Northsight Capital Inc. (“Northsight” or “the Company”) was incorporated in the State of Nevada on May 21, 2008. In May, 2011, Safe Communications, Inc. (n/k/a Kuboo, Inc.) acquired 80% of the Company’s issued and outstanding common stock, and, as a result, became its parent company. On June 25, 2014, the Company completed the acquisition of approximately 7,500 cannabis related Internet domain names, in exchange for which the Company issued 78.5 million shares of its common stock and a promissory note in the principal amount of $500,000. As a result of this transaction, the seller of the domain names became an 81% stockholder of the Company. Kuboo, Inc. continues to be a significant stockholder of the Company. John Venners, our EVP of Operations and a director, is also a director of Kuboo, Inc.
The Company’s principal business is to provide a wide variety of online directories for a broad range of businesses engaged in the lawful sale and distribution of cannabis and hemp related products. Through the acquisition of Crush Mobile (described below), the Company is developing a group of dating sites with a presence in the Latino, Israeli and African American communities. The following constitute the Company’s major product categories: a monthly listing in one or more of the Company’s online directories, paid advertising in one or more of the Company’s online directories, leasing to customers one or more internet domain names for the customer’s exclusive use, and paid and unpaid online dating applications.
In May 2017, we signed a non-binding memorandum of terms to acquire Crush Mobile. On August 8, 2017, we entered into a definitive agreement to acquire all the outstanding membership interests of Crush Mobile, LLC, which was amended by Amendment No. 1 dated January 4, 2018 (as amended, the “Agreement”). As reported in our form 8-K filed with the SEC on January 10, 2018, the Crush acquisition was closed January 8, 2018. Accordingly, Crush’s operations are not included in the financial statements of the company as of December 31, 2017. Under the terms of the Agreement, we acquired all the outstanding membership interests of Crush Mobile, in exchange for an aggregate of approximately 8 million shares of common stock, plus $80,000 in cash, payable within one year of closing. We also agreed to piggy-back registration rights with respect to the shares of common stock issuable to the sellers in connection with the acquisition. In connection with Amendment No. 1 to the Agreement, the parties waived the condition that the Company complete a funding of at least $500,000.
Crush Mobile’s assets consist primarily of trademarks, domain names, mobile dating applications and related software and intellectual property. Crush Mobile, with approximately nine hundred thousand members, has developed a group of dating sites with a presence in the Latino, Israeli and African American communities. Crush will also be incorporating Northsight’s “Joint Lovers” dating app, which concentrates on the Cannabis space, into its dating applications suite.
On October 15, 2018, the Company amended its Articles of Incorporation to increase the authorized common shares of the Company from 200,000,000 to 500,000,000.
The accompanying financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The interim financial statements reflect all adjustments, consisting of normal recurring adjustments which, in the opinion of management, are necessary to present a fair statement of the results for the period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The results of operations for the three and nine months ended September 30, 2018, are not necessarily indicative of the operating results for the full year.
The Company and its subsidiary consist of the following entities, which have been consolidated in the accompanying financial statements:
The Company had net losses of $426,301 and $1,324,561 for the three and nine months ended September 30, 2018, has accumulated losses of $23,250,856 and has had consistent negative cash flows from operating activities since inception (May 2008). These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. During the nine months ended September 30, 2018 the Company received a net $281,895 in loans from related party shareholders, and $451,250 from convertible notes to fund operations. Management plans to (i) raise additional capital as soon as possible, to fund continued operations of the Company and (ii) continue its efforts to generate revenues and income from operations.
In the event the Company does not generate sufficient funds from revenues or financing through the issuance of its common stock or from debt financing, the Company will be unable to fully implement its business plan and pay its obligations as they become due, any of which circumstances would have a material adverse effect on its business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities.
Management believes the impact of recently issued standards and updates, which are not yet effective, will not have a material impact on the Company’s financial position, results of operations or cash flows upon adoption.
With the adoption of ASC 606, the Company reviewed its previous revenue recognition policy under ASC 605. The Company determined that there were no material changes resulting from the adoption. Revenue would be recognized when the promised goods or services is provided to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. This is consistent with the revenue recognition policy previously used by the Company. The Company also reviewed the timing and recognition of accounts receivable for which the Company generates revenue and has determined no changes to be made to prior periods.
