As previously reported in the Company’s
Current Report on Form 8-K, filed with the SEC on April 6, 2016, the Company dismissed RBSM LLP, its independent registered public
accounting firm, on February 9, 2016. There were (i) no disagreements between the Company and RBSM LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction
of RBSM, would have caused RBSM to make reference to the subject matter of the disagreement in connection with its report on the
Company’s financial statements; and (ii) there were no reportable events as described in paragraph (a)(1)(v) of Item 304
of Regulation S-K.
Also previously reported in the Company’s
Current Report on Form 8-K, filed with the SEC on April 6, 2016, the Company engaged MaloneBailey LLP as its independent registered
public accounting firm on February 22, 2016.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Apptigo International, Inc. and its wholly-owned
subsidiary (“collectively “Apptigo” or the “Company”) designs, develops, markets and sells software
applications. The Company intends to sell its products worldwide through online stores.
Basis of Presentation
The accompanying
consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated.
The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”)
requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements
and accompanying notes. Actual results could differ materially from those estimates.
The Company’s
year ends on December 31.
Nature of Business Operations
The Company was originally incorporated
under the laws of the State of Nevada on October 23, 2012 under the name of “Balius Corp.” (“Inception”).
Effective April 15, 2014, we acquired Apptigo Inc., a Nevada corporation incorporated on October 31, 2012 (“
Apptigo
”).
Under the terms of the Agreement and Plan of Reorganization Agreement, dated April 14, 2014 by and between the Company, its principal
shareholder, Apptigo, and its shareholders, Apptigo agreed to exchange all of the outstanding common and preferred shares of Apptigo
for common and preferred shares of the Company. The closing of the acquisition transaction was completed effective April 15, 2014.
At closing of the acquisition transaction,
Apptigo became the Company’s wholly-owned subsidiary and the Company became Apptigo’s parent. Thereafter, the principal
shareholder of the Company cancelled 10,000,000 shares of the Company’s common stock owned by him. As a result of the closing
of the acquisition transaction, the Company had 8,250,000 shares of common stock outstanding and 145,000 Series A Preferred Shares
outstanding, which preferred shares are convertible into 4,550,000 common shares.
Following the acquisition transaction,
the Company filed Amended and Restated Articles of Incorporation to change its name to “Apptigo International, Inc.,”
increase the number of authorized common shares, authorize preferred shares, and approved a 3.5-for-1 forward split of the outstanding
shares, including the shares issued at the closing of the acquisition transaction. The forward stock split was effective at the
opening of business on April 30, 2014. The effect of the stock split has been applied retroactively. Also, in connection with the
acquisition transaction the Company filed a Certificate of Designations, Preferences and Rights for Series A Convertible Preferred
Stock.
Going Concern
The accompanying financial statements have
been prepared contemplating a continuation of the Company as a going concern. The Company has reported a net loss of $8,833,547
for the year ended December 31, 2015. The Company has a net negative working capital of $9,360,157 as of December 31, 2015. These
conditions raise substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements have
been prepared assuming the Company will continue as a going concern. The Company's ability to obtain additional financing depends
on the success of its growth strategy and its future performance, each of which is subject to general economic, financial, competitive,
legislative, regulatory, and other factors beyond the Company's control.
Fair Value of Financial Instruments
The Company adopted the FASB standard related
to fair value measurement at inception. The standard defines fair value, establishes a framework for measuring fair value and expands
disclosure of fair value measurements. The standard applies under other accounting pronouncements that require or permit fair value
measurements and, accordingly, does not require any new fair value measurements. The standard clarifies that fair value is an exit
price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. The recorded values of long-term debt approximate their fair values,
as interest approximates market rates. As a basis for considering such assumptions, the standard established a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows.
·
|
Level 1: Observable inputs such as quoted prices in active markets;
|
|
|
·
|
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
|
|
|
·
|
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
The application of the three levels of
the fair value hierarchy under Topic 820-10-35 to our assets and liabilities are described below as of December 31, 2015 and 2014:
|
|
Fair Value Measurements
|
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,746,651
|
|
|
|
8,746,651
|
|
Total
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
8,746,651
|
|
|
|
8,746,651
|
|
December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
324,826
|
|
|
|
324,826
|
|
Total
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
324,826
|
|
|
|
324,826
|
|
Derivative liability for convertible notes
as of December 31, 2015 is $8,746,651, compared to $324,826 as of December 31, 2014.
