NOTE 1 Organization and Description of Business
WRAPmail, Inc. (WRAP) was incorporated in Florida on October 11, 2005. Effective January 5, 2015 (see Note 4), we acquired 100% ownership of Prosperity Systems, Inc., a New York corporation incorporated on April 2, 2008. WRAP and its wholly owned subsidiary Prosperity (collectively, the Company) provide document, project, marketing and sales management systems to business clients through its website and proprietary software.
Effective December 27, 2010, WRAP effected a 10 for 1 forward stock split of its common stock. Effective June 4, 2013, WRAP effected a 1 for 10 reverse stock split of its common stock. The accompanying consolidated financial statements retroactively reflect these stock splits.
NOTE 2 Going Concern Uncertainty
The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in a normal course of business. As of December 31, 2015, the Company had cash and cash equivalents of $18,373 and working capital of $5,504. For the years ended December 31, 2015 and 2014, the Company had net losses of $3,591,723 and $29,642, respectively. These factors raise substantial doubt as to the Company's ability to continue as a going concern. The Company plans to improve its financial condition by raising capital through sales of shares of its common stock. Also, the Company plans to pursue new customers to attain profitable operations. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of WRAP and its wholly owned subsidiary Prosperity from the date of its acquisition on January 5, 2015. All intercompany balances and transactions have been eliminated in consolidation.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
(c) Fair Value of Financial Instruments
The Companys financial instruments consist of cash and cash equivalents, accounts receivable, note receivable, note payable, accounts payable, and accrued expenses payable. Except for the note receivable, the fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to the short term maturity of these instruments. Based on comparable instruments with similar terms, the fair value of the note receivable approximates its carrying value.
(d) Cash and Cash Equivalents
The Company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents.
43
(e) Property and Equipment, Net
Property and equipment, net, is stated at cost less accumulated depreciation. Depreciation is calculated using the straight line method over the estimated useful lives of the respective assets. Maintenance and repairs are charged to operations as incurred.
(f) Intangible Assets, Net
Intangible assets, net, are stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over the estimated economic lives of the respective assets.
(g) Goodwill and Intangible Assets with Indefinite Lives
The Company does not amortize goodwill and intangible assets with indefinite useful lives, but instead tests for impairment at least annually. When conducting the annual impairment test for goodwill, the Company compares the estimated fair value of a reporting unit containing goodwill to its carrying value. If the estimated fair value of the reporting unit is determined to be less than its carrying value, goodwill is reduced and an impairment loss is recorded.
(h) Long-lived Assets
The Company reviews long-lived assets held and used, intangible assets with finite useful lives and assets held for sale for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows associated with the asset is compared to the assets carrying amount to determine if a write-down is required. If the undiscounted cash flows are less than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds the fair value.
(i) Revenue Recognition
The Company recognizes revenue over agreed periods of services delivered to customers, provided there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectability is deemed probable.
(j) Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (ASC) Topic 718, Compensation Stock Compensation (ASC718).
In addition to requiring supplemental disclosures, ASC 718 addresses the accounting for share-based payment transactions in which a company receives goods or services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.
(k) Advertising
Advertising costs are expensed as incurred and amounted to $15,652 and $1,531 for the years ended December 31, 2015 and 2014, respectively.
(l) Research and Development
Research and development costs are expensed as incurred.
44
(m) Income Taxes
Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.
The Company has adopted the provisions required by the Income Taxes topic of the FASB Accounting Standards Codification. The Codification Topic requires the recognition of potential liabilities as a result of managements acceptance of potentially uncertain positions for income tax treatment on a more-likely-than-not probability of an assessment upon examination by a respective taxing authority. The Company believes that it has not taken any uncertain tax positions and thus has not recorded any liability.
(n) Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation. For the periods presented, the diluted net loss per share calculation excluded the effect of Series A preferred stock and stock options outstanding (see Note 9 and Note 11).
(o) Recent Accounting Pronouncements
Certain accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and therefore have not yet been adopted by the Company. The impact on the Company's financial position and results of operations from adoption of these standards is not expected to be material.
NOTE 4 Acquisition of Prosperity Systems, Inc.
Effective January 5, 2015, WRAP acquired 100% ownership of Prosperity Systems, Inc. (Prosperity) in exchange for 36,354,077 newly issued shares of WRAP common stock (see Note 10). The acquisition has been accounted for in the accompanying consolidated financial statements as a purchase transaction. Accordingly, the financial position and results of operations of Prosperity prior to the date of the acquisition have been excluded from the accompanying consolidated financial statements.
