NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
1.
ORGANIZATION AND BASIS OF PRESENTATION
During
the periods covered by these financial statements, GTX Corp and its subsidiaries (the “Company” or “GTX”)
were engaged in business operations that design, manufacture and sell various interrelated and complementary products and services
in the wearable technology and Personal Location Services marketplace. GTX owns 100% of the issued and outstanding capital stock
of its two subsidiaries - Global Trek Xploration, Inc. and LOCiMOBILE, Inc.
Global
Trek Xploration, Inc. (“Global Trek”) focuses on the design, manufacturing and sales distribution of its hardware,
software, and connectivity, Global Positioning System (“GPS”) and Bluetooth Low Energy (“BLE”) monitoring
and tracking platform, which provides real-time tracking and monitoring of people and high valued assets. Utilizing a miniature
quad band GPRS transceiver, antenna, circuitry, battery and inductive charging pad our solutions can be customized and integrated
into numerous products whose location and movement can be monitored in real time over the Internet through our 24x7 tracking portal
or on a web enabled cellular telephone. Our core products and services are supported by an IP portfolio of patents, patents pending,
registered trademarks, copyrights, URLs and a library of software source code, all of which is also managed by Global Trek.
LOCiMOBILE,
Inc. (“LOCiMOBILE”), is the Company’s digital platform which has been at the forefront of Smartphone application
(“App”) development since 2008. With a suite of mobile applications, we are able to turn the iPhone, iPad, Android
and other GPS enabled handsets into a tracking device which can be tracked from handset to handset, through our tracking portal
or on any connected device with internet access. LOCiMOBILE has launched over 20 Apps across multi mobile device operating systems
and continues to launch consumer and enterprise apps.
Basis
of Presentation
The
accompanying unaudited consolidated financial statements of GTX have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and applicable regulations of the U.S. Securities and Exchange
Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations. In the
opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement
of financial position and results of operations have been included. Our operating results for the three months ended March 31,
2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The accompanying
unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for
the year ended December 31, 2018, which are included in our Annual Report on Form 10-K.
The
accompanying consolidated financial statements reflect the accounts of GTX Corp and its wholly-owned subsidiaries. All significant
inter-company balances and transactions have been eliminated.
On
June 22, 2018, the Company effected a 1-for-75 reverse stock split of its common stock. All references to shares of common stock
outstanding, average number of shares outstanding and per share amounts in these consolidated financial statements and notes to
consolidated financial statements have been restated to reflect as if the reverse stock split occurred as of the earliest period
presented.
Going
Concern
The
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
net losses of $556,475 and utilized cash in operations of $102,641 during the period ended March 31, 2019, has incurred
losses since inception resulting in an accumulated deficit of $23,379,669 and a stockholders’ deficit of $3,723,960
as of March 31, 2019. The Company anticipates further losses in the development of its business. These factors raise substantial
doubt about the Company’s ability to continue as a going concern for the twelve months following the filing date of our
Quarterly Report on Form 10-Q, May 15, 2019. 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 until such time as revenues and related cash flows are sufficient
to fund our operations.
The
Company’s independent registered public accounting firm has also included explanatory language in their opinion accompanying
the Company’s audited financial statements for the year ended December 31, 2018. The Company’s 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 from the possible inability of the Company 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. The Company’s ability to raise additional capital through the future issuances of debt or equity is unknown. The ability
to obtain additional financing, the successful development of the Company’s contemplated plan of operations, or its ability
to achieve profitable operations are necessary for the Company to continue operations, and there is no assurance that these can
be achieved. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue
as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the
outcome of these aforementioned uncertainties.
2.
SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
We
account for revenue in accordance with ASC 606. A performance obligation is a promise in a contract to transfer a distinct good
or service to the customer, and is the unit of account in ASC 606. Revenue is measured as the amount of consideration we expect
to receive in exchange for transferring goods or providing services. The contract transaction price is allocated to each distinct
performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We do not have any significant
payment terms, as payment is received shortly after goods are delivered or services are provided.
We
derive our revenues primarily from hardware sales, subscription services fees, IP licensing and professional services fees. Hardware
includes our SmartSole, Military and other Stand-Alone Devices. Subscription services revenues consist of fees from customers
accessing our cloud-based software solutions and subscription or license fees for our platform. Professional services and other
revenues consist primarily of fees from implementation services, configuration, data services, training and managed services related
to our solutions. IP licensing is related to our agreement with Inventergy whereby we have partnered in order to monetize our
IP portfolio (see Note 3).
