ITEM
1 – FINANCIAL STATEMENTS
nFÜSZ,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,420,798
|
|
|
$
|
10,560
|
|
Prepaid
expenses
|
|
|
47,646
|
|
|
|
40,909
|
|
Total
current assets
|
|
|
1,468,444
|
|
|
|
51,469
|
|
Property
and equipment, net
|
|
|
20,060
|
|
|
|
30,554
|
|
Other
assets
|
|
|
16,811
|
|
|
|
8,780
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,505,315
|
|
|
$
|
90,803
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
547,908
|
|
|
$
|
663,506
|
|
Accrued
interest (including $34,656 and $99,425 payable to related parties)
|
|
|
34,656
|
|
|
|
248,120
|
|
Accrued
officers’ salary
|
|
|
124,250
|
|
|
|
607,333
|
|
Note
payable
|
|
|
-
|
|
|
|
125,000
|
|
Notes
payable - related party
|
|
|
1,964,985
|
|
|
|
1,964,985
|
|
Convertible
notes payable, net of discount of $0 and $675,443, respectively
|
|
|
-
|
|
|
|
1,020,315
|
|
Derivative
liability
|
|
|
1,014,227
|
|
|
|
1,250,581
|
|
Total
current liabilities
|
|
|
3,686,026
|
|
|
|
5,879,840
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value, 15,000,000 shares authorized, none issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.0001 par value, 200,000,000 shares authorized, 153,698,043 and 119,118,513 shares issued and outstanding as of June
30, 2018 and December 31, 2017
|
|
|
15,370
|
|
|
|
11,912
|
|
Additional
paid-in capital
|
|
|
33,066,404
|
|
|
|
22,738,574
|
|
Common
stock issuable, 4,500,000 shares
|
|
|
-
|
|
|
|
430
|
|
Accumulated
deficit
|
|
|
(35,262,485
|
)
|
|
|
(28,539,953
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficit
|
|
|
(2,180,711
|
)
|
|
|
(5,789,037
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
$
|
1,505,315
|
|
|
$
|
90,803
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements
nFÜSZ,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
8,239
|
|
|
$
|
-
|
|
|
$
|
16,242
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
105,733
|
|
|
|
92,240
|
|
|
|
235,733
|
|
|
|
181,840
|
|
General
and administrative
|
|
|
(490,145
|
)
|
|
|
1,352,028
|
|
|
|
4,779,429
|
|
|
|
1,970,028
|
|
Total
operating expenses
|
|
|
384,412
|
|
|
|
(1,444,268
|
)
|
|
|
(5,015,162
|
)
|
|
|
(2,151,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
/ (Loss) from operations
|
|
|
392,651
|
|
|
|
(1,444,268
|
)
|
|
|
(4,998,920
|
)
|
|
|
(2,151,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income / (Expense)
|
|
|
(6,141
|
)
|
|
|
-
|
|
|
|
(12,380
|
)
|
|
|
-
|
|
Change
in fair value of derivative liability
|
|
|
1,444,164
|
|
|
|
-
|
|
|
|
(1,180,723
|
)
|
|
|
-
|
|
Financing
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(171,739
|
)
|
|
|
-
|
|
Interest
expense (including $58,788 and $58,788 to related parties for three months and $116,930 and $116,930 to related parties for
six months)
|
|
|
(58,788
|
)
|
|
|
(86,816
|
)
|
|
|
(262,721
|
)
|
|
|
(170,822
|
)
|
Interest
expense - amortization of debt discount
|
|
|
-
|
|
|
|
(53,346
|
)
|
|
|
(747,623
|
)
|
|
|
(93,024
|
)
|
Gain
on debt extinguishment, net
|
|
|
-
|
|
|
|
(526,871
|
)
|
|
|
651,574
|
|
|
|
(552,871
|
)
|
Total
other expense
|
|
|
1,379,235
|
|
|
|
(667,033
|
)
|
|
|
(1,723,612
|
)
|
|
|
(816,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income / (Loss)
|
|
$
|
1,771,886
|
|
|
$
|
(2,111,301
|
)
|
|
$
|
(6,722,532
|
)
|
|
$
|
(2,968,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
/ loss per share - basic and diluted
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and diluted
|
|
|
152,539,980
|
|
|
|
102,734,185
|
|
|
|
142,335,253
|
|
|
|
99,184,826
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements
nFÜSZ,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
|
|
|
|
|
|
|
|
Additional
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Issuable
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
119,118,513
|
|
|
$
|
11,912
|
|
|
$
|
22,738,574
|
|
|
$
|
430
|
|
|
$
|
(28,539,953
|
)
|
|
$
|
(5,789,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued upon exercise of warrants
|
|
|
1,704,325
|
|
|
|
170
|
|
|
|
21,830
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,000
|
|
Common shares issued upon exercise of options
|
|
|
487,620
|
|
|
|
49
|
|
|
|
34,084
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,133
|
|
Proceeds from sale of common stock
|
|
|
17,459,067
|
|
|
|
1,746
|
|
|
|
2,976,754
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,978,500
|
|
Fair value of common shares issued for services
|
|
|
4,790,181
|
|
|
|
479
|
|
|
|
2,627,368
|
|
|
|
(430
|
)
|
|
|
-
|
|
|
|
2,627,417
|
|
Fair value of common stock issued upon conversion of debt
|
|
|
7,383,006
|
|
|
|
738
|
|
|
|
2,276,561
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,277,299
|
|
Fair value of common stock issued upon conversion of accrued
expenses
|
|
|
407,226
|
|
|
|
41
|
|
|
|
582,292
|
|
|
|
-
|
|
|
|
-
|
|
|
|
582,333
|
|
Common shares issued upon exercise of put option
|
|
|
3,048,105
|
|
|
|
305
|
|
|
|
999,695
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
Fair value of vested stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
829,176
|
|
|
|
-
|
|
|
|
-
|
|
|
|
829,176
|
|
Stock repurchase
|
|
|
(700,000
|
)
|
|
|
(70
|
)
|
|
|
(19,930
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,000
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,722,532
|
)
|
|
|
(6,722,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30,
2018
|
|
|
153,698,043
|
|
|
$
|
15,370
|
|
|
$
|
33,066,404
|
|
|
$
|
-
|
|
|
$
|
(35,262,485
|
)
|
|
$
|
(2,180,711
|
)
|
The
accompanying notes are an integral part of these condensed consolidated financial statements
nFÜSZ,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(6,722,532
|
)
|
|
$
|
(2,968,585
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
3,456,593
|
|
|
|
1,206,737
|
|
Change
in fair value of derivative liability
|
|
|
1,180,723
|
|
|
|
-
|
|
Amortization
of debt discount
|
|
|
747,623
|
|
|
|
93,024
|
|
Gain
on debt extinguishment, net
|
|
|
(651,574
|
)
|
|
|
552,871
|
|
Financing
costs
|
|
|
171,739
|
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
10,494
|
|
|
|
10,668
|
|
Effect
of changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable, accrued expenses, and accrued interest
|
|
|
(67,693
|
)
|
|
|
317,330
|
|
Accounts
receivable
|
|
|
-
|
|
|
|
8,468
|
|
Other
assets
|
|
|
(8,031
|
)
|
|
|
6,963
|
|
Prepaid
expenses
|
|
|
(6,737
|
)
|
|
|
(22,230
|
)
|
Net
cash used in operating activities
|
|
|
(1,889,395
|
)
|
|
|
(794,754
|
)
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
2,978,500
|
|
|
|
450,000
|
|
Proceeds
from exercise of put option
|
|
|
1,000,000
|
|
|
|
-
|
|
Proceeds
from convertible note payable
|
|
|
130,000
|
|
|
|
100,000
|
|
Proceeds
from option exercise
|
|
|
34,133
|
|
|
|
-
|
|
Proceeds
from warrant exercise
|
|
|
22,000
|
|
|
|
-
|
|
Proceeds
from series A preferred stock
|
|
|
-
|
|
|
|
255,000
|
|
Payment
of convertible notes payable
|
|
|
(845,000
|
)
|
|
|
-
|
|
Repurchase
common stock
|
|
|
(20,000
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
3,299,633
|
|
|
|
805,000
