The accompanying footnotes are an integral part of these consolidated financial statements.
The accompanying footnotes are an integral part of these consolidated financial statements.
The accompanying footnotes are an integral part of these consolidated financial statements.
The accompanying footnotes are an integral part of these consolidated financial statements.
NOTE 1 - NATURE OF THE ORGANIZATION AND BUSINESS
HeadTrainer, Inc. and Subsidiary (the “Company” or “We”), formerly known as TeleHealthCare, Inc. (“TeleHealthCare”), was incorporated under the laws of the
State of Wyoming on December 10, 2012. Prior to the reverse merger described below, TeleHealthCare developed platforms in the telehealth industry. The first platform the Company developed was called CarePanda. CarePanda was set up as a
division of TeleHealthCare. CarePanda is an online software that helps people, family members and caregivers manage, share and control their own, their family’s or their customers’ healthcare information.
On September 11, 2017, TeleHealthCare executed an Agreement and Plan of Merger (the “Merger Agreement”) with HeadTrainer, Inc., a North Carolina corporation,
and HT Acquisition Corp., a Wyoming corporation and wholly-owned subsidiary of HeadTrainer, Inc. (the “Acquisition”) whereby the Acquisition will be merged with and into the Company (the “Merger”) in consideration for 17,500,000
newly-issued shares of Common Stock of the Company (the “Merger Shares”). As a result of the Merger, HeadTrainer became a wholly-owned subsidiary of TeleHealthCare, and following the consummation of the Merger and giving effect to the
retirement of approximately 15,666,667 shares (leaving approximately 7,957,667 shares remaining prior to the Merger), and the sale of approximately 3,451,322 shares at the Merger to accredited investors, the stockholders of HeadTrainer,
Inc. became beneficial owners of approximately 61% of our issued and outstanding common stock. Certain assets and liabilities of the original TeleHealthCare were then spun off, including assets and liabilities associated with CarePanda,
with the Company assuming approximately $194,632 of remaining liabilities and changing the name of the newly merged company to HeadTrainer, Inc.
As a result of the Merger, each HeadTrainer shareholder received approximately 2.53 newly issued shares of TeleHealthCare for every 1 common share of
HeadTrainer owned.
Prior to the consummation of the Merger, our former Board of Directors approved an amendment to our Articles of Incorporation (the “Amendment”) to (i) change
our name to HeadTrainer, Inc.; (ii) to increase the number of our authorized shares of capital stock to 510,000,000 shares, of which 500,000,000 shares shall be common stock and 10,000,000 shares shall be blank check preferred stock; and
(iii) to provide that the Company may take action without a meeting on the written consent of the holders of a majority of the shares entitled to vote at such meeting.
For accounting purposes, HeadTrainer will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a
recapitalization of the Company. Accordingly, HeadTrainer’s assets, liabilities and results of operations will become the historical consolidated financial statements of the Company and the Company’s assets, liabilities and results of
operations will be consolidated with HeadTrainer effective as of the date of the Merger. No step-up in basis or intangible assets or goodwill will be recorded in this transaction.
As a result of the Merger with HeadTrainer, our business plan has shifted to mobile applications for athletes of all ages and all skill levels, designed to
engage and improve cognitive abilities. We are focused on developing a unique, industry-leading iOS and Android cognitive training mobile device application platform called HeadTrainer that we believe is differentiated from other players
in the cognitive training space with a primary focus on the youth sports markets.
HeadTrainer, Inc.
HeadTrainer was incorporated in the state of North Carolina on May 13, 2014. It subsequently changed its original name of Head Trainer, Inc. to HeadTrainer, Inc.
HeadTrainer was established to create, develop, promote, market, produce, and distribute online/mobile application cognitive training tools initially intended
for the youth, millennial and adult sports markets. The Corporation initially intends to outsource product manufacturing, distribution and the majority of its marketing efforts. The Corporation may work in conjunction with other
organizations that provide computer programming, graphic design, and marketing expertise, and/or accomplish these same tasks in-house.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The
Company has a September 30 year-end.
On August 28, 2017, our Board of Directors approved a reverse stock split of our issued and authorized shares of common on the basis of three (3) shares for one
(1) new share. Our shareholders approved the reverse split through a special meeting held on November 2, 2017. As of the date of this filing, FINRA has not yet effected the reverse stock split. Our authorized common stock will remain
unchanged with 500,000,000 shares of common stock. No fractional shares will be issued in connection with the reverse stock split. Additionally, the Board of Directors and shareholders approved the authorization of 10,000,0000 shares of
blank check preferred stock with a par value of $0.001 per share.
No share or per share information included in these consolidated financial statements gives effect to the reverse split since it has not yet been effected by
FINRA as of the date of this filing.
Basis of Consolidation
The consolidated financial statements include the accounts of HeadTrainer, Inc. and its wholly-owned subsidiary HeadTrainer, as of and for the years ended
September 30, 2017 and 2016. All significant intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly
evaluates estimates and assumptions related to useful life and recoverability of long-lived assets, valuation of shares for services and assets, deferred income tax asset valuations and loss contingencies. The Company bases its estimates
and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are
material differences between the estimates and the actual results, future results of operations will be affected.
Cash
For purposes of the statement of cash flows, the Company considers all highly liquid instruments with maturity of three months or less at the time of issuance
to be cash equivalents. There is no restricted cash or cash equivalents.
Revenue Recognition
We recognize subscription revenue when four basic criteria are met: (1) persuasive evidence exists of an arrangement with the customer reflecting the terms and
conditions under which the services will be provided; (2) services have been provided; (3) the fee is fixed or determinable; and (4) collection is reasonably assured. Subscription revenue derived from direct sales to users is recognized on
a straight-line basis over the duration of the subscription period. As of September 30, 2017 and 2016, deferred revenue was $0. There was no revenue for the year ended September 30, 2017.
