain (loss) on derivative liabilities.”
These derivative instruments are not designated as hedging instruments under ASC 815-10 and are disclosed on the balance sheet
under Derivative Liabilities.
The
following table presents liabilities that are measured and recognized at fair value as of March 31, 2016 on a recurring and non-recurring
basis:
Description
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Gains
(Losses)
|
|
Derivatives
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
284,543
|
|
|
$
|
103,692
|
|
Fair
Value at March 31, 2016
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
284,543
|
|
|
$
|
103,692
|
|
Note
8 - Related Party Transactions
Related
Parties
Related
parties with whom the Company had transactions are:
Related
Parties
|
|
Relationship
|
|
|
|
Stew
Garner
|
|
Chairman,
CEO, CFO and director
|
Consulting
services from Officer
Consulting
services provided by the officer for the period from the three months ended March 31, 2016 and 2015 were as follows:
|
|
For
the Three months Ended March 31, 2016
|
|
|
For
the Three months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
President, Chief Executive Officer
and Chief Financial Officer
|
|
$
|
25,200
|
|
|
$
|
36,440
|
|
During
the three month period ended, March 31, 2016 the Company borrowed $49,243 from Stewart Garner, the President, Chief Executive
Officer and Chief Financial Officer of the Company, to fund operations. These loans are unsecured, due on demand and carry no
interest.
Note
9 - Stockholders’ Equity (Deficit)
Shares
Authorized
Upon
formation the total number of shares of all classes of stock which the Company is authorized to issue is seventy-five million
(75,000,000) shares of common stock, par value $.001 per share.
On
January 31, 2014, effective upon the filing of an amendment to the Article of Incorporation of the Company with the Nevada Secretary
of State, the Company increased its authorized share capital to 125,000,000 shares consisting of 120,000,000 shares of common
stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par value $0.001 per share and effectuated a 10 for
1 stock split.
All
shares and per share amounts in the financial statements have been adjusted to give retroactive effect to the ten-for-one (1:10)
Forward Stock Split.
Common
Stock
Common
Shares Issued Cash
No
common shares were issued for cash during the period.
On
March 1, 2016 $142,403 of debt and accrued interest was converted to 1,808,288 shares of common stock at a conversion price of
$.074875 per share.
On
March 14, 2016 $42,177 of debt was converted to 628,293 shares of common stock at a conversion price of $.06713 per share.
Note
10 - Acquisition of Assets
On
November 10, 2015, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Pixorial,
Inc. (the “Seller”), pursuant to which the Company agreed to purchase, and the Seller agreed to sell, Pixorial’s
assets (the “Pixorial Asset Acquisition”), which are comprised of source code, software, trade secrets, processes,
ideas, know-how, improvements, discoveries, developments, designs, techniques and contract rights related to the Pixorial app,
including but not limited to contract rights related to the Pixorial app for inclusion on the Apple store and the Google Play
store. Pixorial’s software offers online user-friendly tools and applications to access, download, edit, tag, process, store,
organize and share videos, photos and music from any device, services which we plan to integrate with our existing software.
Under
the terms of the Asset Purchase Agreement, the Company agreed to issue 3,200,000 shares of its unregistered common stock to the
existing shareholders and certain creditors of Pixorial, and, pending the closing, to enter into a consulting agreement with Andres
Espineira (the “Espineira Consulting Agreement”), Pixorial’s founder and Chief Executive Officer, the duration
of which will be 40 months from the date of the Asset Purchase Agreement. Under the terms of the Espineira Consulting Agreement,
Mr. Espineira will be responsible for leading the integration team that will be engaged in the development of the enhancements
to the Company’s existing life-logging software tools by incorporating the tools developed by Pixorial. The Espineira Consulting
Agreement provides for the Company’s payment to him of $8,000 per month and awards him stock options to acquire 6,000,000
shares of the Company’s common stock exercisable at the market price of the common stock as of October 31, 2015, one-third
the number of which may be sold beginning as of each of the first three anniversaries of November 1, 2015. The shares to be issued
to Pixorial’s shareholders will also be subject to a lock-up agreement whereby one-third the number received by each may
be sold beginning as of each of the first three anniversaries of the closing of the Pixorial Asset Acquisition.
