XSPORT GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF THE ORGANIZATION AND BUSINESS
XSport Global, Inc. and Subsidiary (the “Company”, “XSport” or “We”), formerly known as TeleHealthCare, Inc. (“TeleHealthCare”), was
incorporated under the laws of the State of Wyoming on December 10, 2012. Prior to the reverse merger described below, TeleHealthCare developed platforms in the telehealth industry
On September 11, 2017, TeleHealthCare executed an Agreement and Plan of Merger (the “Merger Agreement”) with XSport Global, Inc., a
North Carolina corporation, and HT Acquisition Corp., a Wyoming corporation and wholly-owned subsidiary of XSport Global, Inc. (the “Acquisition”) whereby the Acquisition was merged with and into the Company (the “Merger”) in consideration for
52,500,000 newly-issued shares of Common Stock of the Company (the “Merger Shares”)(17,500,000 shares post-reverse split). As a result of the Merger, XSport became a wholly-owned subsidiary of TeleHealthCare, and following the consummation of
the Merger and giving effect to the retirement of approximately 15,666,666 shares (leaving approximately 7,957,666 post-split shares remaining prior to the Merger), and the sale of approximately 3,451,322 post-split shares at the Merger to
accredited investors, the stockholders of XSport became beneficial owners of approximately 61% of our issued and outstanding common stock. Certain assets and liabilities of the original TeleHealthCare were then spun off, including assets and
liabilities associated with CarePanda, with the Company assuming approximately $195,000 of remaining liabilities and changing the name of the newly merged company to XSport Global, Inc.
As a result of the Merger, the 17,325,000 post-split newly-issued shares were issued to the pre-existing XSport shareholders for all
of the outstanding capital stock of XSport. XSport assumed net liabilities totaling $194,632, with the remaining assets and liabilities assumed by MD Capital Advisors, Inc., a Company owned by TeleHealthCare’s former CEO, in a split-off
agreement. For accounting purposes, XSport was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of the Company. Accordingly, XSport’s assets, liabilities and results
of operations became the historical consolidated financial statements of the Company and the Company’s assets, liabilities and results of operations was consolidated with XSport effective as of the date of the Merger. No step-up in basis or
intangible assets or goodwill was recorded in this transaction.
On August 28, 2017, our Board of Directors approved a reverse stock split of our issued and authorized shares of common on the basis
of three (3) shares for one (1) new share. Our shareholders approved the reverse split through a special meeting held on November 2, 2017. FINRA effected the reverse stock split in July 2018. Our authorized common stock will remain unchanged
with 500,000,000 shares of common stock. No fractional shares will be issued in connection with the reverse stock split. Additionally, the Board of Directors and shareholders approved the authorization of 10,000,0000 shares of blank check
preferred stock with a par value of $0.001 per share. All share or per share information included in these consolidated financial statements gives effect to the reverse split.
On March 22, 2018, the Board of Directors and Majority Shareholders approved an amendment to our Articles of Incorporation to change
our name to XSport Global, Inc.
As a result of the Merger with XSport Global, our business plan has shifted to mobile applications for athletes of all ages and all
skill levels, designed to engage and improve cognitive abilities. We are focused on developing a unique, industry-leading iOS and Android cognitive training mobile device application platform called XSport Global that we believe is
differentiated from other players in the cognitive training space with a primary focus on the youth sports markets.
XSport Global, Inc.
HeadTrainer, Inc. was incorporated in the state of North Carolina on May 13, 2014. It subsequently changed its original name of Head
Trainer, Inc. to HeadTrainer, Inc, then subsequently to XSport Global, Inc.
XSport Global (formerly known as HeadTrainer, Inc.)
was established to create,
develop, promote, market, produce, and distribute online/mobile application cognitive training tools initially intended for the youth, millennial and adult sports markets. The Corporation initially intends to outsource product manufacturing,
distribution and the majority of its marketing efforts. The Corporation may work in conjunction with other organizations that provide computer programming, graphic design, and marketing expertise, and/or accomplish these same tasks in-house.
Shift Now Acquisition
On August 28, 2018, the Company entered into a stock purchase agreement (the “Agreement”) whereby the Company agreed to acquire all of the
outstanding capital stock of Shift Now, Inc., a North Carolina corporation (“Shift Now”). The purchase price consisted of 700,000 shares of our common stock, par value $0.001 per share, with a value of $0.075 per share totaling $52,500, (of
which 250,000 shares are contingent on meeting future performance targets) and two convertible promissory notes for $30,000.
Also, on August 28, 2018, the Company entered into an employment agreement (the “Employment Agreement”) with Kristi Griggs, the
former principal shareholder of Shift Now (the “Employee”) to serve as Executive Vice President of the Company’s Shift Now Division (See note 7). Additionally, as additional consideration, the Company shall issue the Employee 150,000 shares of
Common Stock at the 12-month anniversary of execution of the Employment Agreement. Employee shall receive an additional 150,000 shares of Common Stock upon the 24-month anniversary of the Employment Agreement.
Shift Now is a full-service strategic, creative and digital marketing agency.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”). The Company has a September 30 year-end.
Basis of Consolidation
The consolidated financial statements include the accounts of XSport Global, Inc. and its wholly-owned subsidiary and HeadTrainer,
as of and for the years ended September 30, 2018 and 2017, as well as the accounts of its wholly-owned subsidiary Shift Now from August 28, 2018 through September 30, 2018. All significant intercompany transactions have been eliminated in
consolidation.
Business Segments
The Company has two business segments. XSport Global is focused on the development and sale software applications through
subscriptions to end users. Shift Now provides marketing services to businesses.
Use of Estimates
The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses in the reporting period. The
Company regularly evaluates estimates and assumptions related to useful life and recoverability of long-lived assets, valuation of shares for services and assets, deferred income tax asset valuations and loss contingencies. The Company bases
its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected.
Cash
For purposes of the statement of cash flows, the Company considers all highly liquid instruments with maturity of three months or
less at the time of issuance to be cash equivalents. There is no restricted cash or cash equivalents.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 “Revenue from Contracts with Customers”. The standard outlines a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In applying the new revenue recognition
model to contracts with customers, an entity: (1) identifies the contract(s) with a customer; (2) identifies the performance obligations in the contract(s); (3) determines the transaction price; (4) allocates the transaction price to the
performance obligations in the contract(s); and (5) recognizes revenue when (or as) the entity satisfies a performance obligation. The accounting standards update applies to all contracts with customers except those that are within the scope
of other topics in the FASB Accounting Standards Codification. The Company early adopted this standard under the modified respective approach with no effect on opening equity. The Company determined that the adoption of this standard did
not have a material impact on its financial position or results of operations.
