NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – NATURE OF BUSINESS
The accompanying unaudited consolidated financial
statements of InCapta, Inc. (formerly known as TBC Global News Network, Inc.), a Nevada corporation (“Company”), have
been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information
furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of
management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures
normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in
the Company’s Annual Report on Form 10-K filed with the SEC. The results for the six months ended June 30, 2016, are not
necessarily indicative of the results to be expected for the year ending December 31, 2016.
All common stock share numbers reflect a 1,000
to 1 reverse split of the Company’s common stock effective on September 6, 2007, a 10,000 to 1 reverse split of the Company’s
common stock effective on April 9, 2009, and a 3,000 to 1 reverse split of the Company’s common stock effective on April
27, 2015.
In November 2008, the Company halted its previous
operations of providing online movie rentals (also referred to as a “DVD”) and video game rentals to subscribers through
its Internet website, gameznflix.com.
On May 7, 2009, the Company filed a Certificate
of Amendment to Articles of Incorporation with the Nevada Secretary of State. This amendment changed the name of the Company to
TBC Global News Network, Inc. This corporate action had previously been approved by consent of a majority of the outstanding shares
of common stock of the Company. As of July 30, 2009, the new trading symbol for the Company is “TGLN.”
During the first quarter of 2010, the Company
ceased its prior operations of producing video news, business profiles, and television advertisements.
On March 19, 2010, the Company entered into
a Purchase and Sale Agreement with Sterling Yacht Sales, Inc., and it stockholders, Glenn W. McMachen, Sr., and Arlene McMachen.
However, since the buyers breached this agreement the transaction was rescinded, and therefore no consolidation is required.
From August 2010 until August 2014, the Company
did not operate. Upon assuming the positions as a director and officer of the Company in August 2014, Mr. Fleming commenced operations
of the Company as a consultant and also seeking opportunities for the Company.
On August 15, 2014, Mr. McMachen, the Company’s
sole board member, and chief executive officer, president, and secretary/treasurer of the Company, appointed John Fleming as a
new member of the Company’s board of directors. Mr. McMachen then resigned from all positions with the Company. Mr. Fleming
was then appointed as the Company’s executive officer, president, and secretary/treasurer. Mr. Fleming will serve in these
positions until the next annual meeting of stockholders or until their successors are duly elected and have qualified.
On April 27, 2015, the Company completed a
3,000 to 1 reverse split of its issued and outstanding shares of common stock, taking the balance from 3,013,552,063 to 1,004,517.
As of June 30, 2015, the number of issued and outstanding shares of common stock was 1,012,029 (includes shares issued for purposes
of rounding).
On September 3, 2015, the Company completed
an acquisition agreement (“Acquisition Agreement”) under which the Company acquired all of the equity interests of
Stimulating Software, LLC, a Florida limited liability company, the acquisition of all the common stock of Inner Four, Inc., a
Florida corporation, and all of the common and preferred stock of Play Celebrity Games, Inc., a Delaware corporation.
Effective on October 21, 2015, the Company
filed a Certificate of Amendment with the Nevada Secretary of State to change its name from “TBC Global News Network, Inc.”
to “InCapta, Inc.”
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies
of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes
are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial
statements.
Use of Estimates.
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ significantly from those estimates.
Revenue Recognition.
The Company recognizes revenue using four sources:
Media consulting, to online television clients, monthly fees for online cloud television networks, website store revenue sharing
and revenue sharing of membership fees with clients.
Cash and Cash Equivalents.
The Company maintains cash balances in non-interest-bearing
accounts that currently do not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid
investments with an original maturity of six months or less are considered to be cash equivalents. As of June 30, 2016 and December
31, 2015, there were no cash equivalents except cash of $781 and $1,790, respectively.
Prepaid Expenses.
Prepaid expenses consist primarily of common
stock issued to consultants for services that will be performed over the terms of the consulting agreements not to exceed 12 months.
The value of the common stock issued for services was based on the market price of the Company’s common stock at the date
of issuance. The common stock issued to consultants is fully vested at the date of issuance. Prepaid expenses at June 30, 2016
and December 31, 2015 was $8,400 and $1,384,137, respectively, and will be amortized to expense over the terms of the consulting
agreements.
Income Taxes.
