See the accompanying notes to the condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 1 – ORGANIZATION AND OPERATIONS
Peerlogix, Inc. (“Peerlogix”
or the “Company”) was incorporated in Nevada on February 14, 2014. The Company is an advertising technology and data
aggregation company. The Company provides software as a service (SAAS) platform, which enables the tracking and cataloguing of
over-the-top viewership and listenership in order to determine consumer trends and preferences based upon media consumption. Its
platform collects over-the-top data, including Internet Protocol (IP) addresses of the streaming and downloading parties (location),
the name, media type and genre of media watched, listened or downloaded, and utilizes licensed and publicly available demographic
and other databases to further filter the collected data to provide insights into consumer preferences to digital advertising firms,
product and media companies, entertainment studios and others.
Basis of Presentation - Unaudited
Interim Financial Information
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures
required by U.S. GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting
only of normal recurring items) which are considered necessary for a fair presentation of the condensed consolidated financial
position of the Company as of March 31, 2018, the results of operations for the three months ended March 31, 2018 and 2017, and
the statement of cash flows for the three months ended March 31, 2018 and 2017. The results of operations for the three months
ended March 31, 2018 are not necessarily indicative of the operating results for the full year ending December 31, 2018 or any
other period.
These condensed consolidated financial
statements should be read in conjunction with the consolidated financial statements and related disclosures of the Company as of
December 31, 2017 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”)
on Form 10-K on April 30, 2018.
NOTE 2 – GOING CONCERN AND MANGAGEMENT’S
LIQUIDITY PLANS
The Company has generated minimal revenues
since inception and continues to incur recurring losses from operations and has an accumulated deficit. Accordingly, the accompanying
condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The
Company has incurred a net loss of approximately $1,066,000 and net cash used in operations of approximately $128,000 for the three
months ended March 31, 2018. In addition, the Company has notes payable in default (see Note 6). These conditions indicate that
there is substantial doubt about the Company's ability to continue as a going concern within one year from the issuance date of
the condensed consolidated financial statements.
The Company's primary source of operating
funds since inception has been cash proceeds from the sale of Class A units, common stock and common stock warrants, convertible
debentures and notes payable. The ability of the Company to continue as a going concern is dependent upon its ability to further
implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private
offering.
The Company requires immediate capital
to remain viable. The Company can give no assurance that such financing will be available on terms advantageous to the Company,
or at all. Should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would
need to curtail certain or all of its operational activities. There can be no assurance that such a plan will be successful. The
accompanying condensed consolidated financial statements do not include any adjustments that might be necessary should the Company
be unable to continue as a going concern.
PEERLOGIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2018
(Unaudited)
Accordingly, the accompanying condensed
consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company
as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying
amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable
or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the
outcome of this uncertainty.
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The accompanying condensed consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries, Peerlogix Technologies, Inc. and IP
Squared Technologies Holdings, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain items in the prior year financial
statements have been reclassified to conform to the current year presentation. These reclassifications did not have an impact on
previously reported results of operations.
Use of Estimates
The preparation of condensed consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the period. Actual results could differ from these estimates. The Company’s significant
estimates and assumptions include the fair value of the Company’s equity instruments, convertible debt, derivative liabilities,
stock-based compensation, and the valuation allowance relating to the Company’s deferred tax assets.
Convertible Instruments
The Company bifurcates conversion options
from their host instruments and account for them as free standing derivative financial instruments according to certain criteria.
The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument
are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception
to this rule when the host instrument is deemed to be conventional as that term is described under applicable U.S. GAAP.
When the Company has determined that the
embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts
to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between
the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price
embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date
of redemption.
PEERLOGIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2018
(Unaudited)
Accounting for Warrants
The Company classifies as equity any contracts
that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement
in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts
that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event
is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical
settlement or net-share settlement).
Net Loss Per Share
Basic loss per share was computed using
the weighted average number of outstanding common shares. Diluted earnings per share, when presented, includes the effect of dilutive
common stock equivalents from the assumed exercise of options, warrants, convertible preferred stock and convertible notes. Common
stock equivalents are excluded in the computation of diluted earnings per share since their inclusion would be anti-dilutive.