XSport
XSport recognizes revenue from the sale of its software application thorough subscriptions received from end users. XSport had no
revenues from its application during the years ended September 30, 2018 and 2017.
Shift Now
Shift Now recognizes service revenue when the service is completed under ASC Topic 606.
Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts. The
Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. The Company writes off accounts receivable
against the allowance for doubtful accounts when a balance is determined to be uncollectible. As of September 30, 2018, and 2017, the Company’s allowance for doubtful accounts was $10,000 and $0, respectively.
Property and Equipment
Property and equipment consists of computer equipment, and furniture and fixtures, and is recorded at cost, less accumulated
depreciation. Property and equipment is depreciated on a straight-line basis over its estimated life of three to seven years.
We assess the impairment of long-lived assets
on an ongoing basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our impairment review process is based upon an estimate of future undiscounted cash flows. Factors we consider that
could trigger an impairment review include significant underperformance relative to expected historical or projected future operating results and significant negative industry or economic trends. Based on our analysis, there have been no
impairment charges recorded during the years ended September 30, 2018 and 2017
.
Intangible Assets
The Company periodically reviews the carrying value of intangible assets to determine whether impairment may exist. Intangible
assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating
performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, an impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its
carrying amount. The Company uses level 3 inputs and a discounted cash flow methodology, along to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including
assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the
risk inherent in the respective reporting units.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes and for operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled. A valuation allowance is established to reduce net
deferred tax assets to the amount expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that includes the enactment date. The Company recognizes
the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being recognized. Changes in
recognition and measurement are reflected in the period in which the change in judgment occurs. Interest and penalties related to unrecognized tax benefits are included in income tax expense.
The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to
21% and will require the Company to re-measure certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. The Company has reflected the aspects of the Act as it
relates our calculations as of September 30, 2018.
Fair value
Financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, notes payable and
convertible notes payable. The recorded values of all financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy
prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available.
The three-level hierarchy is defined as follows:
|
·
|
Level 1 - Valuation is based upon unadjusted quoted market prices for identical assets or liabilities in accessible active markets.
|
|
·
|
Level 2 - Valuation is based upon quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in
inactive markets; or valuations based on models where the significant inputs are observable in the market.
|
|
·
|
Level 3 - Valuation is based on models where significant inputs are not observable. The unobservable inputs reflect a company’s own assumptions about the inputs that
market participants would use.
|
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial
statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Research and development expenses
Research and development expenses are expensed as incurred and are primarily comprised of product development.
Warrants
The Company has issued warrants in connection with financing arrangements. Warrants that do not qualify to be recorded as permanent
equity are recorded as liabilities at their fair value using the Black- Scholes option pricing model. The relative fair value of the warrants is recorded in additional paid-in capital and as a debt discount. For warrants issued for services,
the relative fair value is recorded in additional paid-in capital and stock-based compensation.
Share-based Compensation
The Company measures the cost of awards of equity instruments based on the grant date fair value of the awards. That cost is
recognized on a straight-line basis over the period during which the employee is required to provide service in exchange for the entire award. The fair value of stock options on the date of grant is calculated using the Black-Scholes option
pricing model, based on key assumptions such as the fair value of common stock, expected volatility and expected term. The Company’s estimates of these important assumptions are primarily based on third-party valuations, historical data, peer
company data and the judgment of management regarding future trends and other factors.
Equity Instruments Issued for Services
Issuances of the Company’s common stock for services is measured at the fair value of the consideration received or the fair value
of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to employees and board members is determined at the earlier of (i) the date at which a commitment
for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which
performance is complete. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity
instrument is measured at the then-current fair values at each of those financial reporting dates. Based on the applicable guidance, the Company records the compensation cost but treats forfeitable unvested shares as unissued until the shares
vest.
Advertising Costs
The Company expenses the costs of advertising when the advertisements are first aired or displayed. All other advertising and
promotional costs are expensed in the period incurred. Total advertising expense for the years ended September 30, 2018 and 2017 was $4,000 and $600, respectively. The Company’s mobile device application was inactive and not sold during the
years ended September 30, 2018 and 2017.
Earnings (Loss) Per Share (“EPS”)
Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted
EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes.
The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of
including these potential shares was antidilutive even though the exercise price could be less than the average market price of the common shares:
|
|
|
Year ended
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
6,667,761
|
|
|
|
4,071,412
|
|
|
Warrants
|
|
|
1,263,989
|
|
|
|
1,263,989
|
|
|
Potentially dilutive securities
|
|
|
7,931,750
|
|
|
|
5,335,401
|
|
Recent Accounting Pronouncements
On May 10, 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-09
“Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”, which provides guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new
guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective
prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted. The Company determined that the adoption of this ASU had no material impact on its financial position or results of
operations.
In March 2016, the FASB issued ASU
2016-09,
Compensation - Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting
. The new standard contains several amendments that will simplify the accounting for employee share-based payment transactions, including the accounting for
income taxes, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The changes in the new standard eliminate the accounting for
excess tax benefits to be recognized in additional paid-in capital and tax deficiencies recognized either in the income tax provision or in additional paid-in capital.
The ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual reporting periods beginning after December 15, 2018.
The Company determined that
the adoption of this ASU had no material impact on its financial position or results of operations.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases
(Topic 842).” ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability)
and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to
recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This amendment will be
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” and ASU No. 2018-11 “Leases (Topic 842) Targeted
Improvements” in July 2018, and ASU No. 2018-20 “Leases (Topic 842) - Narrow Scope Improvements for Lessors” in December 2018. ASU 2018-10 and ASU 2018-20 provide certain amendments that affect narrow aspects of the guidance issued in ASU
2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a
cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company will adopt this guidance beginning with its first quarter ended March 31, 2019.
In August 2015, the FASB issued ASU 2015-14, “Revenue From Contracts With Customers (Topic 606)”. The amendments in this ASU defer
the effective date of ASU 2014-09 “Revenue From Contracts With Customers (Topic 606)”. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting
periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company early adopted the ASU
on September 30, 2018. The Company determined that the adoption of this ASU had no material impact on its financial position or results of operations.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial
statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - LIQUIDITY, UNCERTAINTIES AND GOING CONCERN
The Company is subject to a number of risks similar to those of early stage companies, including dependence on key individuals, the
difficulties inherent in the development of a commercial market, the potential need to obtain additional capital necessary to fund the development of its products, and competition from larger companies.
These consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to
realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company
has a working capital deficiency of approximately $2.5 million,
has incurred a loss since inception resulting in an accumulated deficit of approximately $10.5 million as of September 30, 2018, and further losses are anticipated in the development of its business raising substantial doubt about
the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and
repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months from the date of the issuance of these consolidated financial statements with existing
cash on hand and loans from directors and/or the private placement of common stock. There is, however, no assurance that the Company will be able to raise any additional capital through any type of offering on terms acceptable to the Company
and cash on hand will not be sufficient for the next twelve months from the issuance of these financial statements.
NOTE 4 –
PROPERTY AND
EQUIPMENT
The Company’s
property and
equipment consists of the following:
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
14,302
|
|
|
$
|
7,351
|
|
|
Autos
|
|
|
37,308
|
|
|
|
-
|
|
|
|
|
|
51,610
|
|
|
|
7,351
|
|
|
Less: accumulated depreciation
|
|
|
(8,738
|
)
|
|
|
(6,181
|
)
|
|
|
|
$
|
42,872
|
|
|
$
|
1,170
|
|
Depreciation expense was $2,557 and $2,257 for the years ended September 30, 2018 and 2017, respectively.
NOTE 5 – INTANGIBLE ASSETS
The Company’s intangible assets consist of the following:
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
|
|
|
|
|
|
|
|
Trade name and trademarks
|
|
$
|
10,000
|
|
|
$
|
-
|
|
|
Customer base
|
|
|
119,924
|
|
|
|
-
|
|
|
|
|
|
129,924
|
|
|
|
-
|
|
|
Less: accumulated amortization
|
|
|
(1,277
|
)
|
|
|
-
|
|
|
|
|
$
|
128,647
|
|
|
$
|
-
|
|
The intangible assets have an estimated useful life ranging from 5 to 9 years.
The Company performed this evaluation of our intangible assets as
of September 30, 2018 and determined no impairment was necessary.
NOTE 6 – ACQUISITION
Shift Now, Inc.
On August 28, 2018, the Company entered into a stock purchase agreement to acquire all of the outstanding capital stock of Shift Now for a total
purchase price of $82,500. The purchase price included 700,000 shares of our common stock with a value of $52,500 and a convertible promissory note for $30,000. 250,000 shares of the 700,000 shares are contingent on future performance
targets.
The total purchase price for Shift Now was allocated as follows:
|
Intangible assets
|
|
$
|
129,924
|
|
|
Cash
|
|
|
123,625
|
|
|
Current assets
|
|
|
|
|
|
Note receivable – related party
|
|
|
3,183
|
|
|
Property and equipment
|
|
|
44,259
|
|
|
Line of credit
|
|
|
(98,310
|
)
|
|
Note payable
|
|
|
(30,000
|
)
|
|
Current liabilities
|
|
|
(
396,306
|
)
|
|
Total net assets acquired
|
|
$
|
82,500
|
|
|
The purchase price consists of the following:
|
|
|
|
|
|
Convertible notes payable
– related party
|
|
$
|
30,000
|
|
|
Common Stock
|
|
|
52,500
|
|
|
Total purchase price
|
|
$
|
82,500
|
|
Amortization of the intangible assets are deductible for tax purposes.
Intangible assets consist of customer base
totalling
$119,924 and trade name and trademarks
totalling
$10,000, with an estimated remaining useful life of 9 years and 5 years, respectively. Total amortization expense related to the intangible assets during the year ended September 30, 2018 was $1,277, resulting in an unamortized
balance of $128,647 as of September 30, 2018.
Proforma Information
The accompanying consolidated financial statements include the results of operations of Shift Now for the period from August 28, 2018 through
September 30, 2018, of which Shift Now contributed approximately $195,000 of revenue and a net loss of approximately $26,000.
The following unaudited pro forma information presents the consolidated results of the Company’s operations and the results of the acquisition
of Shift Now had it been consummated on October 1, 2016. Such unaudited pro forma information is based on historical unaudited financial information with respect to the Shift Now acquisition and does not include operational or other charges
which might have been affected by the Company, including any pro forma adjustments for amortization of intangible assets which approximates $1,277 per month. The unaudited pro forma information for the year ended September 30, 2018 presented
below is for illustrative purposes only and is not necessarily indicative of the results which would have been achieved or results which may be achieved in the future:
|
|
Year
Ended
Septemb
er 30,
|
|
|
Year
Ended
September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
Cost of
revenues
|
|
|
1,611,870
|
|
|
|
2,658,849
|
|
|
Operating expenses
|
|
|
2,164,561
|
|
|
|
3,317,686
|
|
|
Net loss
|
|
|
|
)
|
|
$
|
(
2,043,869
|
)
|
|
Net loss per share – basic and diluted
|
|
$
|
0.04
|
|
|
$
|
0.13
|
|
NOTE 7- RELATED PARTIES
In June 2014, the Company entered into an agreement with HIP, LLC (“HIP”), a company owned by the Company’s Chairman. Per the
agreement, in exchange for the intellectual property consisting of certain patents and trademarks, the Company is to pay HIP periodic royalty payments equal to 1.75% of the revenue derived from the sale of any product incorporating the
intellectual property. There were no revenue from these products for the years ended September 30, 2018 and 2017.
On July 24, 2015, the Company entered into a separation agreement and release of liability (the ‘Separation Agreement”) with the Company’s
former Chief Executive Officer (the “former CEO”) whereby the Company agreed to pay the former CEO a severance payment of $150,000, plus repay a $50,000 unsecured promissory note which is included in convertible notes payable – related parties
on the accompanying balance sheet, on or before December 31, 2017, or within 10 days of the Company receiving $700,000 in cash proceeds from the issuance of debt or equity securities. The $150,000 severance payment is reflected in accrued
compensation to related parties as of September 30, 2018 and 2017. Additionally, the Company agreed to pay the former CEO a royalty of 0.5% of the Company’s gross revenue recognized from June 15, 2015 through January 25, 2018 payable on a
quarterly basis. There were no material revenues during this period. The former CEO has initiated legal action against the Company and has received a judgement to collect the unpaid severance payment, promissory note, and royalties as the
amounts remain unpaid as of September 30, 2018. The Company has appropriately accrued for this matter and has included in accrued liabilities (as well as the convertible note payable for $50,000) on the accompanying consolidated balance
sheets.