The Company accounts for income taxes in accordance
with Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” ASC 740 requires a company to
use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not
be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit
is recorded. The adoption had no effect on the Company’s consolidated financial statements.
Impairment of Long-Lived Assets.
In accordance with ASC Topic 360, “Accounting
for the Impairment or Disposal of Long-Lived Assets,” long-lived assets such as property and equipment and intangible assets
subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset group may not be recoverable. Recoverability of assets groups to be held and used is measured by a comparison of the
carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the
carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of an asset group exceeds fair value of the asset group. At December 31, 2015, the Company evaluated
its long-lived assets and determined that they had been impaired and took a charge to earnings of $4,478,142.
Net Loss Per Share.
Basic net loss per share is computed by dividing
net loss by the weighted-average number of outstanding shares of common stock during the period. Diluted net loss per share is
computed by dividing the weighted-average number of outstanding shares of common stock, including any potential common shares outstanding
during the period, when the potential shares are dilutive. Potential common shares consist primarily of incremental shares issuable
upon the assumed exercise of stock options and warrants to purchase common stock using the treasury stock method. The calculation
of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their
effect is anti-dilutive, as they were during 2016 and 2015. During the six months ended June 30, 2016 and 2015, the number of potential
common shares excluded from diluted weighted-average number of outstanding shares was 0 and 0, respectively.
Stock-Based Compensation.
Options granted to consultants, independent
representatives and other non-employees are accounted for using the fair value method as prescribed by ASC Topic 718, “Share-Based
Payment.”
Derivative Financial Instruments.
The Company evaluates all of its agreements
to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based
derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option-pricing model to value the derivative
instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument
liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative
instrument could be required within 12 months of the balance sheet date. As of June 30, 2016 and December 31, 2015, the Company’s
only derivative financial instrument were embedded conversion feature associated with convertible debentures due to certain provisions
that allow for a change in the conversion price and a warrant that to contains certain provisions that allow for a change in the
exercise price if securities are issued at a price per share below the exercise price.
Recent Pronouncements.
In January 2015, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-01 (Subtopic 225-20), “Income
Statement - Extraordinary and Unusual Items.” ASU 2015-01 eliminates the concept of an extraordinary item from GAAP. As a
result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately
present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income
taxes and earnings-per-share data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation
and disclosure guidance for items that are unusual in nature and occur infrequently. ASU 2015-01 is effective for periods beginning
after December 15, 2015. The adoption of ASU 2015-01 is not expected to have a material effect on the Company’s consolidated
financial statements. Early adoption is permitted.
In February, 2015, the FASB issued ASU No.
2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” ASU 2015-02 provides guidance on the
consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal
entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations,
collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after
December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s consolidated financial
statements. Early adoption is permitted.
In September 2015, the FASB issued ASU No.
2015-16, “Business Combinations (Topic 805)”. Topic 805 requires that an acquirer retrospectively adjust provisional
amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to
provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are
identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is
required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization,
or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been
completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement
or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item
that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as
of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is
not expected to have a material effect on the Company’s consolidated financial statements.
In November 2015, the FASB issued ASU
No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” The new guidance requires that all deferred tax assets
and liabilities, along with any related valuation allowance, be classified as non-current on the balance sheet. This update is
effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does
not anticipate the adoption of this ASU will have a significant impact on its consolidated financial position, results of operations,
or cash flows.
In February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842).” The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840,
Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and
operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have
on its consolidated financial statements.
NOTE 3 – CONVERTIBLE NOTES PAYABLE,
INCLUDING RELATED PARTY
Convertible notes payable at June 30, 2016
and December 31, 2015 consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Convertible notes to stockholder due on various dates through August 24, 2016; interest at 4%; convertible in shares of common stock at 90% of the Company’s stock price at date of conversion. ($52,412 in default at June 30, 2016)
|
|
$
|
64,589
|
|
|
$
|
51,212
|
|
|
|
|
|
|
|
|
|
|
Convertible note to investor due on February 11, 2017; interest at 10%; included an original issue discount of $6,000; convertible in shares of common stock at 60% of the Company’s stock price at date of conversion.
|
|
|
60,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Convertible note to investor due on February 24, 2018; interest free for 90 days then at 12% thereafter; included an original issue discount of $2,778; convertible in shares of common stock at 50% of the Company’s stock price at date of conversion.