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
1,410,238
|
|
|
|
10,246
|
|
|
|
|
|
|
|
|
|
|
Cash
- beginning of period
|
|
|
10,560
|
|
|
|
16,762
|
|
|
|
|
|
|
|
|
|
|
Cash
- end of period
|
|
$
|
1,420,798
|
|
|
$
|
27,008
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
314,066
|
|
|
$
|
-
|
|
Cash
paid for income taxes
|
|
$
|
800
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Conversion
of note payable and accrued interest to common stock
|
|
$
|
2,277,299
|
|
|
$
|
110,880
|
|
Common
stock issued to settle accrued officers salary
|
|
$
|
582,333
|
|
|
$
|
-
|
|
Fair
value of derivative liability from issuance of convertible debt and warrant features
|
|
$
|
301,739
|
|
|
$
|
-
|
|
Conversion
of notes payable to convertible notes payable
|
|
$
|
-
|
|
|
$
|
56,000
|
|
Common
stock issued to settle accounts payable
|
|
$
|
-
|
|
|
$
|
100,000
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements
nFÜSZ,
INC.
Notes
to Condensed Consolidated Financial Statements
For the Six months Ended June 30, 2018 and 2017
(Unaudited)
1.
|
DESCRIPTION
OF BUSINESS
|
O
rganization
Cutaia
Media Group, LLC (“CMG”) was organized on December 12, 2012, as a limited liability company under the laws of the
State of Nevada. On May 19, 2014, bBooth, Inc. was incorporated under the laws of the State of Nevada. On May 19,
2014, CMG merged into bBooth, Inc. and, thereafter, bBooth, Inc. changed its name to bBooth (USA), Inc., effective as of October
16, 2014.
On
October 16, 2014, bBoothUSA was acquired by Global System Designs, Inc. (“GSD”), pursuant to a Share Exchange Agreement
entered into with GSD (the “Share Exchange Agreement”). GSD was incorporated in the state of Nevada on November
27, 2012. The acquisition was accounted for as a reverse merger transaction. In connection with the closing of the
transactions contemplated by the Share Exchange Agreement, GSD’s management was replaced by bBoothUSA’s management,
and GSD changed its name to bBooth, Inc. The operations of CMG and bBooth (USA), Inc. became known as, and are referred to
herein as, “bBooth USA.”
Effective
April 21, 2017, we changed our corporate name from bBooth, Inc. to nFüsz, Inc. The name change was effected through
a parent/subsidiary short-form merger of nFüsz, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of
the name change, with and into us. We were the surviving entity. To effectuate the merger, we filed Articles of Merger and
a Certificate of Correction (relative to the effective date of the name change merger) with the Secretary of State of the State
of Nevada on April 4, 2017, and April 17, 2017, respectively. The merger became effective on April 21, 2017. Our board
of directors approved the merger, which resulted in the name change on that date. In accordance with Section 92A.180 of
the Nevada Revised Statutes, stockholder approval of the merger was not required.
Our
Business
We
are an applications services provider marketing cloud-based business software products on a subscription basis. Our flagship
product, notifiCRM, is a Customer Relationship Management (“CRM”) application that is distinguishable from other CRM
programs because it utilizes interactive video as the primary means of communication between sales and marketing professionals
and their clients or prospects. notifiCRM allows our users to create, distribute, and post interactive videos that contain
on-screen interactive icons, buttons, and other elements, that when clicked, allow their prospects and customers to respond to
our users’ call to action in real-time, in the video, while the video is playing, without leaving or stopping the video.
Our users report increased sales conversion rates compared to traditional, non-interactive video. We developed the proprietary
interactive video technology, which serves as the basis for our cloud, Software-as-a-Service (SaaS) products and services that
we market under the brand name “notifi” and they are accessible on all mobile and desktop devices. No download is
required to access and use our applications. Our users also have access to detailed analytics in the application dashboard
that reflect when the videos were viewed, by whom, how many times, for how long, and what interactive elements were clicked-on
in the video, among other things, all of which assist our users in focusing their sales and marketing efforts by identifying which
clients or prospects have interest in the subject matter of the video.
Our
notifiCRM platform can accommodate any size campaign or sales organization, and it is enterprise-class scalable to meet the
needs of today’s global organizations. We are working with our vendors to ensure that it is so scalable based upon our
current agreements with them. We offer stand-alone versions of our notifiCRM product on a subscription basis to individual
consumers, sales-based organizations, consumer brands, marketing and advertising agencies, as well as to artists and social
influencers. We also offer notifiCRM through a network of partners and resellers that include Oracle/NetSuite and Marketo,
who offer notifiCRM to their respective clients and customers as an upgrade to their existing Oracle/NetSuite or Marketo
subscriptions. notifiCRM is fully integrated into each of their platforms and upon payment of the upgrade fee, is accessible
through the respective dashboards of Oracle/NetSuite and Marketo. We are actively developing integrations of notifiCRM into
other popular marketing, CRM, and Enterprise Resource Management (ERP) platforms.
Our
notifiMED application is designed for physicians and other healthcare providers to create more efficient and effective interactive
communications with patients. Patients are able to avoid unnecessary and inconvenient visits to their physicians’ or other
healthcare providers’ offices by viewing and responding to interactive videos through in-video, on-screen clicks that are
designed to assess the patients’ need for an office visit. If the patient’s responses to the interactive video
indicate that an office visit is either necessary or desirable, the patient can schedule the office visit right in through video
in real time. Patients can also download and print prescriptions, care instructions, and other physician distributed documents
right from and through the video. notifiMED is offered on a subscription basis.
Our
notifiEDU application is designed for teachers and school administrators for more effective communications with students, parents,
and faculty. notifiEDU allows teachers to deliver interactive lessons to students which are both more engaging and more
effective. notifiEDU allows teachers to communicate with students through their mobile devices and computers to deliver
lessons and tests/quizzes on the screen and in the video. The analytics capabilities of notifiEDU available on the dashboard of
the teacher or school administrator allows them to track which students watched the lesson, when, for how long, how many times,
and track and report on test/quiz results. notifiEDU is offered on a subscription basis.