Equipment
Equipment consists of computer equipment, and is recorded at cost, less accumulated depreciation. Equipment is depreciated on a straight-line basis over its
estimated life. Computer equipment is depreciated over an estimate life of three years.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes and for operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled. A valuation allowance is established to reduce net deferred tax assets to the
amount expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that includes the enactment date. The Company recognizes the effect of income
tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being recognized. Changes in recognition and
measurement are reflected in the period in which the change in judgment occurs. Interest and penalties related to unrecognized tax benefits are included in income tax expense.
Fair value
Financial instruments consist principally of cash, accounts payable and accrued liabilities, notes payable and convertible notes payable. The recorded values
of all financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations. The carrying amounts of these financial instruments approximate fair value due to their
short-term nature.
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally
accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy
is defined as follows:
·
|
Level 1 - Valuation is based upon unadjusted quoted market prices for identical assets or liabilities in accessible active markets.
|
·
|
Level 2 - Valuation is based upon quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in
inactive markets; or valuations based on models where the significant inputs are observable in the market.
|
·
|
Level 3 - Valuation is based on models where significant inputs are not observable. The unobservable inputs reflect a company’s own assumptions about the inputs that
market participants would use.
|
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates
are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Research and development expenses
Research and development expenses are expensed as incurred and are primarily comprised of product development.
Warrants
The Company has issued warrants in connection with financing arrangements. Warrants that do not qualify to be recorded as permanent equity are recorded as
liabilities at their fair value using the Black- Scholes option pricing model. Warrants that do qualify to be recorded as permanent equity are recorded based on the relative fair value of the instrument using the Black-Scholes
option-pricing model. The relative fair value of the warrants is recorded in additional paid-in capital and as a debt discount. For warrants issued for services, the relative fair value is recorded in additional paid-in capital and
stock-based compensation.
Share-based compensation
The Company measures the cost of awards of equity instruments based on the grant date fair value of the awards. That cost is recognized on a straight-line
basis over the period during which the employee is required to provide service in exchange for the entire award. The fair value of stock options on the date of grant is calculated using the Black-Scholes option pricing model, based on key
assumptions such as the fair value of common stock, expected volatility and expected term. The Company’s estimates of these important assumptions are primarily based on third-party valuations, historical data, peer company data and the
judgment of management regarding future trends and other factors.
Equity Instruments Issued for Services
Issuances of the Company’s common stock for services is measured at the fair value of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to employees and board members is determined at the earlier of (i) the date at which a commitment for performance to
earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is
complete. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is
measured at the then-current fair values at each of those financial reporting dates. Based on the applicable guidance, the Company records the compensation cost but treats forfeitable unvested shares as unissued until the shares vest.
Advertising Costs
The Company expenses the costs of advertising when the advertisements are first aired or displayed. All other advertising and promotional costs are expensed in
the period incurred. Total advertising expense for the years ended September 30, 2017 and 2016 was $600 and $119,992, respectively. The Company’s application was inactive and not sold during the year ended September 30, 2017.
Earnings (Loss) Per Share (“EPS”)
Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS
includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes.
The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these
potential shares was antidilutive even though the exercise price could be less than the average market price of the common shares:
|
|
|
Year ended
September 30,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
4,071,412
|
|
|
|
155,490
|
|
Warrants
|
|
|
1,263,989
|
|
|
|
1,263,989
|
|
Potentially dilutive securities
|
|
|
5,335,401
|
|
|
|
1,419,479
|
|
Recent Accounting Pronouncements
On May 10, 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-09 “Compensation—Stock Compensation (Topic
718): Scope of Modification Accounting”, which provides guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is
required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective prospectively for all companies for
annual periods beginning on or after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). This guidance will be effective for public entities for fiscal years beginning after
December 15, 2018 including the interim periods within those fiscal years. Early application is permitted. Under the new provisions, all lessees will report a right-of-use asset and a liability for the obligation to make payments for all
leases with the exception of those leases with a term of 12 months or less. All other leases will fall into one of two categories: (i) Financing leases, similar to capital leases, which will require the recognition of an asset and
liability, measured at the present value of the lease payments and (ii) Operating leases which will require the recognition of an asset and liability measured at the present value of the lease payments. Lessor accounting remains
substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. For sale leaseback transactions, the sale will only be recognized if the criteria in the new revenue
recognition standard are met. The Company is currently evaluating the impact of adopting this guidance.
In August 2015, the FASB issued ASU 2015-14, “Revenue From Contracts With Customers (Topic 606)”. The amendments in this ASU defer the effective date of ASU
2014-09 “Revenue From Contracts With Customers (Topic 606)”. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that
reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is still evaluating the impact of
adopting this guidance.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe
that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - LIQUIDITY, UNCERTAINTIES AND GOING CONCERN
The Company is subject to a number of risks similar to those of early stage companies, including dependence on key individuals, the difficulties inherent in the
development of a commercial market, the potential need to obtain additional capital necessary to fund the development of its products, and competition from larger companies.
These consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge
its liabilities in the normal course of business for the foreseeable future. The Company has incurred a loss since inception resulting in an accumulated deficit of approximately $9 million as of September 30, 2017, and further losses are
anticipated in the development of its business raising substantial doubt about the Company's ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations
in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months
from the date of the issuance of these consolidated financial statements with existing cash on hand and loans from directors and/or the private placement of common stock. There is, however, no assurance that the Company will be able to
raise any additional capital through any type of offering on terms acceptable to the Company.
NOTE 4 –EQUIPMENT
The Company’s equipment consists of the following:
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
7,351
|
|
|
$
|
7,351
|
|
|
|
|
7,351
|
|
|
|
7,351
|
|
Less: accumulated depreciation
|
|
|
(6,181
|
)
|
|
|
(3,924
|
)
|
|
|
$
|
1,170
|
|
|
$
|
3,427
|
|
Depreciation expense was $2,257 and $2,452 for the years ended September 30, 2017 and 2016, respectively.