In accordance with ASC 350-50, during the nine months ended September 30, 2018 and the year ended December 31, 2017, the Company did not capitalize any expenses towards the development of multiple websites on which third parties can advertise the sale and distribution of cannabis related products and services: an online “yellow pages.” During the nine months ended September 30, 2018 and 2017 the Company recorded website development expenses of $30,609 and $5,750, respectively, which is included in general and administrative expenses on the Company’s consolidated statements of operations.
The Company amortizes these assets over their related useful lives (approximately 1 to 5 years), using a straight-line basis. Assets are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable, or at least annually. Measurement of the amount of impairment, if any, is based upon the difference between the asset’s carrying value and estimated fair value. Fair value is determined through various valuation techniques, including market and income approaches as considered necessary. During the nine months ended September 30, 2018 and 2017 the Company recorded amortization expense of $42,674 and $54,274, respectively, related to websites previously launched.
On January 8, 2018, the Company closed its acquisition of Crush Mobile LLC. Under the terms of the Agreement, we acquired all the outstanding membership interests of Crush Mobile, in exchange for an aggregate 7,904,000 shares of common stock valued at $616,512, plus $80,000 in cash, payable within one year of closing. Crush Mobile’s assets consist primarily of trademarks, domain names, mobile dating applications and related software and intellectual property which the company has initially internally fair valued pending an independent 3
rd
party valuation.
Goodwill and intangible assets consisted of the following at September 30, 2018 and December 31, 2017:
The Company records amortization expense for intangible assets on a straight-line basis over the estimated life of the related asset (approximately 1-5 years). Goodwill is tested annually for impairment. The Company recorded amortization expense of $87,345 during the nine months ended September 30, 2018.
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES RELATED PARTY
At September 30, 2018, the Company had a balance in related party accounts payable and accrued expenses of $1,051,476 which consisted of the following:
Party Name:
|
Relationship:
|
|
|
Amount
|
Howard Baer
|
Spouse of significant shareholder
|
Consulting fees
|
$
|
462,500
|
Howard Baer
|
Spouse of significant shareholder
|
Accrued interest
|
|
154,984
|
John Venners
|
Director/EVP, President and CEO of Kuboo, Inc.
|
Consulting fees/salaries
|
|
233,466
|
John Venners
|
Director/EVP, President and CEO of Kuboo, Inc.
|
Advances
|
|
3,000
|
Kuboo, Inc.
|
Former parent company, significant shareholder
|
Rent
|
|
166,976
|
John Lemak
|
Significant shareholder
|
Accrued interest
|
|
30,550
|
|
|
|
$
|
1,051,476
|
NOTE 7 – NOTES PAYABLE RELATED PARTY
On May 19, 2015, the Company issued Kae Yong Park and her spouse Howard Baer (together, “Park”) a non-interest bearing, unsecured demand promissory note to evidence all unpaid advances received by the Company to that point and to cover all additional advances received afterward. Unpaid principal under the note is due and payable upon the earlier of (i) an “event of default” (as defined), (ii) written demand and (iii) the Company’s receipt of capital (to the extent of net proceeds received) from any capital raising transaction after May 15, 2015, whether in the form of debt, equity or otherwise.
On September 30, 2015, the Company amended and restated its promissory note to Park to include all advances to date and provide certain assets, including all internet domain names, websites and related assets as collateral. Repayment terms remain the same, and Park has to date not enforced the provision requiring repayment upon receipt of net proceeds from capital raising transactions.
During the nine months ended September 30, 2018, Park advanced an aggregate of $259,550 on an unsecured basis to the Company for short-term capital needs. During this period, the Company also repaid $142,650 of its debt to Park and
recaptured $60,000 worth of payroll expenses for Park’s use of Company personnel. At September 30, 2018, the Company had a note payable to Park for these advances of $1,349,252 which is secured by the assets of the Company. Park’s security interest in certain of the Company’s domains, websites and other assets has been subordinated to the security interest granted to John Lemak (and affiliated persons), who is an affiliate of Sandor capital, a significant shareholder, in connection with advances Mr. Lemak and related persons made to the company. Due to the on-demand nature of the amount owed to Park, the company has classified it as a current liability.
