NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - NATURE OF THE ORGANIZATION AND BASIS OF PRESENTATION
XSport Global, Inc. and Subsidiary (the “Company”, “XSport” “Us,” “Our” 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 remained unchanged with
500,000,000 shares of common stock. No fractional shares were 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.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally
accepted accounting principles (“GAAP”) for interim financial statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended
September 30, 2018. In management’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation to make our financial statements not misleading have been included. The results of
operations for the interim periods are not necessarily indicative of the results to be expected for the full year, or any other period.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company’s unaudited 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 subsidiaries HeadTrainer, Inc. and Shift Now,
Inc. 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 unaudited consolidated financial statements in accordance with United States GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed 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 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.
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 three months ended December 31, 2018 and 2017.
Shift Now
Shift Now recognizes service revenue when the service is completed under ASC Topic 606. The Company records project revenue and expenses as net revenue for projects where the Company receives
payments from customers and has limited credit risk (acts as an agent versus principal).
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 December 31 and September 30, 2018, the Company’s allowance for doubtful accounts was $10,000 and $10,000, 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 three months ended December 31, 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.
Convertible Notes Payable
The Company had convertible notes outstanding at December 31, 2018 with a default payment provision (a default provision that required payment of 150% of the outstanding principal amount plus accrued
interest). The Company determined that the default provision is an embedded component that qualifies as a derivative which should be bifurcated from the convertible notes and separately accounted for in accordance with FASB ASC 815, “Derivatives and
Hedging”. ASC 815 –15–25–42 establishes criteria to determine whether puts are closely and clearly related to a debt host should the debt contain a substantial premium or default provision (one that is greater than 10% of the principal resulting
from puts that require payoff for more than 110% of principal amount outstanding). The embedded derivative is recorded at fair value on the date of issuance and marked-to-market at each balance sheet date with the change in the fair value recorded as
income or expense in the statement of operations.”
Derivative Liability
The Company had convertible notes outstanding at December 31, 2018 with a default payment provision (a default provision that required payment of 150% of the outstanding principal amount plus accrued
interest). The Company determined that the default provision is an embedded component that qualifies as a derivative which should be bifurcated from the convertible notes and separately accounted for in accordance with FASB ASC 815, “Derivatives and
Hedging”. ASC 815–15–25–42 establishes criteria to determine whether puts are closely and clearly related to a debt host should the debt contain a substantial premium or default provision (one that is greater than 10% of the principal resulting from
puts that require payoff for more than 110% of principal amount outstanding). The embedded derivative is recorded at fair value on the date of issuance and marked-to-market at each balance sheet date with the change in the fair value recorded as
income or expense in the statement of operations.
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 convertible notes
payable, and derivative liability. Except for the derivative liaibilty (see table below), 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.
Our derivative liabilities have been valued as Level 3 instruments.
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Fair value of convertible note derivative liability -
December 31, 2018
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
55,000
|
|
|
$
|
55,000
|
|
The fair value of the derivative liability was based on the default provision of the convertible note requiring payment of 150% of the principal balance.
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, using the Black-Scholes model, 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 three months ended December 31, 2018 and 2017 was $0 and $0, respectively. The Company’s mobile device application was inactive and not sold during the three
months ended December 31, 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:
|
|
|
Three months ended
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
9,438,436
|
|
|
|
4,300,607
|
|
|
Warrants
|
|
|
1,636,743
|
|
|
|
1,263,989
|
|
|
Potentially dilutive securities
|
|
|
11,075,179
|
|
|
|
5,564,596
|
|
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 December 31, 2019. Management does not expect to have a material impact upon adoption.
The Company has implemented all new accounting pronouncements that are in effect and that may impact its unaudited condensed
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 unaudited condensed 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 $2.8 million, has incurred a loss since inception resulting in
an accumulated deficit of approximately $11.0 million as of December 31, 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 unaudited condensed 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, NET
The Company’s property and equipment, net consists of the following:
|
|
|
December
31,
2018
|
|
|
September
30,
2018
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
14,302
|
|
|
$
|
14,302
|
|
|
Autos
|
|
|
37,308
|
|
|
|
37,308
|
|
|
|
|
|
51,610
|
|
|
|
51,610
|
|
|
Less: accumulated depreciation
|
|
|
(12,899
|
)
|
|
|
(8,738
|
)
|
|
|
|
$
|
38,711
|
|
|
$
|
42,872
|
|
Depreciation expense was $4,161 and $469 for the three months ended December 31, 2018 and 2017, respectively.
NOTE 5 – INTANGIBLE ASSETS, NET
The Company’s intangible assets, net consist of the following:
|
|
|
December
31,
2018
|
|
|
September
30,
2018
|
|
|
|
|
|
|
|
|
|
|
Trade name and trademarks
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
Customer base
|
|
|
119,924
|
|
|
|
119,924
|
|
|
|
|
|
129,924
|
|
|
|
129,924
|
|
|
Less: accumulated amortization
|
|
|
(5,108
|
)
|
|
|
(1,277
|
)
|
|
|
|
$
|
124,816
|
|
|
$
|
128,647
|
|
The intangible assets have an estimated useful life ranging from 5 to 9 years.
