NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
1.
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Description of Business
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Helix Technologies, Inc. (the “Company”
or “Helix”) was incorporated in Delaware on March 13, 2014. Pursuant to the acquisition of the assets of Helix TCS,
LLC, as discussed below, we changed our name from Jubilee4 Gold, Inc. to Helix TCS, Inc. effective October 25, 2015. Effective
June 5, 2020, the Company changed its name from Helix TCS, Inc. to Helix Technologies, Inc.
Effective October 25, 2015, we entered
into an acquisition and exchange agreement with Helix TCS, LLC. We closed the transaction contemplated under the acquisition and
exchange agreement on December 23, 2015 and Helix TCS, LLC was merged into and with Helix.
Effective October 1, 2015, for accounting
purposes, as part of an acquisition amounting to a reorganization dated December 21, 2015, Helix Opportunities LLC exchanged 100%
of Helix TCS, LLC and its wholly-owned subsidiaries, Security Consultants Group, LLC and Boss Security Solutions, Inc. to the Company
in exchange for 20 million common shares and 1 million convertible preferred shares of the Company.
The acquisition of Helix was treated as
a recapitalization for financial accounting purposes. Jubilee4 Gold, Inc. is considered the acquiree for accounting purposes and
their historical financial statements before the Acquisition Agreement were replaced with the historical financial statements of
the Company. The common stock account of the Company continues post-merger, while the retained earnings of the acquiree is eliminated.
Furthermore, on April 11, 2016, the Company acquired the assets of Revolutionary Software, LLC (“Revolutionary”).
On March 3, 2018, Helix Technologies,
Inc. and its wholly owned subsidiary, Helix Acquisition Sub, Inc. (“BioTrackTHC Merger Sub”), entered into an Agreement
and Plan of Merger (the “BioTrackTHC Merger Agreement”) with Bio-Tech Medical Software, Inc. (“BioTrackTHC”)
and Terence J. Ferraro, as the representative of the BioTrackTHC stockholders, pursuant to which BioTrackTHC Merger Sub merged
with and into BioTrackTHC (the “BioTrackTHC Merger”).
On June 1, 2018 (the “BioTrackTHC
Closing Date”), in connection with closing the BioTrackTHC Merger, the Company issued 38,184,985 unregistered shares of its
common stock to BioTrackTHC stockholders, of which 1,852,677 shares were held back to satisfy indemnification obligations in the
BioTrackTHC Merger Agreement, if necessary. The Company also assumed the Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan
(“BioTrackTHC Stock Plan”), pursuant to which options exercisable in the amount of 8,132,410 shares of common stock
are outstanding. As a result, BioTrackTHC stockholders owned approximately 48% of the Company on a fully diluted basis as of the
BioTrackTHC Closing Date.
On August 3, 2018 (the “Engeni Closing
Date”), the Company and its wholly owned subsidiary, Engeni Merger Sub, LLC (“Engeni Merger Sub”), entered into
an Agreement and Plan of Merger (the “Engeni Merger Agreement”) with Engeni LLC (“Engeni US”), Engeni S.A
(“Engeni SA”), Scott Zienkewicz, Nicolas Heller and Alberto Pardo Saleme (the Engeni US members), and Scott Zienkewicz,
as the representative of the Engeni US members. Pursuant to the Engeni Merger Agreement, Engeni Merger Sub merged with and into
Engeni US, with Engeni US surviving the merger as a wholly-owned subsidiary of the Company (the “Engeni Merger”).
On the Engeni Closing Date, in connection
with closing the Engeni Merger Agreement, the Company issued 366,700 shares of Company common stock to Engeni US members. Furthermore,
the Company subsequently issued Engeni US members 733,300 shares of Company common stock on April 2, 2019.
On April 1, 2019 (“Tan Security Closing
Date”), the Company entered into a Membership Interest and Stock Purchase Agreement (the “Tan Security Acquisition
Agreement”) with Tan’s International Security and Tan’s International LLC (collectively, “Tan Security”).
Pursuant to the Tan Security Acquisition Agreement, the Company purchased all membership interests and capital stock of Tan Security
and collectively holds 100% of the interests of Tan Security (the “Tan Security Acquisition”).
On February 5, 2019, the Company and its
wholly owned subsidiary, Merger Sub, entered into an Agreement and Plan of Merger (the “Amercanex Merger Agreement”)
with Green Tree International, Inc. (“GTI”) and Steve Janjic, as the representative of the GTI shareholders, pursuant
to which Merger Sub merged with and into GTI (the “GTI Merger”).
On September 10, 2019 (the “GTI
Closing Date”), the Company closed the GTI Merger and entered into an Addendum No. 1 to the Amercanex Merger Agreement acknowledging
and approving certain events that occurred since signing as well as implementing various related amendments to the Amercanex Merger
Agreement. In connection with closing the GTI Merger, the Company issued 16,765,727 unregistered shares of Company common stock
to GTI shareholders, of which 4,140,274 shares were held back to satisfy indemnification obligations in the Amercanex Merger Agreement,
if necessary.
On July 31, 2020, the Company entered into
an Asset Purchase Agreement (the “Agreement”) with Invicta Security CA Corporation, a Delaware corporation (“Buyer”),
Invicta Services LLC, a Delaware limited liability company (“Invicta”), Boss Security Solutions, Inc., a Colorado corporation
(“Boss”), Security Consultants Group, LLC, a Colorado limited liability company (“SCG”), Tan’s International
LLC, a California limited liability company (“Tan LLC”), and Tan’s International Security, Inc., a California
corporation (“Tan Security”, collectively with Boss, SCG and Tan LLC, the “Sellers” or the “discontinued
entities” or individually a “Seller”). Pursuant to the terms and conditions of the Agreement, the Sellers sold,
assigned, transferred, and delivered to Buyer the Assets (as defined in the Agreement) and Buyer paid aggregate consideration of
$1,750,000 and assumed the Assumed Liabilities (as defined in the Agreement). The Assets included but were not limited to the right,
title and interest in and to all assets and property, tangible and intangible, of every kind and description, used in, related
to or necessary for the security guarding and protective guarding services business conducted by the Sellers. The Agreement contained
certain customary representations and warranties made by the parties. The Sellers and Helix agreed to various customary covenants,
including, among others, covenants regarding non-competition, the use and disclosure of confidential information, and the non-solicitation
of business relationships. As collateral for Sellers’ indemnification obligations, Buyer held back $600,000 of the consideration
pursuant to the Agreement. See Note 6 for additional details.
2.
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Going Concern Uncertainty, Financial Condition and Management’s Plans
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The Company believes that there is substantial
doubt about the Company’s ability to continue as a going concern. The Company believes that its available cash balance as
of the date of this filing will not be sufficient to fund its anticipated level of operations for at least the next 12 months.
The Company believes that its ability to continue operations depends on its ability to sustain and grow revenue and results of
operations as well as its ability to access capital markets when necessary to accomplish the Company’s strategic objectives.
The Company believes that it will continue to incur losses for the immediate future. The Company expects to finance future cash
needs from its results of operations and, depending on the results of operations, the Company may need additional equity or debt
financing until it can achieve profitability and positive cash flows from operating activities, if ever.
At September 30, 2020, the Company had
a working capital deficit of $1,340,470 as compared to a working capital deficit of $3,416,501 at December 31, 2019. The decrease
of $2,076,031 in the Company’s working capital deficit from December 31, 2019 to September 30, 2020 was primarily the result
of proceeds received from the sale of common stock, a reduction in accounts receivable, and non-cash decreases in the fair market
value of the Company’s convertible notes and warrant liability.
On March 11, 2020, the World Health Organization
(“WHO”) recognized COVID-19 as a global pandemic, prompting many national, regional, and local governments, including
in the markets that the Company operates in, to implement preventative or protective measures, such as travel and business restrictions,
wide-sweeping quarantines and stay-at-home orders. While the Company is actively working to successfully navigate the financial,
operational, and personnel challenges presented by the COVID-19 pandemic, the full extent of the impact of COVID-19 on the Company’s
operational and financial performance will depend on future developments, including the duration and spread of the pandemic and
related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease
spread, all of which are uncertain, out of the Company’s control and cannot be predicted at this time.
The Company’s future capital requirements
for its operations will depend on many factors, including the profitability of its businesses, the number and cash requirements
of other acquisition candidates that the Company pursues, and the costs of operations. The Company has been investing in upgrading
the capabilities of its software business. The Company’s management has taken several actions to ensure that it will have
sufficient liquidity to meet its obligations for the next twelve months, including growing and diversifying its revenue streams,
selectively reducing expenses, and considering additional funding. Additionally, if the Company’s actual revenues are less
than forecasted, the Company anticipates that variable expenses will also decline, and the Company’s management can implement
expense reduction as necessary. The Company is evaluating other measures to further improve its liquidity, including the sale of
equity or debt securities. Lastly, the Company may elect to reduce certain related-party and third-party debt by converting such
debt into common shares. The Company’s management believes that these actions will enable the Company to meet its liquidity
requirements for the next twelve months. There is no assurance that the Company will be successful in any capital-raising efforts
that it may undertake to fund operations during 2020 and beyond.
The Company plans to generate positive
cash flow from BioTrackTHC to address some of the liquidity concerns. However, to execute the Company’s business plan, service
existing indebtedness and implement its business strategy, the Company anticipates that it will need to obtain additional financing
from time to time and may choose to raise additional funds through public or private equity or debt financings, borrowings from
affiliates or other arrangements. The Company cannot be sure that any additional funding, if needed, will be available on terms
favorable to the Company or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities
may dilute the Company’s current stockholders’ ownership and could also result in a decrease in the market price of
the Company’s common stock. The terms of those securities issued by the Company in future capital transactions may be more
favorable to new investors and may include the issuance of warrants or other derivative securities, which may have a further dilutive
effect. The Company also may be required to recognize non-cash expenses in connection with certain securities it issues, such as
convertible notes and warrants, which may adversely impact the Company’s operating results and financial condition. Furthermore,
any debt financing, if available, may subject the Company to restrictive covenants and significant interest costs. There can be
no assurance that the Company will be able to raise additional capital, when needed, to continue operations in their current form.
3.
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Summary of Significant Accounting Policies
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Principles of Consolidation
The accompanying condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which include
Helix TCS, LLC (“Helix TCS”), Security Grade, BioTrackTHC (since June 1, 2018), Engeni US (since August 3, 2018), and
Green Tree International, Inc. (since September 10, 2019). As of July 31, 2020, the date of the consummation of the sale of the
Guarding segment, formerly owned subsidiaries Security Consultants Group, LLC (“Security Consultants”), Boss Security
Solutions, Inc. (“Boss Security”), and Tan Security are presented as part of discontinued operations. These interim
statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December
31, 2019.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue
and expense during the reporting period. Changes in estimates and assumptions are reflected in reported results in the period in
which they become known. Use of estimates includes the following: 1) allowance for doubtful accounts, 2) estimated useful lives
of property, equipment and intangible assets, 3) intangibles impairment, 4) valuation of convertible notes payable and 5) revenue
recognition. Actual results could differ from estimates.
Discontinued Operations
In the third quarter of 2020, the Company
determined that the Security and Guarding segment met the criteria to be classified as a discontinued operation as a result of
the combined sale of the assets of Security Consultants, Boss Security, and Tan Security. These businesses represented the majority
of the Company’s Security and Guarding segment.
As the combined sale of the Security and
Guarding segment represented a strategic shift that will have a major effect on our operations and financial results, these businesses
were presented in discontinued operations separate from continuing operations for the three and nine months ended September 30,
2020 and 2019, as applicable.
Cash
Cash consists of checking accounts. The
Company considers all highly liquid investments purchased with a maturity of three months or less at the time of purchase to be
cash equivalents. The Company has no cash equivalents as of September 30, 2020 or December 31, 2019.
From time to time, the Company’s
cash balances may exceed FDIC-insured limits. As of September 30, 2020, and December 31, 2019, the Company’s cash balances
exceeded FDIC-insured limits by approximately $1,078,000 and $120,000, respectively. The Company’s cash accounts have been
placed with high credit quality financial institutions. The Company has not experienced, nor does it anticipate, any losses with
respect to such accounts.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the
invoiced amount, net of an allowance for doubtful accounts. The Company performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review
of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience,
customer specific facts and economic conditions.
Management charges balances off against
the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company
determines when receivables are past due, or delinquent based on how recently payments have been received.
Outstanding account balances are reviewed
individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable
credit losses in the Company’s existing accounts receivable. Allowance for doubtful accounts was $362,631 and $273,138 at
September 30, 2020 and December 31, 2019, respectively.