Product
sales
At
the inception of each contract, we assess the goods and services promised in our contracts and identify each distinct performance
obligation. The Company recognizes revenue upon the transfer of control of promised products or services to the customer in an
amount that depicts the consideration the Company expects to be entitled to for the related products or services. For the large
majority of the Company’s sales, transfer of control occurs once product has shipped and title and risk of loss have transferred
to the customer.
Services
Income
The
Company’s software solutions are available for use as hosted application arrangements under subscription fee agreements
without licensing perpetual rights to the software. Subscription fees from these applications are recognized over time on a ratable
basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. Our
subscription contracts are generally one to three months in length. Amounts that have been invoiced are recorded in accounts receivable
and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met.
The
majority of our professional services arrangements are recognized on a time and materials basis. Professional services revenues
recognized on a time and materials basis are measured monthly based on time incurred and contractually agreed upon rates. Certain
professional services revenues are based on fixed fee arrangements and revenues are recognized based on the proportional performance
method. In some cases, the terms of our time and materials and fixed fee arrangements may require that we defer the recognition
of revenue until contractual conditions are met. Data services and training revenues are generally recognized as the services
are performed.
IP
Licensing Revenue
Beginning
in 2019 we began our transition into an outbound licensing model whereby revenue recorded by the Company includes revenue
for our License and Partnership agreement with Inventergy which provides for ongoing royalties based on monetization of IP
licenses. The Company recognizes revenue for these licenses upon execution of the licensing agreement. During the period ended
March 31, 2019 four licensing agreements were entered into for $75,000 of which our share is 45% or $33,750.
During
the period ended March 31, 2019, the Company’s customer base were comprised of approximately 30.99% B2B (Wholesale Distributors
and Enterprise Institutions), 36.21% B2C (consumers and government agencies who bought on the behalf of consumers, through our
online ecommerce platform and through Amazon, Google and iTunes), 32.80% IP (our monetization campaign from consulting, licensing
and asserting our patents) and 0% Military and Law Enforcement. During the period ended March 31, 2018, the Company’s customer
base and revenue streams were comprised of approximately 14.88% B2B (Wholesale Distributors and Enterprise Institutions), 16.59%
B2C (consumers and government agencies who bought on the behalf of consumers, through our online ecommerce platform and through
Amazon, Google and iTunes), 4.98% IP (our monetization campaign from consulting, licensing and asserting our patents) and 63.55%
Military and Law Enforcement.
Disaggregation
of Net Sales
The
following table shows the Company’s disaggregated net sales by customer type:
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
B2B
|
|
$
|
31,889
|
|
|
$
|
37,357
|
|
B2C
|
|
|
37,267
|
|
|
|
41,665
|
|
Military
|
|
|
-
|
|
|
|
159,540
|
|
IP
|
|
|
33,750
|
|
|
|
12,500
|
|
Total
|
|
$
|
102,906
|
|
|
$
|
251,062
|
|
Use
of Estimates
The
preparation of the accompanying unaudited financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. These estimates include, but are not limited to, estimates related to revenue recognition, allowance for doubtful accounts,
inventory valuation, tangible and intangible long-term asset valuation, warranty and other obligations and commitments. Estimates
are updated on an ongoing basis and are evaluated based on historical experience and current circumstances. Changes in facts and
circumstances in the future may give rise to changes in these estimates which may cause actual results to differ from current
estimates.
Fair
Value Estimates
Pursuant
to the Accounting Standards Codification (“ASC”) No. 820, “
Disclosures About Fair Value of Financial Instruments
”,
the Company records its financial assets and liabilities at fair value. ASC No. 820 provides a framework for measuring fair value,
clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between
market participants at the reporting date. ASC No. 820 establishes a three-tier hierarchy, which prioritizes the inputs used in
the valuation methodologies in measuring fair value:
|
Level
1 -
|
Inputs
are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
|
|
|
|
|
Level
2 -
|
Inputs
(other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through
correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life.
|
|
|
|
|
Level
3 -
|
Inputs
reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement
date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
|
The
carrying values for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities
approximate their fair value due to their short maturities. The Company uses Level 3 inputs for its valuation methodology
for the derivative liabilities.