NOTE 5 - RELATED PARTIES
In June 2014, the Company entered into an agreement with HIP, LLC (“HIP”), a company owned by the Company’s Chairman. Per the agreement, in exchange for the
intellectual property consisting of certain patents and trademarks, the Company is to pay HIP periodic royalty payments equal to 1.75% of the revenue derived from the sale of any product incorporating the intellectual property.
On July 24, 2015, the Company entered into a separation agreement and release of liability (the ‘Separation Agreement”) with the Company’s former Chief
Executive Officer (the “former CEO”) whereby the Company agreed to pay the former CEO a severance payment of $150,000, plus repay a $50,000 unsecured promissory note which is included in convertible notes payable – related parties on the
accompanying balance sheet, on or before December 31, 2017, or within 10 days of the Company receiving $700,000 in cash proceeds from the issuance of debt or equity securities. The $150,000 severance payment is reflected in accrued
compensation to related parties as of September 30, 2017 and 2016. Additionally, the Company agreed to pay the former CEO a royalty of 0.5% of the Company’s gross revenue recognize from June 15, 2015 through January 25, 2018 payable on a
quarterly basis. The former CEO has initiated legal action against the Company to collect the unpaid severance payment, promissory note, and royalties
,
as the amounts
remain unpaid as of September 30, 2017 and included in accrued liabilities on the accompany consolidated balance sheets.
On February 1, 2015, the Company entered into an Employment Agreement with one of the Company’s founder to serve as Chairman of the Board of Directors (the
“Former Chairman”). The agreement has a term of seven years, renewable in two-year increments upon the approval of the Board of Directors of the Company and provides for an annual salary of $150,000. Additionally, the agreement includes
compensation of .0125% of gross revenue after successful launch of the Company’s product, subject to approval by the board of directors. During the year ended September 30, 2017, the Former Chairman and the Company entered into a deferred
salary conversion agreement, whereby the Former Chairman agreed to convert a total of $131,000 of unpaid salary, consisting of $62,500 and $68,500 earned for the years ended September 30, 2017 and 2016, respectively, into 379,827 shares of
the Company’s common stock. As of September 30, 2017 and 2016, $80,250 and $75,250, respectively, remains accrued for this agreement and is included in accrued compensation to related parties on the accompanying balance sheet.
On February 4, 2016, four related party noteholders agreed to convert an aggregate of $123,000 of 0% interest, unsecured notes payable into an aggregate of
414,588 shares of common stock at a price of $0.30 per share.
On May 15, 2016, the Company entered into an Employment Agreement, with an Amendment dated November 7, 2016, with the Company’s CEO, Mr. Robert Finigan,
terminating by either party upon 60 day written notice. The agreement calls for a compensation of minimum wage until such time the Company completes a debt or equity offering of at least $1,000,000, when the CEO shall begin receiving a
salary of $100,000 per year, payable monthly. At such time the Company completes a debt or equity offering of at least $5,000,000, the CEO shall begin receiving a salary of $200,000 per year, payable monthly. The agreement allows for the
cashless exercise of 500,000 stock options of the pre-Merger HeadTrainer, Inc. common stock at a price of 0.153 per share and a fair value of $371,858. The options became fully vested on May 31, 2017 and must be exercised between May 31,
2017 and May 31, 2022 (see Note 11). These options were cancelled on the Merger date. Accrued salary under this agreement was $21,352 and $9,600 as of September 30, 2017 and 2016, respectively, and is included in accrued compensation to
related parties on the accompanying balance sheet. On May 19, 2017, the Company granted 337,064 shares with a value of $100,000 in lieu of salary under this agreement, of which $37,808 and $62,192 were earned and included in stock-based
compensation – related party for the years ended September 30, 2017 and 2016, respectively.
On May 27, 2016, the Company entered into an Employment Agreement, with an Amendment dated November 7, 2016, with the Company’s CTO, terminating by either party
upon 60 day written notice. The agreement calls for a compensation of minimum wage until such time the Company completes a debt or equity offering of at least $1,000,000, when the CTO shall begin receiving a salary of $75,000 per year,
payable monthly. At such time the Company completes a debt or equity offering of at least $5,000,000, the CTO shall begin receiving a salary of $150,000 per year, payable monthly. The agreement allows for the cashless exercise of 375,000
stock options of the pre-Merger HeadTrainer, Inc. common stock at a price of $0.051 per share. The options become fully vested on May 31, 2017 and must be exercised between May 31, 2017 and May 31, 2022 (see Note 11). These options were
cancelled on the Merger date. On May 27, 2017, the Company granted 252,798 shares with a value of $75,000 in lieu of salary under this agreement, of which $25,890 and $49,110 were earned and included in stock-based compensation – related
party for the year ended September 30, 2017 and 2016, respectively. The CTO resigned in August 2017.
During the year ended September 30, 2016, the Company’s former interim CEO was granted 63,199 shares of common stock for services as a price of $0.30 per
shares.
On November 30, 2016, the Company granted 421,330 shares of common stock at $0.30 per share, with a total value of $125,000, to the Company’s former Chairman of
the Board for services pursuant to his amended employment agreement dated April 22, 2015.
On September 15, 2017, we entered into an employment agreement with Mr. Robert Finigan as our Chairman and Chief Executive Officer. Under the terms of the
employment agreement, Mr. Finigan is considered an “At Will” employee and shall receive annual compensation of $150,000 per year and be immediately vested in the Company’s health and benefits package. Mr. Finigan was also granted 333,334
shares of the Company’s common stock, with a fair value of $22,700, that vests as to 41,667 shares on each of October 1, 2017, January 1, 2018, April 1, 2018, July 1, 2018, October 1, 2018, January 1, 2019, April 1, 2019 and July 1, 2019.
Mr. Finigan also may defer up to 50% of his annual salary to purchase an equivalent number of shares in the Company based upon a purchase price of $0.0681 per share. Mr. Finigan is also entitled to reimbursement of business expenses and
customary provisions for vacation, sick time and holidays. Determinations with regard to bonus or option grants are made by the Board of Directors.