Long-Lived Assets, Including Definite Lived Intangible
Assets
Long-lived assets, other than goodwill
and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such
assets. Definite-lived intangible assets primarily consist of non-compete agreements and customer relationships. For long-lived
assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through
its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between
the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
Goodwill
Goodwill, which
represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized;
rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. Helix reviews goodwill for possible
impairment annually during the fourth quarter, or whenever events or circumstances indicate that the carrying amount may not be
recoverable.
The impairment
model prescribes a two-step method for determining goodwill impairment. However, an entity is permitted to first assess
qualitative factors to determine whether the two-step goodwill impairment test is necessary. The qualitative factors
considered by Helix may include, but are not limited to, general economic conditions, Helix’s outlook, market performance
of Helix’s industry and recent and forecasted financial performance. Further testing is only required if the entity determines,
based on the qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its
carrying amount. Otherwise, no further impairment testing is required. In the first step, Helix determines the fair value of its
reporting unit using a discounted cash flow analysis. If the net book value of the reporting unit exceeds its fair value, Helix
then performs the second step of the impairment test, which requires allocation of the reporting unit’s fair value to all
of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations with
any residual fair value being allocated to goodwill. An impairment charge is recognized when the implied fair value of Helix’s
goodwill is less than its carrying amount.
Assumptions and
estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment
charges in future periods. Such assumptions include projections of future cash flows and the current fair value of the asset
Accounting for Acquisitions
In accordance with the guidance for business
combinations, the Company determines whether a transaction or other event is a business combination, which requires that the assets
acquired, and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition
method. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition.
Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest
in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill
or a gain from a bargain purchase. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions
and immediately expenses acquisition-related costs and fees associated with business combinations.
The Company accounts for its business combinations
under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC
805-10”), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and
liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective fair values.
ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported
apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible
assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business combinations
and are expensed as incurred. If the business combination provides for contingent consideration, the Company records the contingent
consideration at fair value at the acquisition date and any changes in fair value after the acquisition date are accounted for
as measurement-period adjustments. Changes in fair value of contingent consideration resulting from events after the acquisition
date, such as earn-outs, are recognized as follows: 1) if the contingent consideration is classified as equity, the contingent
consideration is not re-measured and its subsequent settlement is accounted for within equity, or 2) if the contingent consideration
is classified as a liability, the changes in fair value are recognized in earnings.
Business Combinations
The Company accounts for its business
combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations
(“ASC 805-10”), which requires that the purchase method of accounting be used for all business combinations. Assets
acquired and liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective
fair values. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized
and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets
and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business
combinations and are expensed as incurred. If the business combination provides for contingent consideration, the Company records
the contingent consideration at fair value at the acquisition date and any changes in fair value after the acquisition date are
accounted for as measurement-period adjustments. Changes in fair value of contingent consideration resulting from events after
the acquisition date, such as earn-outs, are recognized as follows: 1) if the contingent consideration is classified as equity,
the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or 2) if the contingent
consideration is classified as a liability, the changes in fair value are recognized in earnings.
The estimated fair value of net assets
acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using established valuation
techniques. The estimated fair value of the net assets acquired was determined using the income approach to valuation based on
the discounted cash flow method. Under this method, expected future cash flows of the business on a stand-alone basis are discounted
back to a present value. The estimated fair value of identifiable intangible assets, consisting of software and trade name acquired
were determined using the relief from royalty method.
The most significant assumptions under
the relief from royalty method used to value software and trade names include: estimated remaining useful life, expected revenue,
royalty rate, tax rate, discount rate and tax amortization benefit. The discounted cash flow method used to value non-compete agreements
includes assumptions such as: expected revenue, term of the non-compete agreements, probability and ability to compete, operating
margin, tax rate and discount rate. Management has developed these assumptions on the basis of historical knowledge of the business
and projected financial information of the Company. These assumptions may vary based on future events, perceptions of different
market participants and other factors outside the control of management, and such variations may be significant to estimated values.
Revenue Recognition
Under FASB Topic 606, Revenue from
Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised
goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or
services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with
a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies
a performance obligation.
The security services revenue is generated
from performing armed and unarmed guarding which is contracted for on an hourly basis. Revenues associated with these contracted
services are recognized under time-based arrangements as services are provided.
Additionally, the Company provides transportation
security services, which are generally contracted for on a per-run basis and sometimes additional fees and surcharges are also
billed to the client depending on the length of the run. Revenues associated with these services are recognized as the transportation
service is provided. The guarding and transportation security business is now a discontinued operation. The Company still provides
monitoring services.
The Company generates revenue from developing
and licensing seed to sale cannabis compliance software to both private-sector and public-sector (government agencies) businesses
that are involved in cannabis related operations. The Company also generates revenue from on-going training, support and software
customization services.
Occasionally, the Company will enter into
systems installation arrangements. Installation jobs are estimated based on the cost of equipment to be installed, the number of
hours expected to be incurred to complete the job and other ancillary costs. Revenue associated with these services are recognized
over the arrangement period.
Lastly, the Company generates monthly recurring
revenues from Cannalytics, its business intelligence and data tool for commercial customers. Revenue is recognized monthly.
Segment Information
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, establishes standards for reporting information
about operating segments. Operating segments are defined as components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate
resources and in assessing performance. The Company’s chief operating decision-making group is composed of the Chief Executive
Officer and the Chief Financial Officer, which reviews the financial performance and the results of operations of the segments
prepared in accordance with GAAP when making decisions about allocating resources and assessing performance of the Company.
Asset information by operating segment
is not presented since the chief operating decision maker does not review this information by segment. The reporting segments
follow the same accounting policies used in the preparation of the Company’s consolidated financial statements.
Expenses
Cost of Revenue
The cost of revenues is the total cost incurred
to obtain a sale and the cost of the goods or services sold. Cost of revenues primarily consisted of hourly compensation
for security personnel and employees involved in the creation and development of licensing software.
Operating Expenses
Operating expenses encompass selling general
and administrative expenses, salaries and wages, professional and legal fees and depreciation and amortization. Selling, general
and administrative expenses consist primarily of rent/moving expenses, advertising and travel expenses. Salaries and wages is composed
of non-revenue generating employees. Professional services are principally comprised of outside legal, audit, information technology
consulting, marketing and outsourcing services as well as the costs related to being a publicly traded company.
Other Income
Other income consisted of a gain on the
change in fair value of convertible notes, gain on the change in the fair value of warrant liability, loss on the change in fair
value of convertible notes – related party, loss on the change in fair value of contingent consideration, loss on issuance
of warrants and interest expense.
Property and Equipment
Property and equipment are stated at cost
and depreciated on a straight-line basis over their estimated useful lives. Useful lives are 3 years for vehicles and 5 years for
furniture and equipment. Maintenance and repairs are expensed as incurred and major improvements are capitalized. When assets are
sold, or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is
included in loss from operations.
Contingencies
Occasionally, the Company may be involved
in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability
when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these
estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s consolidated
financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex
judgments about future events and can rely heavily on estimates and assumptions.
Advertising
Advertising costs are expensed as incurred
and included in selling, general and administrative expenses and amounted to $2,174 and $104,785 for the three months ended September
30, 2020 and 2019, respectively, and $9,581 and $350,840 for the nine months ended September 30, 2020 and 2019, respectively.
Foreign Currency
The local currency is the functional currency
for one entity’s operations outside the United States. Assets and liabilities of these operations are translated to U.S.
dollars at the exchange rate in effect at the end of each period. Income statement accounts are translated at the average exchange
rate prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period
are included as a component of other comprehensive loss within shareholders’ equity. Gains and losses from foreign currency
transactions are included in net loss for the period.
Income Taxes
The Company accounts for income taxes under
the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities
are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating loss for financial-reporting
and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset
entirely by a valuation allowance against the related federal and state deferred tax asset for the nine months ended September
30, 2020 and 2019.
Comprehensive Loss
Comprehensive loss consists of consolidated
net loss and foreign currency translation adjustments. Foreign currency translation adjustments included in comprehensive loss
were not tax-effected as investments in international affiliates are deemed to be permanent.
Distinguishing Liabilities from Equity
The Company relies on the guidance provided
by ASC Topic 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments.
The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the
liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding
shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.
Once the Company determines that a financial
instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented
between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine
temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the
option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.
Initial Measurement
The Company records its financial instruments
classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.
Subsequent Measurement – Financial
instruments classified as liabilities
The Company records the fair value of its
financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial
instruments classified as liabilities are recorded as other expense/income.
Share-based Compensation
The Company accounts for stock-based compensation
to employees in conformity with the provisions of ASC Topic 718, Stock Based Compensation. Stock-based compensation to
employees consist of stock option grants and restricted shares that are recognized in the statement of operations based on their
fair values at the date of grant.
The Company accounts for equity instruments
issued to non-employees in accordance with the provisions of ASC Topic 718, based upon the fair-value of the underlying instrument.
The equity instruments are valued using the Black-Scholes valuation model. The measurement of stock-based compensation is subject
to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period which services
are received.
The Company calculates the fair value of
option grants utilizing the Black-Scholes pricing model and estimates the fair value of the stock based upon the estimated fair
value of the common stock. The amount of stock-based compensation recognized during a period is based on the value of the portion
of the awards that are ultimately expected to vest.
The resulting stock-based compensation
expense for both employee and non-employee awards is generally recognized on a straight- line basis over the requisite service
period of the award.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements
and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value in accordance with generally accepted
accounting principles.
ASC Topic 820 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. ASC Topic 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions
developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions
about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three
broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC Topic
820 are described as follows:
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Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
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Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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Level 3 – Inputs that are unobservable for the asset or liability.
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Certain assets and liabilities of the Company
are required to be recorded at fair value either on a recurring or non-recurring basis. Fair value is determined based on the price
that would be received for an asset or paid to transfer a liability in an orderly transaction based on market participants. The
following section describes the valuation methodologies that the Company used to measure, for disclosure purposes, its financial
instruments at fair value.
Convertible notes payable
The fair value of the Company’s convertible
notes payable, approximated the carrying value as of September 30, 2020 and December 31, 2019. Factors that the Company considered
when estimating the fair value of its debt included market conditions and the term of the debt. The level of the debt would be
considered as Level 2.
Warrant liabilities
The fair value of the Company’s
warrant liabilities approximated the carrying value as of September 30, 2020 and December 31, 2019. Factors that the Company considered
when estimating the fair value of its warrants included market conditions and the term of the warrants. The level of the warrant
liabilities would be considered as Level 3.
Additional Disclosures Regarding Fair
Value Measurements
The carrying value of cash, accounts receivable,
prepaid expenses and other current assets, deposits and other assets, accounts payable and accrued liabilities, advances from related
parties and obligation pursuant to acquisition approximate their fair value due to the short-term maturity of those items.
Earnings (Loss) per Share
The Company follows ASC 260, Earnings
Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income
statement for all entities with complex capital structures. Basic EPS is computed by dividing net income (loss) available to common
shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury
stock method, and convertible debt and convertible securities, using the if-converted method.
For the three and nine months ended September
30, 2020 and 2019, potential common shares includable in the computation of fully-diluted per share results are not presented in
the condensed consolidated financial statements as their effect would be anti-dilutive.
Earnings per share for the three and nine
months ended September 30, 2020 and 2019 were calculated as follows:
|
|
For the Three Months
Ended
September 30,
|
|
|
For the Nine Months
Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net loss attributable to common shareholders
|
|
$
|
(42,126,732
|
)
|
|
$
|
(1,373,572
|
)
|
|
$
|
(48,269,906
|
)
|
|
$
|
(7,399,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.36
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.09
|
)
|
Diluted
|
|
$
|
(0.36
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.36
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.10
|
)
|
Diluted
|
|
$
|
(0.36
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
116,068,876
|
|
|
|
79,295,278
|
|
|
|
105,402,831
|
|
|
|
76,038,782
|
|
Diluted
|
|
|
116,068,876
|
|
|
|
79,295,278
|
|
|
|
105,402,831
|
|
|
|
76,038,782
|
|
The anti-dilutive shares of common stock
outstanding for the three and nine months ended September 30, 2020 and 2019 were as follows:
|
|
For the Three Months
Ended
September 30,
|
|
|
For the Nine Months
Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
|
15,520,651
|
|
|
|
3,649,021
|
|
|
|
15,520,651
|
|
|
|
3,649,021
|
|
Convertible Preferred A Stock
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
Convertible Preferred B Stock
|
|
|
13,784,201
|
|
|
|
13,784,201
|
|
|
|
13,784,201
|
|
|
|
13,784,201
|
|
Warrants
|
|
|
4,985,998
|
|
|
|
4,975,558
|
|
|
|
4,985,998
|
|
|
|
4,975,558
|
|
Stock options
|
|
|
10,944,266
|
|
|
|
9,787,381
|
|
|
|
10,944,266
|
|
|
|
9,787,381
|
|
Reclassifications
Certain reclassifications have been made
to the prior period financial statements to conform to the current period financial statement presentation. These reclassifications
had no effect on net earnings or cash flows as previously reported.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-.02,
Leases (Topic 842) (“Topic 842”) which requires the recognition of right-of-use assets and lease liabilities
on the balance sheet. The most prominent of the changes in the standard is the recognition of right-of-use (“ROU”)
assets and lease liabilities by lessees for those leases classified as operating leases.