45
The estimated fair values of the identifiable net assets of Prosperity at January 5, 2015 (effective date of acquisition) consisted of:
|
|
Cash and cash equivalents
|
$
563
|
Accounts receivable
|
15,436
|
Prepaid expenses
|
5,594
|
Property and equipment, net
|
1,026
|
Intangible assets, net
|
29,947
|
Deferred consulting fees
|
35,838
|
Total assets
|
$
88,404
|
Note and loan payable to related party
|
37,270
|
Convertible notes payable
|
30,000
|
Accounts payable
|
10,462
|
Accrued interest payable
|
5,839
|
Total liabilities
|
83,571
|
Identifiable net assets
|
$
4,833
|
Goodwill of $1,994,641 (excess of the $1,999,474 fair value of the 36,354,077 shares of WRAP common stock issued to Prosperity's stockholders over the $4,833 identifiable net assets of Prosperity at January 5, 2015) was considered fully impaired at the acquisition date and an impairment expense of $1,994,641 was recorded in the three months ended March 31, 2015.
The following pro forma information summarizes the results of operations for the years ended December 31, 2015 and 2014 as if the acquisition occurred at December 31, 2013. The pro forma information is not necessarily indicative of the results that would have been reported had the transaction actually occurred on December 31, 2013, nor is it intended to project results of operations for any future period.
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
December 31, 2015
|
|
December 31, 2014
|
Revenues
|
$
110,431
|
|
$
133,962
|
Operating expense
|
1,684,714
|
|
231,209
|
Loss from Operations
|
(1,574,283)
|
|
(97,247)
|
Other income (loss) - net
|
(22,799)
|
|
(42,686)
|
Net loss
|
$
(1,597,082)
|
|
$
(139,933)
|
Net loss per common share - basic and diluted
|
$
(0.01)
|
|
$
(0.00)
|
Weighted average common shares outstanding - basic and diluted
|
$
215,868,057
|
|
$
214,438,168
|
NOTE 5 Note Receivable
The $39,000 note receivable at December 31, 2015 bears interest at a rate of 3% per annum and is due November 30, 2020. The receivable arose from the Companys sale of its 50% interest in Stock Market Manager, Inc. to Endeavour Cooperative Partners, LLC (Endeavour) on November 30, 2015. Endeavour is affiliated with Carl Dilley, a company director.
46
NOTE 6 Intangible Assets, Net
Intangible assets, net, consist of:
|
|
|
|
|
December 31,
|
|
2015
|
|
2014
|
Videos conferencing software acquired by Prosperity in December 2009
|
$
30,000
|
|
$
-
|
Enterprise and audit software acquired by Prosperity in April 2008
|
20,000
|
|
-
|
Patent costs incurred by WRAP
|
6,880
|
|
6,944
|
Other
|
3,548
|
|
-
|
Total
|
60,428
|
|
6,944
|
Accumulated amortization
|
(30,973)
|
|
(3,395)
|
Net
|
$
29,455
|
|
$
3,549
|
Expected future amortization expense for intangible assets as of December 31, 2015follows:
|
|
|
Amount
|
2016
|
$
3,975
|
2017
|
3,975
|
2018
|
3,975
|
2019
|
3,975
|
Thereafter
|
13,555
|
Total
|
$
29,455
|
NOTE 7 Deferred Consulting Fees
For the year ended December 31, 2015, deferred consulting fees were accounted for as follows:
Amounts assumed from acquisition of
Prosperity Systems, Inc. on January 5, 2015:
Prosperity shares issued to Stan Teeple, Inc. pursuant
to Consulting Agreement with term of three years
from March 23, 2012 to March 23, 2015 ($110,000),
less $101,662 expensed through December 31, 2014
$8,338
Prosperity shares issued to Ken Echevaria pursuant to
Business Consulting Agreements($110,000), less
$82,500 expensed through December 31, 2014
27,500
Total
35,838
Amount expensed in the year ended December 31, 2015
(35,838)
Balance, December 31, 2015
$ -
47
NOTE 8 Notes and Loans Payable
In December 2014, McKenzie Webster Limited (MWL) and Rolv E. Heggenhougen forgave a total of $67,000 loans payable and $20,242 accrued interest payable due them. MWL is an entity controlled by Rolv E. Heggenhougen (WRAP chairman of the board of directors since inception on October 11, 2005; WRAP chief executive officer from inception on October 11, 2005 to January 5, 2015).