On September 15, 2017, we entered into an employment agreement with Mr. Maurice Durschlag as our Chief Marketing Officer. Under the terms of the employment
agreement, Mr. Durschlag is considered an “At Will” employee and shall receive annual compensation of $120,000 per year and be immediately vested in the Company’s health and benefits package. Mr. Durschlag was also granted 333,334 shares
of the Company’s common stock, with a fair value of $22,700, that vests as to 41,667 shares on each of October 1, 2017, January 1, 2018, April 1, 2018, July 1, 2018, October 1, 2018, January 1, 2019, April 1, 2019 and July 1, 2019. Mr.
Durschlag also may defer up to 50% of his annual salary to purchase an equivalent number of shares in the Company based upon a purchase price of $0.0681 per share. Mr. Durschlag is also entitled to reimbursement of business expenses and
customary provisions for vacation, sick time and holidays. Determinations with regard to bonus or option grants are made by the Board of Directors.
As of September 30, 2017 and 2016, an additional $47,364 and $75,445, respectively, was accrued for other employees and employer taxes which is included in
accrued compensation to related parties on the accompanying balance sheet.
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are as follows at September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
363,527
|
|
|
$
|
462,484
|
|
Accrued consulting and brand endorsement fees
|
|
|
1,161,249
|
|
|
|
935,082
|
|
Accrued other
|
|
|
64,645
|
|
|
|
22,800
|
|
|
|
$
|
1,589,421
|
|
|
$
|
1,420,366
|
|
NOTE 7 – NOTES PAYABLE – RELATED PARTIES
Current related party notes payable are as follows at September 30, 2017 and 2016, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, shareholder, 0% interest, unsecured, due upon demand. On May 18, 2016, the noteholder converted the
note to an 8% unsecured promissory note due August 1, 2016. This note is in default as of September 30, 2017.
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Notes payable, shareholder, 0% interest, unsecured, due upon demand
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
102,000
|
|
|
|
102,000
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
10,959
|
|
|
|
2,980
|
|
|
|
$
|
112,959
|
|
|
$
|
104,980
|
|
Interest expense related to these notes for the years ended September 30, 2017 and 2016 was $7,979 and $2,980, respectively.
During the year ended September 30, 2016, related party notes payable totaling an aggregate of $123,000 were converted to the Company’s common stock by the note
holders and a total of $131,500 of related party notes were settled as part of a settlement agreement with SSG. See Note 10.
NOTE 8 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable are as follows at September 30, 2017 and 2016, respectively:
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
|
|
Convertible note payable, including interest at 10%, due December 31, 2016, convertible at $1.47 per share. This
note is in default as of September 30, 2017 and continues to accrue interest at 10%.
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable dated May 5, 2017, including interest at 10%, due May 5, 2018, convertible into shares of
the Company’s common stock at $0.0681 per share.
|
|
|
10,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Four convertible denture notes payable dated in August and September 2017, including interest at 0% (12% after an
event of default) due in August and September of 2020, convertible at any time into shares of the Company’s common stock at $0.615 per share. The Company recorded a debt discount of $25,756 for the beneficial conversion feature
upon issuance, with an unamortized balance of $25,161 as of September 30, 2017. A total of $200,000 of these notes were assumed in the Merger, with $40,000 received in cash subsequent the Merger.
|
|
|
214,840
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324,840
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
27,646
|
|
|
|
12,223
|
|
|
|
|
352,486
|
|
|
|
112,223
|
|
Less current portion
|
|
|
(137,646
|
)
|
|
|
(112,223
|
)
|
Long-term convertible notes payable, net
|
|
$
|
214,840
|
|
|
$
|
-
|
|
Interest expense related to these notes for the years ended September 30, 2017 and 2016 was $15,424 and $39,308, respectively. Amortization of the debt
discount was $596 and $0 for the years ended September 30, 2017 and 2016, respectively, and included in interest expense for each period on the accompanying consolidated statement of operations.
Convertible notes payable with an aggregate principal balance of $850,000 and accrued interest of $59,205, were converted into 1,146,017 shares of the Company’s
common stock during the year ended September 30, 2016 resulted in a loss of $100,092, which is reflected in loss on debt and payable settlements in the accompanying statement of operations.
NOTE 9 – CONVERTIBLE NOTES PAYABLE – RELATED PARTIES
Convertible notes payable to related parties are as follow at September 30, 2017 and 2016, respectively:
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
|
|
Convertible note payable to brother of former CEO, including interest at 10%, due December 31, 2016, convertible at
$1.47 per share. This note is in default as of September 30, 2017 and continues to accrue interest at 10%.
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Convertible note payable to former CEO, including interest at 10%, due December 31, 2017, convertible at $1.47 per
share, currently in default.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, with a shareholder, dated May 5, 2017, including interest at 10%, due May 5, 2018,
convertible into shares of the Company’s common stock at $0.0681 per share.
|
|
|
5,000
|
|
|
|
-
|
|
|
|
|
105,000
|
|
|
|
100,000
|
|
Accrued interest
|
|
|
25,446
|
|
|
|
15,243
|
|
|
|
|
130,446
|
|
|
|
115,243
|
|
Less current portion
|
|
|
(130,446
|
)
|
|
|
(57,017
|
)
|
Long-term convertible notes payable, related parties
|
|
$
|
-
|
|
|
$
|
58,226
|
|
Interest expense related to these notes for the years ended September 30, 2017 and 2016 was $10,203 and $25,658, respectively.
Convertible notes payable to related parties with an aggregate principal balance of $450,000 and accrued interest of $32,058, were converted into 606,715 shares
of the Company’s common stock during the year ended September 30, 2016 resulted in a loss of $52,990, which is reflected in loss on debt and payable settlements in the accompanying statement of operations.
NOTE 10 – COMMON STOCK
On May 13, 2014, the Company filed its Articles of Incorporation with the State of North Carolina Secretary of State giving it the authority to issue 10,000,000
common shares, with no par value. On February 3, 2016, the majority voting common shareholders approved the amendment of the Company’s articles of incorporation in order to increase its authorized common stock from 10,000,000 shares to
25,000,000 shares.