Our
notifiTV and notifiLIVE products are also part of our proprietary interactive video platform that allows viewers to interact with
pre-recorded as well as live broadcast video content by clicking on links embedded in on-screen people, objects, graphics, or
sponsors’ signage. Viewers can experience our notifiTV and notifiLIVE interactive content and capabilities on most
devices available in the market today without the need to download special software or proprietary video players.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation
The
accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial
reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with
GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated
financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC. The condensed consolidated
balance sheet as of December 31, 2017 included herein was derived from the audited consolidated financial statements as of that
date.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary
to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as
noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented
herein are not necessarily indicative of fiscal year-end results.
Principles
of Consolidation
The
consolidated financial statements include the accounts of nFüsz, Inc., (formerly bBooth, Inc.) and Songstagram, Inc. (“Songstagram”),
our wholly owned subsidiary. All intercompany transactions and balances have been eliminated in consolidation.
Going
Concern
We
have incurred operating losses since inception and have negative cash flows from operations. We had a stockholders’ deficit
of $2,180,711 as of June 30, 2018 and incurred a net loss of $6,722,532 and utilized $1,889,395 of cash during the six-month period
then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement
its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to
continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on
the Company’s December 31, 2017 consolidated financial statements, has raised substantial doubt about the Company’s
ability to continue as a going concern.
Our
continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash
flows from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue our
operations. There is no assurance that we will ever be profitable or that debt or equity financing will be available to us. The
consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue
as a going concern.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reported periods. Significant estimates include assumptions made in valuing derivative liabilities, valuation
of debt and equity instruments, share-based compensation arrangements and realization of deferred tax assets. Amounts could materially
change in the future.
Revenue
Recognition
We
generate substantially all of our revenue from subscription services, which are comprised of subscription fees from customer accounts.
Subscription service arrangements are generally non-cancelable and do not provide for refunds to customers in the event of cancellations
or any other right of return. We record revenue net of sales or excise taxes.
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and (ASC 606). The underlying principle
of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected.
ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which
includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract
or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations,
and (5) recognizing revenue as each performance obligation is satisfied.
Under
ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the
Company upon shipment or delivery of products or services to our customers based on written sales terms, which is also when control
is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products
or services to a customer.
The
Company adopted the guidance of ASC 606 on January 1, 2018. The implementation of ASC 606 had no impact on the prior period financial
statements and no cumulative effect adjustment was recognized.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are 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. 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.
The
Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined
by using a probability weighted average Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative
liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded
in results of operations as adjustments to fair value of derivatives.
Share
Based Payments
The
Company issues stock options, common stock, and equity interests as share-based compensation to employees and non-employees. The
Company accounts for its share-based compensation to employees in accordance with FASB ASC 718 “Compensation – Stock
Compensation.” Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award,
and is recognized as expense over the requisite service period.
The
Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB
ASC 505-50
“
Equity - Based Payments to Non-Employees
.”
Measurement of share-based payment transactions
with non-employees is based on the fair value of whichever is more reliably measurable: (
a
) the goods or services received;
or (
b
) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the
performance completion date. For interim periods, the fair value is estimated, and the percentage of completion is applied to
that estimate to determine the cumulative expense recorded.
The
Company values stock compensation based on the market price on the measurement date. As described above, for employees this is
the date of grant, and for non-employees, this is the date of performance completion. The Company values stock options and warrants
using the Black-Scholes option pricing model.
Net
Loss Per Share
Basic
net loss per share is computed by using the weighted-average number of common shares outstanding during the period. Diluted net
loss per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive
potential common shares consist of incremental common shares issuable upon exercise of stock options. No dilutive potential common
shares were included in the computation of diluted net loss per share because their impact was anti-dilutive. As of June 30, 2018,
the Company had a total of 21,284,605 options and 29,407,413 warrants outstanding, and the potential issuance of approximately
11.2 million shares of common stock upon conversion of notes payable. These shares were excluded from the computation of net loss
per share because they are anti-dilutive. As of June 30, 2017, the Company had total of 23,030,953 options and 20,540,456 warrants
and potential issuance of approximately 14.2 million shares of common stock which were excluded from the computation of
net loss per share because they are anti-dilutive.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires
a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease
payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about
leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that
the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification
of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount,
timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees
for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company has
not yet evaluated the impact of the adoption of ASU 2016-02 on the Company’s financial statement presentation or disclosures.
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): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part
II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (“ASU 2017-11”). ASU 2017-11
allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature)
is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with
down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value
of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding
financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income
available to common stockholders in computing basic earnings per share. For convertible instruments with embedded conversion features
containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be
amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective
approach. The Company is currently evaluating the impact of the adoption of ASU 2017-11 on the Company’s financial statement
presentation or disclosures.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company’s present or future consolidated financial statements.
3.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consisted of the following as of June 30, 2018 and December 31, 2017.
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
|
Furniture
and fixtures
|
|
$
|
56,890
|
|
|
$
|
56,890
|
|
Office
equipment
|
|
|
50,669
|
|
|
|
50,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,559
|
|
|
|
107,559
|
|
Less:
accumulated depreciation
|
|
|
(87,499
|
)
|
|
|
(77,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,060
|
|
|
$
|
30,554
|
|
Depreciation
expense amounted to $10,494 and $10,668 for six months ended June 30, 2018 and 2017, respectively.
|
On
March 21, 2015, the Company entered into an agreement with DelMorgan Group LLC (“DelMorgan”), pursuant to which
DelMorgan agreed to act as the Company’s exclusive financial advisor. In connection with the agreement, the Company
paid DelMorgan $125,000, which was advanced by a third-party lender in exchange for an unsecured note payable issued by the
Company bearing interest at the rate of 12% per annum payable monthly beginning on April 20, 2015.
|
|
|
|
Effective
March 20, 2017, for no additional consideration the Company entered into an extension
agreement with the third-party lender to extend the maturity date of the Note to March
21, 2018. All other terms of the Note remain unchanged. As of December 31, 2017, the
balance due under the note was $125,000.