On January 5, 2015 (see Note 10), the Company issued 70,166,750 shares of WRAP common stock to Marco Alfonsi in satisfaction of $22,270 Prosperity loans payable to Marco Alfonsi. Marco Alfonsi has been the chief executive officer of Prosperity since its inception on April 2, 2008 and has been the chief executive officer of WRAP since January 5, 2015.
On March 19, 2015 (see Note 10), the Company issued 117,500 shares of WRAP common stock to an investor in satisfaction of a $25,000 Prosperity note payable and $4,375 accrued interest.
On August 20, 2015 (see Note 10), the Company borrowed $50,000 from an investor pursuant to a $50,000 Bridge Loan Financing Agreement which provided for the issuance of 5,000,000 shares of WRAP common stock to the investor. The Note was repaid $25,000 on September 28, 2015, $12,500 on October 28, 2015, and $12,500 on November 12, 2015.
On August 21, 2015 and August 24, 2015, the Company repaid a $15,000 Prosperity convertible note payable to Marco Alfonsi.
NOTE 9 Preferred Stock
On October 29, 2015, the Company issued a total of 10 shares of WRAP Series A Preferred Stock (5 shares to MWL and 5 shares to Marco Alfonsi) in exchange for the retirement of a total of 100,000,000 shares of WRAP common stock (50,000,000 shares from MWL and 50,000,000 shares from Marco Alfonsi).
Each share of Series A Preferred Stock is convertible into 10,000,000 shares of WRAP common stock and is entitled to 20,000,000 votes.
NOTE 10 Common Stock
On December 30, 2014, the Company sold 4,000,000 shares of WRAP common stock to an investor at a price of $0.025 per share for proceeds of $100,000.
On January 5, 2015, the Company issued a total of 36,354,077 shares of WRAP common stock to Prosperity stockholders pursuant to the acquisition of Prosperity. See Note 4.
On January 5, 2015, the Company issued 70,166,750 shares of WRAP common stock to Marco Alfonsi in satisfaction of $22,270 Prosperity loans payable to Marco Alfonsi. See Note 8.
On January 5, 2015, MWL retired 70,166,750 shares of WRAP common stock owned by it.
On March 19, 2015, the Company issued 117,500 shares of WRAP common stock to an investor in satisfaction of a $25,000 Prosperity note payable and $4,375 accrued interest. See Note 8.
On March 26, 2015, the Company issued a total of 5,000,000 shares of WRAP common stock to the three members of the Board of Directors (1,000,000 shares each) and the four members of the Board of Advisors (500,000 shares each) for services rendered. The $400,000 fair value of the 5,000,000 shares of WRAP common stock was charged $240,000 to officers and directors compensation and $160,000 to consulting fees in the three months ended March 31, 2015.
48
On June 14, 2015 (see Note 13), the Company issued 10,000,000 shares of WRAP common stock to Marco Alfonsi pursuant to an Executive Employment Agreement dated May 14, 2015. The $510,000 fair value of the 10,000,000 shares of WRAP common stock was charged to officers and directors compensation in the three months ended June 30, 2015.
On June 30, 2015, the Company issued 1,600,000 shares of WRAP common stock to a vendor in satisfaction of an $82,376 account payable to the vendor.
On July 6, 2015, the Company issued a total of 1,200,000 shares of WRAP common stock to two consultants for services rendered. The $60,000 fair value of the 1,200,000 shares of WRAP common stock was charged to consulting fees in the three months ended September 30, 2015.
On July 31, 2015, the Company issued 50,000 shares of WRAP common stock to a consultant for services rendered. The $14,995 fair value of the 50,000 shares of WRAP common stock was charged to consulting fees in the three months ended September 30, 2015.
On August 4, 2015, the Company sold 1,000,000 shares of WRAP common stock to an investor at a price of $0.10 per share for proceeds of $100,000.
On August 14, 2015, the Company issued 430,000 shares of WRAP common stock to a consultant for services rendered. The $107,457 fair value of the 430,000 shares of WRAP common stock was charged to consulting fees in the three months ended September 30, 2015.
On August 18, 2015, the Company sold 1,000,000 shares of WRAP common stock to a non-U.S. individual investor at a price of $0.10 per share for proceeds of $100,000.