The Company adopted the new standard on
January 1, 2019 and used the modified retrospective approach with the effective date as the date of initial application. Consequently,
prior period balances and disclosures have not been restated. The Company elected certain practical expedients, which among other
things, allowed us to carry forward prior conclusions about lease identification and classification.
Adoption of the standard resulted in the
balance sheet recognition of additional lease assets and lease liabilities of approximately $1,500,000. The new standard also
provides practical expedients for an entity’s ongoing accounting. The Company currently has elected the short-term lease
recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU
assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases
of those assets in separate lease and non-lease components for all our leases. For additional information regarding the Company’s
leases, see Note 18 in the notes to condensed consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, Earnings Per
Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for
Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.
Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down
round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being
reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities
that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value
measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic
480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards
Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable
financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments
in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2018. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU
did not have a material impact on the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02,
Income Statement – Reporting Comprehensive Income (Topic 220); Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income. The amendments in this ASU allow a reclassification from accumulated other comprehensive income
to retained earnings for stranded tax effects resulting from the Tax Act. Consequently, the amendments eliminate the stranded tax
effects resulting from the Act and will improve the usefulness of information reported to financial statement users. The amendments
in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early
adoption is permitted in any interim period after issuance of the ASU. The Company adopted this ASU as of January 1, 2019. The
amendments in this ASU did not have a material impact on the Company’s consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07,
Compensation-Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the
scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees and applies to
all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s
own operations by issuing share-based payment awards. ASC 718 does not apply to share-based payments used to effectively provide
(1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract
accounted for under ASC 606. This update is effective for public business entities for fiscal years beginning after December 15,
2018, including interim periods within that fiscal year. The Company adopted this ASU as of January 1, 2019. The amendments in
this ASU did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.
ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is effective for
annual periods, including interim periods within those annual periods, beginning after December 15, 2019. The Company adopted this
ASU as of January 1, 2020. The amendments in this ASU did not have a material impact on the Company’s consolidated financial
statements and related disclosures.
Management has evaluated other recently
issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s
consolidated financial statements and related disclosures.
Disaggregation
of revenue
|
|
For the Three Months
Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Types of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Monitoring
|
|
$
|
84,147
|
|
|
$
|
135,218
|
|
|
$
|
279,042
|
|
|
$
|
436,976
|
|
Systems Installation
|
|
|
30,555
|
|
|
|
245,272
|
|
|
|
346,460
|
|
|
|
447,880
|
|
Software
|
|
|
2,778,356
|
|
|
|
2,357,078
|
|
|
|
8,174,850
|
|
|
|
6,872,210
|
|
Total revenues
|
|
$
|
2,893,058
|
|
|
$
|
2,737,568
|
|
|
$
|
8,800,352
|
|
|
$
|
7,757,066
|
|
The
following is a description of the principal activities from which we generate our revenue.
Security
Monitoring Revenue
Helix
provides monitoring of security alarms and cameras, which are charged out at an hourly rate, with invoices typically sent to clients
shortly after each month-end for the previous month, with revenue being recognized over time. The customer simultaneously receives
and consumes benefits provided by the Helix performance.
Systems
Installation Revenue
Security
systems, including Internet Protocol cameras, intrusion alarm systems, perimeter alarm systems, and access controls are installed
for clients. Installation jobs are estimated based on the cost of the equipment, the number of man hours expected to complete
the work, supplies, travel, and any other ancillary costs. The installation is typically invoiced with 60% of the total price
immediately after signing and the balance upon completion of the installation service. The timing of these contracts is short-term
in nature and less than 12 months in duration, and revenue is recognized over the term of the contracts, utilizing the cost-to-cost method.
Software
The
Company generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector
(government agencies) clients that are involved in cannabis related operations. The Company also generates revenue from on-going
training, support and software customization services.
The
private-sector software entails cultivation tracking, inventory management, point of sale and analytic reporting to assist businesses
in meeting their compliance requirements and effectively managing their businesses. Customers within the private sector business
are charged an initial one-time installation fee and the revenues associated with these services are recognized upon completion
of installation and configuration at a point in time. After the installation and configuration of the software is completed, the
customer is invoiced monthly and revenues associated with these services are recognized monthly over a period of time in which
the customer continues to use the software and related services.
The
public-sector software assists government agencies in efficient oversight of cannabis related business under their jurisdiction.
Revenues associated with governmental contracts are longer-term in nature and recognized upon completion of certain milestones
over a period of time or on a completed-contract basis at a point in time. The Company considers the contract to be complete when
all significant costs have been incurred and the customer accepts the project. Costs incurred prior to the customer accepting
the project are deferred and reflected on the condensed consolidated balance sheets as prepaid expenses and other current assets.
Performance
Obligations
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 accordance with ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized
as revenue when, or as, the performance obligation is satisfied. Generally, the Company’s contracts include a
single performance obligation that is separately identifiable, and therefore, distinct. Under ASC 606, the allocation of transaction
price is not necessary if only one performance obligation is identified.
Significant
Judgments
Accounting
for long-term contracts involves the use of various techniques to estimate total contract revenue, costs and satisfaction of performance
obligations. The Company satisfies its performance obligations and subsequently recognizes revenue, over time, as security
and installation services are performed. There were no changes to the significant judgments used by the Company to determine the
timing of satisfaction of the performance obligations under ASC 606.
Costs
to Obtain or Fulfill Contract
The
Company’s costs to fulfill or obtain contracts with customers primarily consist of commissions and legal costs. The Company
provides sales team members with commissions at 0-6%. Although sales commissions are incremental in nature and are only incurred
when a contract is obtained, there is no up-front commission paid on the satisfactory obtainment of a contract, resulting in no
sales commissions being capitalized at September 30, 2020 and December 31, 2019. The Company also incurs legal costs relating
to the drafting and negotiating of contracts with select customers. Because legal costs are not incremental in nature and are
incurred regardless of whether a contract is ultimately obtained, there were no legal costs capitalized as of September 30, 2020
and December 31, 2019. The Company did not record amortization of costs incurred to obtain the contract or any impairment losses
for the period ending September 30, 2020 and 2019.
Tan’s
International Security
On
April 1, 2019, the Tan Security Closing Date, the Company entered into the Tan Security Acquisition Agreement. Pursuant to the
Tan Security Acquisition Agreement, Helix purchased all membership interests and capital stock of Tan Security and collectively
holds 100% of the interests of Tan Security. The purchase price of $100,000 in cash plus 250,000 shares of the Company’s
restricted common stock will be paid to Rocky Tan as follows:
|
●
|
250,000 shares of Helix
Stock at closing
|
|
|
|
|
●
|
$25,000 at closing
|
|
|
|
|
●
|
$25,000 on the 4-month
anniversary of the Tan Security Closing Date
|
|
|
|
|
●
|
$25,000 on the 8-month
anniversary of the Tan Security Closing Date
|
|
|
|
|
●
|
$25,000 on the 12-month
anniversary of the Tan Security Closing Date
|
The
Tan Security Acquisition is being accounted for as a business combination in accordance with ASC 805. The Company has determined
preliminary fair values of the assets acquired and liabilities assumed in the Tan Security Acquisition. These values are subject
to change as we perform additional reviews of our assumptions utilized.
The
following table summarizes the purchase price allocations relating to the Tan Security Acquisition:
Base Price – Cash at closing
|
|
$
|
25,000
|
|
Base Price – Deferred cash payment (including $25,000 to be made on the 4,8 and 12-month anniversaries of closing)
|
|
|
75,000
|
|
Base Price – Common Stock
|
|
|
710,000
|
|
Total Purchase Price
|
|
$
|
810,000
|
|
Description
|
|
Fair Value
|
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
2,940
|
|
Accounts receivable
|
|
|
7,635
|
|
Goodwill
|
|
|
821,807
|
|
Total assets acquired
|
|
$
|
832,382
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable
|
|
$
|
12,526
|
|
Other liabilities
|
|
|
9,856
|
|
Total liabilities assumed
|
|
|
22,382
|
|
|
|
|
|
|
Estimated fair value of net assets acquired
|
|
$
|
810,000
|
|
On
July 31, 2020, the Company determined that the Security and Guarding segment met the criteria to be classified as a discontinued
operation as a result of the combined sale of the assets of Security Consultants, Boss Security, and Tan Security. Please refer
to note six for additional details on discontinued operations.
Green
Tree International, Inc.
On
February 5, 2019, the Company and its wholly owned subsidiary, Merger Sub, entered into the Amercanex Merger Agreement with GTI
and Steve Janjic, as the representative of the GTI shareholders, pursuant to which Merger Sub merged with and into GTI (the “Merger”).
Pursuant
to the Amercanex Merger Agreement, at the effective time of the Merger (the “Effective Time”), the Company will issue
to the GTI stockholders an amount of unregistered shares of the Company’s common stock equal to $15 million, based on the
average closing price of the Company’s common stock over the forty-five (45) trading day period ending three (3) trading
days prior to the Closing Date. If the Closing occurs and revenues of GTI in the second 12 month period following the Closing
Date exceed $5,000,000 and are less than or equal to $10,000,000, Parent shall issue to the Company Shareholders a number of unregistered
Parent Shares (whether issued or reserved for issuance) equal to the quotient of (a) $5,000,000 divided by (b) the Parent Share
Price multiplied by the quotient of (c) the revenues of the Company in the second 12 month period following the Closing Date less
$5,000,000 divided by (d) $5,000,000.
To
secure the indemnification obligations of the GTI shareholders to the Company under the Merger Agreement, 4,140,274 of the Company
shares to be issued to the GTI shareholders will be held back and the Company will be entitled to retain such number of the holdback
shares as necessary to satisfy those indemnification obligations. 50% of the holdback shares that remain after satisfaction of
any indemnification obligations will be released 12 months after the closing date of the merger, and the remainder 24 months after
the closing date of the merger. Additionally, the Amercanex Merger Agreement stated that if in the first 12 months following the
closing GTI generates less than $1,500,000 of revenues, 100% of the holdback shares shall be returned to the Company. In connection
with closing the Merger on September 10, 2019, the Company issued 16,765,727 unregistered shares of its common stock to GTI stockholders.
In connection with the Merger, Steve Janjic joined the board of directors of the Company. As the $1,500,000 revenue threshold
was not reached within the first 12 months, all 4,140,274 holdback shares were returned to the Company and the final purchase
price allocation included the 12,625,453 unregistered shares of common stock issued to GTI.
The
Merger is being accounted for as a business combination in accordance with ASC 805. The Company has determined fair values of
the assets acquired and liabilities assumed in the GTI merger.
The
following table summarizes the purchase price allocations relating to the GTI transaction:
Base Price - Common Stock
|
|
$
|
9,721,600
|
|
Total Purchase Price
|
|
$
|
9,721,600
|
|
Description
|
|
Fair Value
|
|
|
Weighted
Average
Useful Life
(Years)
|
|
Assets acquired:
|
|
|
|
|
|
|
|
Note Receivable, net
|
|
$
|
135,000
|
|
|
|
|
Property, Plant and Equipment, Net
|
|
|
12,142
|
|
|
|
|
Software
|
|
|
452,002
|
|
|
4.5
|
|
Goodwill
|
|
|
9,792,829
|
|
|
|
|
Total assets acquired
|
|
$
|
10,391,973
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
Accounts Payable
|
|
|
43,717
|
|
|
|
|
Notes Payable
|
|
|
400,000
|
|
|
|
|
Other Liabilities
|
|
|
226,656
|
|
|
|
|
Total liabilities assumed:
|
|
|
670,373
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value of net assets acquired:
|
|
$
|
9,721,600
|
|
|
|
|
6.
|
Discontinued
Operations
|
On
July 31, 2020, the Company entered into the Agreement to sell, assign, transfer, and deliver to Buyer the Assets and Buyer paid
aggregate consideration of $1,750,000 and assumed the Assumed Liabilities. The Assets included but were not limited to the right,
title and interest in and to all assets and property, tangible and intangible, of every kind and description, used in, related
to or necessary for the security guarding and protective guarding services business conducted by the Sellers (the Company’s
Security and Guarding segment). As collateral for Sellers’ indemnification obligations, Buyer held back $600,000 of the
consideration pursuant to the Agreement. The $600,000 is reflected as an other receivable on the condensed
consolidation balance sheet as of September 30, 2020.