On September 11, 2017, TeleHealthCare executed an Agreement and Plan of Merger (the “Merger Agreement”) with HeadTrainer, Inc., a North Carolina corporation,
and HT Acquisition Corp., a Wyoming corporation and wholly-owned subsidiary of HeadTrainer, Inc. (the “Acquisition”) whereby the Acquisition will be merged with and into the Company (the “Merger”) in consideration for 17,500,000
newly-issued shares of Common Stock of the Company (the “Merger Shares”). As a result of the Merger, HeadTrainer became a wholly-owned subsidiary of TeleHealthCare, and following the consummation of the Merger and giving effect to the
retirement of approximately 15,666,667 shares (leaving approximately 8,000,000 shares remaining prior to the Merger), and the sale of approximately 3,333,334 shares at the Merger to accredited investors, the stockholders of HeadTrainer,
Inc. became beneficial owners of approximately 61% of our issued and outstanding common stock. Certain assets and liabilities of the original TeleHealthCare were then spun off, including assets and liabilities associated with CarePanda,
with the Company assuming approximately $195,000 of remaining liabilities and changing the name of the newly merged company to HeadTrainer, Inc. All TeleHealthCare stock options or warrants expired by September 30, 2017. Warrants to
purchase an aggregate of 500,000 shares of common stock remain from HeadTrainer, with a total of 875,000 HeadTrainer stock options cancelled (See Note 11).
As a result of the Merger, each HeadTrainer shareholder received approximately 2.53 newly issued shares of TeleHealthCare for every 1 common share of
HeadTrainer owned.
Concurrent with Merger, our Board of Directors approved an amendment to our Articles of Incorporation (the “Amendment”) to (i) change our name to HeadTrainer,
Inc.; (ii) to increase the number of our authorized shares of capital stock to 510,000,000 shares, of which 500,000,000 shares shall be common stock and 10,000,000 shares shall be blank check preferred stock; and (iii) to provide that the
Company may take action without a meeting on the written consent of the holders of a majority of the shares entitled to vote at such meeting.
Transactions during the year ended September 30, 2016:
On February 4, 2016, four related party noteholders agreed to convert an aggregate of $123,000 of 0% interest, unsecured notes payable into an aggregate of
414,588 shares of common stock at a price of $0.30 per share.
On February 4, 2016, fourteen convertible noteholders agreed to convert an aggregate of $1,300,000 of 10% interest, convertible notes payable, out of which a
total of $450,000 are related party notes payable, into an aggregate of 1,752,731 shares of common stock at a price of $0.75 per share and settle accrued interest of $106,918. The stated conversion rate in the notes was $1.47 per common
share, thus company recognized a loss on settlement of $153,082 to reflect the fair value of additional shares issued as a result of agreeing to the lowered conversion rate of $0.75 per share.
During the year ended September 30, 2016, the Company’s former interim CEO was granted 63,199 shares of common stock for services as a price of $0.30 per
shares.
During the year ended September 30, 2016, the Company’s Chairman of the Board agreed to convert $68,500 of deferred salary earned in 2015 and 2016 into 230,889
shares of the Company’s common stock at a price of $0.30 per share.
During the year ended September 30, 2016, the Company’s president earned 127,438 shares of common stock at $0.30 per share, with a total value of $37,808 for
services pursuant to his amended employment agreement dated May 16, 2016.
During the year ended September 30, 2016, the Company’s CTO earned 87,267 shares of common stock at $0.30 per share, with a total value of $25,890 for services
pursuant to his amended employment agreement dated May 27, 2016.
On April 22, 2016, the Company entered into an agreement with NUWA Consulting Group (“NUWA”), pursuant to which NUWA paid $30,000 for 667,765 shares valued at
$0.33 and 250,000 warrants with 10-year term and exercise price stated as $5 million divided by the number of the Company’s outstanding shares ($0.69) (See Note 11). The agreement has an anti-dilution clause noting that NUWA should retain
an ownership percentage of 10% of the outstanding shares of the Company until the Company completes an equity or debt offering of a minimum of $250,000; anti-dilution clause resulted in issuance of additional 733,956 shares (645,073 shares
as of September 30, 2016, with an additional 88,884 shares during the year ended September 30, 2017). Excess of the fair value of the instruments issued over the consideration paid by NUWA of $572,739 was recognized as compensation. The
Company additionally entered into a consulting agreement with NUWA, according to which the Company paid 842,659 shares, valued at $0.30 per share, vested at the grant date.
On May 16, 2016, the Company entered into a debt restructure and conversion agreement with Signature Sports Group, Inc. (SSG). Per the agreement, SSG agreed to
forbear on the collection of the Company’s outstanding debts of $231,500 and accounts payable of $249,853. In return, the Company agreed to (a) issue 5,055,956 shares to SSG in connection with the conversion of the outstanding debt, (b)
grant SSG a warrant to purchase up to 250,000 shares of common stock, and (c) make a $100,000 payment on the outstanding debts to SSG in the form of a note payable. The excess of the fair value of the instruments issued over the
liabilities settled of $1,306,070 was recognized as a loss on settlement.
On June 1, 2016, the Company granted 55,219 shares of common stock to a consultant for services at a price of $0.30 per share with a fair value of $16,382.
In June and July of 2016, the company sold a total of 674,127 shares to an accredited investor at a price of $0.30 per share, for total proceeds of $200,000.
On July 27, 2016, the Company granted 6,320 shares of common stock at $0.30 per share, with a total value of $1,875, to a vendor in settlement of accounts
payable, resulting in a gain on settlement of accounts payable of $10,000.
On July 27, 2016, the Company granted 11,325 shares of common stock at $0.30 per share, with a total value of $3,360, to a vendor in settlement of accounts
payable resulting in a gain on settlement of accounts payable of $20,990.