On February 1, 2015, the Company entered into an Employment Agreement with one of the Company’s founders, Mr. Maurice Durschlag, to
serve as Chairman of the Board of Directors (the “Former Chairman and current Director and CMO”). The agreement has a term of seven years, renewable in two-year increments upon the approval of the Board of Directors of the Company and
provides for an annual salary of $150,000. Additionally, the agreement includes compensation of .0125% of gross revenue after successful launch of the Company’s product, subject to approval by the board of directors. There were no product
revenue during the years ended September 30, 2018 and 2017. In February and November 2016, the Former Chairman and current Director and CMO and the Company entered into a deferred salary conversion agreement, whereby the Former Chairman and
current Director and CMO agreed to convert a total of $131,000 of unpaid salary into 1,139,480 shares (379,827 post-reverse stock split) of the Company’s common stock. In June 2018, the company issued 697,504 common shares to the Former
Chairman and current Director and CMO in payment of $47,500 of unpaid salary. As of September 30, 2018, and September 30, 2017, a total of $27,750 and $75,250, remains accrued for this agreement and is included in accrued compensation to
related parties on the accompanying balance sheet. In June 2018, the Company granted the Former Chairman and current Director and CMO 241,667
shares,
with a fair value of $18,125,
for
incentive and past services as a director. He currently still serves as a director and CMO.
On September 15, 2017, we entered into an amended employment agreement with Mr. Maurice Durschlag as our CMO. Under the terms of
the employment agreement, Mr. Durschlag is considered an “At Will” employee and shall receive annual compensation of $120,000 per year and be immediately vested in the Company’s health and benefits package. Mr. Durschlag was also granted
1,000,000 shares of the Company’s common stock (333,333 shares post-reverse stock split), with a fair value of $22,700, that vests as to 41,667 shares on each of October 1, 2017, January 1, 2018, April 1, 2018, July 1, 2018, October 1, 2018,
January 1, 2019, April 1, 2019 and July 1, 2019. Mr. Durschlag also may defer up to 50% of his annual salary to purchase an equivalent number of shares in the Company based upon a purchase price of $0.0227 per share. Mr. Durschlag is also
entitled to reimbursement of business expenses and customary provisions for vacation, sick time and holidays. Determinations with regard to bonus or option grants are made by the Board of Directors. As of September 30, 2018 and 2017, a total
of $60,000 and $5,000, respectively, remains accrued for this agreement and is included in accrued compensation to related parties on the accompanying balance sheet. On September 1, 2018, the Board of Directors approved a resolution to increase
the annual compensation under this agreement to $180,000 per year, allow an annual bonus of in the form of stock up to 1% of the total number of shares issued by the Company on last day of each calendar year, extend the term of the agreement
through December 31, 2020, modify the stock compensation to 500,000 shares earned in increments of 125,000 per quarter commencing October 1, 2018, and modify the purchase price for the optional deferment of salary from $0.0227 to $0.681 due the
3 for 1 reverse stock split. In October 2018, the Company issued 271,094 shares of the Company’s common stock with a value of $20,332 in payment for unpaid salary under the agreement.
On May 15, 2016, the Company entered into an Employment Agreement, with an Amendment dated November 7, 2016, with the Company’s CEO,
Mr. Robert Finigan, terminating by either party upon 60-day written notice. The agreement calls for a compensation of minimum wage until such time the Company completes a debt or equity offering of at least $1,000,000, when the CEO shall
begin receiving a salary of $100,000 per year, payable monthly. At such time the Company completes a debt or equity offering of at least $5,000,000, the CEO shall begin receiving a salary of $200,000 per year, payable monthly. The agreement
allows for the cashless exercise of 1,500,000 stock options (500,000 post-reverse split) of the pre-Merger XSport Global, Inc. common stock at a price of $0.051 per share and a fair value of $371,858. The options became fully vested on May 31,
2017 and must be exercised between May 31, 2017 and May 31, 2022 (see Note 13). These options were cancelled on the Merger date. Accrued salary under this agreement was $0 and $21,352 as of September 30, 2018 and 2017, respectively, and is
included in accrued compensation to related parties on the accompanying balance sheet. On May 19, 2017, the Company granted 1,011,191 shares (337,064 post-reverse split) with a value of $100,000 in lieu of salary under this agreement, of
which $0 and $33,836 were earned and included in stock-based compensation – related party for the year ended September 30, 2018 and 2017, respectively.
On September 15, 2017, we entered into an amended employment agreement with Mr. Robert Finigan as our Chairman and CEO. Under the
terms of the employment agreement, Mr. Finigan is considered an “At Will” employee and shall receive annual compensation of $150,000 per year and be immediately vested in the Company’s health and benefits package. Mr. Finigan was also granted
1,000,000 shares of the Company’s common stock (333,333 post-reverse stock split), with a fair value of $22,700, that vests as to 41,667 shares on each of October 1, 2017, January 1, 2018, April 1, 2018, July 1, 2018, October 1, 2018, January
1, 2019, April 1, 2019 and July 1, 2019. Mr. Finigan also may defer up to 50% of his annual salary to purchase an equivalent number of shares in the Company based upon a purchase price of $0.0227 per share. Mr. Finigan is also entitled to
reimbursement of business expenses and customary provisions for vacation, sick time and holidays. Determinations with regard to bonus or option grants are made by the Board of Directors. As of September 30, 2018 and 2017, a total of $42,327
and $3,655, respectively, remains accrued for this agreement and is included in accrued compensation to related parties on the accompanying balance sheet. In June 2018, the company granted Mr. Finigan 1,263,989 shares and 871,880 shares of
common stock for unpaid wages as Chairman and CEO, as well as 241,667 shares for incentives and director services. On September 1, 2018, the Board of Directors approved a resolution to increase the annual compensation under this agreement to
$200,000 per year, allow an annual bonus of in the form of stock up to 1% of the total number of shares issued by the Company on last day of each calendar year, extend the term of the agreement through December 31, 2020, modify the stock
compensation to 500,000 shares earned in increments of 125,000 per quarter commencing October 1, 2018, and modify the purchase price for the optional deferment of salary from $0.0227 to $0.681 due the 3 for 1 reverse stock split. In October
2018, the Company issued 324,749 shares of the Company’s common stock with a value of $24,356 in payment for unpaid salary under the agreement.
On May 27, 2016, the Company entered into an Employment Agreement, with an Amendment dated November 7, 2016, with the Company’s CTO,
terminating by either party upon 60-day written notice. The agreement calls for a compensation of minimum wage until such time the Company completes a debt or equity offering of at least $1,000,000, when the CTO shall begin receiving a salary
of $75,000 per year, payable monthly. At such time the Company completes a debt or equity offering of at least $5,000,000, the CTO shall begin receiving a salary of $150,000 per year, payable monthly. The agreement allows for the cashless
exercise of 1,125,000 stock options of the pre-Merger XSport Global, Inc. common stock at a price of $0.051 per share. The options become fully vested on May 31, 2017 and must be exercised between May 31, 2017 and May 31, 2022 (see Note 13).
These options were cancelled on the Merger date. On May 27, 2017, the Company granted 252,798 shares with a value of $75,000 in lieu of salary under this agreement. The CTO resigned in August 2017.