The
components of pretax profit and loss of the discontinued segment through the disposal date are set forth below:
|
|
For the Three Months
Ended
September 30,
|
|
|
For the Nine Months
Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
635,398
|
|
|
$
|
1,003,716
|
|
|
$
|
4,043,246
|
|
|
$
|
3,254,198
|
|
Cost of revenue
|
|
|
555,817
|
|
|
|
905,970
|
|
|
|
3,277,640
|
|
|
|
2,552,222
|
|
Gross margin
|
|
|
79,581
|
|
|
|
97,746
|
|
|
|
765,606
|
|
|
|
701,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
58,060
|
|
|
|
93,600
|
|
|
|
470,568
|
|
|
|
396,023
|
|
Salaries and wages
|
|
|
45,370
|
|
|
|
116,777
|
|
|
|
242,454
|
|
|
|
353,903
|
|
Professional and legal fees
|
|
|
47,990
|
|
|
|
9,079
|
|
|
|
110,424
|
|
|
|
72,524
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
19,155
|
|
|
|
7,301
|
|
|
|
38,311
|
|
Total operating expenses
|
|
|
151,420
|
|
|
|
238,611
|
|
|
|
830,747
|
|
|
|
860,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
1,580
|
|
|
|
(411
|
)
|
|
|
-
|
|
|
|
(2,013
|
)
|
Other income (expenses)
|
|
|
1,580
|
|
|
|
(411
|
)
|
|
|
-
|
|
|
|
(2,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(70,529
|
)
|
|
$
|
(141,276
|
)
|
|
$
|
(65,141
|
)
|
|
$
|
(160,798
|
)
|
The
calculation of the Company’s gain on asset disposal, recognized on the disposal date, is set forth below:
Adjusted purchase price
|
|
$
|
1,750,000
|
|
|
|
|
|
|
Less net assets sold:
|
|
|
|
|
Accounts receivable, net
|
|
|
686,208
|
|
Property and equipment, net
|
|
|
2,160
|
|
Goodwill
|
|
|
821,807
|
|
|
|
|
1,510,175
|
|
Gain on disposal
|
|
$
|
239,825
|
|
7.
|
Property
and Equipment, Net
|
At
September 30, 2020 and December 31, 2019, property and equipment consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Furniture and equipment
|
|
$
|
171,013
|
|
|
$
|
238,547
|
|
Software development costs
|
|
|
1,260,906
|
|
|
|
561,964
|
|
Vehicles
|
|
|
157,572
|
|
|
|
73,380
|
|
Total
|
|
|
1,589,491
|
|
|
|
873,891
|
|
Less: Accumulated depreciation and amortization
|
|
|
(230,140
|
)
|
|
|
(102,663
|
)
|
Property and equipment, net
|
|
$
|
1,359,351
|
|
|
$
|
771,228
|
|
Depreciation and amortization expense for the three months ended
September 30, 2020 and 2019 was $15,972 and $5,709, respectively, and $63,649 and $32,528 for the nine months ended September 30,
2020 and 2019, respectively.
8.
|
Intangible
Assets, Net and Goodwill
|
The
following table summarizes the Company’s intangible assets as of September 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
September 30,
2020(1)
|
|
|
|
Estimated
Useful Life
(Years)
|
|
Gross
Carrying
Amount
|
|
|
Assets
Acquired
Pursuant to
Business
Combination
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
Database
|
|
5
|
|
$
|
93,427
|
|
|
$
|
-
|
|
|
$
|
(83,501
|
)
|
|
$
|
9,926
|
|
Trade names and trademarks
|
|
5 - 10
|
|
|
591,081
|
|
|
|
-
|
|
|
|
(294,582
|
)
|
|
|
296,499
|
|
Web addresses
|
|
5
|
|
|
130,000
|
|
|
|
-
|
|
|
|
(115,047
|
)
|
|
|
14,953
|
|
Customer list
|
|
5
|
|
|
8,304,449
|
|
|
|
-
|
|
|
|
(3,874,569
|
)
|
|
|
4,429,880
|
|
Software
|
|
4.5
|
|
|
10,224,822
|
|
|
|
-
|
|
|
|
(5,222,933
|
)
|
|
|
5,001,889
|
|
Domain Name
|
|
5
|
|
|
20,231
|
|
|
|
|
|
|
|
(5,059
|
)
|
|
|
15,172
|
|
|
|
|
|
$
|
19,364,010
|
|
|
$
|
-
|
|
|
$
|
(9,595,691
|
)
|
|
$
|
9,768,319
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
|
Estimated
Useful Life
(Years)
|
|
Gross
Carrying
Amount at
December 31,
2018
|
|
|
Assets
Acquired
Pursuant to
Business
Combination (2)
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
Database
|
|
5
|
|
$
|
93,427
|
|
|
$
|
-
|
|
|
$
|
(69,533
|
)
|
|
$
|
23,894
|
|
Trade names and trademarks
|
|
5 - 10
|
|
|
591,081
|
|
|
|
-
|
|
|
|
(207,525
|
)
|
|
|
383,556
|
|
Web addresses
|
|
5
|
|
|
130,000
|
|
|
|
-
|
|
|
|
(95,611
|
)
|
|
|
34,389
|
|
Customer list
|
|
5
|
|
|
11,459,027
|
|
|
|
-
|
|
|
|
(4,256,070
|
)
|
|
|
7,202,957
|
|
Software
|
|
4.5
|
|
|
9,771,195
|
|
|
|
453,627
|
|
|
|
(3,492,525
|
)
|
|
|
6,732,297
|
|
Domain Name
|
|
5
|
|
|
-
|
|
|
|
20,231
|
|
|
|
(2,037
|
)
|
|
|
18,194
|
|
|
|
|
|
$
|
22,044,730
|
|
|
$
|
473,858
|
|
|
$
|
(8,123,301
|
)
|
|
$
|
14,395,287
|
|
(1)
|
The Company wrote off the remaining unamortized balance of $1,369,978 related to the customer list intangible asset from the Security Grade Protective Services transaction as of March 31, 2020.
|
|
|
(2)
|
On September 10, 2019 the Company acquired various assets of GTI (see Note 5).
|
The
Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets. Amortization
expense related to the purchased intangible assets was $1,033,263 and $1,173,888 for the three months ended September 30, 2020
and 2019, respectively, and $3,256,992 and $3,483,890 for the nine months ended September 30, 2020 and 2019, respectively.
The
following table summarizes the Company’s Goodwill as of September 30, 2020 and December 31, 2019:
|
|
Total Goodwill
|
|
Balance at December 31, 2018
|
|
$
|
39,913,559
|
|
Goodwill attributable to Tan Security acquisition
|
|
|
821,807
|
|
Goodwill attributable to Green Tree acquisition
|
|
|
9,792,829
|
|
Balance at December 31, 2019
|
|
|
50,528,195
|
|
Goodwill disposed pursuant to sale of security and guarding business
|
|
|
(821,807
|
)
|
Impairment of goodwill
|
|
|
(39,963,107
|
)
|
Balance at September 30, 2020
|
|
$
|
9,743,281
|
|
9.
|
Costs, Estimated
Earnings and Billings
|
Costs,
estimated earnings and billings on uncompleted contracts are summarized as follows as of September 30, 2020 and December 31, 2019:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Costs incurred on uncompleted contracts
|
|
$
|
469,495
|
|
|
$
|
444,344
|
|
Estimated earnings
|
|
|
167,123
|
|
|
|
150,355
|
|
Cost and estimated earnings earned on uncompleted contracts
|
|
|
636,618
|
|
|
|
594,699
|
|
Billings to date
|
|
|
424,696
|
|
|
|
501,543
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
|
211,922
|
|
|
|
93,156
|
|
|
|
|
|
|
|
|
|
|
Costs in excess of billings
|
|
$
|
280,464
|
|
|
$
|
257,819
|
|
Billings in excess of cost
|
|
|
(68,542
|
)
|
|
|
(164,663
|
)
|
|
|
$
|
211,922
|
|
|
$
|
93,156
|
|
10.
|
Accounts
Payable and Accrued Liabilities
|
As
of September 30, 2020 and December 31, 2019, accounts payable and accrued liabilities consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Accounts payable
|
|
$
|
358,766
|
|
|
$
|
542,617
|
|
Accrued compensation and related expenses
|
|
|
710,086
|
|
|
|
260,280
|
|
Accrued expenses
|
|
|
1,522,183
|
|
|
|
1,717,796
|
|
Lease obligation - current
|
|
|
257,953
|
|
|
|
290,161
|
|
Total
|
|
$
|
2,848,988
|
|
|
$
|
2,810,854
|
|
11.
|
Convertible
Notes Payable, net of discount
|
On
March 1, 2019, the Company entered into a $450,000 Secured Convertible Promissory Note (“Note Ten”) with an independent
investor (the “investor”). The investor provided the Company with $450,000 in cash proceeds, which was received by
the Company during the period ended June 30, 2019. Note Ten will mature on March 1, 2020 and bear interest at a rate of 25% per
annum, payable by the Company half in cash and half in kind on a quarterly basis. The principal balance of Note Ten is convertible
at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock
at the lower of $0.90 per share or a 30% discount to the Company’s 30-day weighted average listed price per share immediately
before the date of conversion. In conjunction with Note Ten, the Company issued a warrant to the investor to purchase 160,715
shares of the Company’s common stock at $1.40 per share.
The
Company evaluated Note Ten in accordance with ASC 480, Distinguishing Liabilities from Equity and determined
Note Ten will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in
fair value recognized in earnings. During 2019, the investor elected their option to partially convert $280,000 in principal of
Note Ten into 875,894 shares of the Company’s common stock. As of December 31, 2019, the fair value of Note Ten was $202,125.
Accordingly, the Company recorded a change in fair value of $32,125 related to Note Ten for the year ended December 31, 2019.
During the three months ended March 31, 2020 the investor converted the remaining $170,000 in principal of Note ten into 564,420
shares of the Company’s common stock. As of September 30, 2020, Note Ten had been fully repaid via the conversion into shares
of the Company’s common stock.
In
addition, the company recorded a debt discount relating to the warrants issued in the amount of $355,847 based on the relative
fair value of the warrants at inception of Note Ten. Debt discounts amortized to interest expense was $297,352 for the year ended
December 31, 2019. The unamortized discount balance at December 31, 2019 was $58,495. In May, September, and December 2019, the
Company issued 15,625, 16,568 and 19,401 restricted shares of common stock as paid-in-kind (“PIK”) interest payments
in the amount of $14,062, $14,063, and $12,029, respectively. Accrued interest expense associated with Note Ten was $3,542 as
of December 31, 2019, which includes PIK interest payable. Debt discount amortized to interest expense was $58,495 for the nine
months ended September 30, 2020.
On
August 15, 2019, the Company entered into a $400,000 Fixed Convertible Promissory Note (“Note Eleven”) with the investor.
The investor provided the Company with $380,000 in cash proceeds, which was received by the Company during the period ended September
30, 2019. The additional $20,000 was retained by the investor for due diligence and legal bills for the transaction and recorded
as a debt discount. Note Eleven will mature on May 15, 2020 and bear interest at a rate of 10% per annum, payable by the Company
in cash. The principal balance of Note Eleven is convertible at the election of the investor, in whole or in part, at any time
or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower
of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive
trading days prior to the date on which the investor elects to convert all or part of Note Eleven. In conjunction with Note Eleven,
the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share.
The
Company evaluated Note Eleven in accordance with ASC 480, Distinguishing Liabilities from Equity and determined
Note Eleven will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes
in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Eleven was $204,444. Accordingly, the Company
recorded a change in fair value of $195,556 related to Note Eleven for the year ended December 31, 2019. During the three months
ended March 31, 2020, the investor elected their option to partially convert $120,000 in principal of Note Eleven into 1,084,186
shares of the Company’s common stock. During the three months ended March 31, 2020, the investor elected their option to
convert the remaining $280,000 in principal of Note Eleven into 3,336,225 shares of the Company’s common stock.
In
addition, the company recorded a debt discount of $38,543 relating to the warrants issued in the amount of $18,543 based on the
relative fair value of the warrants themselves at inception of Note Eleven and $20,000 relating to legal fees. Debt discounts
amortized to interest expense were $19,412 for the year ended December 31, 2019. The unamortized discount balance at December
31, 2019 was $19,131. Accrued interest expense associated with Note Eleven was $17,460 as of December 31, 2019. Debt discounts
amortized to interest expense were $19,131 for the nine months ended September 30, 2020 fully amortizing the remaining debt discount.