On
January 29, 2018, the Company settled the debt of $125,000 in exchange for 1,250,000 shares of its Common Stock. There
was no gain or loss recognized as the fair value of the common shares issued approximates the note payable settled.
|
5.
|
NOTES
PAYABLE – RELATED PARTIES
|
The
Company has the following related parties notes payable as of June 30, 2018 and December 31, 2017:
Note
|
|
Issuance
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
June 30,
2018
|
|
|
Balance
at
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Note
1 (A)
|
|
December
1, 2015
|
|
August
1, 2018
|
|
|
12.0
|
%
|
|
$
|
1,248,883
|
|
|
$
|
1,198,883
|
|
|
$
|
1,198,883
|
|
Note
2
|
|
December
1, 2015
|
|
August
1, 2018
|
|
|
12.0
|
%
|
|
|
189,000
|
|
|
|
189,000
|
|
|
|
189,000
|
|
Note
3 (B)
|
|
December
1, 2015
|
|
April
1, 2017
|
|
|
12.0
|
%
|
|
|
111,901
|
|
|
|
111,901
|
|
|
|
111,901
|
|
Note
4 (C)
|
|
August
4, 2016
|
|
December
4, 2018
|
|
|
12.0
|
%
|
|
|
343,326
|
|
|
|
343,326
|
|
|
|
343,326
|
|
Note
5
|
|
August
4, 2016
|
|
December
4, 2018
|
|
|
12.0
|
%
|
|
|
121,875
|
|
|
|
121,875
|
|
|
|
121,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable – related parties, net
|
|
|
|
|
|
|
|
|
|
$
|
1,964,985
|
|
|
$
|
1,964,985
|
|
(A)
|
Per
the terms of the agreement, at Mr. Cutaia’s discretion (majority stockholder and Chief Executive Officer (CEO), he may
convert up to $374,665 of outstanding principal, plus accrued interest thereon, into shares of common stock at a conversion
rate of $0.07 per share.
|
|
|
(B)
|
As
of June 30, 2018, and the date of this report, the note is past due. The Company is currently in negotiations with the note
holder to settle the note payable.
|
|
|
(C)
|
A
total of 30% of the note principal can be converted to shares of common stock at a conversion price $0.07 per share.
|
Total
interest expense for notes payable to related parties for the six months ended June 30, 2018 and 2017 was $58,788 for each period.
6.
|
CONVERTIBLE
NOTES PAYABLE
|
The
Company has the following convertible notes payable as of June 30, 2018 and December 31, 2017:
Note
|
|
Note
Date
|
|
Maturity
Date
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
June 30,
2018
|
|
|
Balance
at
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Note
payable
|
|
April
3, 2016
|
|
April
4, 2018
|
|
|
12
|
%
|
|
$
|
600,000
|
|
|
$
|
-
|
|
|
$
|
680,268
|
|
Note
payable
|
|
June
and August 2017
|
|
February
and March 2018
|
|
|
5
|
%
|
|
$
|
220,500
|
|
|
|
-
|
|
|
|
220,500
|
|
Note
payable
|
|
Various
|
|
Various
|
|
|
5
|
%
|
|
$
|
320,000
|
|
|
|
-
|
|
|
|
320,000
|
|
Note
payable
|
|
December
8, 2017
|
|
December
8, 2018
|
|
|
8
|
%
|
|
$
|
370,000
|
|
|
|
-
|
|
|
|
370,000
|
|
Note
payable
|
|
December
13, 2017
|
|
September
20, 2018
|
|
|
8
|
%
|
|
$
|
105,000
|
|
|
|
-
|
|
|
|
105,000
|
|
Total
notes payable
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
1,695,768
|
|
Debt
discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(675,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable, net of debt discount
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
1,020,315
|
|
During
2016 through 2017, the Company issued convertible notes payable to unrelated, third-party creditors/investors totaling $1,695,768.
The notes bore an average interest rate of 8% per annum, secured by the Company’s assets, mature starting February 2018
through January 2019 and are convertible to shares of common stock based upon a discounted market price. As of June 30 2018, outstanding
balance of the notes payable and unamortized debt discount was zero.
During
the period ended June 30, 2018, the Company issued similar convertible notes payable totaling $150,000 in exchange for cash of
$130,000. The Company determined that since the conversion floor had no limit to the conversion price, that the Company could
no longer determine if it had enough authorized shares to fulfil the conversion obligation. As such, pursuant to current accounting
guidelines, the Company determined that the conversion feature of the notes created a derivative with a fair value of $252,778
at the date of issuance. The Company accounted for the fair value of the derivative up to the face amount of the note of $150,000
as a valuation discount amortized over the life of the note, and the excess of $102,778 being recorded as financing cost (see
Note 7 for discussion of derivative liability). In addition, the Company also recorded the notes’ original issue
discount of $20,000 as financing costs.
As
part of the offering, the Company also granted a five-year warrant to acquire 1,000,000 shares of the Company’s common stock
with an exercise price of $0.14 per share. A total of 500,000 warrants that were granted included a full ratchet reset provision
in case of a future offering at a price below $0.14 per share and a fundamental transaction provision that could give rise to
an obligation to pay cash to the warrant holder and a reset. As such, pursuant to current accounting guidelines, the Company determined
that the warrant exercise price and fundamental transaction clause created a derivative with a fair value of $48,961 at the date
of issuance. The Company accounted for the fair value of the derivative as financing cost. See Note 7 for discussion of
derivative liability.
During
the period ended June 30, 2018, the Company paid $845,000 to settle certain outstanding convertible notes payable.
In addition, the Company also issued 6,133,006 shares of common stock to settle the remaining convertible notes payable
and accrued interest. As part of the settlement, the Company recorded a loss on debt extinguishment of $1,067,242 to
account for the fair value of the common shares issued to a note holder who’s note was not fully convertible to common
shares. Furthermore, the Company amortized the remaining debt discount of $747,623 to interest expense. As of June 30, 2018,
all convertible notes payable and unpaid interest had been paid or settled.
Total
interest expense for convertible notes payable for the six months ended June 30, 2018 and 2017 was $144,541 and $40,481, respectively.
Under
authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s
own stock, instruments that do not have fixed settlement provisions are deemed to be derivative instruments. The Company has issued
certain convertible notes whose conversion prices contains reset provisions based on a future offering price and/or whose conversion
prices are based on future market prices. However, since the number of shares to be issued is not explicitly limited, the Company
is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option. In addition,
the Company also granted certain warrants that included a fundamental transaction provision that could give rise to an obligation
to pay cash to the warrant holder.
As
a result, the conversion option and warrants are classified as liabilities and are bifurcated from the debt host and accounted
for as a derivative liability in accordance with ASC 815 and will be re-measured at the end of every reporting period with the
change in value reported in the statement of operations.
The
derivative liabilities were valued using a probability weighted average Black-Scholes-Merton pricing model with the following
average assumptions:
|
|
June
30, 2018
|
|
|
Upon
Issuance
|
|
|
December
31, 2017
|
|
Stock
Price
|
|
$
|
0.60
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
Exercise
Price
|
|
$
|
0.13
|
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
Expected
Life
|
|
|
4.50
|
|
|
|
2.33
|
|
|
|
1.26
|
|
Volatility
|
|
|
226
|
%
|
|
|
193
|
%
|
|
|
189
|
%
|
Dividend
Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-Free
Interest Rate
|
|
|
1.89
|
%
|
|
|
1.18
|
%
|
|
|
1.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
$
|
1,014,227
|
|
|
$
|
301,739
|
|
|
$
|
1,250,581
|
|
The
expected life of the conversion feature of the notes and warrants was based on the remaining contractual term of the notes and
warrants. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock.