Total shares issuable upon the exercise
of warrants, exercise of stock options and conversion of convertible promissory notes for the three months ended March 31, 2018
and 2017 were as follows:
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Warrants
|
|
|
38,062,869
|
|
|
|
11,206,681
|
|
Stock options
|
|
|
24,550,000
|
|
|
|
19,300,000
|
|
Convertible promissory notes and accrued interest
|
|
|
41,656,279
|
|
|
|
17,302,005
|
|
Total
|
|
|
104,269,148
|
|
|
|
47,808,686
|
|
For the three months ended March 31, 2018,
4,269,941 warrants were included in basic and diluted loss per share as their exercise price was determined to be nominal.
Derivative Liabilities
In connection with the issuance of certain
convertible promissory notes, the terms of the convertible notes included an embedded conversion feature which provided for the
settlement of certain convertible promissory notes into shares of common stock at a rate which was determined to be variable with
no floor. The Company determined that the conversion feature was an embedded derivative instrument pursuant to ASC 815 “Derivatives
and Hedging”
The accounting treatment of derivative
financial instruments requires that the Company record the conversion option, if applicable, at their fair values as of the inception
date of the agreements and at fair value as of each subsequent balance sheet date. Any change in fair value was recorded as a change
in the fair value of derivative liabilities for each reporting period at each balance sheet date. The Company reassesses the classification
at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified
as of the date of the event that caused the reclassification.
The fair values of conversion options that
are convertible at a variable conversion price are valued using a Black-Scholes Valuation Model. The Company determined the fair
value of the conversion option using either the Black-Scholes Valuation Model or the Binomial Lattice Model to be materially the
same.
The Black-Scholes Valuation Model includes
subjective input assumptions that can materially affect the fair value estimates. The model was developed for use in estimating
the fair value of traded options or warrants. The expected volatility is estimated based on the most recent historical period of
time equal to the weighted average life of the instrument granted.
PEERLOGIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2018
(Unaudited)
The principal assumptions used in applying the Black-Scholes
model were as follows:
|
Three Months Ended
|
|
March 31, 2018
|
Risk-free interest rate
|
1.63% – 1.93%
|
Contractual term
|
0.02 - 4.00 years
|
Expected volatility
|
265.65%
|
Dividends
|
0.0%
|
At any given time, certain of the Company’s
embedded conversion features on debt and outstanding warrants may be treated as derivative liabilities for accounting purposes
under ASC 815-40 due to insufficient authorized shares to settle these outstanding contracts. Pursuant to SEC staff guidance that
permits a sequencing approach based on the use of ASC 840-15-25 which provides guidance for contracts that permit partial net share
settlement. The sequencing approach may be applied in one of two ways: contracts may be evaluated based on (1) earliest issuance
date or (2) latest maturity date. Pursuant to the sequencing approach, the Company evaluates its contracts based upon the latest
maturity date.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts
payable, and accrued liabilities approximate fair value due to the short-term nature of these instruments.
The Company measures the fair value of
financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” which defines
fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines
fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
ASC 820 describes three levels of inputs
that may be used to measure fair value:
Level 1
|
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
Level 2
|
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
|
|
|
|
Level 3
|
|
Pricing inputs that are generally unobservable inputs and not corroborated by market data.
|
Level 3 liabilities are valued using unobservable
inputs to the valuation methodology that are significant to the measurement of the fair value of the warrant liabilities. For fair
value measurements categorized within Level 3 of the fair value hierarchy, the Company’s Principal Financial Officer determines
its valuation policies and procedures.
The development and determination of the
unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s
Principal Financial Officer.
Changes in fair value measurements categorized
within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as
appropriate.
PEERLOGIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2018
(Unaudited)
Financial assets and
liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheets as follows:
March 31, 2018
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
Carrying
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivative conversion features
|
|
$
|
1,452,577
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,452,577
|
|
|
$
|
1,452,577
|
|
The table below provides a summary of the
changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on
a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2018:
|
|
Fair Value
Measurement Using
Level 3 Inputs
|
|
|
|
Total
|
|
|
|
|
|
Balance, December 31, 2017
|
|
$
|
935,274
|
|
Issuances
|
|
|
145,949
|
|
Reclassify to equity upon note payoff
|
|
|
(14,180
|
)
|
Change in fair value
|
|
|
385,534
|
|
Balance, March 31, 2018
|
|
$
|
1,452,577
|
|
Changes in the unobservable
input values could potentially cause material changes in the fair value of the Company’s Level 3 financial instruments. The
significant unobservable inputs used in the fair value measurements are the expected volatility assumption. A significant increase
(decrease) in the expected volatility assumption could potentially result in a higher (lower) fair value measurement.
Recently Issued Accounting Guidance
In May 2014,
the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09
“Revenue from Contracts with Customers” to supersede previous revenue recognition guidance under current U.S. GAAP.
The guidance presents a single five-step model for comprehensive revenue recognition that requires an entity to recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. Two options are available for implementation of the standard which
is either the retrospective approach or cumulative effect adjustment approach. The guidance becomes effective for annual reporting
periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted.
The adoption of ASU 2016-09 is not expected to have a material impact on the Company’s condensed consolidated financial
position, results of operations or cash flows.
In July 2017, the FASB issued ASU No. 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments
in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features)
with down round features. When determining whether certain financial instruments should be classified as liabilities or equity
instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to
an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.
PEERLOGIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2018
(Unaudited)
As a result, a freestanding equity-linked
financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value because
of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities
that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is
triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.
Convertible instruments with embedded conversion
options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features
(in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments
in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending
content in the Codification, to a scope exception.
Those amendments do not have an accounting
effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption
in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of
the beginning of the fiscal year that includes that interim period. The adoption of ASU 2017-11 did not materially impact the Company’s
condensed consolidated financial position, results of operations or cash flows.
There were no other new accounting pronouncements
that were issued or became effective since the issuance of the Company’s 2017 Annual Report on Form 10-K that had, or are
expected to have, a material impact on its condensed consolidated financial position, results of operations or cash flows.
Subsequent Events
The Company evaluates events that have
occurred after the balance sheet date but before the condensed consolidated financial statements are issued. Based upon the evaluation,
the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure
in the condensed consolidated financial statements, except as disclosed.
NOTE 4 – SETTLEMENT PAYABLE
On April 8, 2016 (the “Initial Closing
Date”), the Company entered into a Securities Purchase Agreement (the “SPA”) with Attia Investments, LLC, a related
party (the “Investor”). A shareholder of the Company who previously owned in-excess of 5% of the Company’s common
stock is the managing member of Attia Investments, LLC. Under the Agreement, we issued and sold to the Investor, and the Investor
purchased from us, Debentures in the principal amount of $87,500 for a purchase price of $70,000 (together the “Debentures”),
bearing interest at a rate of 0% per annum, with an original maturity on October 8, 2016, further extended to April 8, 2017. The
Debentures are secured by all assets of the Company. The Company was in default of the SPA, making the entire unpaid principal
and interest due and payable. The investor has initiated a claim against the Company for payment of a loan in default. Subsequent
to March 31, 2018, the Company accepted a settlement totaling approximately $90,000 cash and 800,000 shares of stock. As such,
the Company has reclassified the note payable-related party to settlement payable and accrued the estimated fair value of the settlement
of $139,500. In connection with the settlement, the Company recorded a loss on settlement of debt of $90,978 in current period
operations.
PEERLOGIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 5 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable are comprised
of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Offering 3
|
|
$
|
825,500
|
|
|
$
|
825,500
|
|
Offering 4
|
|
|
439,550
|
|
|
|
439,550
|
|
Offering 5
|
|
|
200,000
|
|
|
|
200,000
|
|
Offering 6
|
|
|
425,900
|
|
|
|
245,000
|
|
Total
|
|
|
1,890,950
|
|
|
|
1,710,500
|
|
Less: debt discount
|
|
|
245,561
|
|
|
|
277,969
|
|
Net
|
|
$
|
1,645,389
|
|
|
$
|
1,432,081
|
|
Offering 6:
During the three months ended March 31,
2018, the Company sold $210,900 of Units to investors. Each Unit was sold at a price of $10,000 per Unit and consisted of one (1)
six (6) month, 18% convertible promissory note (36% on an annual basis) with a face value of $10,000 and four year warrants exercisable
for an aggregate number of shares of common stock equal to 50% of the shares of common stock into which the Note is initially convertible,
exercisable at a price of $0.10 per share. The Offerings Notes are due six months after the issuance of each note, as amended.
Each of the Notes will be convertible at
an initial price equal to $0.06 per share. In addition, during the two month period commencing on each issuance of the Offering
3 Notes, as amended, the Notes will contain a look-back provision pursuant to which the Notes will be convertible at the lower
of $0.06 or the lowest volume weighted average price of the Company’s common stock (the “VWAP”) during any 10
day period during such two (2) month period, provided however, in the event that the VWAP during any such ten (10) day period is
less than $0.06, then the reset conversion price of the Notes shall be no lower than $0.03. The Notes also contain a reset provision
to the same price as any future offering in the next three (3) years in the event that the conversion or offering price of securities
offered in such subsequent offering is less than the Conversion Price of the Notes in this Offering.
The Company will have the ability to extend
the Notes for an additional six (6) months (the “Extended Term”) and if so extended shall be referred to herein as
the “Extended Notes”. The Extended Notes, upon maturity, will pay interest at a six (6) month rate of 18% (36% annualized)
at the termination of the Extended Term. The Extended Notes, to the extent extended pursuant to their terms for the Extended Term,
will carry an additional 50% warrant coverage (e.g. such warrant to be exercisable for an additional 50% of the number of shares
into which the Extended Note is initially convertible (the “Extended Warrants”). The Extended Warrants shall be exercisable
at a price equal to $0.10. The Extended Warrants will expire four (4) years from the Extended Term and shall contain customary
anti-dilution rights (for stock splits, stock dividends and sales of substantially all the Company’s assets) and the shares
underlying the Extended Warrants will contain registration rights.
The Company has applied ASC 815, due to
the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair value using a
Black Scholes model at the assessment date and the period end. The conversion feature, when assessed, gave rise to a derivative
liability of $145,949. The Company recorded an aggregate debt discount to the Notes of $210,900 comprised of i) $145,949 relating
to the fair value of the conversion option, which was recorded as a derivative liability ii) $35,128 of incurred issuance costs
and iii) $29,823 allocated fair value of the issued warrants. The debt discounts are amortized ratably to interest expense over
the term of the notes.
At March 31, 2018, the Company reassessed
the fair value of the conversion feature of the issued and outstanding notes and accrued interest and determined the estimated
fair value of the derivative liability of $1,452,577. The Company recorded a loss on change in fair value of derivative liabilities
of $385,533 for the three months ended March 31, 2018.
PEERLOGIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 6 – STOCKHOLDERS’ DEFICIT
Warrants
The Company used the Black-Scholes model
to determine the fair value of warrants granted during the three months ended March 31, 2018. In applying the Black-Scholes option
pricing model to warrants granted, the Company used the following assumptions:
|
Three Months Ended
March 31,
2018
|
|
Risk free interest rate
|
2.41 – 2.59%
|
|
Dividend yield
|
0.00%
|
|
Expected volatility
|
170.30%-264.49%
|
|
Contractual term (years)
|
4
|
|
The following is a summary of the Company’s
warrant activity during the three months ended March 31, 2018:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Outstanding – December 31, 2017
|
|
|
36,305,369
|
|
|
$
|
0.11
|
|
|
|
3.74
|
|
Granted
|
|
|
1,757,500
|
|
|
|
0.10
|
|
|
|
4.00
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Forfeited/Cancelled
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Outstanding and Exercisable – March 31, 2018
|
|
|
38,062,869
|
|
|
$
|
0.11
|
|
|
|
3.51
|
|
At March 31, 2018, the aggregate intrinsic
value of warrants outstanding and exercisable was $304,176.