Concentrations
We
currently rely on one manufacturer to supply us with our GPS SmartSole and two manufacturers to supply us with the GPS device
included in the GPS SmartSole. The loss of either of these manufacturers could severely impede our ability to manufacture the
GPS SmartSole.
During
the three months ended March 31, 2019, the Company had four customers that each represented 45%, 21%, 18% and 11 % of our
sales on an individual basis, or approximately 95% in the aggregate, and during the three months ended March 31, 2018, the Company
had two major customers that each represented more than 50% and 18% of our sales on an individual basis,
or approximately 68% in the aggregate. As of March 31, 2019, the Company had two customers that each represented more than
56% and 11% of our accounts receivable on an individual basis, or approximately 67% in the aggregate, and as of
December 31, 2018, the Company had two customers that each represented more than 59% and 13% of our accounts receivable
on an individual basis, or approximately 72% in the aggregate.
Derivative
Instruments
Our
debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances
may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.
Our
derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative
liability recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options
that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using the Black-Scholes
option pricing model. This model requires assumptions related to the remaining term of the instrument and risk-free rates of return,
our current Common Stock price and expected dividend yield, and the expected volatility of our Common Stock price over the life
of the option.
Net
Loss Per Common Share
Basic
net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during
the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock
and potentially outstanding shares of common stock during each period. There were no dilutive shares outstanding as of March 31,
2019 and 2018. Common stock equivalents, totaling 13,360,000 and 13,703,333 at March 31, 2019 and 2018, respectively, were
not included in the computation of diluted earnings per share in 2019 and 2018 in the unaudited consolidated statements of operations
due to the fact that the Company reported a net loss during these periods and inclusion of such shares would be anti-dilutive.
Segments
The
Company operates in one segment for the manufacture and distribution of its products. In accordance with the “Segment Reporting”
Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President,
who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing
guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information
quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which
the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment
Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services;
and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information
required by “Segment Reporting” can be found in the accompanying financial statements.
Recently
Issued Accounting Pronouncements
R
ecent
accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.
3.
INVENTEGY LBS, LLC PARTNERSHIP
The
Company has the following transactions with Inventergy Global, Inc. (NASDAQ: INVT).
IP
Monetization
Agreement
On
June 16, 2016, the Company entered into a Definitive Agreement with Inventergy Innovations, LLC (“Inventergy”), a
subsidiary of INVT. The Company partnered with Inventergy to monetize three (3) GTX Patents were assigned to an
Inventergy subsidiary (“Inventergy LBS, LLC”), and Inventergy assigned a 45% revenue share in net revenue
collected on these patents to GTX. Pursuant to a non-exclusive license back to GTX, GTX will still retain all use rights
of the 3 patents. The agreement provides for ongoing royalties based on monetization of IP licenses. The Company
recognizes revenue for these licenses upon execution of the licensing agreement. During the period ended March 31, 2019 four
licensing agreements were entered into for $75,000 of which our share is 45% or $33,750.
Investment
in Equity Securities
As
of March 31, 2018, and December 31, 2018, we owned 42,500 shares of common stock of INVT with a fair value of $850 and $344 respectively.
Our investment accounted for less than a 5% interest in the equity of this Company.
In
accordance with ASU 2016-01, Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities these securities are measured at fair value and the changes in unrealized net holding gains and losses will be reported
in earnings. The change in the fair value of these securities during the period of $506, which is included in other expenses
on the Condensed Consolidated Statements of Operations.
Sales
to INVT
During
the periods ended March 31, 2019 and 2018, the Company provided IP consulting services to INVT in the amounts of $0 and $12,500,
respectively.
4.
RELATED PARTY TRANSACTIONS
Convertible
notes Payable and accrued interest - In 2017, management elected to transfer the existing accrued salaries into long-term convertible
promissory notes. As of March 31, 2019 and December 31, 2018, these notes total $884,546. The notes bear a 10% annual interest
rate. Management shall have the right, but not the obligation to convert up to 50% of the amount advanced and accrued interest
into shares, warrants or options of common or preferred stock of the Company at $0.01 per share (see Note 8). Accrued interest
on the notes was $155,849 and $134,039 as of March 31, 2019 and December 31, 2018 and is included in the accrued expenses –
related parties on the accompanying balance sheet.
Accrued
wages and costs -
In order to
preserve cash for other working capital needs, various officers, members of management, employees and Board Members agreed to
accrue portions of their wages and sometimes various out-of pocket expenses since 2011. As of March 31, 2019, and December 31,
2018, the Company owed $253,571 and $198,135, respectively, for such accrued wages and other expenses owed for other services
which are included in the accrued expenses – related parties on the accompanying balance sheet.