On August 19, 2015, the Company sold 1,000,000 shares of WRAP common stock to a non-U.S. entity investor at a price of $0.10 per share for proceeds of $100,000.
On August 21, 2015, the Company issued 400,000 shares of WRAP common stock to a consultant for services rendered. $60,000 of the $90,000 fair value of the 400,000 shares of WRAP common stock was charged to consulting fees in the six months ended December 31, 2015 and $30,000 has been included in prepaid expenses at December 31, 2015.
On August 21, 2015 (see Note 8), pursuant to a $50,000 Bridge Loan Financing Agreement and related Note dated August 20, 2015, the Company issued 5,000,000 shares of WRAP common stock to an investor as additional consideration for the $50,000 loan. The proceeds of the Note were allocated between the principal and the $1,125,000 fair value of the 5,000,000 shares of WRAP common stock resulting in the Company recording a discount on the debt of $47,872. This amount was amortized over the term of the Note.
On December 30, 2015, the Company issued 150,000 shares of WRAP common stock to an entity for accounting services rendered. The $15,000 fair value of the 150,000 shares of WRAP common stock was charged to other operating expenses in the three months ended December 31, 2015.
On or around February 1, 2016, the Company issued Jeff Franz a promissory note in the amount of $15,000 in exchange for a loan of $15,000 from Franz. The note has a six month maturity and bears 12% simple interest.
On or around February 1, 2016, the Company issued Paul Alfonsi a promissory note in the amount of $15,000 in exchange for a loan of $15,000 from Alfonsi. The note has a six month maturity and bears 12% simple interest.
On or around March 9, 2016, the Company issued Nxtlive Technologies Private Ltd. 140,000 for $16,800 in services previously rendered.
49
NOTE 11 Stock Options and Warrants
A summary of stock options and warrants activity follows:
|
|
|
|
|
|
|
Shares of Common Stock Exercisable Into
|
|
Stock Options
|
|
Warrants
|
|
Total
|
Balance, December 31, 2013
|
1,700,000
|
|
707,500
|
|
2,407,500
|
Granted in 2014
|
10,000,000
|
|
-
|
|
10,000,000
|
Cancelled in 2014
|
(11,500,000)
|
|
(400,000)
|
|
(11,900,000)
|
|
|
|
|
|
|
Balance, December 31, 2014
|
200,000
|
|
307,500
|
|
507,500
|
Granted in 2015
|
-
|
|
-
|
|
-
|
Cancelled in 2015
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
Balance, December 31, 2015
|
200,000
|
|
307,500
|
|
507,500
|
Issued and outstanding stock options as of December 31, 2015 consist of:
|
|
|
|
|
|
|
Year Granted
|
|
Number Outstanding and Exercisable
|
|
Exercise Price
|
|
Year of Expiration
|
2006
|
|
150,000
|
|
$
1.00
|
|
2016
|
2009
|
|
50,000
|
|
$
1.00
|
|
2019
|
Total
|
|
200,000
|
|
|
|
|
Issued and outstanding warrants as of December 31, 2015 consist of:
|
|
|
|
|
|
|
Year Granted
|
|
Number Outstanding and Exercisable
|
|
Exercise Price
|
|
Year of Expiration
|
2006
|
|
60,000
|
|
$1.00
|
|
2016
|
2010
|
|
247,500
|
|
$1.00
|
|
2020
|
Total
|
|
307,500
|
|
|
|
|
50
NOTE 12 Income Taxes
No provisions for income taxes were recorded for the periods presented since the Company incurred net losses in those periods.
The provisions for (benefits from) income taxes differ from the amounts determined by applying the U.S. Federal income tax rate of 35% to pretax income (loss) as follows:
|
|
|
|
|
Year Ended December 31,
|
|
2015
|
|
2014
|
Expected income tax (benefit) at 35%
|
$
(1,257,103)
|
|
$
(10,375)
|
Non-deductible stock-based compensation
|
421,152
|
|
-
|
Non-deductible impairment of goodwill
|
698,124
|
|
-
|
Non-deductible amortization of debt discounts
|
16,755
|
|
-
|
Increase in deferred income tax assets valuation allowance
|
121,072
|
|
10,375
|
Provision for (benefit from) income taxes
|
$
-
|
|
$
-
|
Deferred income tax assets consist of:
|
|
|
|
|
December 31,
|
|
2015
|
|
2014
|
Net operating loss carryforward
|
$
1,085,274
|
|
$
964,202
|
Valuation allowance
|
(1,085,274)
|
|
(964,202)
|
Net operating loss carryforward
|
$
-
|
|
$
-
|
Based on management's present assessment, the Company has not yet determined it to be more likely than not that a deferred income tax asset of $1,085,274 attributable to the future utilization of the $3,100,783 net operating loss carryforward as of December 31, 2015 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred income tax asset in the financial statements at December 31, 2015. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforward expires in years 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2033, 2034, and 2035 in the amount of $1,369, $518,390, $594,905, $686,775, $159,141, $151,874, $135,096, $166,911, $311,890, $28,511, and $345,921, respectively.
Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
NOTE 13 Commitments and Contingencies
Employment Agreements
On May 14, 2015, the Company executed an Executive Employment Agreement with Marco Alfonsi (Alfonsi) for Alfonsi to serve as the Company's chief executive officer for cash compensation of $5,000 per month (increased to $6,000 per month in August 2015). Pursuant to the agreement, the Company issued 10,000,000 restricted shares of WRAP common stock to Alfonsi on June 14, 2015 (see Note 10). Alfonsi may terminate his employment upon 30 days written notice to the Company. The Company may terminate Alfonsi's employment upon written notice to Alfonsi by a vote of the Board of Directors.
51
On August 17, 2015, the Company executed an Employment Agreement with Romuald Stone (Stone) for Stone to serve as the Company's Chief Technology Officer for cash compensation of $12,500 per month. Stone may terminate his employment upon 30 days written notice to the Company. The Company may terminate Stone's employment upon written notice to Stone by a vote of the Board of Directors. If the Company's termination is without cause (as defined), Stone will be entitled to a severance payment of $12,500.
Lease Agreement
On December 1, 2014, Prosperity entered into a lease agreement with KLAM, Inc. for office space in Hicksville, New York for an initial term of one year commencing December 1, 2014. The lease provides for monthly rentals of $2,500 and provides Prosperity an option to renew the lease after the initial term. The Company has continued to occupy this space after November 30, 2015 under a month to month arrangement at $2,500 per month. KLAM, Inc. is controlled by the wife of the Company's chief executive officer Marco Alfonsi.
On September 11, 2015, the Company executed a lease agreement with an unrelated third party for office space in Hicksville, New York for a term of 37 months. The lease provides for monthly rentals of $2,922 for lease year 1, $3,009 for lease year 2, and $3,100 for lease year 3. The lease also provides for additional rent based on increases in base year operating expenses and real estate taxes.
Rent expense for the years ended December 31, 2015 and 2014 was $38,765 and $0, respectively.
At December 31, 2015, the future minimum lease payments under non-cancellable operating leases were:
|
|
Year ended December 31, 2016
|
$
35,416
|
Year ended December 31, 2017
|
36,472
|
Year ended December 31, 2018
|
27,900
|
Total
|
$
99,788
|
Major Customers
For the year ended December 31, 2015, two customers accounted for approximately 34% and 28%, respectively, of total revenues.
For the year ended December 31, 2014, one customer accounted for approximately 47% of total revenues.
NOTE 14 Subsequent Events
On February 1, 2016, the Company borrowed a total of $30,000 from two stockholders ($15,000 each), one of which is the brother of the chief executive officer of the Company. Both related promissory notes provide for interest at a rate of 12% per annum and are due on April 1, 2016.
On March 9, 2016, the Company issued 140,000 shares of WRAP common stock to a technical consultant for services rendered.
On March 24, 2016 and April 4, 2016, the Company borrowed $21,500 and $8,500, respectively, from an entity. The related Promissory note provides for interest at a rate of 14.99 % per annum and repayment of the principal and accrued interest one year from the respective loan dates.