The expected dividend yield was based on the fact that the Company has not paid dividends in the past and does not expect to pay
dividends in the future. The risk-free interest rate was based on rates established by the Federal Reserve Bank. As of December
31, 2017, the Company had recorded a derivative liability of $1,250,581.
During
the period ended June 30, 2018, the Company recorded an additional derivative liability totaling $301,739 as a result of the issuance
of convertible notes and warrants. The Company also extinguished a derivative liability of $1,718,816 upon the conversion and
payment of outstanding convertible notes payable, which was recorded as part of gain on extinguishment of debt. In addition, the
Company also recorded a change in fair value of $1,180,723 to account the change in fair value of these derivative liabilities
up to the dates of the extinguishment and at June 30, 2018. At June 30, 2018, the fair value of the derivative liability amounted
to $1,014,227.
The
Company’s common stock activity for the six months ended June 30, 2018 is as follows:
Common
Stock
Shares
Issued from Exercise of Warrants
– During the period ended June 30, 2018, a total of 1,981,000 warrants were exercised
in cash and cashless exercises for the issuance of an aggregate of 1,704,325 shares of common stock. The Company received cash
of $22,000 upon exercise of the warrants.
Shares
Issued from Exercise of Options
– During the period ended June 30, 2018, a total of 487,620 options were exercised
in cash exercises for 487,620 shares of common stock. The Company received cash of $34,133 upon exercise of the options.
Shares
Issued from Stock Subscription
– During the period ended June 30, 2018, the Company issued 17,459,067 shares of
common stock to investors for net cash proceeds of $2,978,500.
Shares
Issued for Services
– During the period ended June 30, 2018, the Company issued 4,790,181 shares of common stock
to employees and vendors for services rendered with a fair value of $2,627,417. These shares of common stock were valued based
on market value of the Company’s stock price at the date of grant or agreement. Included in these issuances were 4,500,000
shares of common stock with a fair value of $1,539,000 granted to officers and a director of the Company for services rendered.
Shares
Issued from Conversion of Note Payable
– During the period ended June 30, 2018, the Company issued 7,383,006 shares
of common stock upon conversion of notes payable and accrued interest (see Notes 4 and 6).
Shares
Issued for Accrued Salary
– On March 28, 2018, the Company converted $582,333 of the CEO’s accrued
salary into 407,226 shares of common stock with a fair value of $582,333 at the date of conversion.
Shares
Issued Upon Exercise of Put Option
– In January and February 2018, the Company issued Put Notices to Kodiak and
issued 3,048,105 shares of common stock in exchange for cash of $1,000,000. In addition, the Company also issued Kodiak the prorated
warrants to purchase 2,000,000 shares of common stock at $0.25 per share.
Shares
Repurchased
. For the period ended June 30, 2018, the Company repurchased 700,000 shares of common stock from investors
for $20,000.
Stock
Options
Effective
October 16, 2014, the Company adopted the 2014 Stock Option Plan (the “Plan”) under the administration of the board
of directors to retain the services of valued key employees and consultants of the Company.
At
its discretion, the Company grants share option awards to certain employees and non-employees, as defined by ASC 718, Compensation—Stock
Compensation, under the 204 Stock Option Plan (the “Plan”) and accounts for its share-based compensation in accordance
with ASC 718.
A
summary of option activity for the six months ended June 30, 2018 is presented below.
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at December 31, 2017
|
|
|
21,840,953
|
|
|
$
|
0.33
|
|
|
|
2.09
|
|
|
|
|
|
Granted
|
|
|
1,006,272
|
|
|
|
0.33
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(487,620
|
)
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(1,075,000
|
)
|
|
|
0.55
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2018
|
|
|
21,284,605
|
|
|
$
|
0.26
|
|
|
|
1.68
|
|
|
$
|
7,533,282
|
|
Exercisable
at June 30, 2018
|
|
|
9,204,808
|
|
|
$
|
0.36
|
|
|
|
|
|
|
$
|
2,406,294
|
|
During
the six months ended June 30, 2018, the Company granted stock options to employees and consultants to purchase a total 1,006,272
shares of common stock for services rendered. The options have an average exercise price of $0.33 per share, expire in five years
and vest on grant date or over a period of three years from grant date. Total fair value of these options at grant date was $259,105
using the Black-Scholes Option Pricing model.
The
total stock compensation expense recognized relating to vesting of employee stock options for the six months ended June 30, 2018
amounted to $829,176. As of June 30, 2018, total unrecognized stock-based compensation expense was $1,563,155, which is expected
to be recognized as part of operating expense through May 2021.
The
fair value of share option award is estimated using the Black-Scholes method based on the following weighted-average assumptions:
|
|
|
Six
Months Ended June 30,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Risk-free
interest rate
|
|
|
2.25%
- 2.85
|
%
|
|
|
1.76%
- 1.93
|
%
|
Average
expected term (years)
|
|
|
5
years
|
|
|
|
5
years
|
|
Expected
volatility
|
|
|
184%
-190
|
%
|
|
|
157
%-160
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the
expected term of the share option award; the expected term represents the weighted-average period of time that share option awards
granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior;
the expected volatility is based upon historical volatility of the Company’s common stock; and the expected dividend yield
is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future.
Warrants
The
Company has the following warrants outstanding as of June 30, 2018 all of which are exercisable:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life
(Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2017
|
|
|
28,436,413
|
|
|
$
|
0.13
|
|
|
|
2.79
|
|
|
$
|
-
|
|
Granted
|
|
|
3,000,000
|
|
|
|
0.21
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(48,000
|
)
|
|
|
0.10
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(1,981,000
|
)
|
|
|
0.15
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at June 30, 2018
|
|
|
29,407,413
|
|
|
$
|
0.14
|
|
|
|
2.97
|
|
|
$
|
13,619,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2018
|
|
|
29,407,413
|
|
|
|
|
|
|
|
|
|
|
$
|
13,619,258
|
|
During
the six months ended June 30, 2018, the Company granted warrants to note holders to purchase a total of 1,000,000 shares of common
stock. The warrants are exercisable at an average price of $0.14 per share and will expire in January 2023. A total of 500,000
warrants that had been granted were accounted as derivative liability (see Note 6).
On
February 21, 2018, the Company granted 2,000,000 warrants as part of the exercise of our put option with Kodiak. The exercise
price of the 2,000,000 warrants is $0.25 per share and they expire on February 20, 2023.
During
the six months ended June 30, 2018, a total of 1,981,000 warrants were exercised in cash and cashless exercises for 1,704,325
shares of common stock at a weighted average exercise price of $0.15. As part of these exercises, the Company also received $22,000
upon the exercises.
9.
|
COMMITMENTS
AND CONTINGENCIES
|
Litigation
On
April 24, 2018, EMA Financial, LLC, a New York limited liability company (“EMA”), commenced an action against us,
styled
EMA Financial, LLC, a New York limited liability company, Plaintiff, against nFUSZ, Inc., Defendant
, United States
District Court, Southern District of New York, case number 1:18-cv-03634-NRB. The Complaint sets forth four causes of action and
seeks relief consisting of: (1) money damages, (2) injunctive relief, (3) liquidated damages; and declaratory relief. All of the
claims stem from our refusal to honor EMA’s exercise notice in connection with a common stock purchase warrant that we had
granted to it. We believe EMA’s allegations are entirely without merit.