5.
INVENTORY
Inventories
consist of the following:
|
|
March
31, 2018
|
|
|
December
31, 2018
|
|
Raw
materials
|
|
$
|
41,555
|
|
|
$
|
717
|
|
Finished
goods
|
|
|
12,427
|
|
|
|
21,850
|
|
Total
Inventories
|
|
$
|
53,982
|
|
|
$
|
22,567
|
|
6.
PROPERTY AND EQUIPMENT
Property
and equipment, net, consists of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Software
|
|
$
|
25,890
|
|
|
$
|
25,890
|
|
Website
development
|
|
|
91,622
|
|
|
|
91,622
|
|
Software
development
|
|
|
294,751
|
|
|
|
294,751
|
|
Equipment
|
|
|
1,750
|
|
|
|
1,750
|
|
Less:
accumulated depreciation
|
|
|
(373,904
|
)
|
|
|
(355,625
|
)
|
|
|
|
|
|
|
|
|
|
Total
property and equipment, net
|
|
$
|
40,109
|
|
|
$
|
58,388
|
|
Depreciation
expense for the period ended March 31, 2018 and 2017 was $18,279 and $17,403, respectively, and is included in general and administrative
expenses.
7.
NOTES PAYABLE
The
following table summarizes the components of our short-term borrowings:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
(a)
Term loans
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
(b)
Line of credit
|
|
|
130,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
330,000
|
|
|
$
|
265,000
|
|
(a)
Term loans
In
2015, the Company entered into an unsecured term loan agreement with a third party for an aggregate principal balance of $200,000
at an interest rate of 14% per annum. The term loan became due on April 14, 2017, however the maturity date has been extended
to October, 1 2019 and the Company issued the lender warrants to purchase 2,500,000 shares of the Company’s common stock
valued at $22,492 as consideration for the extension of the loan which has been recorded as a financing cost during the period ended March 31, 2019. The principal balance outstanding on the note
as of March 31, 2019 and December 31, 2018 was $200,000.
(b)
Line of Credit
The
Company obtained a line of credit agreement with an accredited investor of $5,000,000 during 2018. The line bears interest of
17%. The line is based upon GTXO providing the investor with purchase orders and use of proceeds, including production of goods
schedules and loan repayment timelines. These loans/drawdowns are specifically for product, inventory and/or purchase order financing.
Upon
completion of the terms of the Line of Credit, GTX Corp. will issue to the investor 7,500,000 shares of GTXO common stock or $75,000
of GTXO common stock, whichever is greater. The Company is accounting for the value of the shares to be issued as the funds
are advanced.
As
of March 31, 2019 and December 31, 2018 the Company had received $130,000 and $65,000 in advances, respectively
under
the line of credit, and had paid down $3,023 in interest.
8.
CONVERTIBLE NOTES
As
of March 31, 2019 and December 31, 2018, the Company had a total of $1,269,738 and $1,313,133, respectively, of outstanding
convertible notes payable, which consisted of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
a)
Convertible Notes – with fixed conversion terms
|
|
$
|
958,500
|
|
|
$
|
967,000
|
|
b)
Convertible Notes – with variable conversion
|
|
|
311,238
|
|
|
|
346,133
|
|
Total
|
|
|
1,269,738
|
|
|
|
1,313,133
|
|
Less:
Debt discount
|
|
|
-
|
|
|
|
(20,024
|
)
|
Total
convertible notes, net of debt discount
|
|
$
|
1,269,738
|
|
|
$
|
1,293,109
|
|
|
a)
|
Included
in Convertible Notes - with fixed conversion terms, are loans provided to the
Company from various investors with principal balances totaling $958,500 as of
March 31, 2019. These notes carry simple interest at a rate ranging from
0% to 14% per annum and with terms ranging from 1 to 2 years. In lieu of the repayment
of the principal and accrued interest, the outstanding amounts are convertible, at the
option of the note holder, generally at any time on or prior to maturity and automatically
under certain conditions, into the Company’s common shares at $0.015 to $0.30
per share. These notes became due in 2017 and prior, and are currently past due.