Total amortization expense related to the intangible assets during the three months ended December 31, 2018 was $3,831, resulting in an unamortized
balance of $124,816 as of December 31, 2018.
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
|
|
|
306,125
|
|
|
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 totaling $119,924 and trade name and trademarks totaling $10,000, with an estimated remaining
useful life of 9 years and 5 years, respectively.
Proforma Information
The accompanying unaudited condensed consolidated financial statements include the results of operations of Shift Now for the three months ended
December 31, 2018, of which Shift Now contributed approximately $522,000 of revenue and a net loss of approximately $60,000.
The following unaudited pro forma information presents the unaudited condensed 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 three months ended December 31, 2017
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:
|
|
|
Three Months
Ended
December 31,
|
|
|
|
|
2017
|
|
|
Net revenue
|
|
$
|
943,764
|
|
|
Cost of revenues
|
|
|
690,042
|
|
|
Operating expenses
|
|
|
523,648
|
|
|
Net loss
|
|
$
|
(277,633
|
)
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.01
|
)
|
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 material revenue from these products
through December 31, 2018. On November 30, 2018, the Company and HIP amended this agreement in which HIP agreed to waive any right to receive any royalty payments.
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 December 31, 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 December 31, 2018. The Company has appropriately accrued for this matter and has included in accrued liabilities on the accompanying unaudited condensed consolidated balance sheets. On June 22, 2018, the Company paid $41,909 to the
former CEO towards these amounts due. The severance payment of $150,000 and principal and interest on the unsecured promissory note of $24,019 were outstanding as of December 31, 2018. The Company made subsequent payments toward this outstanding
debt of $25,000, $12,500 and $1,500 in January 2019, and $1,500 in February 2019.
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 three months ended December 31, 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 December 31, 2018 and September 30, 2018, a total of $27,750, 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 December 31, 2018 and September 30, 2018, a total of
$84,668 and $60,000, 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 as of December 31, 2018 and September 30, 2018, respectively. 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.
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 December 31, 2018 and September 30, 2018, a total of $46,048 and $42,327,
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 December 31, 2018 and September 30, 2018 an additional $94,994 and $46,946, 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:
|
|
|
December
31,
2018
|
|
|
September
30,
2018
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
625,758
|
|
|
$
|
611,840
|
|
|
Accrued consulting and brand endorsement fees
|
|
|
1,411,666
|
|
|
|
1,361,666
|
|
|
Accrued other
|
|
|
271,073
|
|
|
|
170,424
|
|
|
|
|
$
|
2,308,497
|
|
|
$
|
2,143,930
|
|
NOTE 9 – LINE OF CREDIT, NOTES PAYABLE RELATED PARTIES 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 $23,515 as of December 31, 2018, with current maturities of $4,448 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 as of December 31 and September 30, 2018. The line
bears interest at prime rate (5.50% as of December 31, 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 December 31 and September 30, 2018, respectively:
|
|
|
December
31,
2018
|
|
|
September
30,
2018
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2018.
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, shareholder, 0% interest, unsecured, due upon demand
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
102,000
|
|
|
|
102,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
20,975
|
|
|
|
18,959
|
|
|
|
|
$
|
122,975
|
|
|
$
|
120,959
|
|
Interest expense related to these notes for the three months ended December 31, 2018 and 2017 was $2,016 and $2,016,
respectively.
NOTE 10 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable are as follows at December 31 and September 30, 2018, respectively:
|
|
|
Dec. 31,
2018
|
|
|
Sept. 30,
2018
|
|
|
|
|
|
|
|
|
|
|
Convertible note payable, including interest at 10%, due December 31, 2016, convertible at $1.47
per share. This note is in default as of December 31, 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 $14,428 and $16,576 as of December 31 and September 30, 2018, respectively. A total of $200,000 of these notes were assumed in the Merger, with $40,000 received in cash subsequent
the Merger.
|
|
|
225,572
|
|
|
|
223,424
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note payable dated December 14, 2018, with interest at 8%, due December 14, 2019,
convertible after 180 days into shares of the Company’s common stock at $0.25 per share, with an original issue debt discount of $7,000, with an unamortized balance of $6,708 as of December 31, 2018. The terms of the note include a
reduced conversion price at a 25% discount the price of the issuance of subsequent common stock equivalents, resulting in a conversion price of $0.11 per share as of December 31, 2018., due to the issuance of the note below. This note
is currently not in default, but due to the potential default, this creates a derivative liability, however the Company determined this liability was immaterial as of December 31, 2018.
|
|
|
50,292
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note payable dated December 17, 2018, with interest at 18%, due December 17, 2019,
convertible at any time into shares of the Company’s common stock at a price equal to 65% of the lowest one day trading price during the prior 20 day trading period , with an original issue debt discount of $15,000, and a $24,344 debt
discount related to the relative fair value of the warrants issued with the note, and a $70,656 debt discount related to the beneficial conversion feature. The total debt discount was expensed in full as this note is in default as of
December 31, 2018. Additionally, the Company recorded a derivative liability of $55,000 due to the default provision terms. The note includes anti-dilution provisions which may impact the conversion price in the future.