8
The following table summarizes the Company’s balance for these advances for the nine months ended September 30, 2018:
Amount due - December 31, 2017
|
$
|
1,292,357
|
Advances received from Park
|
|
259,550
|
Repayments made to Park
|
|
(142,655)
|
Recapture of company expenses
|
|
(60,000)
|
Balance due – September 30, 2018
|
$
|
1,349,252
|
On June 23, 2014, the Company issued a $500,000 promissory note in conjunction with the purchase of approximately 7,500 cannabis-related internet domain names. The note originally bore interest at the rate of 3.25% per annum and the first $100,000 of which was payable upon the Company’s receipt of an aggregate of $1,000,000 in funding (whether debt or equity). The remaining $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month the Company realizes at least $150,000 in gross revenue (see Note 15 - Commitments and Contingencies).
On July 25, 2014, the Company amended and restated its promissory note in the principal amount of $500,000 owing to Kae Yong Park (the Company’s then majority shareholder) to provide that it would make the first $100,000 installment payment due under the Note on July 25, 2014 (earlier than required), in exchange for which Kae Yong Park agreed to waive all interest due over the term of the note. Thereafter, Kae Yong Park waived the requirement that the Company pay the $100,000 due under the Amended and Restated Note until August 25, 2014, at which time it was paid. The Company subsequently recaptured all previously recorded interest expense related to the note.
Between December 1, 2016 and March 16, 2017, the Company received aggregate proceeds of $101,299 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which notes were issued bearing 8% interest annually. On April 1, 2017, the Company issued a note for $102,465 consisting of $101,000 in principal and $1,465 in accrued interest for the previous notes. The $299 forgiven as part of the note restructure was recorded as a gain on extinguishment of debt. The note is non-interest bearing, matures on September 30, 2018, as amended, and is unsecured.
Between December 15, 2016 and January 13, 2017, the Company received aggregate proceeds of $41,550 from Sandor Capital, a related party and significant shareholder, for which notes were issued bearing 8% interest annually. On April 1, 2017, the Company issued a note for $42,374 consisting of $41,550 in principal and $824 in accrued interest for the previous notes. The note is non-interest bearing, matures on September 30, 2018, as amended, and is unsecured.
On April 1, 2017, the company renegotiated a $65,000 note to Sandor Capital, a related party and significant shareholder, with interest tied to the performance of its joint venture agreement into a new $71,097 note. The note is non-interest bearing, matures on September 30, 2018, as amended, and is unsecured. At the time of the refinance, the joint venture had not produced positive income, so no interest was due on the note. The $6,097 consideration given on the new note was recorded as a loss on extinguishment of debt.
Between May 1, 2017 and June 29, 2017, the Company received aggregate proceeds of $140,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which notes were issued bearing 8% interest annually. On April 1, 2017, the Company issued a note for $140,000 to restructure the previous notes. The note is non-interest bearing, matures on January 31, 2019 as amended, and is secured by certain domain names and websites owned by the Company.
Between August 1, 2017 and September 28, 2017, the Company received aggregate proceeds of $182,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which several notes were issued bearing 8% interest annually. The notes are non-interest bearing, mature on January 31, 2019, as amended, and secured by certain of the company’s domain name and websites.
Between October 1, 2017 and December 22, 2017, the Company received aggregate proceeds of $170,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which several notes were issued bearing 8% interest annually. The notes mature on January 31, 2019, as amended, and are secured by certain of the company’s domain name and websites.
On February 15, 2018, the Company received $40,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by certain of the company’s domain name and websites.
On March 29, 2018, the Company received $25,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, 2018, as amended, and is secured by the Company’s equity interests in Crush Mobile LLC (pari passu with Park).
9
On March 29, 2018, the Company received $50,000 from Kae Yong Park and her spouse Howard Baer (together, “Park”), a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by the a subordinated interest in the Company’s equity interests in Crush Mobile LLC.
On April 17, 2018, the Company received $40,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by the Company’s equity interests in Crush Mobile LLC (pari passu with Park).
On May 8, 2018, the Company received $50,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by the Company’s equity interests in Crush Mobile LLC (pari passu with Park).
On June 1, 2018, the Company received $16,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by certain of the company’s domain name and websites.
On June 3, 2018, the Company received $4,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by certain of the company’s domain name and websites.