The table below presents the change in
the fair value of the derivative liabilities during the year ended December 31, 2015:
Fair value as of December 31, 2014
|
|
$
|
324,826
|
|
Additions recognized as derivative expense
|
|
|
1,925,071
|
|
Additions recognized as debt discounts
|
|
|
1,945,014
|
|
Resolution upon conversion of debt
|
|
|
(176,030
|
)
|
Change in fair value
|
|
|
4,727,770
|
|
Fair value as of December 31, 2015
|
|
$
|
8,746,651
|
|
Share-based Compensation
The Company recognizes share-based compensation
to employees, including stock option grants, warrants, restricted stock grants and stock appreciation rights, at their fair value
on the grant date. Share based payment awards issued to non-employees for services rendered are recorded at either the fair value
of the services rendered or the fair value of the share-based payment, whichever is more readily determinable upon the earlier
of a commitment date or completion of services. Compensation expense is generally recognized on a straight-line basis over the
service period.
Dividends
The payment of dividends by the Company
in the future will be at the discretion of the Board of Directors and will depend on earnings, capital requirements and financial
condition, as well as other relevant factors. The Company does not intend to pay any cash dividends in the foreseeable future but
intend to retain all earnings, if any, for use in the business.
Cash and Cash Equivalents
For purposes of these financial statements,
cash and cash equivalents includes highly liquid debt instruments with maturity of less than three months.
Income Taxes
The Company accounts for income taxes under
the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities
are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred
tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets
to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company
considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected
future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred
tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize
deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation
allowance, which would reduce the provision for income taxes.
The Company follows the accounting guidance
which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position
will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical
merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially
and in subsequent periods. Also included is guidance on measurement, recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition.
Intellectual Property
Intellectual property is stated at cost.
When retired or otherwise disposed, the
related carrying value and accumulated amortization are removed from the respective accounts and the net difference less any amount
realized from disposition, is reflected in earnings. Minor additions and renewals are expensed in the year incurred. Major additions
and renewals are capitalized. Amortization is recorded over the estimated useful lives of the assets, generally, 3 to 15 years.
Software Development Costs
Research and development costs are expensed
as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning
when a product’s technological feasibility has been established and ending when a product is available for general release
to customers. In most instances, the Company’s products are released soon after technological feasibility has been established.
Costs incurred for development are capitalized. Amortization is recorded over the estimated useful lives of the assets, generally,
5 years. For the year ended December 31, 2015 the Company expensed $34,116 compared to $857,503 for the year ended December 31,
2014, for research and development.
Net Loss per Share
Basic loss per share is computed using
the weighted average number of common shares outstanding during the year. Diluted earnings per share reflect the potential dilution
that could occur if potentially dilutive securities were exercised or converted to common stock. The dilutive effect of options
and warrants and their equivalent is computed by application of the treasury stock method and the effect of convertible securities
by the “if converted” method. During 2015 and 2014, all common stock equivalents were excluded as they would have been
anti-dilutive.
Management Estimates
The presentation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Property, Plant
and Equipment
Property, plant
and equipment are stated at cost. Depreciation is computed by use of the straight-line method over the estimated useful lives of
the assets, which for leasehold improvements is 15 years; 10 years for furniture and equipment; and 5 years for computer equipment.
The Company capitalizes eligible costs to acquire or develop internal-use software that are incurred subsequent to the preliminary
project stage. Capitalized costs related to internal-use software are amortized using the straight-line method over the estimated
useful lives of the assets, which range from 5 to 7 years. Depreciation and amortization expense on property and equipment was
$6,027 and $4,019 for the year ended December 31, 2015 and 2014, respectively.
Impairment of Long-lived Assets
In accordance with Accounting Standards
Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets to be
held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. ASC 360-10 relates to assets that can be amortized and the life can be determinable. The Company reviews
property and equipment and other long-lived assets for impairment annually, or whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the asset’s carrying
amount to future undiscounted net cash flows the assets are expected to generate. Cash flow forecasts are based on trends of historical
performance and management's estimate of future performance, giving consideration to existing and anticipated competitive and economic
conditions. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the projected discounted future cash flows arising from the assets or their fair values,
whichever is more determinable.