|
|
|
110,000
|
|
|
|
-
|
|
|
|
|
|
670,864
|
|
|
|
508,424
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
40,735
|
|
|
|
36,816
|
|
|
|
|
|
711,599
|
|
|
|
545,240
|
|
|
Less current portion
|
|
|
(296,027
|
)
|
|
|
(146,816
|
)
|
|
Long-term convertible notes payable, net
|
|
$
|
415,572
|
|
|
$
|
398,424
|
|
Interest expense related to these notes for the three months ended December 31, 2018 and 2017 was $4,263 and $3,066, respectively. Amortization of
the debt discount was $112,889 and $2,146 for the three months ended December 31, 2018 and 2017, respectively, and included in interest expense for each period on the accompanying unaudited consolidated statement of operations.
NOTE 11 – CONVERTIBLE NOTES PAYABLE – RELATED PARTIES
Convertible notes payable to related parties are as follow at December 31, 2018 and 2017, respectively:
|
|
|
Dec. 31,
2018
|
|
|
Sept. 30,
2018
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 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
|
|
|
|
8,091
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
30,000
|
|
|
|
|
|
93,091
|
|
|
|
93,091
|
|
|
Accrued interest
|
|
|
35,610
|
|
|
|
33,655
|
|
|
|
|
|
128,701
|
|
|
|
126,746
|
|
|
Less current portion
|
|
|
(113,701
|
)
|
|
|
(111,746
|
)
|
|
Long-term convertible notes payable, related parties
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
Interest expense related to these notes for the three months ended December 31, 2018 and 2017 was $1,577 and $2,625, 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).
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 three months ended December 31, 2018 (all shares are post-reverse stock split):
In October 2018, the Company issued 324,749 and 271,094 shares of the Company’s common stock the Company’s CEO and CMO, respectively, at
a price of $0.075 per share for payment of deferred wages.
In October 2018, the Company received proceeds of $25,000 from an accredited investor for the sale of 333,334 shares of the Company’s
common stock at a price of $0.075 per share, under a subscription agreement for 666,667 shares for $50,000.
NOTE 13 - STOCK OPTIONS AND WARRANTS
As of December 31, 2018, the Company had no outstanding stock options.
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.
On December 17, 2018, the Company issued a warrant for 372,754 shares of common stock in connection with a convertible note payable. The warrants
have a 5-year term and an exercise price of $0.50 per share. The warrant includes an anti-dilution provision whereby the exercise price adjusts to the price included in the issuance of any common stock purchase warrant, option or similar security
with a more favorable price during the term of the warrant . The Company valued the warrant at a relative fair value of approximately $24,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of zero,
expected term of 5 years, risk free rate 2.69 percent, and annualized volatility of 247%.
NOTE 14 – CONCENTRATIONS
Significant Customers
As of December 31, 2018, the Company had accounts receivable balances comprising 27%, 22% and 11% of total accounts receivable from three customers.
As of September 30, 2018, the company had accounts receivable balances comprising 28%, 12% and 11% of total accounts receivable from three customers.
During the three months ended December 31, 2018, the Company had revenues comprising 22% and 10% of total revenues from two
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 December 31, 2018 or September 30, 2018 as the Company had no product sales. Total accrued expense
under these agreements was $500,000 and $450,000 respectively, as of December 31, 2018 and September 30, 2018, 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 December 31, 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 December 31, 2018 as the Company had no product revenues during through December 31, 2018. Total accrued expense related to these agreements was $775,000 as of December 31,
and September 30, 2018. 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 material product sales through December 31, 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 three months ended December 31, 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 - BUSINESS SEGMENT INFORMATION
As of December 31, 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
|
|
|
Three months ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
-
|
|
|
$
|
522,167
|
|
|
$
|
522,167
|
|
|
Loss from operations
|
|
$
|
(316,232
|
)
|
|
$
|
(56,262
|
)
|
|
$
|
(372,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
|
|
|
Income (loss) from operations
|
|
$
|
(235,430
|
)
|
|
$
|
-
|
|
|
$
|
(235,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
264,983
|
|
|
$
|
461,117
|
|
|
$
|
726,100
|
|
|
September 30, 2018
|
|
$
|
283,485
|
|
|
$
|
380,919
|
|
|
$
|
664,404
|
|
NOTE 18 – SUBSEQUENT EVENTS
On January 3, 2019, the Company entered into convertible note payable for $53,000, including loan fees of $3,000 and finders fee of
$5,300, resulting in net proceeds of $44,700, with interest at 8%, due January 3, 2020, convertible after 180 days at a price of 65% of the average of the lowest two trading prices of the Company’s common stock during the 15 trading days prior to
conversion.
On January 9, 2019, the Company entered an Employment Agreement for the position of Excutive Vice President of Corporate Development and Strategy.
The Employment Agreement remains in effect until termination by either party, includes annual compensation of $150,000 per year, the issuance of 150,000 shares of the Company’s common stock within the first month of employment and the issuance of
250,000 shares at the 12 month anniversary of the Employment Agreement.