Also, on August 28, 2018, the Company entered into an employment agreement (the “Employment Agreement”) with Kristi Griggs, the
former principal shareholder of Shift Now (the “Employee”) to serve as Executive Vice President of the Company’s Shift Now Division. The Employment Agreement provides that upon consummation of the Merger, Employee shall be entitled to receive
a salary of $100,000 per year plus a bonus of 5% of net revenue of clients managed by Employee or 1.5% of total gross revenues of Shift Now to be paid on the last pay period of the month for the prior month’s activity. Additionally, as
additional consideration, the Company shall issue the Employee 150,000 shares of Common Stock at the 12-month anniversary of execution of the Employment Agreement. Employee shall receive an additional 150,000 shares of Common Stock upon the
24-month anniversary of the Employment Agreement. The Employee may receive severance of the greater of six months’ salary or $50,000 upon termination of the Employment Agreement and shall be entitled to retain all equity ownership earned as of
the date of termination.
As of September 30, 2018 and 2017, an additional $47,806 and $47,364, respectively, was accrued for other employees and employer
taxes which is included in accrued compensation to related parties on the accompanying balance sheet.
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are as follows at September 30, 2018 and 2017:
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
363,527
|
|
|
Accrued consulting and brand endorsement fees
|
|
|
1,361,666
|
|
|
|
1,161,249
|
|
|
Accrued other
|
|
|
170,424
|
|
|
|
64,645
|
|
|
|
|
$
|
|
|
|
$
|
1,589,421
|
|
NOTE 9 –
LINE OF CREDIT,
NOTES PAYABLE RELATED PARTY AND NON-RELATED PARTY
Notes payable
The company has a note payable dated January 2017 to a finance company for the finance of an automobile. The note bears interest at
3.25% per and calls for 60 monthly payments of $685 per month through March 2022. Total balance of the note is $26,530 as of September 30, 2018, with current maturities of $7,463 and long-term maturities of $19,067.
Line of Credit
The Company has a $100,000 line of credit with a bank with a balance of $98,310 and $0 as of September 30, 2018 and 2017. The line bears
interest at prime rate
(5.25% as of September 30, 2018)
, or a minimum of 4.5%,
is collateralized by
substantially all assets of the Company,
and matures on May 15, 2019.
Notes payable – related parties
Current related party notes payable are as follows at September 30, 2018 and 2017, respectively:
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
|
|
|
|
|
|
|
|
Notes payable, shareholder, 0% interest, unsecured, due upon demand. On May 18, 2016, the noteholder converted the
note to an 8% unsecured promissory note due August 1, 2016. This note is in default as of September 30, 2018.
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, shareholder, 0% interest, unsecured, due upon demand
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
102,000
|
|
|
|
102,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
18,959
|
|
|
|
10,959
|
|
|
|
|
$
|
120,959
|
|
|
$
|
112,959
|
|
Interest expense related to these notes for the years ended September 30, 2018 and 2017 was $8,000 and $7,979, respectively.
NOTE 10 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable are as follows at September 30, 2018 and 2017, respectively:
|
|
|
Sept. 30,
2018
|
|
|
Sept. 30,
2017
|
|
|
|
|
|
|
|
|
|
|
Convertible note payable, including interest at 10%, due December 31, 2016, convertible at $1.47 per share. This
note is in default as of September 30, 2018 and continues to accrue interest at 10%.
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable dated May 5, 2017, including interest at 10%, due May 5, 2018, convertible into shares of
the Company’s common stock at $0.0681 per share. This note is currently in default.
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Four convertible denture notes payable dated in August and September 2017, including interest at 0% (12% after an
event of default) due in August and September of 2020, convertible at any time into shares of the Company’s common stock at $0.0615 per share. The Company recorded a debt discount of $25,756 for the beneficial conversion feature upon
issuance, with an unamortized balance of $16,576 and $25,161 as of September 30, 2018 and 2017, respectively. A total of $200,000 of these notes were assumed in the Merger, with $40,000 received in cash subsequent the Merger.
|
|
|
223,424
|
|
|
|
214,840
|
|
|
|
|
|
|
|
|
|
|
|
|
Three convertible denture notes payable dated in August and September 2018, including interest at 0% (12% after an
event of default) due in August and September of 2021, convertible at any time into shares of the Company’s common stock at $0.075 per share.
|
|
|
175,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
508,424
|
|
|
|
324,840
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
36,816
|
|
|
|
27,646
|
|
|
|
|
|
545,240
|
|
|
|
352,486
|
|
|
Less current portion
|
|
|
(146,816
|
)
|
|
|
(137,646
|
)
|
|
Long-term convertible notes payable, net
|
|
$
|
398,424
|
|
|
$
|
214,840
|
|
Interest expense related to these notes for the years ended September 30, 2018 and 2017 was $11,210 and $15,424, respectively.
Amortization of the debt discount was $8,585 and $596 for the years ended September 30, 2018 and 2017, respectively, and included in interest expense for each period on the accompanying consolidated statement of operations.
NOTE 11 – CONVERTIBLE NOTES PAYABLE – RELATED PARTIES
Convertible notes payable to related parties are as follow at September 30, 2018 and 2017, respectively:
|
|
|
Sept. 30,
2018
|
|
|
Sept. 30,
2017
|
|
|
|
|
|
|
|
|
|
|
Convertible note payable to brother of former CEO, including interest at 10%, due December 31, 2016, convertible at
$1.47 per share. This note is in default as of September 30, 2018 and continues to accrue interest at 10%.
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note payable to former CEO, including interest at 10%, due December 31, 2017, convertible at $1.47 per
share, currently in default. The Company paid $41,909 towards this note in June 2018.
|
|
|
8,091
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, with a shareholder, dated May 5, 2017, including interest at 10%, due May 5, 2018,
convertible into shares of the Company’s common stock at $0.0681 per share. This note is currently in default.
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, with a shareholder as part of the purchase price of Shift Now, Inc., dated August 10,
2018, including interest at 5%, convertible into shares of the Company’s common stock at $0.075 per share on August 10, 2019. 50% of the principal and interest are due on August 19, 2019, with the balance due August 19, 2020.
|
|
|
30,000
|
|
|
|
-
|
|
|
|
|
|
93,091
|
|
|
|
105,000
|
|
|
Accrued interest
|
|
|
33,655
|
|
|
|
25,446
|
|
|
|
|
|
126,746
|
|
|
|
130,446
|
|
|
Less current portion
|
|
|
(111,746
|
)
|
|
|
(130,446
|
)
|
|
Long-term convertible notes payable, related parties
|
|
$
|
15,000
|
|
|
$
|
-
|
|
Interest expense related to these notes for the years ended September 30, 2018 and 2017 was $8,000 and $10,203, respectively.