On
September 16, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Twelve”) with the
investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period
ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction
and was recorded as a debt discount. Note Twelve will mature on June 16, 2020 and bear interest at a rate of 10% per annum, payable
by the Company in cash. The principal balance of Note Twelve is convertible at the election of the investor, in whole or in part,
at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter
at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during
the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Twelve. In conjunction
with Note Twelve, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at
$1.00 per share.
The Company evaluated Note Twelve in accordance with ASC 480, Distinguishing
Liabilities from Equity and determined Note Twelve will be accounted for as a liability initially measured at fair value
and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note
Twelve was $230,000. Accordingly, the Company recorded a change in fair value of ($220,000) related to Note Twelve for the year
ended December 31, 2019. During the six months ended June 30, 2020, the investor elected their option to partially convert $350,110
in principal of Note Twelve into 3,925,000 shares of the Company’s common stock. As of September 30, 2020, the fair value
of the remaining principal of Note Twelve was $23,890. Accordingly, the Company recorded a change in fair value of $(231,334) related
to Note Twelve for the nine months ended September 30, 2020.
In
addition, the company recorded a debt discount of $40,183 relating to the warrants issued in the amount of $17,683 based on the
residual fair value of the warrants themselves at inception of Note Twelve and $22,500 relating to legal fees. Debt discounts
amortized to interest expense were $15,545 for the year ended December 31, 2019. The unamortized discount balance at December
31, 2019 was $24,638. Accrued interest expense associated with Note Twelve was $18,285 as of December 31, 2019. Debt discounts
amortized to interest expense were $24,638 for the nine months ended September 30, 2020. The unamortized discount balance at September
30, 2020 was $0. Accrued interest expense associated with Note Twelve was $49,805 as of September 30, 2020.
On
October 11, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Thirteen”) with the
investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period
ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction
and was recorded as a debt discount. Note Thirteen will mature on July 11, 2020 and bear interest at a rate of 10% per annum,
payable by the Company in cash. The principal balance of Note Thirteen is convertible at the election of the investor, in whole
or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months
and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s
common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note
Thirteen. In conjunction with Note Thirteen, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s
common stock at $1.00 per share.
The
Company evaluated Note Thirteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined
Note Thirteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes
in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Thirteen was $230,000. Accordingly, the
Company recorded a change in fair value of ($220,000) related to Note Thirteen for the year ended December 31, 2019. As of September
30, 2020, the fair value of Note Thirteen was $743,106. Accordingly, the Company recorded a change in fair value of $459,106 related
to Note Thirteen for the nine months ended September 30, 2020.
In
addition, the company recorded a debt discount of $33,943 relating to the warrants issued in the amount of $11,443 based on the
residual fair value of the warrants themselves at inception of Note Thirteen and $22,500 relating to legal fees. Debt discounts
amortized to interest expense were $10,034 for the year ended December 31, 2019. The unamortized discount balance at December
31, 2019 was $23,909. Accrued interest expense associated with Note Thirteen was $16,022 as of December 31, 2019. Debt discounts
amortized to interest expense were $23,908 for the nine months ended September 30, 2020. The unamortized discount balance at September
30, 2020 was $0. Accrued interest expense associated with Note Thirteen was $40,260 as of September 30, 2020.
On
December 26, 2019, the Company entered into a $210,526 Fixed Convertible Promissory Note (“Note Fourteen”) with the
investor. The investor provided the Company with $200,000 in cash proceeds, which was received by the Company during the period
ended December 31, 2019. The additional $10,526 was retained by the investor for due diligence and legal bills for the transaction
and was recorded as a debt discount. Note Fourteen will mature on September 26, 2020 and bear interest at a rate of 12% per annum,
payable by the Company in cash. The principal balance of Note Fourteen is convertible at the election of the investor, in whole
or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months
and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s
common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note
Fourteen. In conjunction with Note Fourteen, the Company issued a warrant to the investor to purchase 12,500 shares of the Company’s
common stock at $1.00 per share.
The
Company evaluated Note Fourteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined
Note Fourteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes
in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Fourteen was $107,602. Accordingly, the
Company recorded a change in fair value of $102,924 related to Note Fourteen for the year ended December 31, 2019. As of September
30, 2020, the fair value of Note Fourteen was $347,652. Accordingly, the Company recorded a change in fair value of $214,787 related
to Note Fourteen for the nine months ended September 30, 2020.
In
addition, the company recorded a debt discount of $15,794 relating to the warrants issued in the amount of $5,268 based on the
residual fair value of the warrants themselves at inception of Note Fourteen and $10,526 relating to legal fees. Debt discounts
amortized to interest expense were $287 for the year ended December 31, 2019. The unamortized discount balance at December 31,
2019 was $15,507. Accrued interest expense associated with Note Fourteen was $463 as of December 31, 2019. Debt discounts amortized
to interest expense were $15,507 for the nine months ended September 30, 2020. The unamortized discount balance at September 30,
2020 was $0. Accrued interest expense associated with Note Fourteen was $18,835 as of September 30, 2020.
On
November 15, 2019, the Company entered into a $5,000,000 Unsecured Convertible Promissory Note (“Note Fifteen”) with
the investor. The investor provided the Company with $385,000 in cash proceeds, which was received by the Company during the period
ended December 31, 2019. Note Fifteen will mature on November 15, 2021 and bear interest at a rate of 12% per annum, payable by
the Company in cash. The principal balance of Note Fifteen is convertible at the election of the investor, in whole or in part,
at any time or from time to time, into the Company’s common stock at 70% of the average of the five lowest daily VWAPs of
the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert
all or part of Note Fifteen. As of September 30, 2020, and December 31, 2019, the balance of Note Fifteen was $385,000. Accrued
interest expense associated with Note Fifteen was $11,806 and $5,239 as of September 30, 2020 and December 31, 2019, respectively.
12.
|
Related
Party Transactions
|
On
March 1, 2019, the Company entered into a $1,500,000 Secured Convertible Promissory Note (“Note Nine”) with Rose Capital
Fund I, LP (the Related Party Holder”). A Managing Member of the Related Party Holder is also a Director of the Company.
The Related Party Holder provided the Company with $1,475,000 in cash proceeds, which was received by the Company during the period
ended September 30, 2019. The additional $25,000 was retained by the Related Party Holder for legal bills for the transaction.
Note Nine will mature on March 1, 2020 and bear interest at a rate of 25% per annum, payable by the Company half in cash and half
in kind on a quarterly basis. The principal balance of Note Nine is convertible at the election of the Related Party Holder, in
whole or in part, at any time or from time to time, into the Company’s common stock at the lower of $0.90 per share or a
30% discount to the Company’s 30-day weighted average listed price per share immediately before the date of conversion.
In conjunction with Note Nine, the Company issued a warrant to the Related Party Holder to purchase 535,715 shares of the Company’s
common stock at $1.40 per share.
The Company evaluated Note Nine in accordance
with ASC 480, Distinguishing Liabilities from Equity and determined Note Nine will be accounted for as a liability
initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December
31, 2019 and September 30, 2020, the fair value of Note Nine was $1,783,454 and $1,285,220, respectively. Accordingly, the Company
recorded a change in fair value of $498,234 related to Note Nine for the nine months ended September 30, 2020.
In addition, the company recorded a debt
discount relating to the warrants issued in the amount of $1,186,153 based on the relative fair value of the warrants at inception
of Note Nine. The additional $25,000 retained by the fourth investor for legal bills for the transaction will be recorded as a
debt discount. Debt discount amortized to interest expense was $199,094 for the nine months ended September 30, 2020. The unamortized
discount balance at September 30, 2020 was $0. On May 31, 2019, the Company issued 52,083 restricted shares of common stock as
PIK interest payments in the amount of $46,875. On February 24, 2020, the Company issued 167,891 restricted shares of common stock
as PIK interest payments in the amount of $93,750. Accrued interest expense associated with Note Nine was $29,795 as of September
30, 2020, which includes PIK interest payable. As of September 30, 2020, the balance of Note Nine, net of debt discount for warrants
and legal bills was $1,285,220. The Company and the Related Party Holder are negotiating a potential extension of Note Nine.
Warrants
On
March 1, 2019, in connection with the issuance of Note Nine, the Company issued warrants, of which the value was derived and based
off the fair value of Note Nine, to the investor to purchase 535,715 shares of the Company’s common stock at $1.40 per share.
Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after
March 1, 2019 and on or before March 1, 2024, by delivery to the Company of the Notice of Exercise.
The Company determined that the warrants
associated with Note Nine are puttable for cash upon a fundamental transaction at the option of the holder and as such required
classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans
to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining
term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant
liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting
period with changes being recorded as a component of other income in the statement of operations. As of December 31, 2019, the
fair value of the warrant liability was $182,065 while as of September 30, 2020, the fair value of the warrant liability was $28,417.
Accordingly, the Company recorded a change in fair value of $153,648 during the nine months ended September 30, 2020, which is
reflected in the unaudited condensed consolidated statements of operations.
Promissory
Note
On
January 3, 2019, the Company entered into an unsecured promissory note with the Related Party Holder in the amount of $280,000.
The unsecured promissory note has a fixed interest rate of 10% and is due and payable on March 31, 2019. On March 2, 2019, the
unsecured promissory note was paid off in full.
On
July 29, 2019, the Company entered into an unsecured promissory note with the Related Party Holder in the amount of $300,000.
The unsecured promissory note has a fixed interest rate of 12% and is due and payable on January 29, 2020. The Company and the
Related Party Holder mutually agreed to defer payment of interest and repayment of principal until July 29, 2020, at which time
the note and interest were paid off in full.
As
of September 30, 2020 and December 31, 2019 notes payable consisted of the following:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Vehicle financing loans payable, between 4.7% and 7.0% interest and maturing between June 2022 and July 2022
|
|
$
|
40,415
|
|
|
$
|
27,488
|
|
Loans Payable - Credit Union
|
|
|
2,099
|
|
|
|
5,385
|
|
Notes Payable and financing arrangements
|
|
|
485,857
|
|
|
|
400,000
|
|
Less: Current portion of loans payable
|
|
|
(496,671
|
)
|
|
|
(10,814
|
)
|
Long-term portion of loans payable
|
|
$
|
31,700
|
|
|
$
|
422,059
|
|
The
interest expense associated with the notes payable was $68,703 and $7,065 for the three months ended September 30, 2020 and 2019,
respectively, and $197,178 and $9,746 for the nine months ended September 30, 2020 and 2019, respectively.
In
connection with the GTI Merger, the Company assumed a $400,000 Senior Secured Convertible Debenture (the “Convertible Debenture”)
(See Note 5). The Convertible Debenture will mature on July 31, 2021 and bears interest at a rate of 10% per annum, payable by
the Company to the Lender. In the event that Lender elects to convert the Convertible Debenture into Helix Common Stock or in
the event Helix required the Lender to convert the Convertible Debenture into its Common Stock, the number of shares that shall
be issuable upon full Conversion of the Convertible Debenture at any time shall be equal to the outstanding principal of the Convertible
Debenture divided by $1.00. Pursuant to the terms of the Convertible Debenture, Helix Common Stock can be transferred to the Lender
from Steve Janjic, as a shareholder of the Company who receives shares of Helix Common Stock at the Closing, instead of via a
new issuance of shares of Helix Common Stock by Helix to Lender, and Lender agrees to accept such transfer of shares from Mr.
Janjic as the issuance of Helix Common Stock.
In
addition, the Company shall have the right to require the Lender to convert the Convertible Debenture into Helix Common Stock
at any time provided its Common Stock is listed on a stock exchange other than the U.S. OTCQB, the Common Stock would be fully
traded up on conversion and the trading price of its Common Stock closes above $1.15 for 20 consecutive trading days on such exchange.
The Convertible Debenture will be secured by a general security interest over all of the assets of the GTI, however does not apply
to those assets owned by Helix or Merger Sub prior to the closing of the Merger.
On
February 7, 2020, the Company and its subsidiary Bio-Tech Medical Software Inc. entered into an agreement for the purchase and
sale of future receipts with Advantage Capital Funding. $485,000 was actually funded to the Company with a promise to pay $15,000
per week for 8 weeks and $20,000 per week for the next 27 weeks until a total of $660,000 is paid. $85,857 of principal remained
outstanding as of September 30, 2020.
Common
Stock
Other
Common Stock Issuances
In
January 2020, the Company issued 270,270 shares of common stock as part of an investment unit purchase agreement.
During
the three months ended March 31, 2020, the Company issued 167,891 restricted shares of common stock as PIK interest payment in
the amount of $93,750 (see Note 10).
In
May and June 2020, the Company issued 11,163,520 shares of common stock as part of subscription purchase agreements.
In
May 2020 an option holder exercised 700,000 options and was issued 700,000 shares of common stock for total proceeds of $91,000.