52
|
|
|
|
|
|
WRAPmail, Inc. and Subsidiary
Consolidated Balance Sheets
|
|
|
March 31,
|
|
December 31,
|
|
|
2016
|
|
|
2015
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,840
|
|
$
|
18,373
|
Accounts receivable, less allowance for doubtful
accounts of $15,726 and $15,726, respectively
|
|
26,324
|
|
|
24,473
|
Prepaid expenses
|
|
-
|
|
|
39,671
|
Total current assets
|
|
29,164
|
|
|
82,517
|
|
|
|
|
|
|
Property and equipment, at cost less accumulated
|
|
|
|
|
|
depreciation of $14,601and $13,754, respectively
|
|
16,795
|
|
|
17,642
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
Security Deposit
|
|
11,687
|
|
|
11,687
|
Note receivable
|
|
39,000
|
|
|
39,000
|
Intangible assets, net of accumulated amortization
|
|
|
|
|
|
of $31,967and $30,973, respectively
|
|
28,461
|
|
|
29,455
|
Total other assets
|
|
79,148
|
|
|
80,142
|
|
|
|
|
|
|
Total assets
|
$
|
125,107
|
|
$
|
180,301
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Notes and loans payable
|
$
|
59,500
|
|
$
|
8,000
|
Accounts payable
|
|
59,500
|
|
|
37,749
|
Accrued expenses payable
|
|
63,350
|
|
|
31,264
|
Total current liabilities and total liabilities
|
|
144,872
|
|
|
77,013
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
Series A Preferred stock, no par value:
|
|
|
|
|
|
authorized 20 shares, issued and outstanding
|
|
|
|
|
|
10 and 10 shares, respectively
|
|
-
|
|
|
-
|
Common stock, no par value; authorized
|
|
|
|
|
|
400,000,000 shares, issued and outstanding
|
|
|
|
|
|
145,608,250 and 145,363,750
|
|
|
|
|
|
shares, respectively
|
|
11,967,552
|
|
|
11,945,995
|
Accumulated deficit
|
|
(11,987,317)
|
|
|
(11,842,707)
|
Total stockholders' equity (deficit)
|
|
(19,765)
|
|
|
103,288
|
|
|
|
|
|
|
Total liabilities and stockholders' equity (deficit)
|
$
|
125,107
|
|
$
|
180,301
|
See notes to consolidated financial statements.
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WRAPmail, Inc. and Subsidiary
|
Consolidated Statements of Operations and Comprehensive Loss
|
(Unaudited)
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
22,226
|
|
$
|
39,516
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Officers and directors compensation (including stock-
|
|
|
|
|
|
|
based compensation of $0 and $240,000, respectively
|
|
55,500
|
|
|
240,000
|
|
Consulting fees (including stock-based compensation of
|
|
|
|
|
|
|
$30,000and $175,213, respectively)
|
|
55,861
|
|
|
184,983
|
|
Depreciation of property and equipment
|
|
847
|
|
|
442
|
|
Amortization of intangible assets
|
|
994
|
|
|
993
|
|
Other
|
|
53,802
|
|
|
61,816
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
167,004
|
|
|
488,234
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(144,778)
|
|
|
(448,718)
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
Loss on Investment
|
|
-
|
|
|
(480)
|
|
Interest income
|
|
293
|
|
|
4
|
|
Impairment of goodwill
|
|
-
|
|
|
(1,994,641)
|
|
Interest expense
|
|
(125)
|
|
|
(125)
|
|
|
|
|
|
|
|
|
Other income (expense) net
|
|
168
|
|
|
(1,995,242)
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
(144,610)
|
|
|
(2,443,960)
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
$
|
(144,610)
|
|
$
|
(2,443,960)
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
|
$
|
(0.00)
|
|
$
|
(0.01)
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
|
|
|
|
outstanding basic and diluted
|
|
145,502,486
|
|
|
217,150,818
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
WRAPmail, Inc. and Subsidiary
|
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(144,610)
|
|
$
|
(2,443,960)
|
Adjustments to reconcile net loss to net
|
|
|
|
|
|
|
cash used in operating activities:
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
30,000
|
|
|
415,213
|
Impairment of goodwill
|
|
|
-
|
|
|
1,994,641
|
Loss on investment
|
|
|
-
|
|
|
480
|
Depreciation of property and equipment
|
|
|
847
|
|
|
442
|
Amortization of intangible assets
|
|
|
994
|
|
|
994
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,851)
|
|
|
1,754
|
Prepaid expenses
|
|
|
9,671
|
|
|
5,594
|
Accounts payable
|
|
|
5,830
|
|
|
(4,084)
|
Accrued expenses payable
|
|
|
32,086
|
|
|
(2,331)
|
Net cash used in operating activities
|
|
|
(67,033)
|
|
|
(31,257)
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
Cash received from acquisition of
|
|
|
|
|
|
|
Prosperity Systems, Inc.
|
|
|
-
|
|
|
563
|
Intangible assets additions
|
|
|
-
|
|
|
67
|
Investment in Stock Market Manager, Inc.