Additionally,
under the terms of the Asset Purchase Agreement, the Company and Pixorial have entered into a licensing agreement effective as
of November 1, 2015 (the “Pixorial License Agreement”) whereby the Company has licensed the exclusive use of certain
of Pixorial’s software, source code, software, trade secrets, processes, ideas, know-how, improvements, discoveries, developments,
designs, techniques and contract rights related to the Licensor’s Pixorial app (the “Pixorial Software”). The
duration of the Pixorial License Agreement is the earlier of twelve months or the closing of the transactions under the Asset
Purchase Agreement.
Consummation
of the Pixorial Asset Acquisition is subject to certain conditions and is expected to be closed no later than April 30, 2016.
See, however, Note 11 – Subsequent Events.
Note
11 - Subsequent Events
The
Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were
issued to determine if they must be reported. The Management of the Company determined that there were some reportable subsequent
event(s) to be disclosed as follows:
In
order to extend the April 30, 2016 deadline for consummating the purchase of the assets of Pixorial as discussed in Note 10, the
Company and Pixorial entered into Amendment No. 2 to Asset Purchase Agreement (the “Second Amendment”) dated May 3,
2016 that extends the deadline for consummating the transactions contemplated under the Asset Purchase Agreement to June 15, 2016.
Effective
May 17, 2016, the Company redeemed 40,000,000 shares of its common stock held by Consumer Electronics Ventures Corp. (“Consumer
Electronics”), its former majority shareholder. The Company did not pay any cash compensation to Consumer Electronics for
the redemption which was made in consideration of the intended increase in value of the remaining shares of common stock held
by Consumer Electronics.
The
note payable issued by Old Main Capital in September 2015 and subsequently amended in March 2016 has been partially converted
to common shares. There have been 11 conversions of the note payable based on the terms of the amended note payable. Old Main
Capital has converted a total of $373,158 of principal and $15,416 of interest into 6,137,277 shares of the common stock of the
Company subsequent to March 31, 2016.
The
Company entered into a convertible note payable on March 9, 2016 and received the first amount of $296,153 prior
to March
31, 2016. Subsequent to March 31, 2016 the Company has received the remainder of the funding in two separate payments of $100,000
and $85,000 to complete the transaction.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING
STATEMENTS
This
report contains forward-looking statements. The Securities and Exchange Commission encourages companies to disclose forward-looking
information so that investors can better understand a company’s future prospects and make informed investment decisions.
This report and other written and oral statements that we make from time to time contain such forward-looking statements that
set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have
tried, wherever possible, to identify such statements by using words such as “anticipate,“ “estimate,“
“expect,“ “project,“ “intend,“ “plan,“ “believe,“ “will“
and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include
statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome
of contingencies, such as legal proceedings, and financial results. Factors that could cause our actual results of operations
and financial condition to differ materially are discussed in greater detail in the “Risk Factors“ section of our
Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on April 8, 2016.
We
caution that the factors described herein and other factors could cause our actual results of operations and financial condition
to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue
reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such
statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess
the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-looking statements.
The
following discussion should be read in conjunction with our consolidated financial statements and the related notes that appear
elsewhere in this quarterly report on Form 10-Q.
The
Company
We
are a lifelogging software company engaged in the development and commercialization of innovative lifelogging solutions enabling
the recording, secure online storage, organizing, retrieving, appreciation and selective sharing of personal information, data,
photos, videos and other activities with friends and the public at large. We have two products under development, a proprietary
cloud-based software solution which we plan to integrate with the Pixorial software and a true point-of-view (POV) wearable video
camera.
The
Company
We
provide an enhanced media experience for consumers by augmenting videos, livestreams and photos with additional context information
and providing a platform that makes it easy to find and use that data when viewing or sharing media. The first iteration of that
context information is focused on geo-location, face-detection, and different options for tagging.
Our
Core Business
Lifelogging
is a way of journaling one’s life using media, often through the use of wearable electronic devices. We make lifelogging
accessible to the mass market by taking videos and images right from users’ smart phones, wearable camera and/or sensor
solutions, and adding geographic, visual and test data designed to enhance the relevance and context of the information collected.
We make it easier for users to retrieve and share their media with family and friends without having to be an expert in using
advanced functions in real time, using live stream or recording, at the user’s option. We allow consumers to easily capture
and live stream videos with geographic coordinates and automatic face detection and to tag special moments while recording. The
video playback features an interactive map and ability to skip to in-video frames with faces detected and added tags. Search features
allow users the ability to retrieve videos beyond the basic title and description, including location, face or in-line video tags.
Sharing videos on popular social channels like Facebook and Twitter using links makes it easy to manage large media files.