|
|
|
27,778
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Settlement agreement dated May 31, 2016; convertible in shares of common stock at 50% of the Company's stock price at date of conversion.
|
|
|
30,721
|
|
|
|
—
|
|
|
|
|
152,367
|
|
|
|
51,212
|
|
|
|
|
|
|
|
|
|
|
Less debt discount
|
|
|
(63,089
|
)
|
|
|
(19,887
|
)
|
|
|
|
|
|
|
|
|
|
Convertible notes, net of discount
|
|
$
|
89,278
|
|
|
$
|
31,325
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Convertible notes payable - related party
|
|
$
|
64,589
|
|
|
$
|
51,212
|
|
|
|
|
|
|
|
|
|
|
Less debt discount
|
|
|
(3,088
|
)
|
|
|
(19,887
|
)
|
|
|
|
|
|
|
|
|
|
Convertible notes - related party, net of discount
|
|
$
|
61,501
|
|
|
$
|
31,325
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable - unrelated parties
|
|
$
|
118,499
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Less debt discount
|
|
|
(60,001
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Convertible notes - unrelated parties, net of discount
|
|
$
|
58,498
|
|
|
$
|
—
|
|
During the six months ended June 30, 2016,
the Company issued convertible notes and settlements in the aggregate principal amount of $152,016. Due to the variable conversion
price associated with these convertible notes, the Company has determined that the conversion feature is considered derivative
liabilities. The embedded conversion feature was initially calculated to be $225,806, which is recorded as a derivative liability
as of the date of issuance. In addition, for one the convertible notes the Company also issued 500,000 warrants with an exercise
price of $0.05 subject to change if securities are issued at a price per share below the exercise price. This provision results
in the warrant being a derivative liability. The derivative liability was first recorded as a debt discount up to the face amount
of the convertible notes of $152,016, with the remainder being charge as a financing cost during the period. The debt discount
is being amortized over the terms of the convertible notes. The Company recognized interest expense of $108,814 during the six
months ended June 30, 2016 related to the amortization of the debt discount.
NOTE 4 – SHORT TERM NOTE
On March 17, 2015, the Company entered into
a promissory note with Peter Lambert for a loan of $25,000 that became due on June 15, 2015. The loan carries an interest at the
rate of $55 per day. On June 12, 2015, the parties amended this promissory note so that the loan was extended and will accrue interest
at $55 per day until this note is paid in full. As of June 30, 2016 and December 31, 2015, there was $26,064 and $16,136 interest
accrued on the loan respectively.
NOTE 5 – DERIVATIVE LIABILITY
The convertible notes discussed in Note 3 have
a conversion price that is variable based on a percentage of the Company’s stock price which results in this embedded conversion
feature being recorded as a derivative liability.
The fair value of the derivative liability
is recorded and shown separately under current liabilities. Changes in the fair value of the derivative liability is recorded in
the statement of operations under other income (expense).
The Company uses a weighted average Black-Scholes-Merton
option-pricing model with the following assumptions to measure the fair value of derivative liability at June 30, 2016:
Stock price
|
|
$
|
0.0003
|
|
|
|
|
|
|
Risk free rate
|
|
|
0.36-0.58
|
%
|
|
|
|
|
|
Volatility
|
|
|
703
|
%
|
|
|
|
|
|
Conversion price
|
|
$
|
0.007–0.012
|
|
|
|
|
|
|
Dividend rate
|
|
|
0
|
%
|
Term (years)
|
|
|
0.00015 to 0.00027
|
|
The following table represents the Company’s
derivative liability activity for the period ended June 30, 2016:
Derivative liability balance, December 31, 2015
|
|
$
|
50,276
|
|
|
|
|
|
|
Issuance of derivative liability during the period ended June 30, 2016
|
|
|
252,705
|
|
|
|
|
|
|
Change in derivative liability during the period ended June 30, 2016
|
|
|
(97,697
|
)
|
|
|
|
|
|
Derivative liability balance, June 30, 2016
|
|
$
|
205,284
|
|
NOTE 6 – RELATED PARTY TRANSACTIONS
Starting January, 1 2015 Mr. Fleming is accruing
a consulting fee of $1,500 a month until the Company puts a formal contract in place. As of September 30, 2015, there is a balance
of $6,305 in accounts payable. There is no written agreement for this consulting fee.