|
|
|
-
|
|
|
(3,500)
|
Net cash used in investing activities
|
|
|
-
|
|
|
(2,870)
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
Proceeds received from notes and loans payable
|
|
|
51,500
|
|
|
-
|
Net cash provided by financing activities
|
|
|
51,500
|
|
|
-
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(15,533)
|
|
|
(34,127)
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
18,373
|
|
|
100,475
|
Cash and cash equivalents, end of period
|
|
$
|
2,840
|
|
$
|
66,348
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
-
|
|
$
|
-
|
Interest paid
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Issuance of common stock in satisfaction of debt
|
|
$
|
-
|
|
$
|
47,270
|
Issuance of common stock for acquisition
|
|
|
|
|
|
|
of Prosperity Systems, Inc. (less $563 cash received)
|
|
$
|
-
|
|
$
|
1,998,911
|
Issuance of common stock in satisfaction
|
|
|
|
|
|
|
of accrued interest
|
|
$
|
-
|
|
$
|
4,375
|
Issuance of common stock in satisfaction
|
|
|
|
|
|
|
of accounts payable
|
|
$
|
21,557
|
|
$
|
-
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
55
WRAPmail, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Three Months EndedMarch 31, 2016 and 2015
(Unaudited)
NOTE 1 Organization and Description of Business
WRAPmail, Inc. (WRAP) was incorporated in Florida on October 11, 2005. Effective January 5, 2015 (see Note 4), we acquired 100% ownership of Prosperity Systems, Inc. (Prosperity), a New York corporation incorporated on April 2, 2008. WRAP and its wholly owned subsidiary Prosperity (collectively, the Company) provide document, project, marketing and sales management systems to business clients through its website and proprietary software.
NOTE 2 Going Concern Uncertainty
The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in a normal course of business. As of March 31, 2016, the Company had cash and cash equivalents of $2,840 and negative working capital of $115,708. For the three months ended March 31, 2016 and 2015, the Company had net losses of $144,610 and $2,443,960, respectively. These factors raise substantial doubt as to the Companys ability to continue as a going concern. The Company plans to improve its financial condition by raising capital through sales of shares of its common stock. Also, the Company plans to pursue new customers to attain profitable operations. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they may not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation. Operating results for the three-month period ended March 31, 2016 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2016.
NOTE 4 Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of WRAP and its wholly owned subsidiary Prosperity from the date of its acquisition on January 5, 2015. All intercompany balances and transactions have been eliminated in consolidation.
(b) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
56
(c) Fair Value of Financial Instruments
The Companys financial instruments consist of cash and cash equivalents, accounts receivable, note receivable, notes and loans payable, accounts payable, and accrued expenses payable. Except for the note receivable, the fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to the short term maturity of these instruments. Based on comparable instruments with similar terms, the fair value of the note receivable approximates its carrying value.
(d) Cash and Cash Equivalents
The Company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents.
(e) Property and Equipment, Net
Property and equipment, net, is stated at cost less accumulated depreciation. Depreciation is calculated using the straight line method over the estimated useful lives of the respective assets. Maintenance and repairs are charged to operations as incurred.
(f) Intangible Assets, Net
Intangible assets, net, are stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over the estimated economic lives of the respective assets.
(g) Goodwill and Intangible Assets with Indefinite Lives
The Company does not amortize goodwill and intangible assets with indefinite useful lives, but instead tests for impairment at least annually. When conducting the annual impairment test for goodwill, the Company compares the estimated fair value of a reporting unit containing goodwill to its carrying value. If the estimated fair value of the reporting unit is determined to be less than its carrying value, goodwill is reduced and an impairment loss is recorded.
(h) Long-lived Assets
The Company reviews long-lived assets held and used, intangible assets with finite useful lives and assets held for sale for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cash flows associated with the asset is compared to the assets carrying amount to determine if a write-down is required. If the undiscounted cash flows are less than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds the fair value.
(i) Revenue Recognition
The Company recognizes revenue over agreed periods of services delivered to customers, provided there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectability is deemed probable.
(j) Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (ASC) Topic 718, Compensation Stock Compensation (ASC718).
57
In addition to requiring supplemental disclosures, ASC 718 addresses the accounting for share-based payment transactions in which a company receives goods or services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.
(k) Advertising
Advertising costs are expensed as incurred and amounted to $4,750 and $14,970 for the three months ended March 31, 2016 and 2015, respectively.