NOTE 8 – NOTES PAYABLE
Notes Payable
On July 1, 2015, the Company entered into a seven (7) day loan agreement with two parties for aggregate proceeds of $34,900. The note bears interest at the rate of six percent (6%) annually. In addition to the loans, the Company issued an aggregate 349,000 shares of common stock valued at $26,016 and warrants to purchase an aggregate 100,000 shares of the Company’s common stock at an exercise price of $0.25 per share valued at $6,898. The relative fair value of the shares and warrants associated with these notes have been recorded as debt discount to be amortized over the life of the loans. As of September 30, 2018, these notes have not yet been repaid and are in default.
On August 10, 2015, the Company entered into a one hundred twenty (120) day loan agreement with an existing investor for aggregate proceeds of $45,000 (two installments of $22,500 each). The note bears interest at the rate of six percent (6%) annually. As additional consideration for these loans, the Company issued an aggregate 1,200,000 shares of common stock valued at $38,918. The relative fair value of the shares associated with these notes have been recorded as debt discount to be amortized over the life of the loans). As of September 30, 2018, these notes have not yet been repaid and are in default.
On January 8, 2018, the Company assumed $80,000 in note payable to a former equity holder through its acquisition of Crush Mobile LLC. The note bears interest at 1% annually and matures one year from the date of acquisition.
On January 8, 2018, the Company assumed $300,000 in notes payable to former equity holders through its acquisition of Crush Mobile LLC. The notes were concurrently settled at closing through the issuance of 3,000,000 shares of the Company’s common stock. The Company recognized a gain on settlement of $66,000 related to these note settlements.
Convertible Notes
On January 10, 2018, the Company issued a three-year $100,000 convertible zero coupon note for proceeds of $85,000. The note is initially convertible into shares of the Company’s stock at a price of $0.10 per share or a total of 1,000,000 shares. The note contains a provision which, in the event of default, adjusts the conversion price to equal 65% of the lowest closing price for the preceding 20 trading days. At the time the note was signed, the Company was in default on a previous note which triggered this default provision. Consequently, the Company has accounted for this through the creation of a derivative liability initially valued at $19,487 which was recorded as a discount to the debt.
10
On June 21, 2018, the Company issued a $58,000 convertible note for which it received $55,000 in proceeds. The note matures on September 20, 2019 and bears interest at an annual rate of 10%. The note is convertible into common stock at a price to equal 61% of the average of the lowest two trading prices for the preceding 15 trading days. At the time the note was signed, the Company was in default on a previous note which triggered the default provision in the note. Consequently, the Company accounted for this through the creation of a derivative liability initially valued at $15,140 which was recorded as a discount to the debt. On September 19, 2018, this note was redeemed by the Company for an aggregate payment of $72,505.
On July 10, 2018, the Company borrowed $50,000 from a third-party pursuant to a convertible promissory note for which the company received $47,500 in proceeds. The note bears interest at 10% annually and matures on or about October 10, 2019. The Note is convertible into common stock of the Company, commencing 6 months after the issue date, at a variable conversion price equal to a 39% discount to the average of the two lowest closing bids over the last fifteen days of the Company’s common stock. The conversion option pricing adjusts the number of shares the note is convertible into based on current stock price making the number of shares the note is convertible into variable. Consequently, the Company accounted for this through the creation of a derivative liability initially valued at $6,695 which was recorded as a discount to the debt. Between August 8, 2018 and September 25, 2018, the Company made aggregate principle repayments of $36,800 on the note, leaving a balance of $13,200 as of September 30, 2018
On August 2, 2018, the Company borrowed $66,150 from a third-party pursuant to a convertible promissory note for which the Company received $60,000 in proceeds. The note bears interest at 8% annually and matures on or about August 2, 2019. The Note is convertible into Company common stock, commencing 6 months after the issue date, at a variable conversion price equal to a 38% discount to the market price of the common stock. The conversion option pricing adjusts the number of shares the note is convertible into based on current stock price making the number of shares the note is convertible into variable. Consequently, the Company accounted for this through the creation of a derivative liability initially valued at $20,447 which was recorded as a discount to the debt.
On September 13, 2018, the Company issued a promissory note in the principal amount of $150,000 and a warrant to purchase 3,750,000 shares, to a third-party for a purchase price of $150,000 for which the Company received $137,250 in proceeds. The note bears interest at 12% annually and matures on or about June 13, 2019. The Note is convertible into Company common stock, commencing 6 months after the issue date, at a variable conversion price equal to a 39% discount to the market price of the common stock. The conversion option pricing adjusts the number of shares the note is convertible into based on current stock price making the number of shares the note is convertible into variable. Consequently, the Company accounted for this through the creation of a derivative liability initially valued at $57,820 which was recorded as a discount to the debt. Additionally, the warrants which were valued at a relative fair value of $32,082 were also recorded as a discount of the debt.