|
|
|
|
|
|
At
December 31, 2018, balance of the Convertible Notes was $967,000. During the three months ended March 31, 2019, we issued
3,000,000 shares of common stock to convert $6,000 of these outstanding convertible notes (see Note 9) and made payments of
$2,500. As of March 31, 2019, balance of the Convertible Notes was $958,500. These notes are currently past due.
|
|
|
|
|
|
On
certain of these notes the conversion price embedded in the note agreements was below
the trading price of the common stock on the dates of issuance, and a beneficial conversion
feature (BCF) was recognized at the date of issuance as a note discount. As of December
31, 2018, the unamortized discount was $20,024 and was fully amortized during the period
ended March 31, 2019.
|
|
|
|
|
b)
|
Convertible
notes payable with principal balance of $311,238 as of March 31, 2019 consists of loans provided to the
Company from various investors. These notes are non-interest bearing and with terms ranging from 1 to 2 years. In lieu of
the repayment of the principal and accrued interest, the outstanding amounts are convertible, at the option of the note holder,
generally at any time on or prior to maturity and automatically under certain conditions, into the Company’s common
shares at 60% of the lowest trading price in the prior 30 days. The Company determined that since the conversion floor
of these notes had no limit to the conversion price, the Company could no longer determine if it had enough authorized shares
to fulfil its conversion obligation. As such, pursuant to current accounting guidelines, the Company determined that the conversion
feature of these notes created a derivative at the date of issuance which was recorded as a valuation discount that was fully
amortized as of December 31, 2018.
|
|
|
|
|
|
At
December 31, 2018, balance of the loans was $346,133. During the three months ended March
31, 2019, we issued 8,147,308 shares of common stock to convert $46,145 of outstanding
convertible notes (see Note 9). In addition, certain of the notes included a penalty provision for non-payment which
resulted in an additional finance charge of $11,251 being added to the principal balance. As of March 31, 2019, balance of
the Convertible Notes was $311,238.
|
Derivative
liabilities
Under
authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s
own stock, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has
issued certain convertible notes whose conversion price is based on a future market price. 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.
As
a result, the conversion option is classified as a liability and 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.
At
December 31, 2018, the balance of the derivative liabilities was $232,162. During the period ended March 31, 2019, the Company
recorded a change in fair value of $32,273. At March 31, 2019, the balance of the derivative liabilities was $264,435.
At
March 31, 20198 and December 31, 2018, the derivative liabilities were valued using a probability weighted Black-Scholes-Merton
pricing model with the following assumptions:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Conversion
feature:
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
2.37
|
%
|
|
|
2.57
|
%
|
Expected
volatility
|
|
|
524.09
|
%
|
|
|
504.95
|
%
|
Expected
life (in years)
|
|
|
.1
to .773 years
|
|
|
|
.1
to .773 years
|
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
Fair
Value:
|
|
|
|
|
|
|
|
|
Conversion
feature
|
|
$
|
264,435
|
|
|
$
|
232,162
|
|
The
risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility
of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the
notes was based on the remaining contractual term of the notes. The expected dividend yield was based on the fact that the Company
has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders
in the future.
9.
EQUITY
Common
Stock
The
Company issued the following shares of common stock during the three months ended March 31, 2019:
|
|
Value
of Shares
|
|
|
Number
of Shares
|
|
Shares
issued for conversion of debt
|
|
$
|
52,146
|
|
|
|
11,147,308
|
|
Shares
issued for financings
|
|
$
|
3,100
|
|
|
|
250,000
|
|
Shares
issued for services rendered
|
|
|
76,880
|
|
|
|
6,200,000
|
|
Total
shares issued
|
|
$
|
132,126
|
|
|
|
17,597,308
|
|
Shares
issued for services rendered were to various members of management, the Board of Directors, employees and consultants and are
expensed as Stock-Based Compensation in the accompanying consolidated statement of operations. Shares issued for financings was
to an accredited investor in relation to their convertible note. Shares issued for conversion of debt relate to conversion of
the convertible note discussed in Note 5.
On
October 16, 2018, the Company created a long-term employment retention bonus plan and issued 39,500,000 of restricted
common shares to the plan. The shares have a 3-year vesting period and those eligible, employees, directors and advisors must
have been with the Company for at least 7 years with an additional 2 years necessary in order to participate in the plan and
3 to become fully vested. The shares will vest with a mandatory 2-year minimum requirement for such vesting to become valid
with 33.4% in year two and 66.66% at the end of year three. If the individual leaves the Company prior to vesting the Company
or its assignee retains the option to repurchase the unvested shares at par. The shares had a fair value of $1,086,250 at
the date of grant, which cost will be amortized over the three-year vesting period. The unamortized balance of the
award was $1,075,226 as of December 31, 2018. For the period ending March 31, 2019, the company had amortized expense of
$122,726 related to the retention plan and the remaining $952,500 will be recognized as compensation cost as the shares
vest.