The
circumstances giving rise to the dispute are as follows: On or about December 5, 2017, we issued a warrant to EMA as part of the
consideration we were required to provide in connection with a contemporaneous convertible loan EMA made to us. The loan, which
was evidenced by a convertible Note, was for a term of one year. Our refusal to honor the warrant exercise notice was due to our
good faith belief that EMA’s interpretation of the cashless exercise provision of the warrant was,
inter alia
, (i)
contrary to our direct conversations and agreements made with EMA prior to, and during the preparation of the loan and warrant
agreements; (2) wholly inconsistent with industry norms, standards, and practices; (3) was contrary to the cashless exercise method
actually adopted by EMA’s co-lender in the same transaction; and (4) was the result of a single letter mistakenly transposed
in the cashless exercise formula drafted by EMA which if adopted, would result in a gross and unintended windfall in favor of
EMA and adverse to us. Moreover, as set forth in our response to EMA’s allegations, EMA’s interpretation of the cashless
exercise provision would have resulted in it being issued more shares of our common stock than it would have received if it exercised
the warrant for cash (instead of less), and more than the amount of shares reflected on the face of the warrant agreement itself.
The loan underlying the transaction was repaid, in full, approximately three months after it was issued, on March 8, 2018, together
with all accrued interest, prior to any conversion or attempted conversion of the Note.
On
July 20, 2018, we filed an Answer to the Complaint, along with certain Affirmative Defenses, as well as Counterclaims seeking,
inter alia
, to void the entire transaction for violation of New York’s criminal usury laws and, alternatively, for
reformation of the warrant conversion formula set forth in the Warrant Agreement so as to be consistent with the parties’
intent and custom and practice in the industry. We intend to vigorously defend the action, as well as vigorously prosecute our
counterclaims against EMA. The action is still pending.
We
know of no other material pending legal proceedings to which we or any of our subsidiaries is a party or to which any of our assets
or properties, or the assets or properties of any of our subsidiaries, are subject and, to the best of our knowledge, no adverse
legal activity is anticipated or threatened. In addition, we do not know of any such proceedings contemplated by any governmental
authorities.
Subsequent
to June 30, 2018, two existing consultants were hired as employees of the Company. In connection with their employment agreements,
the Company granted 4,800,000 non-qualified stock options with a fair value of $2,902,453. 1,500,000 of the options vested on
the grant date, while the remaining 3,300,000 options vest annually over three years on the employees’ anniversary dates
with an average exercise price of $0.40. As a result, the Company will record stock compensation expense of $910,844 for the vested
options. In addition, the Company also cancelled 3,100,000 unvested non-qualified stock options previously granted to these individuals
when they were consultants of the Company. As a result of these cancellation, the Company reversed previously recorded stock compensation
expense of $616,990.
Subsequent
to June 30, 2018, the Company granted 300,000 non-qualified stock options with a fair value of $166,510 to consultants for services
to be rendered. The options vest annually over three years with an exercise price of $0.60.
Subsequent
to June 30, 2018, the Company granted 1,250,000 non-qualified stock options with a fair value of $611,909 to employees
for services to be rendered. The options vest annually over three years with an exercise price of $0.60.
Effective
August 8, 2018, the Company entered into an extension agreement (the “Extension Agreement”) with Rory J. Cutaia, CEO
and Chairman, to extend the maturity date of the $1,248,883 Secured Note due on August 1, 2018 to and including February
8, 2021. In consideration for extending the Note the Company issued Mr. Cutaia 2,446,700 warrants at a price of $0.49. All other
terms of the Note remain unchanged.
Effective
August 8, 2018, the Company entered into an extension agreement (the “Extension Agreement”) with Rory J. Cutaia, CEO
and Chairman, to extend the maturity date of the $189,000 Unsecured Note due on August 1, 2018 to and including February
8, 2021. There was no consideration given and all other terms of the Note remain unchanged.
ITEM
2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking
Statements
The
following discussion and analysis of the results of operations and financial condition of nFüsz for the three- and six-month
periods ended June 30, 2018 and 2017, should be read in conjunction with the financial statements and related notes and the other
financial information that are included elsewhere this Quarterly Report. This discussion includes forward-looking statements based
upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Forward-looking
statements are statements not based on historical fact and which relate to future operations, strategies, financial results, or
other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject
to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to business decisions, are subject to change. These uncertainties and contingencies can affect actual results
to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation
to update forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in
these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,”
“plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,”
“intend,” “may,” “will,” “should,” “could,” and similar expressions
to identify forward-looking statements.
As
used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” and “nFüsz”
refer to nFüsz, Inc., a Nevada corporation unless otherwise specified.
Overview
Cutaia
Media Group, LLC (“CMG”) was organized on December 12, 2012, as a limited liability company under the laws of the
State of Nevada. On May 19, 2014, bBooth, Inc. was incorporated under the laws of the State of Nevada. On May 19,
2014, CMG merged into bBooth, Inc. and, thereafter, bBooth, Inc. changed its name to bBooth (USA), Inc., effective as of October
16, 2014.
On
October 16, 2014, bBoothUSA was acquired by Global System Designs, Inc. (“GSD”), pursuant to a Share Exchange Agreement
entered into with GSD (the “Share Exchange Agreement”). GSD was incorporated in the state of Nevada on November
27, 2012. The acquisition was accounted for as a reverse merger transaction. In connection with the closing of the
transactions contemplated by the Share Exchange Agreement, GSD’s management was replaced by bBoothUSA’s management,
and GSD changed its name to bBooth, Inc. The operations of CMG and bBooth (USA), Inc. became known as, and are referred to
herein as, “bBooth USA.”
Effective
April 21, 2017, we changed our corporate name from bBooth, Inc. to nFüsz, Inc. The name change was effected through
a parent/subsidiary short-form merger of nFüsz, Inc., our wholly-owned Nevada subsidiary, formed solely for the purpose of
the name change, with and into us. We were the surviving entity. To effectuate the merger, we filed Articles of Merger and
a Certificate of Correction (relative to the effective date of the name change merger) with the Secretary of State of the State
of Nevada on April 4, 2017, and April 17, 2017, respectively. The merger became effective on April 21, 2017. Our board
of directors approved the merger, which resulted in the name change on that date. In accordance with Section 92A.180 of
the Nevada Revised Statutes, stockholder approval of the merger was not required.
Results
of Operations
Three
Months Ended June 30, 2018 as Compared to the Three Months Ended June 30, 2017
Revenues
Subscription
revenues for the three months ended June 30, 2018 were $8,239, compared to $0 for the three months ended June 30, 2017. The increase
in subscription revenues were primarily attributable to the Company’s SaaS platform that was launched during the fourth
quarter of fiscal 2017. There was no similar transaction in the second quarter of 2017.