On September 19, 2018, the Company borrowed $75,000 from a third-party pursuant to a convertible promissory note for which the Company received $66,500 in proceeds. The note bears interest at 12% annually and matures on or about September 19, 2019. The Note is convertible into Company common stock, commencing 6 months after the issue date, at a variable conversion price equal to a 40% discount to the market price of the common stock. The conversion option pricing adjusts the number of shares the note is convertible into based on current stock price making the number of shares the note is convertible into variable. Consequently, the Company accounted for this through the creation of a derivative liability initially valued at $46,788 which was recorded as a discount to the debt.
The following table summarizes the Company’s notes and convertible notes payable for the nine months ended September 30, 2018:
|
Notes
|
|
Convertible Notes
|
Balance – December 31, 2017
|
$
|
79,900
|
|
$
|
-
|
Note proceeds received
|
|
-
|
|
|
451,250
|
Original discounts
|
|
-
|
|
|
47,900
|
Notes acquired from business acquisition
|
|
80,000
|
|
|
-
|
Repayments on notes
|
|
-
|
|
|
(94,800)
|
Total
|
|
159,000
|
|
|
404,350
|
Short term portion
|
|
159,000
|
|
|
291,150
|
Long term portion
|
|
-
|
|
|
113,200
|
Debt discounts
|
|
-
|
|
|
(200,820)
|
Balance –September 30, 2018
|
$
|
159,900
|
|
$
|
203,530
|
11
NOTE 9 – DERIVATIVE LIABILITIES
The Company has identified conversion features embedded within its convertible notes issued January 10, 2018 and June 21, 2018 (see Note 8 – Notes Payable), and has determined that the features associated with the embedded conversion options should be accounted for at fair value as a derivative liability. The Company has valued the embedded conversion features using a Binomial Lattice Model.
The fair value of the conversion feature is summarized as follows:
Derivative liability - December 31, 2017
|
|
$
|
-
|
Day one value of derivatives issued
|
|
|
166,378
|
Fair value mark to market adjustment for equity instruments
|
|
|
(12,533)
|
Derivative liability – September 30, 2018
|
|
$
|
153,845
|
The Company recorded the day one value of derivative contract associated with the convertible note issuances as a discount to the debt agreement to be amortized over the life of the agreement. The Company recorded a gain on derivatives of $12,533 during the nine months ended September 30, 2018.
The fair values at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of September 30, 2018:
|
|
Commitment Date
|
|
Re-measurement Date
|
Expected dividends
|
|
|
0%
|
|
|
0%
|
Expected term:
|
|
|
9 months - 3 years
|
|
|
9 months – 2.25 years
|
Risk free interest rate
|
|
|
2.07 – 2.58%
|
|
|
2.59%
|
NOTE 10 – BUSINESS ACQUISITION
On January 8, 2018, the Company completed its acquisition of Crush Mobile, LLC (“Crush Mobile”) from its members. Crush Mobile’s assets consist primarily of trademarks, domain names, mobile dating applications and related software and intellectual property. In connection with the closing of the acquisition, the Registrant is issuing an aggregate of 7,904,000 shares of common stock as follows: (i) 4,904,000 shares to the Crush Mobile members and (ii) 3,000,000 shares to certain Crush Mobile creditors (who are also members) in full satisfaction of $300,000 of indebtedness owed to them by Crush Mobile.
The Company applied the acquisition method of accounting to the business combination and has valued each of the assets acquired (cash, accounts receivable, customer lists, and intangible assets) and liabilities. The cash, accounts receivable, intangible assets, accounts payable and notes payable were deemed to be recorded at fair value as of the acquisition date. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed based on provisional amounts. The allocation of the excess purchase price is not final and the amounts allocated to intangible assets are subject to change pending the completion of final valuations of certain assets and liabilities. Under the purchase agreement, the Company issued 4,904,000 shares of common stock, and an additional 3,000,000 shares of common stock to satisfy outstanding notes payable.