The following is additional information with respect to the
Company's warrants as of March 31, 2018:
Number of
Warrants
|
|
Exercise
Price
|
|
Weighted Average
Remaining
Contractual Life
(In Years)
|
|
Currently
Exercisable
|
4,219,941
|
|
$0.001
|
|
6.12
|
|
4,219,941
|
50,000
|
|
$0.01
|
|
1.93
|
|
50,000
|
1,000,000
|
|
$0.06
|
|
4.03
|
|
1,000,000
|
29,599,593
|
|
$0.10
|
|
3.14
|
|
29,599,593
|
1,000,000
|
|
$0.12
|
|
4.03
|
|
1,000,000
|
1,000,000
|
|
$0.18
|
|
4.03
|
|
1,000,000
|
418,333
|
|
$0.60
|
|
2.11
|
|
418,333
|
775,002
|
|
$0.72
|
|
2.37
|
|
775,002
|
38,062,869
|
|
|
|
|
|
38,062,869
|
PEERLOGIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2018
(Unaudited)
During the three months ended March 31,
2018, the Company issued an aggregate of 1,757,500 warrants to purchase the Company’s common stock at $0.10 per share, expiring
four years from issuance, in connection with the issuance of convertible notes payable.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Litigations, Claims and Assessments
The Company may be involved in legal proceedings,
claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes
are not predictable with assurance. There are no such matters other than described above that are deemed material to the condensed
consolidated financial statements as of March 31, 2018.
Payroll Tax Liabilities
As of March 31, 2018, and through the date
of this report, the Company has not filed certain federal and state income and payroll tax returns nor has it paid the payroll
tax amounts and related interest and penalties relating to such returns. Amounts due under these returns with respect to penalties
and interest are estimated to be $10,319 and $10,118 as of March 31, 2018 and December 31, 2017, respectively which have been included
in other accrued liabilities at March 31, 2018 and December 31, 2017 in the accompanying condensed consolidated Balance Sheets.
Placement Agent and Finders Agreements
In 2018, the Company entered into a Financial
Advisory and Investment Banking Agreements with WestPark Capital, Inc. (“WestPark”) (the “WestPark Advisory Agreements”).
Pursuant to the WestPark Advisory Agreement, WestPark shall act as the Company’s financial advisor and placement agent in
connection with a best efforts private placement (the “Financing”) of the Company’s debt and/or equity securities
(the “Securities”).
The Company, upon each closing of the Financing
will pay consideration to WestPark, in cash, a fee in an amount equal to 10% of the aggregate gross proceeds raised in the Financing
from the sale of Securities placed by WestPark and warrants in the amount of 10% of the aggregate gross proceeds. The Company will
also pay all WestPark legal fees and expenses as well as a 3% non-accountable expense allowance of the aggregate gross proceeds
raised in the Financing. The Placement Agent Warrants will have: (a) a nominal exercise price of $0.001 per share, (b) a seven
year term, and (c) a cashless exercise provision. The shares underlying the Placement Agent Warrants will have standard piggyback
registration rights.
NOTE 8 – SUBSEQUENT EVENTS
Financing
In April and May 2019, the Company sold
an aggregate of $160,000 of Units to six investors under Offering 6. Each Unit was sold at a price of $10,000 per Unit and consisted
of one (1) six (6) month, 18% convertible promissory note (36% on an annual basis) with a face value of $10,000 (the “Offering
6 Notes”) and four year warrants exercisable for an aggregate number of shares of common stock equal to 50% of the shares
of common stock into which the Offering 6 Note is initially convertible, exercisable at a price of $0.06 per share. The Offering
6 Notes are due six months after the issuance of each note. In connection with the sale of $160,000 of Units, the Company issued
an aggregate of 1,333,334 four year warrants.
Equity issuances
In April 2018, the Company issued 800,000
shares of its common stock in part of settlement agreement to Attia Investments LLC as described in Note 4.