Operating
Expenses
Research
and development expenses were $105,733 for the three months ended June 30, 2018, as compared to $92,240 for the three months ended
June 30, 2017. The increase was primarily due to an increase in fees for coders dedicated to software development enhancements
and modifications.
General
and administrative expenses for the three months ended June 30, 2018 and 2017 were $(490,145) and $1,352,028, respectively. The
decrease was primarily due to a decrease in stock-based compensation expense of $2,096,024 offset by an increase in marketing
and labor related costs associated with growth of the Company. The significant decrease in stock-based compensation is attributed
to the revaluation of our consultants’ unvested restricted stock and stock options. The price of the Company’s common
stock decreased significantly from $1.45 per share at March 31, 2018 to $0.60 per share at June 30, 2018.
Other
expense, net, for the three months ended June 30, 2018 amounted to $(1,379,235), which represented a change in fair value of derivative
liability of $(1,444,164) offset by interest expense of $58,788, and other expense of $6,141. The amount of other expense, net,
was lower in the second quarter of 2018 due to the change in fair value of derivative liability and $526,871 of 2017 debt extinguishment.
Six
Months Ended June 30, 2018 compared to the Six Months Ended June 30, 2017.
Revenues
Subscription
revenues for the six months ended June 30, 2018 were $16,242, compared to $0 for the six months ended June 30, 2017. The increase
in subscription revenues were primarily attributable to the Company’s SaaS platform that was launched during the fourth
quarter of fiscal 2017. There was no similar transaction in the first half of 2017.
Operating
Expenses
Research
and development expenses were $235,733 for the six months ended June 30, 2018, as compared to $181,840 for the six months ended
June 30, 2017. The increase was primarily due to an increase in fees for coders dedicated to software development enhancements
and modifications.
General
and administrative expenses for the six months ended June 30, 2018 and 2017 were $4,779,429 and $1,970,028, respectively. The
increase was primarily due to an increase in stock-based compensation expense of $2,249,846 plus an increase in labor related
costs, marketing, and professional services associated with growth of the Company. The significant increase in stock-based compensation
was due to increase in the price of the Company’s common stock. The price of the Company’s common stock increased
from $0.10 per share at December 31, 2017 to $0.60 per share at June 30, 2018, or an average of $0.82 per share during the period
ended June 30, 2018. In the prior period, the average price of the Company’s common stock was $0.18 per share.
Other
expense, net, for the six months ended June 30, 2018 amounted to $1,723,612, which represented a change in fair value of derivative
liability of $1,180,723, interest expense for amortization of debt discount of $747,623, interest expense of $262,721 on outstanding
notes payable, $171,739 of financing costs attributed to derivative liabilities, and other expense of $12,380. These amounts were
offset by a gain on extinguishment of debt, net of $(651,574). The amount of other expense, net, was higher in 2018 due to the
payoff off and conversion of debt that did not occur during the first quarter of 2017.
Modified
EBITDA
In
addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA
is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations
or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as
a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization,
stock-based compensation, financing costs and changes in fair value of derivative liability.
Management
considers our core operating performance to be that which our managers can affect in any particular period through their management
of the resources that affect our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our
results prepared in accordance with GAAP are itemized below. Readers are encouraged to evaluate these adjustments and the reasons
we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, readers should be aware that in the future
we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified
EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
|
|
For
the Three months Ended
|
|
|
For
the Six months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,771,886
|
|
|
$
|
(2,111,765
|
)
|
|
$
|
(6,722,532
|
)
|
|
$
|
(2,968,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Compensation Expense
|
|
|
(1,154,361
|
)
|
|
|
942,463
|
|
|
|
3,456,593
|
|
|
|
1,206,737
|
|
Change
in fair value of derivative liability
|
|
|
(1,444,164
|
)
|
|
|
-
|
|
|
|
1,180,723
|
|
|
|
-
|
|
Amortization
of debt discount
|
|
|
-
|
|
|
|
53,346
|
|
|
|
747,623
|
|
|
|
93,024
|
|
Interest
expense
|
|
|
58,788
|
|
|
|
86,817
|
|
|
|
262,721
|
|
|
|
170,822
|
|
Financing
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
171,739
|
|
|
|
-
|
|
Depreciation
|
|
|
5,189
|
|
|
|
5,363
|
|
|
|
10,494
|
|
|
|
10,668
|
|
Gain
on debt extinguishment, net
|
|
|
-
|
|
|
|
526,871
|
|
|
|
(651,574
|
)
|
|
|
552,871
|
|
Total
EBITDA adjustments
|
|
|
(2,534,548
|
)
|
|
|
1,614,860
|
|
|
|
5,178,319
|
|
|
|
2,034,122
|
|
Modified
EBITDA
|
|
$
|
(762,662
|
)
|
|
$
|
(496,905
|
)
|
|
$
|
(1,544,213
|
)
|
|
$
|
(934,463
|
)
|
The
$265,757 decrease in modified EBITDA for the three months ended June 30, 2018 compared to the same period in 2017, resulted from
the increase in labor-related costs and marketing associated with growth of the Company.
The
$609,750 decrease in modified EBITDA for the six months ended June 30, 2018 compared to the same period in 2017, resulted from
the increase in labor-related costs, marketing and professional services associated with growth of the Company.
We
present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods
on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition,
we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our
business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with our
board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes,
among others, the following:
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●
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Modified
EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
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●
|
Modified
EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
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|
|
|
|
●
|
Modified
EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments,
on our debts; and
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|
|
|
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●
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Although
depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced
in the future, and the Modified EBITDA does not reflect any cash requirements for such replacements.
|
Liquidity
and Capital Resources
Going
Concern
We
have incurred operating losses since inception and have negative cash flows from operations. As of June 30, 2018, we had a stockholders’
deficit of $2,180,711 and incurred a net loss of $6,722,532. We also utilized $1,889,395 in cash during the period ended June
30, 2018. As a result, our continuation as a going concern is dependent on our ability to obtain additional financing until we
can generate sufficient cash flows from operations to meet our obligations. We intend to continue to seek additional debt or equity
financing to continue our operations.
Our
condensed consolidated financial statements have been prepared on a going concern basis, which implies we may not continue to
meet our obligations and continue our operations for the next fiscal year. The continuation of our Company as a going concern
is dependent upon our ability to obtain necessary debt or equity financing to continue operations until our Company begins generating
positive cash flow.
There
is no assurance that we will ever be profitable or that debt or equity financing will be available to us in the amounts, on terms,
and at times deemed acceptable to us, if at all. The issuance of additional equity securities by us would result in a significant
dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available,
would increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed
acceptable to us, we may be unable to continue our business, as planned, and as a result may be required to scale back or cease
operations for our business, the result of which would be that our stockholders would lose some or all of their investment. The
consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue
as a going concern.
Overview
As
of June 30, 2018, we had cash of $1,420,798. We estimate our operating expenses for the next three months may continue to exceed
any revenues we generate, and we may need to raise capital through either debt or equity offerings to continue operations. We
are in the early stages of our business. We are required to fund growth from financing activities, and we intend to rely on a
combination of equity and debt financings. Due to market conditions and the early stage of our operations, there is considerable
risk that we will not be able to raise such financings at all, or on terms that are not overly dilutive to our existing stockholders.