NOTE 12 – COMMON STOCK
On May 13, 2014, the Company filed its Articles of Incorporation with the State of North Carolina Secretary of State giving it the
authority to issue 10,000,000 common shares, with no par value. On February 3, 2016, the majority voting common shareholders approved the amendment of the Company’s articles of incorporation in order to increase its authorized common stock
from 10,000,000 shares to 25,000,000 shares.
On September 11, 2017, TeleHealthCare executed an Agreement and Plan of Merger (the “Merger Agreement”) with HeadTrainer, Inc., a North
Carolina corporation, and HT Acquisition Corp., a Wyoming corporation and wholly-owned subsidiary of HeadTrainer, Inc. (the “Acquisition”) whereby the Acquisition was merged with and into the Company (the “Merger”) in consideration for
52,500,000 newly-issued shares of Common Stock of the Company (the “Merger Shares”) (17,500,000 shares post-reverse stock split). As a result of the Merger, HeadTrainer became a wholly-owned subsidiary of TeleHealthCare, and following the
consummation of the Merger and giving effect to the retirement of approximately 47,000,000 shares (15,666,667 shares post-reverse stock split) (leaving approximately 24,000,000 shares remaining prior to the Merger or 8,000,000 shares
post-reverse stock split), and the sale of approximately 10,000,000 shares (3,333,333 shares post-reverse stock split) at the Merger to accredited investors, the stockholders of HeadTrainer, Inc. became beneficial owners of approximately 61%
of our issued and outstanding common stock. Certain assets and liabilities of the original TeleHealthCare were then spun off, including assets and liabilities associated with CarePanda, with the Company assuming approximately $195,000 of
remaining liabilities and changing the name of the newly merged company to HeadTrainer, Inc. All TeleHealthCare stock options or warrants expired by September 30, 2017. Warrants to purchase an aggregate of 1,500,000 shares of common stock
(500,000 shares post-reverse stock split) remain from HeadTrainer, with a total of 2,625,000 HeadTrainer stock options cancelled (875,000 post-reverse stock split) (See Note 12).
As a result of the Merger, each HeadTrainer shareholder received approximately 2.53 newly issued shares of TeleHealthCare for every
1 common share of HeadTrainer owned.
Concurrent with Merger, our Board of Directors approved an amendment to our Articles of Incorporation (the “Amendment”) to (i)
change our name to HeadTrainer, Inc.; (ii) to increase the number of our authorized shares of capital stock to 510,000,000 shares, of which 500,000,000 shares shall be common stock and 10,000,000 shares shall be blank check preferred stock; and
(iii) to provide that the Company may take action without a meeting on the written consent of the holders of a majority of the shares entitled to vote at such meeting.
On March 22, 2018, the Board of Directors and Majority Shareholders approved an amendment to our Articles of Incorporation to change
our name to XSport Global, Inc.
Transactions during the year ended September 30, 2018 (all shares are post-reverse stock split):
On October 2, 2017, the Company received proceeds of $60,000 from an accredited investor for the sale of 881,057 shares of the
Company’s common stock at a price of $0.068 per share.
On January 10, 2018, the Company received aggregate proceeds of $60,000 from two investors for the sale of a total of 200,000 shares
of the Company’s common stock at a price of $0.30 per share.
In April and May 2018, the Company received aggregate proceeds of $50,030 from two investors for the sale of a total of 333,334
shares of the Company’s common stock at a price of $0.15 per share.
In June 2018, the Company received aggregate proceeds of $150,004 from two investors for the sale of a total of 2,000,053 shares of the
Company’s common stock at a price of $0.075 per share.
In June 2018, the Company granted the Company’s CEO and CMO an aggregate of 3,316,707 shares of the Company’s common stock for
services with an aggregate fair value of approximately $248,000, of which $106,874 was credited against accrued payroll due.
In August 2018, the Company issued 450,000 shares in conjunction with the acquisition of Shift Now, Inc., at a price of $0.075 per
share (see Note 6).
Pursuant to the purchase agreement, the Company will issue an additional 250,000 shares based on Shift Now’s performance targets.
In August 2018, the Company received aggregate proceeds of $25,000 from an investor for the sale of a total of 333,333 shares of the
Company’s common stock at a price of $0.075 per share.
In September 2018, the Company issued 400,000 shares to a consultant for services at a price $0.075 per share based on most recent equity raise. The share issuance
was in connection with a purchase agreement with Triton, to which Triton has agreed to purchase from us up to $1,000,000 of our common stock (subject to certain limitations). Also on August 29, 2018, we entered into a Registration Rights
Agreement, or the Registration Rights Agreement, with Triton, pursuant to which we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act of 1933, as amended, or the
Securities Act, the shares that have been or may be issued to Triton under the Purchase Agreement. No funds have been raised to date under this Agreement.
During the year ended September 30, 2018, the Company’s CEO was granted 333,333 shares of restricted common stock as part of future
compensation and vested in 208,333 of those shares at $0.0681 per share, with a total value of $14,188 for services pursuant to his employment agreement dated September 15, 2017. These shares have not yet been issued, however, the compensation
expense has been recognized. Total unrecognized compensation for these stock grants was approximately $8,513 as of September 30, 2018.
During the year ended September 30, 2018, the Company’s Chief Marketing Officer was granted 333,333 shares of restricted common
stock as part of future compensation and vested in 125,000 of those shares at $0.0681 per share, with a total value of $14,188 for services pursuant to his employment agreement dated September 15, 2017. These shares have not yet been issued,
however, the compensation expense has been recognized. Total unrecognized compensation for these stock grants was approximately $8,513 as of September 30, 2018.
Transactions during the year ended September 30, 2017 (all shares are post-reverse stock split):
On November 7, 2016, the two consultants agreed to convert a total of $300,000 of consulting fees earned in 2015 and 2016 into
1,011,191 shares of the Company’s common stock at a price of $0.30 per share.
On November 30, 2016, the Company granted 421,330 shares of common stock at $0.30 per share, with a total value of $125,000, to the
Company’s former Chairman of the Board for services pursuant to his amended employment agreement dated April 22, 2015.
In January of 2017, the company received $25,000 from an accredited investor for 84,266 shares of the Company’s common stock at a
price of $0.30 per share.
In February of 2017, the Company received $50,000 from an accredited investor for 168,532 shares of the Company’s common stock at a
price of $0.30 per share.
In May of 2017, the Company received an aggregate of $40,000 from two accredited investors for 134,825 shares of the Company’s
common stock at a price of $0.30 per share.
In August and September of 2017, the Company received an aggregate of $235,035 from accredited investors for 3,451,322 shares of the
Company’s common stock at a price of $0.0681 per share.