On March 31, 2015, Mr. Fleming transferred
$5,743 of various office equipment and supplies to the Company. The Company is carrying the balance due to Mr. Fleming
under short-term liabilities and will reimburse Mr. Fleming during the current fiscal year. Mr. Fleming has a balance of $8,441
owed to him under “due to officers” for the transfer of assets, consulting fees and various out of pocket expenses.
On September 3, 2015 as part of the acquisition
agreement Mr. Fleming received 400 Series A Preferred and 3,307,420 for consulting fees.
On September 3, 2015
the Company issued 25,417,405 restricted shares of common stock for the acquisition of all of the equity interests of Stimulating
Software, LLC, a Florida limited liability company, the acquisition of all the common stock of Inner Four, Inc., a Florida corporation,
and all of the common and preferred stock of Play Celebrity Games, Inc., a Delaware corporation. 15,897,405 of these shares were
issued in the name of Chasin, LLC, a Delaware limited liability company (4,300,000 shares), Team AJ, LLC, a North Carolina limited
liability company (4,300,000 shares), AF Trust Company, a Florida corporation (4,100,000 shares), and Kaptiva Group, LLC, a Florida
limited liability company (3,197,405 shares). John Acunto controls the voting power and investment power of the shares owned by
each of these companies.
On November 16, 2015 the Company issued 700,000
restricted shares of common stock to Mr. Acunto in payment of certain debts of the Company.
On December 14, 2015 the Company issued 20,011,920
restricted shares of common stock in connection with the September 3, 2015 acquisition agreement to Team AJ, LLC (12,836,834) and
AF Trust Company (7,175,096).
On February 5, 2016, the Company issued 22,493,310
restricted shares of common stock in connection with the September 3, 2015 acquisition agreement to Team AJ, LLC.
As various times between August 5, 2015 and
June 30, 2016, 2015, Mr. Acunto loaned the Company a total of $64,589 (which is set forth in convertible note payable). These notes
bear interest at the rate of 4% per annum; $1,551 in interest has been accrued on these notes as of June 30, 2016.
NOTE 7 – GOING CONCERN
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the financial statements,
the Company has no established source of revenue. This raises substantial doubt about the Company's ability to continue as a going
concern. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. The financial
statements do not include any adjustments that might result from this uncertainty.
The Company’s activities to date have
been supported by equity financing. It has sustained losses in all previous reporting periods with an inception to date loss of
$117,171,102 as of June 30, 2016. Management continues to seek funding from its shareholders and other qualified investors to pursue
its business plan. In the alternative, the Company may be amenable to a sale, merger or other acquisition in the event such transaction
is deemed by management to be in the best interests of the shareholders.
NOTE 8 – COMMON STOCK
On April 27, 2015, the Company completed a
3,000 to 1 reverse split of its issued and outstanding shares of common stock, taking the balance from 3,013,552,063 to 1,004,517
During the six months ended June 30, 2016 the
Company issued shared of its common stock as follows:
|
·
|
19,013,332 shares of common stock to consultants as compensation for services valued at $3,975,653.
The value was based on the market price of the Company’s common stock at the date of issuance;
|
|
·
|
22,843,310 shares of common stock under the September 3, 2015 acquisition agreement valued at $2,280,331.
The value was based on the market price of the Company’s common stock at the date of issuance;
|
|
·
|
71,900,000 shares of common stock for the conversion of $20,140 in debt;
|
|
·
|
5,000,000 shares of common stock for financing costs valued at $10,500. The value was based on
the market price of the Company’s common stock at the date of issuance; and
|
|
·
|
4,727,272 shares of common stock for the conversion of 52 shares of preferred stock.
|
NOTE 9 – WARRANTS
As of June 30, 2016 the Company had 500,000
warrants outstanding. See Note 3.
NOTE 10 – SUBSEQUENT EVENTS
On August 8, 2016, the Company effectuated
a 19,000 to 1 reverse split of its common stock. Immediately after the reverse, the Company had 10,308 shares of common stock issued
and outstanding. For 20 business days from this date, the trading symbol of the Company will be “INCTD”.
On August 9, 2016, the Company issued 100,000,000
restricted shares of common stock, valued at $100,000 ($0.001 per share) to John Fleming, the Company’s President, for services
rendered and to be rendered to the Company.