During
the six months ended June 30, 2020 the Company issued 503,800 restricted shares to employees and former employees and recorded
stock-based compensation expense of $1,071,604.
In August 2020, the Company issued 1,810,000
shares of common stock under the Stock Incentive Plan and recorded $339,850 in share-based payment expense.
In
January 2019, the Company issued 20,000 shares of restricted common stock to a consultant per a consulting agreement and recorded
shared based compensation expense of $27,400.
In
March and June 2019, the Company issued 1,255,222 and 166,667 shares of common stock as part of investment unit purchase agreements
(see Note 16).
In
March and June 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 62,847 and
47,084 shares of common stock, respectively, for no cash proceeds.
In
March and April 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 6,082 and
57,461 shares of common stock for total proceeds of $4,805 and $21,808, respectively.
In
April 2019, the Company issued 250,000 shares of common stock as part of the Tan Security acquisition.
In
April 2019, a selling shareholder of Security Grade exercised their right to purchase 15,101 shares of the Company’s common
stock.
In
April 2019, the Company issued 733,300 shares of common stock in satisfaction of the Engeni contingent consideration (see Note
5).
In
May 2019, the Company issued 15,625 and 52,083 restricted shares of common stock as PIK interest payments in the amount of $14,062
and $46,875, respectively (see Notes 11 and 12).
Conversion
of Convertible Note to Common Stock
During
the nine months ended September 30, 2020, the holders of Note Ten, Note Eleven and Note Twelve elected to convert $170,000, $400,000,
$350,110, $50,000, $50,000, $48,000 and $30,000 in principal of the respective convertible notes into 564,420, 4,420,411, 3,925,000,
744,048, 554,324, 536,913 and 434,153 shares of the Company’s common stock, respectively (See Note 10).
On
March 7, 2019 and March 28, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected
its option to fully convert $75,882 and $42,055 in principal of the convertible note into 100,000 and 55,421 shares of the Company’s
common stock, respectively.
Series
A convertible preferred stock
In
October 2015, the Company issued a total of 1,000,000 shares of its Class A Preferred Stock. The Class A Preferred Stock included
super majority voting rights and were convertible into 60% of the Company’s common stock. During the third quarter of 2017,
the Company modified the conversion rate on the Class A Preferred Stock to a 1:1 ratio. This modification reduced the amount of
potentially dilutive Convertible Series A Stock by 15,746,127 shares to a total of 1,000,000 at September 30, 2017.
As
a result of the Company’s financing at $.11 per share during May and June 2020 the number of shares of common stock the
Series A Preferred Stock is convertible into increased from 1,000,000 to 1,045,970.
Series
B convertible preferred stock
Series
B Preferred Stock Purchase Agreement
On
May 17, 2017, the Company sold to accredited investors an aggregate of 5,781,426 Series B Preferred Shares for gross proceeds
of $1,875,000 and converted a $500,000 Unsecured Convertible Promissory Note into 1,536,658 Series B Preferred Shares. This tranche
of Series B Preferred Shares are convertible into 7,318,084 shares of common stock based on the current conversion price, at a
purchase price of $0.325 per share.
In
connection with the Series B Preferred Stock Purchase Agreement, the Company is obligated to issue warrants to a third-party for
services to purchase 462,195 shares of common stock at $0.325 per share. These warrants have been accounted for as an obligation
to issue because as of the balance sheet date the Company did not deliver the warrants though incurred the obligation; accordingly,
they were recognized as a liability on the unaudited condensed consolidated balance sheet and cost of issuance of Series B preferred
shares on the unaudited condensed consolidated statement of shareholders’ equity.
In
accordance with the Certificate of Incorporation, there were 9,000,000 authorized Series B Preferred Stock at a par value of $
0.001. On August 23, 2017 the Certificate of Designations was amended and restated to increase the number of shares of Series
B Preferred Stock authorized to be 17,000,000.
Conversion:
Each
Series B Preferred Share is convertible at the option of the holder into such number of shares of the Company’s common stock
equal to the number of Series B Preferred Shares to be converted, multiplied by the Preferred Conversation Rate. The Preferred
Conversion Rate shall be the quotient obtained by dividing the Preferred Stock Adjusted Issue Price ($0.3110812) by the Preferred
Stock Conversation Price in effect at the time of the conversion (the initial conversion price will be equal to the Preferred
Stock Original Issue Price, subject to adjustment in the event of stock splits, stock dividends, and fundamental transactions).
Based on the current conversion price, the Series B Preferred Shares are convertible into 14,417,856 shares of common stock. A
fundamental transaction means: (i) our merger or consolidation with or into another entity, (ii) any sale of all or substantially
all of our assets in one transaction or a series of related transactions, (iii) any reclassification of our Common Stock or any
compulsory share exchange by which Common Stock is effectively converted into or exchanged for other securities, cash or property;
or (iv) sale of shares below the preferred stock conversion price. Each Series B Preferred Share will automatically convert into
common stock upon the earlier of (i) notice by the Company to the holders that the Company has elected to convert all outstanding
Series B Preferred Shares at any time on or after May 12, 2018; or (ii) immediately prior to the closing of a firmly underwritten
initial public offering (involving the listing of the Company’s Common Stock on an Approved Stock Exchange) pursuant to
an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of the Common Stock
for the account of the Company in which the net cash proceeds to the Company (before underwriting discounts, commissions and fees)
are at least fifty million dollars ($50,000,000).
As
a result of the Company’s financing at $.11 per share during May and June 2020 the number of shares of common stock the
Series B Preferred Stock is convertible into increased from 13,784,201 to 14,417,856.
Dividends,
Voting Rights and Liquidity Value:
Pursuant
to the Certificate of Designations, the Series B Preferred Shares shall bear no dividends, except that if the Board shall declare
a dividend payable upon the then-outstanding shares of the Company’s common stock. The Series B Preferred Shares vote together
with the common stock and all other classes and series of stock of the Company as a single class on all actions to be taken by
the stockholders of the Company including, but not limited to, actions amending the certificate of incorporation of the Company
to increase the number of authorized shares of the common stock. Upon any dissolution, liquidation or winding up, whether voluntary
or involuntary, holders of Series B Preferred Shares are entitled to (i) first receive distributions out of our assets in an amount
per share equal to the Stated Value plus all accrued and unpaid dividends, whether capital or surplus before any distributions
shall be made on any shares of common stock and (ii) second, on an as-converted basis alongside the common stock.
Classification:
These
Series B Preferred Shares are classified within permanent equity on the Company’s consolidated balance sheet as they do
not meet the criteria that would require presentation outside of permanent equity under ASC 480, Distinguishing Liabilities
from Equity.
On
February 21, 2020 the Company awarded the Chief Financial Officer, an option to purchase a total of 200,000 shares of the Company’s
common stock at a price of $0.385 per share. These options vested immediately upon grant and expire on February 21, 2025.
On
March 31, 2020 the Company awarded an employee (who is also a board member), two options to purchase a total of 800,000 shares
of the Company’s common stock at a price of $0.115 per share. Out of the 800,000 total, 100,000 options vested immediately
upon grant, 100,000 vest on 8/15/2020 and the remaining 600,000 vest based on achievement of certain milestones through December
31 2020. As of September 30, 2020, none of the milestone performance awards had vested. These options expire on March 31, 2025.
During
the three months ended March 31, 2020 the Company awarded certain consultants options to purchase 165,000 shares of the Company’s
common stock at prices ranging from $0.20 to $0.46 per share. These options vested immediately and expire three years from issuance.
On
April 1, 2020 the Company awarded a consultant an option to purchase a total of 65,000 shares of the Company’s common stock
at a price of $0.115 per share. The options vested immediately upon grant and expire April 1, 2023.
In
May 2020 the Company awarded a consultant an option to purchase 700,000 shares of the Company’s common stock at a price
of $.13 per share. The options vested immediately and were fully exercised shortly after grant.
On
June 8, 2020 the Company awarded certain employees an option to purchase a total of 200,000 shares of the Company’s common
stock at a price of $0.23 per share. 50% of these options vest on December 8, 2020 and 50% vest on 6/8/2020 and all expire June
8, 2025.
On
June 19, 2020 the Company awarded the Chief Executive Officer, an option to purchase a total of 500,000 shares of the Company’s
common stock at a price of $0.167 per share. These options vest over a three-year period from June 19, 2021 to June 19, 2023 and
expire June 19, 2025.
On
September 14, 2020, the Company awarded an employee an option to purchase a total of 250,000 shares of the Company’s common
stock at a price of $0.10 per share. 20% of these options vest on the grant and date another 20% of the shares vest every six
months then after. All shares expire June 8, 2025.
On
February 29, 2020, the former President of the Company’s BioTrackTHC subsidiary forfeited 1,430,306 BioTrackTHC Management
Awards and 204,364 Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan stock options as a result of his termination (See
Note 16).
During
the three months ended March 31, 2020, 75,000 employee options grants were forfeited as they had not yet vested prior to the employees’
separation from the Company.
On
February 6, 2019 the Company awarded an executive an option to purchase a total of 100,000 shares of the Company’s common
stock at an exercise price $1.51 per share. These options vested on May 6, 2019 and have an expiration date of February 6, 2024.
On
March 19, 2019 the Company awarded the Chief Financial Officer, two options to purchase a total of 300,000 shares of the Company’s
common stock at prices ranging from $2.35 to $2.59 per share. These options shall vest over a three-year period from March 2020
to March 2022 and have expiration dates ranging from March 2024 to March 2029.
On
March 19, 2019 the Company awarded the Chief Executive Officer, two options to purchase a total of 500,000 shares of the Company’s
common stock at prices ranging from $2.35 to $2.59 per share. These options shall vest over a three-year period from March 2020
to March 2022 and have expiration dates ranging from March 2024 to March 2029.
Stock
option activity for the period ended September 30, 2020 is as follows:
|
|
Shares Underlying Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
(in years)
|
|
Outstanding at January 1, 2020
|
|
|
11,617,381
|
|
|
$
|
0.807
|
|
|
|
3.21
|
|
Granted
|
|
|
2,880,000
|
|
|
$
|
0.163
|
|
|
|
3.96
|
|
Exercised
|
|
|
(1,350,000
|
)
|
|
$
|
0.120
|
|
|
|
3
|
|
Forfeited and expired
|
|
|
(2,203,115
|
)
|
|
$
|
0.675
|
|
|
|
1.61
|
|
Outstanding at September 30, 2020
|
|
|
10,944,266
|
|
|
$
|
0.749
|
|
|
|
3.65
|
|
Vested options at September 30, 2020
|
|
|
8,945,932
|
|
|
$
|
0.714
|
|
|
|
1.68
|
|
On
March 1, 2019, in connection with the issuance of Note Ten, the Company issued warrants, of which the value was derived and based
off the fair value of Note Ten, to the investor to purchase 160,715 shares of the Company’s common stock at $1.40 per share.
Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after
March 1, 2019 and on or before March 1, 2024, by delivery to the Company of the Notice of Exercise.
The
Company determined that the warrants associated with Note Ten are puttable for cash upon a fundamental transaction at the option
of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from
Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is
likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are
recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured
at each reporting period with changes being recorded as a component of other income in the statement of operations. At December
31, 2019, the fair value of the warrant liability was $54,620 while as of September 30, 2020, the fair value of the warrant liability
was $8,525. Accordingly, the Company recorded a change in fair value of the warrant liability of $(46,095) related to Note Ten
for the nine months ended September 30, 2020.
On
January 10, 2019, the Company entered into an Investment Unit Purchase Agreement (the “First Investment Agreement”)
to issue and sell investment units to an investor, in which the investment units consist of one share of the common stock of the
Company, and a warrant exercisable for one half share of common stock of the Company at an Exercise Price of $1.25 per share for
cash at a price per investment unit of $0.90.
On
March 5, 2019, the Company sold an aggregate of 1,255,222 units of the Company’s securities to an investor at a purchase
price of $0.90 per unit for total proceeds of $1,129,700. In connection with the First Investment Agreement, the investor is entitled
to purchase from the Company, at the Exercise Price, at any time on or after 90 days from the issuance date, 627,611 shares of
the Company’s common stock (the “March Warrant Shares”).
The
Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such
required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has
no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the
remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized
as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at
each reporting period with changes being recorded as a component of other income in the statement of operations.