During the year ended September 30, 2016, the Company granted 70,936 shares of common stock to directors for services at a price of $0.30 per share with a fair
value of $21,045.
During the year ended September 30, 2016, the Company granted 71,626 shares of common stock to medical advisors for services at a price of $0.30 per share with
a fair value of $21,250.
Transactions during the year ended September 30, 2017:
On November 7, 2016, the two consultants agreed to convert a total of $300,000 of consulting fees earned in 2015 and 2016 into 1,011,191 shares of the Company’s
common stock at a price of $0.30 per share.
On November 30, 2016, the Company granted 421,330 shares of common stock at $0.30 per share, with a total value of $125,000, to the Company’s former Chairman of
the Board for services pursuant to his amended employment agreement dated April 22, 2015.
In January of 2017, the company received $25,000 from an accredited investor for 84,266 shares of the Company’s common stock at a price of $0.30 per share.
In February of 2017, the Company received $50,000 from an accredited investor for 168,532 shares of the Company’s common stock at a price of $0.30 per share.
In May of 2017, the Company received an aggregate of $40,000 from two accredited investors for 134,825 shares of the Company’s common stock at a price of $0.30
per share.
In August and September of 2017, the Company received an aggregate of $235,035 from accredited investors for 3,451,322 shares of the Company’s common stock at a
price of $0.0681 per share.
During the year ended September 30, 2017, the Company’s Chairman of the Board agreed to convert $62,500 of deferred salary earned in 2016 into 210,665 shares of
the Company’s common stock at a price of $0.30 per share.
During the year ended September 30, 2017, the Company’s president earned 209,626 shares of common stock at $0.30 per share, with a total value of $62,192 for
services pursuant to his amended employment agreement dated May 16, 2016.
During the year ended September 30, 2017, the Company’s CTO earned 165,531 shares of common stock at $0.30 per share, with a total value of $49,110 for services
pursuant to his amended employment agreement dated May 27, 2016.
During the year ended September 30, 2017, the Company’s Chief Marketing Officer earned 105,332 shares of common stock at $0.0681 per share, with a total value
of $2,838 for services pursuant to his employment agreement dated September 15, 2017.
During the year ended September 30, 2017, the Company’s CEO earned 105,999 shares of common stock at $0.0681 per share, with a total value of $2,838 for
services pursuant to his employment agreement dated September 15, 2017. Additionally, the CEO was granted 631,994 shares of common stock with a value of $0.0681 per share ($17,025 total) pursuant to the change of control clause in the CEO’s
previous employment agreement dated June 16, 2017.
During the year ended September 30, 2017, a total of 410,433 common shares were earned by directors for services at a fair value of $121,767, or $0.30 per
share.
During the year ended September 30, 2017, a total of 188,896 shares were earned by consultants and medical advisors for consulting services with an aggregate
fair value of $52,253.
During the year ended September 30, 2017, the Company granted NUWA an additional 88,884 shares with a fair value of $26,370, or $0.30 per share, under their
non-dilution clause included in the April 22, 2016 agreement. No further non-dilution shares are due under the agreement.
NOTE 11 - STOCK OPTIONS AND WARRANTS
As of September 30, 2017, the Company had no stock options and 1,263,989 warrants outstanding.
On April 21, 2016, the Company issued a warrant for 631,994 shares of common stock to NUWA Consulting Group pursuant to their agreement to purchase of shares
(see Note 10). The warrants have a 5-year term and exercise price of $0.21. The fair value of the warrants of $186,876 is reflected in additional paid-in capital and stock-based compensation for the year ended September 30, 2016. The
Company valued the warrant using the Black-Scholes option pricing model with the following assumptions: dividend yield of zero, expected term of 5 years, risk free rate 1.93 percent, and annualized volatility of 274%. These warrants were
not converted in the Merger and remain outstanding.
On May 18, 2016, the Company issued a warrant for 631,994 shares of common stock under a Debt Restructure and Conversion Agreement with a consultant (see Note
10). The warrants have a 10-year term and an exercise price of $0.21 . The fair value of the warrants of $187,498 is reflected in additional paid-in capital and loss on debt settlement for the year ended September 30, 2016. The Company
valued the warrant using the Black-Scholes option pricing model with the following assumptions: dividend yield of zero, contractual term of 10 years, risk free rate of 2.45 percent, and annualized volatility of 277%. These warrants were
not converted in the Merger and remain outstanding.
On May 15, 2016, the Company granted 500,000 stock options to the Company’s president under the terms of his employment agreement (see note 5). The agreement
allowed for the cashless exercise of 500,000 stock options at a price of $0.069 per share. The options become fully vested on May 31, 2017 and may be exercised between May 31, 2017 and May 31, 2022. Total expense related to these options
was $237,168 and $134,688 for the years ended September 30, 2017 and 2016 respectively, with $0 unrecognized cost related to the stock options remaining. The Company valued the options using the Black-Scholes option pricing model with the
following assumptions: dividend yield of zero, expected term of 3.5 years, risk free rate of 1.47 percent, a forfeiture rate of 0%, and annualized volatility of 247%. These options were cancelled upon the Merger.
On May 27, 2016, the Company granted 1,125,000 stock options to the Company’s chief technology officer under the terms of his employment agreement (see note
5). The agreement allowed for the cashless exercise of 1,500,000 stock options at a price of $0.069 per share. The options become fully vested on May 31, 2017 and may be exercised between May 31, 2017 and May 31, 2022. Total expense
related to these options was $183,662 and $95,232 for the years ended September 30, 2017 and 2016, respectively, with $0 unrecognized cost related to the stock options remaining. The Company valued the options using the Black-Scholes
option pricing model with the following assumptions: dividend yield of zero, expected term of 3.5 years, risk free rate of 1.47 percent, a forfeiture rate of 0%, and annualized volatility of 247%. These options were cancelled upon the
Merger.