Our
vision is to seamlessly integrate with a wide range of wearable cameras. To realize this vision, our plan is to integrate with
selected leading camera manufacturers. We refer to this integrated eco-system as the LifeLogger Platform. In addition, we plan
to offer our LifeLogger Platform on a “white-label“ license basis to device manufacturers and leading companies in
our selected industries. The LifeLogger video cloud storage solution and applications are architected for scalability with high
availability designed for use with widely available third party cloud based data providers.
We
completed a prototype of our integrated Lifelogger wearable video camera for testing and continue to market this product to potential
distributors and joint venture and strategic alliance partners. We will evaluate opportunities from these marketing efforts to
determine the extent of our future development and marketing of this device.
Software
Development Milestones
Following
the successful launch of our private beta version of the LifeLogger Platform in August 2015 to users who expressed interest for
exclusive testing with their iOS and Android devices, we launched an open public version during the first quarter of 2016. This
release of the platform has the primary value proposition built in with geo-coordinates, face detection and playback with interactive
map and easy sharing. The iOS and Android apps are available with ongoing updates with new features. We are actively collecting
and monitoring the usage and feedback to launch future releases that will be designed to increase engagement with added features
for social engagement and continuous improvements to the user interface and experience.
Revenue
Model
We
plan to implement a freemium revenue model with viral marketing of free plans leading to paid upgrades and subscriptions for advanced
software features and additional storage. Our plan is to add a paid model following testing of the open beta platform, which we
expect to complete in the third or fourth quarter of 2016.
Recent
Developments
On
November 10, 2015 we entered into an Asset Purchase Agreement with Pixorial to acquire its software source code, software, trade
secrets, processes, ideas, know-how, improvements, discoveries, developments, designs, techniques and contract rights related
to the Pixorial app including contract rights related to the Pixorial app for inclusion on the Apple store and the Google Play
store. Pixorial’s software offers online user-friendly tools and applications to access, download, edit, tag, process, store,
organize and share videos, photos and music from any device, services. Pending completion of the acquisition of the Pixorial assets,
we entered into a license agreement with Pixorial to allow us to begin integrating the Pixorial software with our lifelogging
platform which we are continuing to develop. We agreed to issue 3,200,000 million shares of our unregistered common stock to the
shareholders and certain creditors of Pixorial. The shares will be subject to a lock-up whereby 1/3 of the shares will be released
on each anniversary after the closing, In addition, we hired Andres Espineira, Pixorial’s Founder and Chief Executive Officer
to act as a consultant to our company to lead the software integration effort. The closing is subject to certain closing conditions
which includes Pixorial shareholder and creditor consent, and certain other customary conditions in transactions of this type.
In
order to extend the April 30, 2016 deadline for consummating the purchase of the assets of Pixorial, the Company and Pixorial
entered into Amendment No. 2 to Asset Purchase Agreement (the “Second Amendment“) dated May 3, 2016 that extends the
deadline for consummating the transactions contemplated under the Asset Purchase Agreement to June 15, 2016.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND MARCH 31, 2015
The
following comparative analysis on results of operations was based primarily on the comparative financial statements, footnotes
and related information for the periods identified below and should be read in conjunction with the financial statements and the
notes to those statements that are included elsewhere in this report. The results discussed below are for the three months ended
March 31, 2016 and 2015. For comparative purposes, we are comparing the three months ended March 31, 2016, to the three months
ended March 31, 2015. The following discussion should be read in conjunction with the Company’s consolidated financial statements
and the related notes included in this quarterly report.
Revenue.
Total revenue was $0 for the three month periods ended March 31, 2016 and March 31, 2015, respectively. We plan to implement
a freemium revenue model with viral marketing of free plans leading to paid upgrades and subscriptions for advanced software features
and additional storage. Our plan is to add a paid model following testing of the open beta platform, which we expect to complete
in the third or fourth quarter of 2016.
Cost
of Revenue
. We had no cost of revenues for the period ended March 31, 2016 or 2015 as we had no revenues. We are not able
to predict what our expected gross profits will be in remaining periods in fiscal 2016 as we are unable to estimate software licensing
revenue from our LifeLogger Platform.
Operating
Expenses
. Total operating expenses were $456,012 and $290,263 for the three months ended March 31, 2016 and March 31,
2015, respectively. This is primarily attributable to an increase in option expense and other consulting. We expect increases
in our operating expenses as we ramp up our software development and sales efforts.
Other
Expenses
. Other expenses were $733,438 and $0 for the three months ended March 31, 2016 and March 31, 2015, respectively.