The
fair value of the March Warrant Shares at issuance on January 10, 2019 is in excess of the proceeds received, the warrant liability
is required to be recorded at fair value with the excess of the fair value over the proceeds received recognized as a loss in
earnings. The gross proceeds from the 1,255,222 investment units at $0.90 was $1,129,700. The fair value of the March
Warrant Shares at issuance was $1,717,506. The amount to be recognized as a loss in earnings is calculated as follows:
Proceeds from January investment units
|
|
$
|
1,129,700
|
|
Par value of common stock issues
|
|
$
|
(1,255
|
)
|
Fair value of warrants
|
|
$
|
(1,717,506
|
)
|
Loss on issuance of warrants (January 10, 2019 issuance)
|
|
$
|
(589,061
|
)
|
Loss on issuance of warrants (March 11, 2019 issuance)
|
|
$
|
(198,148
|
)
|
Total loss on issuance of warrants
|
|
$
|
(787,209
|
)
|
As
of September 30, 2020, the fair value of the warrant liability was $88,750 and the Company recorded a change in fair value of
the warrant liability of $(682,717) for the nine months ended September 30, 2020.
On
March 11, 2019, the Company issued warrants to an investment bank to purchase a total of 100,000 restricted shares of the Company’s
common stock at a per share purchase price of $0.90. The warrants are exercisable at any time six months after the issuance date
within three years of issuance.
The
Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such
required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has
no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the
remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized
as a warrant liability on the condensed consolidated balance sheet and are measured at their inception date fair value and subsequently
re-measured at each reporting period with changes being recorded as a component of other income in the condensed consolidated
statement of operations. At December 31, 2019, the fair value of the warrant liability was $24,504 while as of September 30, 2020,
the fair value of the warrant liability was $85. Accordingly, the Company recorded a change in fair value of the warrant liability
of $24,419 related to the warrants for the nine months ended September 30, 2020.
On
June 14, 2019, the Company entered into another Investment Unit Purchase Agreement (the “Second Investment Agreement”)
to issue and sell investment units to an investor (the “investor”), in which the investment units consist of one share
of the common stock of the Company, and a warrant exercisable for one half share of common stock of the Company at an exercise
price of $1.25 per share for cash at a price per investment unit of $0.90.
On
June 24, 2019, the Company sold an aggregate of 166,667 units of the Company’s securities to an investor at a purchase price
of $0.90 per unit for total proceeds of $150,000. In connection with the Second Investment Agreement, the investor is entitled
to purchase from the Company, at the exercise price, at any time on or after 90 days from the issuance date, 83,333 shares of
the Company’s common stock (the “June Warrant Shares”).
The
gross proceeds from the 166,667 investment units at $0.90 was $150,000. The fair value of the June Warrant Shares at
issuance was $83,586 while as of September 30, 2020, the fair value of the warrant liability was $3,574. Accordingly, the Company
recorded a change in fair value of the warrant liability of $(80,012) related to the warrants for the nine months ended September
30, 2020.
On
August 15, 2019, in connection with the issuance of Note Eleven, the Company issued warrants, of which the value was derived and
based off the fair value of Note Eleven, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00
per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on
or after August 15, 2019 and on or before August 15, 2024, by delivery to the Company of the Notice of Exercise.
The
Company determined that the warrants associated with Note Eleven are puttable for cash upon a fundamental transaction at the option
of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from
Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is
likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are
recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured
at each reporting period with changes being recorded as a component of other income in the statement of operations. At December
31, 2019, the fair value of the warrant liability was $9,130 while as of September 30, 2020, the fair value of the warrant liability
was $1,658. Accordingly, the Company recorded a change in fair value of the warrant liability of $(7,472) related to Note Eleven
for the nine months ended September 30, 2020.
On
September 16, 2019, in connection with the issuance of Note Twelve, the Company issued warrants, of which the value was derived
and based off the fair value of Note Twelve, to the investor to purchase 25,000 shares of the Company’s common stock at
$1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times
on or after September 16, 2019 and on or before September 16, 2024, by delivery to the Company of the Notice of Exercise.
The
Company determined that the warrants associated with Note Twelve are puttable for cash upon a fundamental transaction at the option
of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from
Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is
likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are
recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured
at each reporting period with changes being recorded as a component of other income in the statement of operations. At December
31, 2019, the fair value of the warrant liability was $9,194 while as of September 30, 2020, the fair value of the warrant liability
was $1,684. Accordingly, the Company recorded a change in fair value of the warrant liability of $(7,510) related to Note Twelve
for the nine months ended September 30, 2020.
On
October 11, 2019, in connection with the issuance of Note Thirteen, the Company issued warrants, of which the value was derived
and based off the fair value of Note Thirteen, to the investor to purchase 25,000 shares of the Company’s common stock at
$1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times
on or after October 11, 2019 and on or before October 11, 2024, by delivery to the Company of the Notice of Exercise.
The
Company determined that the warrants associated with Note Thirteen are puttable for cash upon a fundamental transaction at the
option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities
from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction
is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants
are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently
re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations.
At December 31, 2019, the fair value of the warrant liability was $9,236 while as of September 30, 2020, the fair value of the
warrant liability was $1,703. Accordingly, the Company recorded a change in fair value of the warrant liability of $(7,533) related
to Note Thirteen for the nine months ended September 30, 2020.
On
November 1, 2019, the Company issued warrants to an institution to purchase a total of 100,000 restricted shares of the Company’s
common stock at a per share purchase price of $0.435. The warrants are exercisable at any time after the issuance date within
five years of issuance.
The
Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such
required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has
no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the
remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized
as a warrant liability on the consolidated balance sheet and are measured at their inception date fair value and subsequently
re-measured at each reporting period with changes being recorded as a component of other income in the consolidated statement
of operations. At December 31, 2019, the fair value of the warrant liability was $40,063. As of September 30, 2020, the fair value
of the warrant liability was $7,735 and the Company recorded a change in fair value of the warrant liability of $(32,328) related
to the warrants for the nine months ended September 30, 2020.
On
December 26, 2019, in connection with the issuance of Note Fourteen, the Company issued warrants, of which the value was derived
and based off the fair value of Note Fourteen, to the investor to purchase 12,500 shares of the Company’s common stock at
$1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times
on or after December 26, 2019 and on or before December 26, 2024, by delivery to the Company of the Notice of Exercise.
The
Company determined that the warrants associated with Note Fourteen are puttable for cash upon a fundamental transaction at the
option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities
from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction
is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants
are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently
re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations.
At December 31, 2019, the fair value of the warrant liability was $4,687 while as of September 30, 2020, the fair value of the
warrant liability was $880. Accordingly, the Company recorded a change in fair value of the warrant liability of $(3,807) related
to Note Fourteen for the nine months ended September 30, 2020.
On
January 28, 2020, the Company entered into a subscription agreement with an investor for the purchase of 270,270 shares of the
Company’s common stock and 135,135 warrants to purchase shares of the Company’s common stock at $0.40 per share for
total gross proceeds of $100,000.
The
Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such
required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has
no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the
remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized
as a warrant liability on the condensed consolidated balance sheet and are measured at their inception date fair value and subsequently
re-measured at each reporting period with changes being recorded as a component of other income in the condensed consolidated
statement of operations. At inception, January 28, 2020, the fair value of the warrant liability was $56,208 while as of September
30, 2020, the fair value of the warrant liability was $9,920. Accordingly, the Company recorded a change in fair value of the
warrant liability of $(46,288) and related to the warrants for the nine months ended September 30, 2020.
A
summary of warrant activity is as follows:
|
|
For the Nine Months Ended
September 30,
2020
|
|
|
|
Warrant Shares
|
|
|
Weighted Average Exercise Price
|
|
Balance at January 1, 2020
|
|
|
5,113,058
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
Warrants expired
|
|
|
(462,195
|
)
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
Warrants granted
|
|
|
335,135
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
|
|
4,985,998
|
|
|
$
|
0.52
|
|
The
fair value of the Company’s warrant liability was calculated using the Black-Scholes model and the following assumptions:
|
|
As of
September 30,
2020
|
|
|
As of
December 31,
2019
|
|
Fair value of company's common stock
|
|
$
|
0.101
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
37% - 163
|
%
|
|
|
45% - 140
|
%
|
|
|
|
|
|
|
|
|
|
Risk Free interest rate
|
|
|
0.16% - 0.26
|
%
|
|
|
1.55% - 1.79
|
%
|
|
|
|
|
|
|
|
|
|
Expected life (years)
|
|
|
2.64
|
|
|
|
2.83
|
|
|
|
|
|
|
|
|
|
|
Fair value of financial instruments - warrants
|
|
$
|
88,750
|
|
|
$
|
715,259
|
|
The
change in fair value of the financial instruments – warrants is as follows:
Nine Months Ended September 30, 2020
|
|
|
|
|
|
Amount
|
|
Balance as of January 1, 2020
|
|
$
|
715,259
|
|
Fair value of warrants issued
|
|
$
|
56,208
|
|
Change in fair value of liability to issue warrants
|
|
$
|
(682,717
|
)
|
Balance as of September 30, 2020
|
|
$
|
88,750
|
|
Three Months Ended September 30, 2020
|
|
|
|
|
|
Amount
|
|
Balance as of July 1, 2020
|
|
$
|
155,789
|
|
Fair value of warrants issued
|
|
$
|
-
|
|
Change in fair value of liability to issue warrants
|
|
$
|
(67,039
|
)
|
Balance as of September 30, 2020
|
|
$
|
88,750
|
|
17.
|
Stock-Based Compensation
|
2017
Omnibus Incentive Plan
The Company’s 2017 Omnibus Incentive
Plan (the “2017 Plan”) was adopted by our Board of Directors and a majority of our voting securities on October 17,
2017. On April 13, 2020 our Board of Directors approved an amendment to the 2017 Plan and a majority of our voting securityholders
approved the amendment on April 22, 2020. The 2017 Plan permits the granting of incentive stock options, non-statutory stock options,
stock appreciation rights, restricted stock awards, restricted stock unit awards and dividend equivalent rights to eligible employees,
directors and consultants. We grant options to purchase shares of common stock under the 2017 Plan at no less than the fair value
of the underlying common stock as of the date of grant. Options granted under the Plan have a maximum term of ten years. Under
the Plan, a total of 11,000,000 shares of common stock are reserved for issuance. Options to purchase 4,715,000 and 1,835,000
shares of common stock and were granted as of September 30, 2020 and December 31, 2019, respectively. 2,943,745 and 764,945 shares
of common stock had been granted as of September 30, 2020 and December 31, 2019, respectively.
Bio-Tech
Medical Software, Inc. 2014 Stock Incentive Plan
On
October 22, 2014, BioTrackTHC approved and adopted the BioTrackTHC Stock Plan. The BioTrackTHC Stock Plan set aside and reserved
600,000 shares of BioTrackTHC’s common stock for grant and issuance in accordance with its terms and conditions. Persons
eligible to receive awards from the BioTrackTHC Stock Plan include employees (including officers and directors) of BioTrackTHC
or its affiliates and consultants who provide significant services to BioTrackTHC or its affiliates (the “Grantees”).
The BioTrackTHC Stock Plan permits BioTrackTHC to issue to Grantees qualified and/or non-qualified options to purchase BioTrackTHC’s
common stock, restricted common stock, performance units, and performance shares. The term of each award under the BioTrackTHC
Stock Plan shall be no more than ten years from the date of grant thereof. BioTrackTHC’s Board of Directors or a committee
designated by the Board of Directors is responsible for administration of the BioTrackTHC Stock Plan and has the sole discretion
to determine which Grantees will be granted awards and the terms and conditions of the awards granted. On February 29, 2020, the
former Chief Executive Officer of the Company’s BioTrackTHC subsidiary forfeited 204,364 Bio-Tech Medical Software, Inc.
2014 Stock Incentive Plan stock options as a result of his termination (See Note 14).
BioTrackTHC
Management Awards
On
September 1, 2015 and November 1, 2015, BioTrackTHC’s Board approved individual employee option grants (the “Executive
Grants”) for three executives (the “Executives”). Pursuant to the Executive Grants, the Executives were each
granted stock options to purchase 146,507 shares (totaling 439,521 shares) of BioTrackTHC’s common stock (the “Option”)
at an exercise price equal to approximately $7.67. The options vest as to 25% of the shares subject to the Options, one year after
the date of grant and then in equal quarterly installments for the three years thereafter, subject to the Executive’s continued
employment with BioTrackTHC (see Notes 1 and 5). On February 29, 2020, the former President of the Company’s BioTrackTHC
subsidiary forfeited 1,430,306 BioTrackTHC Management Awards (See Note 14).
No provision for U.S. federal or state
income taxes has been recorded as the Company has incurred net operating losses since inception. Significant components of the
Company’s net deferred income tax assets for the nine months ended September 30, 2020 and 2019 consist of income tax loss
carryforwards. These amounts are available for carryforward for use in offsetting taxable income of future years through 2035.
Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within
the carry-forward period. Utilization of the net operating loss carry-forwards may be subject to a substantial annual limitation
due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.