Common
Stock Warrants
Since
inception, the Company has issued warrants to purchase shares of the Company’s common stock to shareholders, consultants
and employees as compensation for services rendered and/or through private placements.
A
summary of the Company’s warrant activity and related information is provided below
|
|
Exercise
Price $
|
|
|
Number
of Warrants
|
|
Outstanding
and exercisable at December 31, 2018
|
|
|
2.25
- 0.0125
|
|
|
|
11,555,000
|
|
Warrants
exercised
|
|
|
-
|
|
|
|
-
|
|
Warrants
granted
|
|
|
0.01
|
|
|
|
2
,750,000
|
|
Warrants
expired
|
|
|
0.015
|
|
|
|
(945,000
|
)
|
Outstanding
and exercisable at March 31, 2019
|
|
|
2.25
- .01
|
|
|
|
13
,360,000
|
|
Stock
Warrants as of March 31, 2019
|
|
Exercise
|
|
|
Warrants
|
|
|
Remaining
|
|
|
Warrants
|
|
Price
|
|
|
Outstanding
|
|
|
Life
(Years)
|
|
|
Exercisable
|
|
$
|
0.0125
|
|
|
|
500,000
|
|
|
|
0.05
|
|
|
|
500,000
|
|
$
|
0.015
|
|
|
|
5,135,000
|
|
|
|
0.63
|
|
|
|
4,190,000
|
|
$
|
0.01
|
|
|
|
250,000
|
|
|
|
1.78
|
|
|
|
3,000,000
|
|
$
|
0.020
|
|
|
|
5,000,000
|
|
|
|
0.63
|
|
|
|
5,000,000
|
|
$
|
0.040
|
|
|
|
500,000
|
|
|
|
0.98
|
|
|
|
500,000
|
|
$
|
1.125
|
|
|
|
128,000
|
|
|
|
0.22
|
|
|
|
128,000
|
|
$
|
2.25
|
|
|
|
42,000
|
|
|
|
0.26
|
|
|
|
42,000
|
|
During
the period ended March 31, 2019, 2,500,000 of the warrants issued were related to financings with total fair value at grant
date of $22,492, and 250,000 warrants were issued related to an advisory agreement with total fair value at grant date of $4,799,
both have a 2-year term and have a strike price of $0.01.
The
outstanding and exercisable warrants at March 31, 2019 had an intrinsic value of approximately $28,000.
Common
Stock Options
Under
the Company’s 2008 Equity Compensation Plan (the “2008 Plan”), we are authorized to grant stock options intended
to qualify as Incentive Stock Options, “ISO”, under Section 422 of the Internal Revenue Code of 1986, as amended,
non-qualified options, restricted and unrestricted stock awards and stock appreciation rights to purchase up to 7,000,000 shares
of common stock to our employees, officers, directors and consultants, with the exception that ISOs may only be granted to employees
of the Company and its subsidiaries, as defined in the 2008 Plan.
The
Plan provides for the issuance of a maximum of 7,000,000 shares of which, after adjusting for estimated pre-vesting forfeitures
and expired options, approximately 2,235,000 were available for issuance as of March 31, 2019.
There
are no options outstanding as of March 31, 2019.
10.
COMMITMENTS & CONTINGENCIES
From
time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise
in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in
the aggregate) may materially and adversely affect our financial condition, results of operations and liquidity. In addition,
the ultimate outcome of any litigation is uncertain. Any outcome, whether favorable or unfavorable, may materially and adversely
affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the
period incurred. We cannot assure you that additional contingencies of a legal nature or contingencies having legal aspects will
not be asserted against us in the future, and these matters could relate to prior, current or future transactions or events.
11.
SUBSEQUENT EVENTS
On
April 22, 2019, we issued 1,903,597 shares of common stock to an investor for converting $13,230 in debt from a convertible note
that was issued in the fourth quarter of 2018.
On
May 10, 2019, we issued a 2,500,000 warrant with a strike price of $0.011 to an accredited investor were related
to financings with total fair value at grant date of $27,500.