The increase is primarily attributable to an increase in loss on extinguishment of debt and interest expense associated with our
increased borrowing and change in the fair value of derivative warrants and notes. We expect increases in our interest expense
due to our increased borrowings and are unable to predict changes in the fair value of our derivative securities which is largely
based on the trading price of our common stock.
Net
Loss
. The net loss was $1,189,450 and $290,263 for the three months ended March 31, 2016 and March 31, 2015, respectively.
This increase is a result of the increase in operating expenses and other expenses discussed above.
Liquidity
and Capital Resources
Liquidity
is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of March 31,
2016, our working capital amounted to $(869,157), a decrease of $462,395 as compared to working capital of $406,762, as of December
31, 2015. This decrease is primarily a result of increases in note payable, note payable commitment fee, derivative liabilities
for notes and warrants, accounts payable and amounts due a related party, partially offset by deferred financing costs. Working
capital consisted primarily of deferred financing costs of $250,000, Note Payable of $111,153, and Derivative Liabilities of $284,543.
Net
cash used in operating activities was $210,644 during the three month period ended March 31, 2016 compared to $157,244 in the
three month period ended March 31, 2015. The increase in cash used in operating activities is primarily attributable to an increase
in net loss and partially offset by options issued, extinguishment of debt and change in derivative liability reporting.
Net
cash used in investing activities was $0 during the three month period ended March 31, 2016 compared to $332 in the three month
period ended March 31, 2015.
Net
cash provided by financing activities was $91,903 during the three month period ended March 31, 2016 compared to $0 in the three
month period ended March 31, 2015. The increase in cash used in operating activities consisted of proceeds from a note payable
and issuance of common stock for interest expense.
We
do not have sufficient resources to effectuate all aspects of our business plan. We expect to incur a minimum of $1,140,000 in
expenses during the next twelve months of operations if we continue to pursue our current plans. We estimate that this will be
comprised of approximately $840,000 towards development of the Lifelogger Platform, $174,000 towards administrative and executive
subcontractors, and marketing expenses will be determined based on our open beta feedback. Additionally, approximately $125,000
will be needed for general overhead expenses such as for corporate legal and accounting fees, office overhead and general working
capital. We will have to raise additional funds to pay for all of our planned expenses. We potentially will have to issue additional
debt or equity, or enter into a strategic arrangement with a third party to carry out some aspects of our business plan. There
can be no assurance that additional capital will be available to us. Other than the agreements discussed below, we currently have
no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other
sources. Since we have no other such arrangements or plans currently in effect, our inability to raise funds for the above purposes
will have a severe negative impact on our ability to remain a viable company.
Recent
Financing Transactions
Securities
Purchase Agreement and Convertible Note Issued to Old Main Capital, LLC
On
March 9, 2016 we closed on the transaction contemplated by the securities purchase agreement we entered into with Old Main Capital,
LLC (“Old Main“), whereby Old Main agreed to purchase from us a convertible promissory note (the “Note“)
in the original principal amount of $296,153 for $269,500, net of an original issuance discount of $26,653 (the “Purchase
Price“). The Note bears interest at the rate of 10% per annum. The Purchase Price will be paid as follows: (i) $84,500 was
paid in cash to us on March 12, 2016 (ii) $100,000 within 30 days after the after the first payment and (iii) $85,000 within 30
days of the second payment. The principal from each funding date and the accrued and unpaid interest relating to that principal
amount is due and payable on March 9, 2017 (the “Maturity Date“). Any amount of principal or interest that is due
under the Note which is not paid by the Maturity Date will bear interest at the rate of 24% per annum until it is paid and subject
to further increase as discussed below.
Beginning
6 months after the Issuance Date, we are required to make bi-weekly amortization payments (one payment every 2 weeks), consisting
of 1/12
th
of the outstanding principal and interest, until the Note is no longer outstanding (each a “Bi-Weekly
Payment“). Such Bi-Weekly Payments may be made in cash, or in our common stock (“Common Stock“) if certain equity
conditions are satisfied. Such equity conditions include but are not limited to an average daily dollar volume of the Common Stock
greater than $30,000 for the 20 trading days prior to a Bi-Weekly Payment. If the equity conditions are satisfied, and we decide
to make a Bi-Weekly payment in Common Stock, then the shares of Common Stock to be delivered shall be calculated as follows: the
amount of the Bi-Weekly Payment divided by the Base Conversion Price (as defined below). The Base Conversion Price shall equal
the lower of (i) the closing price of the Common Stock on March 9, 2016, or (ii) 70% of the lowest VWAP of the Common Stock for
the 15 trading days immediately prior to the date of the Bi-Weekly Payment.