The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
Purchase Price
|
|
|
4,904,000 shares of common stock valued at $0.078 per share
|
|
$
|
382,512
|
|
|
|
|
Allocation of Purchase Price
|
|
|
|
Cash
|
|
$
|
4,400
|
Receivables
|
|
|
15,000
|
Trademarks
|
|
|
323,665
|
Intellectual property
|
|
|
140,000
|
Customer lists
|
|
|
8,905
|
Goodwill
|
|
|
295,200
|
Accounts payable
|
|
|
(24,658)
|
Debt Obligations
|
|
|
(380,000)
|
|
|
$
|
382,512
|
From the date of acquisition on January 8, 2018 to September 30, 2018, Crush Mobile generated total revenue of $33,644.
12
NOTE 11 – EQUITY
On October 15, 2018, the Company amended its Articles of Incorporation to increase the authorized common shares of the Company from 200,000,000 to 500,000,000.
On January 10, 2018, the Company issued 106,500 shares of the Company’s commons stock to a vendor as settlement of a payable balance of $5,325, resulting in a loss on settlement of $3,089.
On January 8, 2018, the Company issued 300,000 shares of the Company’s commons stock valued at $23,400 as a commitment fee to a prospective investor.
On January 8, 2018, the Company issued an aggregate 7,904,000 shares of the Company’s common stock valued at $616,512, or $0.078 per share, in connection with the closing of the Crush Mobile acquisition (see Note 10 – Business Acquisition). Of these shares, 4,904,000 were issued as part of the acquisition and 3,000,000 shares were issued to settle $300,000 in notes payable.
On January 8, 2018, the Company issued 500,000 shares of the Company’s common stock valued at $39,000 to Tumbleweed Holdings pursuant to their prior settlement agreement.
On February 16, 2018, the Company issued 500,000 shares valued at $25,500, or $0.05 per share, of the Company’s common stock pursuant to a consulting contract.
On February 6, 2018, the Company issued 250,000 shares valued at $12,500, or $0.05 per share, of the Company’s common stock pursuant to a consulting contract.
On September 30, 2018, the Company issued 2,676,400 shares of the Company’s commons stock to, as settlement of a payable balance of $26,764, reflecting a price per share of $0.01. The Company recorded a gain on settlement of $5,353 related to this transaction.
Between August 7, 2018 and September 30, 2018, the Company sold an aggregate of 15,000,000 shares of common stock for gross proceeds of $150,000 (a price per share of $0.01). The securities were sold solely to “accredited investors”, as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended.
NOTE 12 – STOCK WARRANTS
The Company has applied fair value accounting for all warrants issued. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model.
On September 14, 2018, the Company issued a warrant to purchase 3,750,000 shares, in conjunction with a note payable (see Note 8 – Notes Payable). The warrants which were valued at a relative fair value of $32,082, using the Black-Scholes pricing model after adjusting for relative value based on a total Black-Scholes value of $40,811.
The Company has classified the warrant as having Level 2 inputs, and has used the Black-Scholes option-pricing model to value the warrant. The fair value at the commitment and re-measurement dates for the above warrant was based upon the following management assumptions:
|
|
Commitment Date
|
Expected dividends
|
|
|
0%
|
Expected volatility
|
|
|
225%
|
Expected term:
|
|
|
5 years
|
Risk free interest rate
|
|
|
2.87%
|
A summary of the Company’s warrant activity for the nine months ended September 30, 2018 is as follows:
|
|
Number of
Warrants
|
|
Weighted Average
Exercise Price
|
Outstanding – December 31, 2017
|
|
|
11,355,285
|
|
$
|
0.05
|
Granted
|
|
|
3,750,000
|
|
|
0.01
|
Expired
|
|
|
(1,225,000)
|
|
|
0.10
|
Cancelled
|
|
|
-
|
|
|
-
|
Exercised/settled
|
|
|
-
|
|
|
-
|
Balance as September 30, 2018
|
|
|
13,880,285
|
|
$
|
.04
|
13
The Company’s outstanding warrants at September 30, 2018 are as follows:
Warrants Outstanding
|
|
Warrants Exercisable
|
|
Exercise Price Range
|
|
Number
Outstanding
|
|
Weighted Average
Remaining
Contractual Life (in
years)
|
|
Weighted Average
Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise Price
|
|
Intrinsic Value
|
|
$0.01 - $0.10
|
|
|
|
13,880,285
|
|
|
2.83
|
|
$
|
0.04
|
|
|
13,880,285
|
|
$
|
0.04
|
|
|
-
|
|
NOTE 13 – EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.