We can offer no assurance that we will be able to raise such funds. If we are unable to raise the funds we require for all of
our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect
on our business plan and operations, including our ability to develop new products and continue our current operations. As a result,
our business may suffer, and we may be forced to reduce or discontinue operations.
Cash
Flows – Operating
For
the six months ended June 30, 2018, our cash flows used in operating activities amounted to $1,889,395 compared to cash used during
the six months ended June 30, 2017 of $794,754. The change is due to an increase in business activity, which resulted in an additional
consulting expenses, salary, and various operating expenses in the first half of 2018 compared to the first half of 2017. In addition,
the Company paid accrued interest as part of the convertible debt payoffs in quarter one 2018 and paid down accounts payable.
Cash
Flows – Financing
Our
cash provided by financing activities for the six months ended June 30, 2018 amounted to $3,299,633, which represented $2,978,500
of proceeds received from the issuances of our common stock, $1,000,000 of proceeds from the issuance of shares of our common
stock from the exercise of a put option, $130,000 of proceeds from the issuance of convertible debt, $34,133 of proceeds from
the exercise of options, and $22,000 of proceeds from the exercise of warrants, offset by $845,000 of convertible debt payments
and the repurchase of common stock equal to $20,000. Our cash provided by financing activities for the six months ended June 30,
2017 amounted to $805,000, which represented $450,000 of proceeds received from the issuances of common stock, $255,000 of proceeds
received from the issuance of convertible Series A preferred stock, and $100,000 of proceeds from the issuance of a convertible
note. All shares of Series A preferred stock have been converted and we filed a Certificate of Elimination / Withdrawal with the
state of Nevada.
Warrant
Liability
As
of June 30, 2018, total liabilities are $3,686,026, of which $1,014,227 is attributable to certain outstanding warrants to purchase
up to 1.7 million shares of common stock that are accounted for as derivative liability (see Note 7 Derivative Liability
to the attached unaudited consolidated financial statements). Without the derivative liability, total liabilities would have been
$2,671,799, of which $1,964,985 is related party debt.
As
of June 30, 2018, the derivative liability of $1,014,227 relates to outstanding warrants to purchase up to 1.7 million shares
of common stock issued in December 2017 and January 2018. Due to certain adjustments that may be paid to the exercise price of
the warrants if the Company issues r sells rights, options, or warrants to holders of its common stock (and not to the warrant
holders) entitling them to subscribe for or purchase shares of its common stock at a price that is less than the closing price
at the record date of such issuance, the warrants have been classified as a liability, as opposed to equity, in accordance with
ASC 815-10 as it was determined that the warrants were not indexed to our common stock.
Notes
Payable
The
Company has the following outstanding notes payable to related parties at June 30, 2018 that are due in the current year:
Payable
to:
|
|
Issuance
Date
|
|
|
Maturity
Date
|
|
|
Interest
Rate
|
|
|
Original
Borrowing
|
|
|
Balance
at
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rory
Cutaia (1)
|
|
|
December
1, 2015
|
|
|
|
August
1, 2018
|
|
|
|
12.0
|
%
|
|
$
|
1,248,883
|
|
|
$
|
1,198,883
|
|
Rory
Cutaia
|
|
|
December
1, 2015
|
|
|
|
August
1, 2018
|
|
|
|
12.0
|
%
|
|
|
189,000
|
|
|
|
189,000
|
|
Past
Director
|
|
|
December
1, 2015
|
|
|
|
April
1, 2017
|
|
|
|
12.0
|
%
|
|
|
111,901
|
|
|
|
111,901
|
|
Rory
Cutaia (2)
|
|
|
August
4, 2016
|
|
|
|
December
4, 2018
|
|
|
|
12.0
|
%
|
|
|
343,326
|
|
|
|
343,326
|
|
Rory
Cutaia
|
|
|
August
4, 2016
|
|
|
|
December
4, 2018
|
|
|
|
12.0
|
%
|
|
|
121,875
|
|
|
|
121,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable – related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,964,985
|
|
(1)
|
Per
the terms of the note agreement, at Mr. Cutaia’s discretion, he may convert up to $374,665 of outstanding principal,
plus accrued interest thereon, into shares of common stock at a conversion rate of $0.07 per share.
|
(2)
|
A
total of 30% of the principal of the note can be converted to shares of common stock at a conversion price of $0.07 per share.
|
Off
Balance Sheet Arrangements
We
have no off-balance sheet arrangements.
Contractual
Obligations
We
are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and are not required to provide the information under this Item.
Critical
Accounting Policies
Our
financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which
require that we make certain assumptions and estimates that affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of net revenue and expenses during each reporting period.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reported periods. Significant estimates include valuation
of derivative liability, valuation of debt and equity instruments, share-based compensation arrangements, and realization of deferred
tax assets. Amounts could materially change in the future.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are 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. 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.
The
Company uses Level 2 inputs for its valuation methodology for the derivative liabilities as their fair values were determined
by using a probability weighted average Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative
liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded
in results of operations as adjustments to fair value of derivatives.
Share-Based
Payment
The
Company issues stock options, warrants exercisable for shares of common stock, common stock, and equity interests as share-based
compensation to employees and non-employees.
The
Company accounts for its share-based compensation to employees in accordance FASB ASC 718 “Compensation – Stock Compensation.”
Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized
as expense over the requisite service period.
The
Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB
ASC 505-50
“
Equity - Based Payments to Non-Employees
.”
Measurement of share-based payment transactions
with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or
(b) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance
completion date. For interim periods, the fair value is estimated, and the percentage of completion is applied to that estimate
to determine the cumulative expense recorded.
The
Company values stock compensation based on the market price on the measurement date. As described above, for employees this is
the date of grant, and for non-employees, this is the date of performance completion.
The
Company values stock options using the Black-Scholes option pricing model. Assumptions used in the Black-Scholes model to value
options issued during the six months ended June 30, 2018 and 2017 are as follows:
|
|
Six
Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Risk-free
interest rate
|
|
|
2.25%
- 2.85
|
%
|
|
|
1.76%
- 1.93
|
%
|
Average
expected term (years)
|
|
|
5
years
|
|
|
|
5
years
|
|
Expected
volatility
|
|
|
184%
-190
|
%
|
|
|
157%-160
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
The
risk-free interest rate is based on rates established by the Federal Reserve Bank. The expected term represents the weighted-average
period of time that share option awards are expected to be outstanding giving consideration to vesting schedules and historical
participant exercise before. The Company uses the historical volatility of its common stock to estimate the future volatility
for its common stock. The expected dividend yield is based on the fact that the Company has not customarily paid dividends in
the past and does not expect to pay dividends in the future.
Recently
Issued Accounting Pronouncements
For
a summary of our recent accounting policies, refer to Note 2 of our unaudited condensed consolidated financial statements included
under Item 1 – Financial Statements in this Form 10-Q.