The
Note can be prepaid by us at any time while the Note is outstanding, at a prepayment price of 125% multiplied by the outstanding
principal and interest of the Note, subject to Old Main’s discretionary acceptance. If an event of default occurs under
the Note, which is not cured within three business days, then upon Old Main’s provision of notice to the Company of the
occurrence of such event of default, the Company shall within three business days of such default notice, pay the total amount
outstanding under the Note in cash (including principal, accrued and unpaid interest, applicable penalties (including default
multipliers). In the event that the Company does not pay the total amount outstanding within three (3) business days of such default
notice, then the total amount outstanding under the Note (post-default amount) at that time shall increase by 50%, and on the
fourth business day after such default notice (the “Second Amortization Payment Date“), the Company shall begin to
make weekly amortization payments (for the avoidance of doubt, weekly shall mean every week) (each a “Weekly Payment“),
in (1) cash to Old Main or (2) Common Stock at a price per share equal to the lesser of (i) the closing price of our common stock
on March 9, 2016 or (ii) 52% of the lowest VWAP of the Common Stock for the 15 consecutive Trading Days ending on the Trading
Day that is immediately prior to the applicable conversion date. Each Weekly Payment shall consist of the greater of (i) $10,000.00
of value under the Note or (ii) 1/24th of the total outstanding amount under this Note as of the Second Amortization Payment Date,
including the principal, accrued and unpaid interest (prorated through the entire pay-off period), and any applicable penalties.
Equity
Line of Credit
On
March 9, 2016, we issued an 8% convertible promissory note in the principal amount of $250,000 to Old Main as a commitment fee
for entering into a term sheet whereby Old Main agreed to provide us with up to $5,000,000 in financing over a 24 month period
through the purchase of our common stock. The proposed equity line will be subject to certain conditions, including, but not limited
to, our filing of a Registration Statement covering the resale of the securities issued to Old Main and our continued compliance
with the disclosure requirements under the Securities Exchange Act of 1934, as amended. Old Main’s commitment to provide
funding under the equity line of credit is subject to us entering into a definitive and binding agreement related to the proposed
equity line of credit.
The
terms and conditions of the $250,000 note are substantially identical to the $269,500 note discussed above except the interest
rate which is 8% per annum, half of which is guaranteed and the total amount of interest due on the Note for a period of six months
is deemed earned as of the date the note was issued. All interest payments will be payable in cash, or subject to certain equity
conditions in cash or common stock in the Company’s discretion. Accrued and unpaid interest shall be due on payable on each
conversion date and on the date the note matures, or as otherwise provided for in the note.
Beginning
six months after the date of the note, the Company is required to begin to make bi-weekly amortization payments (for the avoidance
of doubt, bi-weekly shall mean every two weeks), in cash to Old Main until the note is repaid in full. Each bi-weekly payment
shall consist of at least 1/12th of the total outstanding amount under the note as of the amortization payment date, including
the principal, accrued and unpaid interest (prorated through the entire pay-off period pursuant to this paragraph), and any applicable
penalties. The Company may make a bi-weekly payment to Old Main in the Company’s common stock, in the event that the equity
conditions provided for in the note are satisfied. The maturity date of the note in March 9, 2017.
Going
Concern Consideration
We
have incurred significant losses since our inception on June 4, 2012. We had a loss from operation during the three month period
ended March 31, 2016 of $456,012 and an accumulated deficit of $2,518,237 as of March 31, 2016. This raises substantial doubt
about our ability to continue as a going concern. Our ability to continue as a going concern is dependent our ability to raise
additional capital and generate additional revenues and profits from our business plan.
In
the opinion of our independent registered public accounting firm for our fiscal year ended December 31, 2015, our auditor included
a statement that as a result of our deficit accumulated since our inception at June 4, 2012, our net loss and net cash used in
operating activities for the reporting period then ended, there is a substantial doubt as our ability to continue as a going concern.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Inflation
In
the opinion of management, inflation has not and will not have a material effect on our operations in the immediate future. Management
will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.
Off-Balance
Sheet Arrangements
Under
SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to investors. As of March 31, 2016, we have no off-balance
sheet arrangements that meet such criterion.
CRITICAL
ACCOUNTING POLICIES
Our
significant accounting policies are disclosed in Note 2 of our Financial Statements included elsewhere in this Quarterly Report
on Form 10-Q.