NOTE 12 – CONCENTRATIONS
Significant Customers
The Company has standard licensing agreement with two customers, Apple and Google, that accounted for 100% of revenues for the year ended September 30, 2016 as
the Company deployed its mobile device application through Apple’s iTunes App Store and Google Play’s Android store. The Company’s application was inactive during the year ended September 30, 2017 and had no revenues.
NOTE 13 – OPERATING LEASE
From May 2014 through July 2016, the Company had a month-to-month office lease for an office space with a monthly base rate of $870 per month. The Company owes
$3,869 for past due payments under this lease as of September 30, 2017, which it has agreed to pay over monthly installments through May 2018. The Company did not lease office space from August 2016 through July 2017.
The Company entered into a lease agreement for office space in August 2017 for a total monthly rental of $1,995 and a term of 24 months.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
The Company has endorsement agreements with spokespeople to serve as the Company’s brand ambassadors entered in January 2015, providing for cash compensation of
$100,000 annually. The agreements have a ten-year term and provide for one-year extensions by agreement of both parties. The future compensation to brand ambassadors is $1,450,000, to be earned during the period from October 1, 2017 to
December 31, 2024. In addition, the Company will pay royalties to each spokesperson of .5% per month for all gross subscription revenue received by the Company for US subscriptions and 0.25% per month for all gross subscription revenue
received by the Company for all non-US subscriptions. Accrued royalties under these agreements were not material as of September 30, 2017 or 2016. Total accrued expense under these agreements was $250,000 and $350,000 respectively, as of
September 30, 2017 and 2016, respectively.
The Company has endorsement agreements with athletes with dates all expiring in 2017, providing for cash compensation of amounts ranging from $50,000 annually
to $150,000 annually. The future compensation to athletes is $0 as of September 30, 2017. In addition, the Company agreed to pay royalties of .5% of revenues from subscribers that identify the selected athlete as their favorite athlete.
Accrued royalties under these agreements were not material as of September 30, 2017 or 2016. Total accrued expense related to these agreements was $775,000 and $463,333 as of September 30, 2017 and 2016, respectively. All agreements were
expired as of September 30, 2017.
In addition to the royalties to be paid to brand ambassadors and athletes, the Company is to pay royalties the former CEO and to the Company's Founder as
disclosed in Related Party footnote.
The Company is to pay commissions to Apple and Google in consideration for services as the Company's agent and commissionaire for sales of licensed applications
to end-users in the amount of 30% of all purchase prices payable to each end-user. The Company’s application was inactive during the year ended September 30, 2017.
On September 30, 2016, the Company entered into a services agreement with a service provider for a development project payable in installments upon completion
of certain milestones. The Company incurred $203,500 of expense related to the project which is included in research and development expense for the year ended September 30, 2017.
NOTE 15 - INCOME TAXES
As of September 30, 2017, the Company had federal and state net operating loss carryforwards of approximately $
5
million available to reduce future years’ taxable income through 2037. Future tax benefits which may arise as a result of these losses have not been recognized in these consolidated financial statements, as
their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carryforwards. Deferred tax assets are established using the U.S.
federal statutory tax rate of 34.0% and a state tax rate, net of federal benefit, of 2.6%.
Income tax expense attributable to pretax loss from operations differed from the amounts computed by applying the U.S. federal income tax rate of 34% to pretax
loss as a result of the following:
|
|
For the Year Ended
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
Computed “expected” tax expense
|
|
$
|
(597,000
|
)
|
|
$
|
(1,360,000
|
)
|
Increase (reduction) in income tax resulting from:
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
330,000
|
|
|
|
420,000
|
|
State taxes, net of federal benefit
|
|
|
(46,000
|
)
|
|
|
(106,000
|
)
|
Non-deductible losses and expenses
|
|
|
313,000
|
|
|
|
1,046,000
|
|
|
|
|
|
|
|
|
|
|
Total income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
The components of the deferred tax asset and the amount of the valuation allowance are as follow:
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Deferred tax asset attributed to:
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
1,980,000
|
|
|
$
|
1,650,000
|
|
Less, valuation allowance
|
|
|
(1,980,000
|
)
|
|
|
(1,650,000
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The increase in the valuation allowance of approximately $330,000 during the year ended September 30, 2017 primarily represents the benefit of the change in net
operating loss carry-forwards during the period.
Utilization of the net operating loss carryforwards may be subject to substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, and
corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future
taxable income. In general, an ownership change, as define by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period.
The Company has not conducted a study to determine whether a change of control has occurred or whether there have been multiple changes of control due to the significant complexity and cost associated with such a study. If the Company has
experienced a change of control, as defined by Section 382, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382. Any limitation
may result in expiration of a portion of the net operating loss carryforwards before utilization. Further, until a study is completed and any limitation is known, no amounts are being presented as an uncertain tax position.
The statute of limitations for assessment by the Internal Revenue Service, or the IRS, and state tax authorities is open for tax years since inception for
federal and state tax purposes. The Company files income tax returns in the U.S. federal and North Carolina state jurisdictions. There are currently no federal or state audits in progress.
The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21% and will require the
Company to re-measure certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. The Company is currently examining certain aspects of the Act as it relates
our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts in periods subsequent to December 31, 2017.
NOTE 16 – SUBSEQUENT EVENTS
Other than the event below, there were no subsequent events that required recognition or disclosure. The Company evaluated subsequent events
through the date the financial statements were issued and filed with the Securities and Exchange Commission.
On October 2, 2017, the Company received proceeds of $60,000 from an accredited investor for the sale of 881,057 shares of the
Company’s common stock at a price of $0.0681 per share.
On January 10, 2018, the Company received aggregate proceeds of $60,000 from two investors for the sale of a total of 200,000 shares
of the Company’s common stock at a price of $0.30 per share.
In April and May 2018, the Company received aggregate proceeds of $50,030 from two investors for the sale of a total of 333,334
shares of the Company’s common stock at a price of $0.15 per share.
In June 2018, the Company received aggregate proceeds of $150,004 from two investors for the sale of a total of 2,000,053 shares of
the Company’s common stock at a price of $0.075 per share.