During the year ended September 30, 2017, the Company’s Chairman of the Board agreed to convert $62,500 of deferred salary earned in
2016 into 210,665 shares of the Company’s common stock at a price of $0.30 per share.
During the year ended September 30, 2017, the Company’s president earned 209,626 shares of common stock at $0.30 per share, with a
total value of $62,192 for services pursuant to his amended employment agreement dated May 16, 2016.
During the year ended September 30, 2017, the Company’s CTO earned 165,531 shares of common stock at $0.30 per share, with a total
value of $49,110 for services pursuant to his amended employment agreement dated May 27, 2016.
During the year ended September 30, 2017, the Company’s Chief Marketing Officer earned 105,332 shares of common stock at $0.0681 per
share, with a total value of $2,838 for services pursuant to his employment agreement dated September 15, 2017.
During the year ended September 30, 2017, the Company’s CEO earned 105,999 shares of common stock at $0.0681 per share, with a total
value of $2,838 for services pursuant to his employment agreement dated September 15, 2017. Additionally, the CEO was granted 631,994 shares of common stock with a value of $0.0681 per share ($17,025 total) pursuant to the change of control
clause in the CEO’s previous employment agreement dated June 16, 2017.
During the year ended September 30, 2017, a total of 410,433 common shares were earned by directors for services at a fair value of
$121,767, or $0.30 per share.
During the year ended September 30, 2017, a total of 188,896 shares were earned by consultants and medical advisors for consulting
services with an aggregate fair value of $52,253.
During the year ended September 30, 2017, the Company granted NUWA an additional 88,884 shares with a fair value of $26,370, or
$0.30 per share, under their non-dilution clause included in the April 22, 2016 agreement. No further non-dilution shares are due under the agreement.
NOTE 13 - STOCK OPTIONS AND WARRANTS
As of September 30, 2018, the Company had no
outstanding
stock options and
warrants
outstanding
to purchase approximately 1.3 million common shares (post-reverse split). The warrants have terms of 5 to 10 years and have an exercise price of $0.21.
These warrants were issued in April and May of 2016 while XSport Global was a private company as follows:
On April 21, 2016, the Company issued a warrant for 1,895,983 shares of common stock (631,994 shares post-reverse split) to NUWA
Consulting Group pursuant to their agreement to purchase common stock (see Note 10). The warrants have a 5-year term and exercise price of $0.21. The Company valued the warrant using the Black-Scholes option pricing model with the following
assumptions: dividend yield of zero, expected term of 5 years, risk free rate 1.93 percent, and annualized volatility of 274%. These warrants were not converted in the Merger and remain outstanding.
On May 18, 2016, the Company issued a warrant for 1,895,983 shares of common stock (631,994 shares post-reverse split) under a Debt Restructure
and Conversion Agreement with a consultant. The warrants have a 10-year term and an exercise price of $0.21. The Company valued the warrant using the Black-Scholes option pricing model with the following assumptions: dividend yield of zero,
contractual term of 10 years, risk free rate of 2.45 percent, and annualized volatility of 277%. These warrants were not converted in the Merger and remain outstanding.
NOTE 14 – CONCENTRATIONS
Significant Customers
As of September 30, 2018, the company had accounts receivable balances comprising
28%, 12%
and 11%
of total accounts receivable from three customer.
During the year ended September 30, 2018, the company had revenues comprising 28%, 19% and 11% of total revenues from
three customers.
NOTE 15 – OPERATING LEASE
The Company entered into a lease agreement for office space in August 2017 for a total monthly rental of $1,995 and a term of 24
months.
The Company’s subsidiary, Shift Now, entered into a lease for office space in November 8, 2017 for a total monthly rental of $2,500 per month
through December 31, 2018. Shift Now renewed this lease through December 31, 2019 at $2,500 per month.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
The Company has endorsement agreements with spokespeople to serve as the Company’s brand ambassadors entered in January 2015, providing for cash
compensation of $100,000 annually. The agreements have a ten-year term and provide for one-year extensions by agreement of both parties. The future compensation to brand ambassadors is approximately $1,400,000, to be earned during the period
from January 1, 2018 to December 31, 2024. In addition, the Company will pay royalties to each spokesperson of .5% per month for all gross subscription revenue received by the Company for US subscriptions and 0.25% per month for all gross
product subscription revenue received by the Company for all non-US subscriptions. Accrued royalties under these agreements were not material as of September 30, 2018 or September 30, 2017 as the Company had no product sales. Total accrued
expense under these agreements was $450,000 and $250,000 respectively, as of September 30, 2018 and 2017, respectively.
The Company has endorsement agreements with athletes with dates all expiring in 2017, providing for cash compensation of amounts
ranging from $50,000 annually to $150,000 annually. The future compensation to athletes is $0 as of September 30, 2018. In addition, the Company agreed to pay royalties of .5% of revenues from subscribers that identify the selected athlete as
their favorite athlete. Accrued royalties under these agreements were not material as of September 30, 2018 and, 2017 as the Company had no product revenues during the years ended September 30, 2018 and 2017. Total accrued expense related to
these agreements was $775,000 as of September 30, 2018 and 2017, respectively. All agreements were expired as of September 30, 2017.
In addition to the royalties to be paid for products sales to brand ambassadors and athletes, the Company is to pay royalties the former CEO and
to the Company's Founder as disclosed in Related Party footnote, however there have been no product sales through the year ended September 30, 2018.
The Company is to pay commissions to Apple and Google in consideration for services as the Company’s agent and commissionaire for
sales of licensed applications to end-users in the amount of 30% of all purchase prices payable to each end-user. The Company’s application was inactive during the years ended September 30, 2018 and 2017.
On August 28, 2018, the Company entered into a Stock Purchase Agreement with Shift Now (see note 6), which includes the issuance
of 125,000 incentive shares of common stock based on gross revenue targets of $500,000 during the 12 months following the closing of the acquisition, plus an additional 125,000 shares of common stock base on gross revenue targets of $500,000
during the following 12 months.
NOTE 17 - INCOME TAXES
As of September 30, 2018, the Company had federal and state net operating loss carryforwards of approximately $6.5 million available
to reduce future years’ taxable income through 2037. Future tax benefits which may arise as a result of these losses have not been recognized in these consolidated financial statements, as their realization is determined not likely to occur
and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carryforwards. Deferred tax assets are established using the U.S. federal statutory tax rate of 21.0% and a state tax rate,
net of federal benefit, of 2.6%.