Due to the Company’s history of operating losses, these deferred tax assets arising from the future tax benefits are currently
not likely to be realized and are thus reduced to zero by an offsetting valuation allowance. As a result, there is no provision
for income taxes.
For
the nine months ended September 30, 2020 and 2019, the Company has a net operating loss carry forward of approximately $20,077,000
and $16,952,000, respectively. Utilization of these net loss carry forwards is subject to the limitations of Internal Revenue
Code Section 382. The Company applied a 100% valuation reserve against the deferred tax benefit as the realization of the
benefit is not certain.
19.
|
Commitments
and Contingencies
|
Under
Topic 842, operating lease expense is generally recognized evenly on a straight-line basis. The Company has operating leases primarily
consisting of facilities with remaining lease terms of one year to five years. The lease term represents the period up to the
early termination date unless it is reasonably certain that the Company will not exercise the early termination option. Certain
leases include rental payments that are adjusted periodically based on changes in consumer price and other indices.
Leases
with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. For lease agreements
entered into or reassessed after the adoption of Topic 842, the Company combines the lease and non-lease components in determining
the lease liabilities and ROU assets.
Activity
related to the Company’s leases was as follows:
|
|
Nine Months Ended
September 30,
2020
|
|
Operating lease expense
|
|
$
|
60,306
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
67,233
|
|
ROU assets obtained in exchange for operating lease obligations
|
|
$
|
301,396
|
|
The Company’s lease agreements
generally do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate is determined based on information
available at lease commencement date for purposes of determining the present value of lease payments. The Company used the incremental
borrowing rate on December 31, 2018 for all leases that commenced prior to that date.
ROU
lease assets and lease liabilities for the Company’s operating leases were recorded in the condensed consolidated balance
sheet as follows:
|
|
As of
September 30,
2020
|
|
Other current assets
|
|
$
|
841,419
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
257,952
|
|
Other long-term liabilities
|
|
$
|
621,781
|
|
Total lease liabilities
|
|
$
|
879,733
|
|
|
|
|
|
|
Weighted average remaining lease term (in years)
|
|
|
3.16
|
|
Weighted average discount rate
|
|
|
6.37
|
%
|
Future
lease payments included in the measurement of lease liabilities on the condensed consolidated balance sheet as of September 30,
2020, for the following five fiscal years and thereafter were as follows:
|
|
|
As of
September 30,
2020
|
|
2020
|
|
|
$
|
67,233
|
|
2021
|
|
|
|
254,961
|
|
2022
|
|
|
|
222,744
|
|
2023
|
|
|
|
200,944
|
|
2024
|
|
|
|
205,435
|
|
Thereafter
|
|
|
|
-
|
|
Total future minimum lease payments
|
|
|
$
|
951,317
|
|
Less imputed interest
|
|
|
|
(71,584
|
)
|
Total
|
|
|
$
|
879,733
|
|
As
of September 30, 2020, the Company had additional operating lease obligations for a lease with a future effective date of approximately
$600,000. This operating lease will commence during the first quarter of fiscal 2022 with a lease term of three years.
FASB
ASC 280-10-50 requires use of the “management approach” model for segment reporting. The management approach is based
on the way a company’s management organized segments within the company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner
in which management disaggregates a company.
Operating
segments are defined as components of an enterprise about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in
assessing performance. The Company’s chief operating decision–making group is composed of the Chief Executive Officer
and the Chief Financial Officer. The Company operates in three segments, Security and guarding, Systems installation and Software.
Asset
information by operating segment is not presented below since the chief operating decision maker does not review this information
by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s unaudited
condensed consolidated financial statements.
The
following represents selected information for the Company’s reportable segments:
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security monitoring
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
84,147
|
|
|
$
|
135,218
|
|
|
$
|
279,042
|
|
|
$
|
436,976
|
|
Cost of revenue
|
|
|
90,738
|
|
|
|
330,602
|
|
|
|
264,629
|
|
|
|
422,880
|
|
Gross profit
|
|
|
(6,591
|
)
|
|
|
(195,384
|
)
|
|
|
14,413
|
|
|
|
14,096
|
|
Total operating expenses
|
|
|
41,345,177
|
|
|
|
1,551,016
|
|
|
|
45,129,661
|
|
|
|
4,565,944
|
|
Loss from operations
|
|
|
(41,351,768
|
)
|
|
|
(1,746,400
|
)
|
|
|
(45,115,248
|
)
|
|
|
(4,551,848
|
)
|
Total other (expense) income
|
|
|
(604,821
|
)
|
|
|
1,619,885
|
|
|
|
(2,208,937
|
)
|
|
|
642,077
|
|
Total loss from continuing operations
|
|
$
|
(41,956,589
|
)
|
|
$
|
(126,515
|
)
|
|
$
|
(47,324,185
|
)
|
|
$
|
(3,909,771
|
)
|
Loss from discontinued operations
|
|
|
(70,529
|
)
|
|
|
(141,276
|
)
|
|
|
(65,141
|
)
|
|
|
(160,798
|
)
|
Net Loss
|
|
$
|
(42,026,848
|
)
|
|
$
|
(267,791
|
)
|
|
$
|
(47,389,326
|
)
|
|
$
|
(4,070,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(849,911
|
)
|
|
$
|
(1,515,464
|
)
|
|
$
|
(1,961,145
|
)
|
|
$
|
(3,437,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems installation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
30,555
|
|
|
$
|
245,272
|
|
|
$
|
346,460
|
|
|
$
|
447,880
|
|
Cost of revenue
|
|
|
97,161
|
|
|
|
149,431
|
|
|
|
361,260
|
|
|
|
649,041
|
|
Gross profit
|
|
|
(66,606
|
)
|
|
|
95,841
|
|
|
|
(14,800
|
)
|
|
|
(201,161
|
)
|
Total operating expenses
|
|
|
25,209
|
|
|
|
179,641
|
|
|
|
294,216
|
|
|
|
367,094
|
|
Loss from operations
|
|
|
(91,815
|
)
|
|
|
(83,800
|
)
|
|
|
(309,016
|
)
|
|
|
(568,255
|
)
|
Total other expense
|
|
|
560
|
|
|
|
280
|
|
|
|
277
|
|
|
|
713
|
|
Total loss from continuing operations
|
|
$
|
(91,255
|
)
|
|
$
|
(83,520
|
)
|
|
$
|
(308,739
|
)
|
|
$
|
(567,542
|
)
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(91,255
|
)
|
|
$
|
(83,520
|
)
|
|
$
|
(308,739
|
)
|
|
$
|
(567,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(91,255
|
)
|
|
$
|
76,630
|
|
|
$
|
(308,456
|
)
|
|
$
|
(84,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,778,356
|
|
|
$
|
2,357,078
|
|
|
$
|
8,174,850
|
|
|
$
|
6,872,210
|
|
Cost of revenue
|
|
|
730,251
|
|
|
|
838,792
|
|
|
|
2,222,785
|
|
|
|
2,522,570
|
|
Gross profit
|
|
|
2,048,105
|
|
|
|
1,518,286
|
|
|
|
5,952,065
|
|
|
|
4,349,640
|
|
Total operating expenses
|
|
|
2,240,642
|
|
|
|
2,410,597
|
|
|
|
6,631,953
|
|
|
|
6,996,514
|
|
Loss from operations
|
|
|
(192,537
|
)
|
|
|
(892,311
|
)
|
|
|
(679,888
|
)
|
|
|
(2,646,874
|
)
|
Total other expense
|
|
|
121,839
|
|
|
|
(11,947
|
)
|
|
|
(2,217
|
)
|
|
|
23
|
|
Total loss from continuing operations
|
|
$
|
(70,698
|
)
|
|
$
|
(904,258
|
)
|
|
$
|
(682,105
|
)
|
|
$
|
(2,646,851
|
)
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(70,698
|
)
|
|
$
|
(904,258
|
)
|
|
$
|
(682,105
|
)
|
|
$
|
(2,646,851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
1,035,966
|
|
|
$
|
106,985
|
|
|
$
|
2,614,475
|
|
|
$
|
352,580
|
|
The
chief operating decision making group uses net loss before interest, taxes and depreciation and amortization and adjusted for
non-core or certain items that have a disproportionate impact on our results for a particular period (“Adjusted EBITDA”)
as a non-GAAP measure to evaluate the Company’s operating performance. Adjusted EBITDA does not represent, and should not
be considered an alternative to, net loss, loss from operations, or cash flow from operations as those terms are defined by GAAP,
and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. From time to time, we may exclude
from Adjusted EBITDA the impact of certain events, gains, losses or other charges that affect the period-to-period comparability
of the Company’s operating performance. The Company believes that Adjusted EBITDA provides useful information to investors
and others in understanding and evaluating our operating results in the same manner as our chief operating decision maker. Net
loss is reconciled to Adjusted EBITDA as follows:
|
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net Loss
|
|
$
|
(42,188,801
|
)
|
|
$
|
(1,255,569
|
)
|
|
$
|
(48,380,170
|
)
|
|
$
|
(7,284,962
|
)
|
Interest expense
|
|
|
355,469
|
|
|
|
538,591
|
|
|
|
1,029,979
|
|
|
|
1,227,271
|
|
Depreciation & amortization
|
|
|
1,049,235
|
|
|
|
1,179,597
|
|
|
|
3,320,641
|
|
|
|
3,516,418
|
|
Loss on impairment of intangible assets
|
|
|
39,963,107
|
|
|
|
-
|
|
|
|
41,333,085
|
|
|
|
-
|
|
Share based compensation expense
|
|
|
549,012
|
|
|
|
352,341
|
|
|
|
1,620,616
|
|
|
|
1,241,741
|
|
Change in fair value of convertible note
|
|
|
321,915
|
|
|
|
(430,766
|
)
|
|
|
1,104,856
|
|
|
|
(288,425
|
)
|
Change in fair value of convertible note - related party
|
|
|
-
|
|
|
|
(491,442
|
)
|
|
|
(498,233
|
)
|
|
|
213,828
|
|
Change in fair value of warrant liability
|
|
|
(67,039
|
)
|
|
|
(1,224,601
|
)
|
|
|
(682,717
|
)
|
|
|
(3,462,746
|
)
|
Change in fair value of contingent consideration
|
|
|
111,902
|
|
|
|
-
|
|
|
|
1,536,324
|
|
|
|
880,050
|
|
Loss (gain) on issuance of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,000
|
)
|
|
|
787,209
|
|
Other expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(37,507
|
)
|
|
|
-
|
|
Adjusted EBITDA (1)
|
|
$
|
94,800
|
|
|
$
|
(1,331,849
|
)
|
|
$
|
344,874
|
|
|
$
|
(3,169,616
|
)
|
|
(1)
|
See
“Non-GAAP Financial Measures” within Part I, Item 2, Management’s Discussion and Analysis.
|
On October 1, 2020, the holder of Note
Twelve converted the remaining principal balance of $23,890 of the note into 353,402 shares of common stock of the Company.
On October 1, 2020, the Company issued
25,000 Non-Qualified Stock Options to a consultant, pursuant to a consulting agreement.
On October 12, 2020, the holder of
Note Thirteen converted $30,000 of the principal balance of the note into 442,478 shares of common stock of the Company.
On October 13, 2020, the Company issued
15,000 restricted shares of common stock to a former employee.
On October 14, 2020, pursuant to a unanimous
vote of the Board of Directors, the Company issued 300,000 Incentive Stock Options to the Chief Executive Officer (“CEO”)
with an exercise price of $0.1045, a 10% premium to the closing price on the date of issuance. The Board of Directors also voted
to grant the CEO a cash bonus of $75,000.
On October 16, 2020, the Company signed
an agreement and plan of merger whereby the Company would combine with Medical Outcomes Research Analytics, with both companies
becoming wholly owned subsidiaries of a newly formed company, Forian, Inc. Upon completion of the all-stock transaction, MOR Analytics
members will own approximately 72 percent and Helix shareholders will own approximately 28 percent of the combined company on a
fully diluted basis. Helix shareholders will receive .027 shares of Forian common stock for each share of Helix common stock. The
transaction is subject to customary closing conditions, including regulatory approvals and approval by Helix’s shareholders,
and is expected to close in the first quarter 2021. Forian expects to apply and be listed on the Nasdaq Stock Exchange.
On October 19, 2020, the holder of
Note Thirteen converted $100,000 of the principal balance of the note into 1,468,429 shares of common stock of the Company.
On October 20, 2020, the holder of Note
Thirteen converted the remaining principal balance of $374,000 of the note into 5,491,924 shares of common stock of the Company.
On November 2, 2020, the holder of Note
Fourteen converted the entire principal balance of $235,789 of the note into 3,462,394 shares of common stock of the Company.
On November 2, 2020, the holder of Note
Thirteen converted $12,893 of the accrued interest of the note into 189,325 shares of common stock of the Company.