During the nine months ended June 30, 2018, the Company’s CEO was granted 333,333 shares of restricted common stock as part of future
compensation and vested in 125,000 of those shares at $0.0681 per share, with a total value of $8,513 for services pursuant to his employment agreement dated September 15, 2017. These shares have not yet been issued, however, the
compensation expense has been recognized. Total unrecognized compensation for these stock grants was approximately $11,000 as of June 30, 2018.
During the nine months ended June 30, 2018, the Company’s Chief Marketing Officer was granted 333,333 shares of restricted common
stock as part of future compensation and vested in 125,000 of those shares at $0.0681 per share, with a total value of $8,513 for services pursuant to his employment agreement dated September 15, 2017. These shares have not yet been
issued, however, the compensation expense has been recognized. Total unrecognized compensation for these stock grants was approximately $11,000 as of June 30, 2018.
In June 2018, the Company granted the Company’s CEO and Chief Marketing Officer an aggregate of 3,316,707 shares of the Company’s
common stock for services with an aggregate fair value of approximately $248,000, of which $106,875 was credited against accrued payroll due.
On July 1, 2018, the Company entered into a twelve-month Consulting Agreement with a consultant. The term of the agreement is twelve
months with consideration of 200,000 shares of the Company’s common stock earned equally in monthly increments over the term of the agreement.
On August 29, 2018 (the “Closing Date”), XSport Global, Inc. (the “Company”) entered into an
Equity Purchase Agreement
(the “Equity Purchase Agreement”) with Triton Funds, LP, a Delaware limited partnership (the “Investor”), whereby the Company shall have
the right to require the Investor to purchase up to $1,000,000 (the “Commitment Amount”) of shares (“Capital Call Shares”) the Company’s common stock, par value $0.001 per share (“Common Stock”) during the commitment period (the
“Commitment Period” commencing on August 28, 2018, and terminating on the earlier of (i) December 31, 2018, (ii) termination of the Equity Purchase Agreement by the Company upon a material breach by the Investor, or (iii) the date that
the Investor has purchased Capital Shares equal to the Commitment Amount. Pursuant to the Equity Purchase Agreement, the closing for Capital Call Shares shall occur on the date that is six business days following the date that the
Investor receives Capital Call Shares from the Company. The purchase price for the shares to be paid by the Investor at each closing shall be 70% of the volume-weighted average price of the Company’s common stock during the 5 trading
days prior to a closing date. The obligation of the Investor to purchase Capital Call Shares is subject to several conditions, including, among other thing, (i) that the Company has filed a registration statement with the United States
Securities and Exchange Commission registering the Capital Call Shares, and (ii) that the purchase of Capital Call Shares shall not cause the Investor to own more than 4.99% of the outstanding shares of the Company’s common stock.
In connection with the Equity Purchase Agreement, on August 29, 2018, the Company also entered into a
Registration Rights Agreement
with the Investor (the “Registration Rights Agreement”), requiring the Company to register, the Capital Call Shares on a registration
statement to be filed with the Securities and Exchange Commission within 30 calendar days of the Closing Date. Additionally, on August 29, 2018, the Company approved a donation of 400,000 shares of the Company’s common stock to Triton
Funds LLC.
On August 28, 2018, XSport Global, Inc., a Wyoming corporation (the “Company”) entered into a stock purchase agreement (the
“Agreement”) whereby the Company agreed to acquire all of the outstanding capital stock (the “Shares”) of Shift Now, Inc., a North Carolina corporation (“Shift Now”). The purchase price for the Shares was 700,000 shares of our common
stock, par value $0.001 per share (the “Common Stock”) and $30,000 consisting of two promissory notes for $15,000 each (the “Notes”). The first promissory note for $15,000 is to be delivered at closing and due within 12 months of the
closing. The second promissory note for $15,000 is to be delivered to the Seller no later than the 12 month anniversary of the closing and due within 12 months after issuance. Additionally, the Company assumed the Shift Now’s existing
line of credit made in favor of American National Bank in the current amount of $100,000. Also on August 28, 2018, the Company entered into an employment agreement (the “Employment Agreement”) with Kristi Griggs, the former principal
shareholder of Shift Now (the “Employee”) to serve as Executive Vice President of the Company’s Shift Now Division. The Employment Agreement provides that upon consummation of the Merger, Employee shall be entitled to receive a salary
of $100,000 per year plus a bonus of 5% of net revenue of clients managed by Employee or 1.5% of total gross revenues of Shift Now to be paid on the last pay period of the month for the prior month’s activity. Additionally, the Company
shall issue the Employee 150,000 shares of Common Stock at the 12-month anniversary of execution of the Employment Agreement. Employee shall receive an additional 150,000 shares of Common Stock upon the 24-month anniversary of the
Employment Agreement. The Employee may receive severance of the greater of six months’ salary or $50,000 upon termination of the Employment Agreement and shall be entitled to retain all equity ownership earned as of the date of
termination.
On June 5, 2018, a previously approved three-for-one reverse stock split of the Company’s common stock took effect on the Company’s
principal trading market. All shares and per share numbers in these consolidated financial statements have been retrospectively adjusted to reflect the reverse stock split.
On September 15, 2018 the Company and Bob Finigan entered into an amended employment agreement whereas he will received $200,000 per year until expiration on
December 31, 2020 and an annual stock grants of 500,000 shares per year. Mr. Finigan is also entitled to an annual bonus to be approved by the Board of Directors paid in the form of company stock in the amount of shares up to 1.5% of
the total number of shares issued by the company on the last day of each year.
On September 15, 2018 the Company and Maurice Durschlag entered into an amended employment agreement whereas he will received $180,000 per year
until expiration on December 31, 2020 and an annual stock grants of 500,000 shares per year. Mr. Durschlag is also entitled to an annual bonus to be approved by the Board of Directors paid in the form of company stock in the amount of
shares up to 1.0% of the total number of shares issued by the company on the last day of each year.
F-37