Income tax expense attributable to pretax loss from operations differed from the amounts computed by applying the U.S. federal
income tax rate of 21% to pretax loss as a result of the following:
|
|
|
For the Year Ended
|
|
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
|
|
|
|
|
|
|
|
Computed “expected” tax expense
|
|
$
|
|
)
|
|
$
|
(597,000
|
)
|
|
Increase (reduction) in income tax resulting from:
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
230,000
|
|
|
|
330,000
|
|
|
State taxes, net of federal benefit
|
|
|
|
)
|
|
|
(46,000
|
)
|
|
Non-deductible losses and expenses
|
|
|
48,000
|
|
|
|
313,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
The components of the deferred tax asset and the amount of the valuation allowance are as follow:
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
Deferred tax asset attributed to:
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
1,570,000
|
|
|
$
|
1,980,000
|
|
|
Less, valuation allowance
|
|
|
(1,570,000
|
)
|
|
|
(1,980,000
|
)
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The decrease in the valuation allowance of approximately $410,000 during the year ended September 30, 2018 primarily represents the change in
the US federal corporate tax rate from 35% to 21% as applied to in the net operating loss carry-forwards.
Utilization of the net operating loss carryforwards may be subject to substantial annual limitation under Section 382 of the
Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be
utilized annually to offset future taxable income. In general, an ownership change, as define by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than
50% over a three-year period. The Company has not conducted a study to determine whether a change of control has occurred or whether there have been multiple changes of control due to the significant complexity and cost associated with such a
study. If the Company has experienced a change of control, as defined by Section 382, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under
Section 382. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Further, until a study is completed and any limitation is known, no amounts are being presented as an uncertain tax
position.
The statute of limitations for assessment by the Internal Revenue Service, or the IRS, and state tax authorities is open for tax
years since inception for federal and state tax purposes. The Company files income tax returns in the U.S. federal and North Carolina state jurisdictions. There are currently no federal or state audits in progress.
The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to
21% and will require the Company to re-measure certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. Additionally, net operating losses incurred after
January 1, 2018 can be carried forward indefinitely. The Company has reflected the aspects of the Act as it relates our calculations as of September 30, 2018.
NOTE 18 - BUSINESS SEGMENT INFORMATION
As of September 30, 2018, the Company had two operating segments, XSport and Shift Now.
The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The
operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.
The accounting policies of each of the segments are the same as those described in the Summary of Significant Accounting Policies in
Note 2. The Company evaluates performance based primarily on income (loss) from operations.
Operating results for the business segments of the Company were as follows:
|
|
|
XSport
|
|
|
Shift Now
|
|
|
Total
|
|
|
Year Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
-
|
|
|
$
|
|
|
|
$
|
|
|
|
Loss from operations
|
|
$
|
(
1,091,965
|
)
|
|
$
|
(
24,822
|
)
|
|
$
|
(
1,116,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
Income (loss) from operations
|
|
$
|
(1,721,666
|
)
|
|
$
|
-
|
|
|
$
|
(1,721,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
$
|
283,485
|
|
|
$
|
|
|
|
$
|
|
|
|
September 30, 2017
|
|
$
|
195,046
|
|
|
$
|
-
|
|
|
$
|
195,046
|
|
NOTE 19 – SUBSEQUENT EVENTS
On December 17, 2018, the Company consummated the offering of an 8% Convertible Promissory Note in the principal amount of $57,000
(the “8% Note”) and a 10% Convertible Promissory Note in the principal amount of $110,000 (the “10% Note” and, together with the 8% Note, the “Notes”), respectively, in private placements to accredited investors. The 10% Note was issued for
the purchase price of $100,000 and included an original issue discount of $10,000.
In connection with the sale of the 10% Note, the Company also entered into a Securities Purchase Agreement relating to the sale of
the 10% Note (the “Purchase Agreement”), and a Common Stock Purchase Warrant (the “Warrant”) providing for the purchase of up to 372,754 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”).
The 8% Convertible Promissory Note
The 8% Note will mature on December 14, 2019, and bears interest at a rate of 8% per annum. It is convertible into Common Stock
on any date after June 12, 2019, after which the 8% Note may be converted into Common Stock at a 40% discount to the Common Stock’s lowest trading price during the 20 trading days prior to the date of the conversion notice. Such conversion
is subject to certain additional terms and conditions, including a waivable limitation on the noteholder’s ability to convert the 8% Note into an amount of Common Stock that would result in the noteholder, together with its affiliates, owning
more than 4.99% of the outstanding Common Stock.
The 8% Note may be prepaid in full on any day on or prior to June 12, 2019 but is subject to prepayment premiums that increase
over time. Upon maturity of the 8% Note, those prepayment premiums cease to be effective.
No mandatory redemption or sinking fund provisions are provided for in the 8% Note. However, the 8% Note is subject to certain
additional terms and conditions, including certain remedies in connection with certain customary events of default.
The 10% Convertible Promissory Note
The 10% Note will mature on December 17, 2019, and bears interest at a rate of 10% per annum. It is convertible into Common Stock
at any time, at a 35% discount to the Common Stock’s lowest trading price during the 20 full trading days prior to the conversion date. Such conversion is subject to certain additional terms and conditions, including a waivable limitation on
the noteholder’s ability to convert the 10% Note into an amount of Common Stock that would result in the noteholder, together with its affiliates, owning more than 4.99% of the outstanding Common Stock, and an non-waivable limitation on the
noteholder’s ability to convert the 10% Note into an amount of Common Stock that would result in the noteholder, together with its affiliates, owning more than 9.99% of the outstanding Common Stock.
The 10% Note may be prepaid in full on any day on or prior to June 15, 2019 but is subject to prepayment premiums that increase
over time. Upon maturity of the 10% Note, those prepayment premiums cease to be effective.
No mandatory redemption or sinking fund provisions are provided for in the 10% Note. However, the 10% Note is subject to certain
additional terms and conditions, including certain remedies in connection with certain customary events of default.
In connection with the sale of the 10% Note, the Company entered into a Purchase Agreement relating to the sale of the 10% Note,
which includes certain customary representations and warranties, and pursuant to which the Company agreed to comply with certain customary affirmative and negative covenants during the period the 10% Note is outstanding.
In connection with the sale of the 10% Note, the Company also issued the noteholder a Warrant, expiring on December 17, 2023 and
providing for the purchase of up to 372,754 shares of Common Stock at an exercise price of $0.50 per share. Exercise of the warrant is subject to certain additional terms and conditions, including a limitation on exercise in the event it
would result in the noteholder (together with its affiliates) beneficially owning in excess of 4.99% of the issued and outstanding Common Stock.
In October 2018, the Company issued 271,094 and 324,749 shares of common stock to the Company’s CMO and CEO, respectively, for
deferred wages, with a value of $0.075 per share.
Total accrued wages were $87,750 and $42,327, respectively, as of September 30, 2018.
In October 2018, the Company issued 333,333 shares of the Company’s common stock to an accredited investor at a price of $0.075 per share.