(l) Research and Development
Research and development costs are expensed as incurred.
(m) Income Taxes
Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.
The Company has adopted the provisions required by the Income Taxes topic of the FASB Accounting Standards Codification. The Codification Topic requires the recognition of potential liabilities as a result of managements acceptance of potentially uncertain positions for income tax treatment on a more-likely-than-not probability of an assessment upon examination by a respective taxing authority. The Company believes that it has not taken any uncertain tax positions and thus has not recorded any liability.
(n) Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation. For the periods presented, the diluted net loss per share calculation excluded the effect of Series A preferred stock and stock options outstanding (see Note 10 and Note 12).
(o) Recent Accounting Pronouncements
Certain accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and therefore have not yet been adopted by the Company. The impact on the Companys financial position and results of operations from adoption of these standards is not expected to be material.
58
NOTE 5 Acquisition of Prosperity Systems, Inc.
Effective January 5, 2015, WRAP acquired 100% ownership of Prosperity Systems, Inc. (Prosperity) in exchange for 36,354,077 newly issued shares of WRAP common stock (see Note 11). The acquisition has been accounted for in the accompanying consolidated financial statements as a purchase transaction. Accordingly, the financial position and results of operations of Prosperity prior to the date of the acquisition have been excluded from the accompanying consolidated financial statements.
The estimated fair values of the identifiable net assets of Prosperity at January 5, 2015 (effective date of acquisition) consisted of:
|
|
Cash and cash equivalents
|
$
563
|
Accounts receivable
|
15,436
|
Prepaid expenses
|
5,594
|
Property and equipment, net
|
1,026
|
Intangible assets, net
|
29,947
|
Deferred consulting fees
|
35,838
|
Total assets
|
$
88,404
|
Note and loan payable to related party
|
37,270
|
Convertible notes payable
|
30,000
|
Accounts payable
|
10,462
|
Accrued interest payable
|
5,839
|
Total liabilities
|
83,571
|
Identifiable net assets
|
$
4,833
|
Goodwill of $1,994,641 (excess of the $1,999,474 fair value of the 36,354,077 shares of WRAP common stock issued to Prosperity's stockholders over the $4,833 identifiable net assets of Prosperity at January 5, 2015) was considered fully impaired at the acquisition date and an impairment expense of $1,994,641 was recorded in the three months ended March 31, 2015.
The following pro forma information summarizes the results of operations for the three months ended March 31, 2015as if the acquisition occurred at December 31, 2014. The pro forma information is not necessarily indicative of the results that would have been reported had the transaction actually occurred on December 31, 2014, nor is it intended to project results of operations for any future period.
|
|
|
Three Months Ended
|
|
March 31, 2016
|
Revenues
|
39,516
|
Operating expense
|
488,234
|
Loss from Operations
|
(448,718)
|
Other income (loss) - net
|
(61)
|
Net loss
|
(449,319)
|
Net loss per common share - basic and diluted
|
(0.00)
|
Weighted average common shares outstanding - basic and diluted
|
217,150,818
|
59
NOTE 6 Note Receivable
The $39,000 note receivable at March 31, 2016 and December 31, 2015 bears interest at a rate of 3% per annum and is due November 30, 2020. The receivable arose from the Companys sale of its 50% interest in Stock Market Manager, Inc. to Endeavour Cooperative Partners, LLC (Endeavour) on November 30, 2015. Endeavour is affiliated with Carl Dilley, a Company director.
NOTE 7 Intangible Assets, Net
Intangible assets, net, consist of:
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2016
|
|
2015
|
Videos conferencing software acquired by Prosperity in December 2009
|
$
30,000
|
|
$
30,000
|
Enterprise and audit software acquired by Prosperity in April 2008
|
20,000
|
|
20,000
|
Patent costs incurred by WRAP
|
6,880
|
|
6,880
|
Other
|
3,548
|
|
3,548
|
Total
|
60,428
|
|
60,428
|
Accumulated amortization
|
(31,967)
|
|
(27,993)
|
Net
|
$
28,461
|
|
$
32,435
|
Expected future amortization expense for intangible assets as of March 31, 2016follows:
|
|
|
Amount
|
2016
|
$
2,981
|
2017
|
3,975
|
2018
|
3,975
|
2019
|
3,975
|
Thereafter
|
13,555
|
Total
|
$
28,461
|
60
NOTE 8 Notes and Loans Payable