Since the Company reflected a net loss for the three and nine months ended September 30, 2018 and 2017, respectively, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive. Therefore, a separate computation of diluted earnings (loss) per share is not presented.
The Company has the following common stock equivalents as of September 30, 2018:
|
|
As of
September 30,
2018
|
Warrants (exercise price $0.05 - $0.25/share)
|
|
|
13,880,285
|
Convertible debt (exercise price $0.0048 - $0.0052/share)
|
|
|
83,774,305
|
|
|
|
97,654,590
|
NOTE 14 – RELATED PARTY TRANSACTIONS
On April 13, 2016, the Company agreed to amend the promissory note with Kae Yong Park and Howard R. Baer so as to make $564,000 in principal amount due under said Note interest bearing at the rate of 10% per annum, effective January 1, 2016. The remaining principal is non-interest bearing. During the nine months ended September 30, 2018, the company incurred interest expense of $42,030 related to this note. At September 30, 2018, the Company has accrued interest owed under this agreement of $154,984.
During the nine months ended September 30, 2018, the Company received aggregate proceeds of $175,000 from Sandor Capital, a related party and significant shareholder and John Lemak, its affiliate, for which notes were issued. The notes mature Between August 30 and September 30, 2018 and are secured by certain company assets. At September 30, 2018, the Company had accrued interest of $30,550 related to his notes.
During the nine months ended September 30, 2018, the Company received proceeds of $50,000 from Kae Yong Park, a significant shareholder, and her spouse, Howard Baer, a related party and significant shareholder for which a note was issued. The note, as amended, matures September 30, 2018 and is secured by certain company assets. At September 30, 2018, the Company had accrued interest of $2,027 related to this note.
During the nine months ended September 30, 2018, Kae Yong Park, a significant shareholder, and her spouse, Howard Baer (collectively, “Park”), advanced an aggregate of $259,550 on an unsecured basis to the Company for short-term capital needs. During this period, the Company also repaid $142,655 of its secured debt to Park and recaptured $60,000 worth of payroll expenses for Park’s use of Company personnel. At September 30, 2018, the Company had a note payable to Park for these advances of $1,349,252 which is secured by the assets of the Company.
During the nine months ended September 30, 2018, the Company incurred expenses of $135,000 related to its consulting contract with Howard Baer, the spouse of Kae Yong Park, our significant shareholder.
14
NOTE 15 – COMMITMENTS AND CONTINGENCIES
In May 2014, The Company entered into an asset purchase agreement that requires the Company to pay a monthly royalty equal to six percent of gross monthly revenues over $150,000. The royalty payment is payable for a period of thirty-six months from and after the first month in which the Company’s gross revenues are in excess of $150,000.
On June 23, 2014, the Company issued a $500,000 promissory note in conjunction with the purchase of approximately 7,500 cannabis-related internet domain names. The original note bore interest at the rate of 3.25% per annum and was payable as follows: upon the Company’s receipt of an aggregate of $1,000,000 in funding (whether debt or equity), $100,000 was required to be paid. The remaining $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month the Company realizes at least $150,000 in gross revenue.
On July 25, 2014, the Company amended and restated its promissory note in the principal amount of $500,000 owing to Kae Yong Park (the Company’s then majority shareholder) to provide that it would make the first $100,000 installment payment due under the Note on July 25, 2014 (earlier than required), in exchange for which Kae Yong Park agreed to waive all interest due over the term of the note. Thereafter, Kae Yong Park waived the requirement that the Company pay the $100,000 due under the Amended and Restated Note until August 25, 2014, at which time it was paid.
NOTE 16 – SUBSEQUENT EVENTS
We have evaluated all events that occurred after the balance sheet date through the date when our financial statements were issued to determine if they must be reported. Management has determined that other than as disclosed below, there were no additional reportable subsequent events to be disclosed.
Convertible Notes
On October 31, 2018, the Company borrowed $58,000 from a third-party pursuant to a convertible promissory note. The note has a face amount of $60,000 (issued for a purchase price of $58,000, a 3.33% original issue discount), bears interest at 10% annually and matures on or about October 29, 2019.
Equity
On October 1, 2018, the Company issued 500,000 shares of the Company’s common stock to an investor for proceeds of $5,000 or $0.01 per share.
15