Recently Issued Accounting Pronouncements
None
2. INTANGIBLE PROPERTIES
On August 4, 2014, Apptigo entered into
an Intellectual Property Purchase Agreement with the Company’s head designer and acquired certain intellectual property assets
and rights used in connection with four games developed by him prior to his employment with the Company. The Company authorized
to issue 400,000 shares of common stock as full consideration for the purchase of the assets. The closing stock price on August
4, 2014 was $1.61 per share resulting in a total price of $644,000. The total cost has been expensed.
3. CONVERTIBLE DEBENTURES
On November 18, 2014, the Company entered
into a 12% Secured Convertible Debenture with a related party. The debenture is convertible into shares of the Company’s
common stock at $0.18 per share. The debenture carries a one month term. The debenture was issued in the amount of $50,000. Upon
maturity of the Note, the Company issued a promissory note in the amount of $55,000 to cover the balance of the note which included
an Original Issue Discount (OID) of $5,000. The conversion feature of the note did not change. The new note has a term of one year.
This note was paid off on September 17, 2015 with funds received from a new note. See below for additional information.
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Convertible debenture
|
|
$
|
20,000
|
|
|
$
|
55,000
|
|
Unamortized original issue discount
|
|
|
–
|
|
|
|
(4,411
|
)
|
Less: Payment
|
|
|
(20,000
|
)
|
|
|
(35,000
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
–
|
|
|
$
|
15,589
|
|
On November 21, 2014, the Company entered
into a 10% Secured Convertible Debenture. The debenture carries a term of 15 months. The debenture was issued in the amount of
$225,000. The Company has received one tranche from this convertible note in the amount of $60,000, which included $5,000 in fees
and an OID of $5,000. The debenture has a conversion feature at a share price of the lower of $0.25 or 70% of the average of the
three lowest closing prices in a 20 day period prior to the conversion. During the year ended, December 31, 2015 the lender converted
$90,288 of the convertible note and accrued interest of $4,178 in exchange for 29,002,687 shares of common stock. In addition,
the lender exercised true up features on the debt for an additional $56,201 in non-cash borrowing.
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Convertible debenture
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Additional amount due to true-up feature
|
|
|
56,201
|
|
|
|
–
|
|
Conversion of debt to common stock
|
|
|
(90,288
|
)
|
|
|
–
|
|
Original issue discount
|
|
|
(137
|
)
|
|
|
(4,520
|
)
|
Discount – warrant
|
|
|
(2,345
|
)
|
|
|
(17,364
|
)
|
Discount – derivative
|
|
|
(19,026
|
)
|
|
|
(16,221
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
4,405
|
|
|
$
|
21,895
|
|
On December 2, 2014, the Company entered
into a 7% Secured Convertible Debenture. The debenture carries a three year term. The debenture was issued in the amount of $200,000.
As of December 31, 2014 the Company had received $100,000, with the remaining $100,000 received on January 7, 2015. The conversion
price of the outstanding balance is the lower of $0.15 or 60% of the 30 day trading average.
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Convertible debenture
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Additional amount received
|
|
|
100,000
|
|
|
|
–
|
|
Discount – derivative
|
|
|
(66,226
|
)
|
|
|
–
|
|
Convertible debenture, net of unamortized discount
|
|
$
|
133,774
|
|
|
$
|
100,000
|
|
On February 9, 2015, the Company executed
a $59,000 Convertible Promissory Note. The note has an 8% interest rate and a term of nine months. The conversion price for the
amount to be converted of 58% of the average of the three lowest trading price for the previous 10 days at date of conversion.
During the year ended December 31, 2015, the lender converted $30,340 of the convertible debt for 33,949,803 shares of common stock.
There was an additional interest accrued as a default on the note in the amount of $29,500.
|
|
December 31, 2015
|
|
Convertible debenture
|
|
$
|
59,000
|
|
Conversion of debt to common stock
|
|
|
(30,340
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
28,660
|
|
On March 4, 2015, the Company executed
a $50,000 Convertible Promissory Note. The note has a 12% interest rate and a term of six months. Conversion of the note is based
on a comparison between the lesser of two variable conversion prices. The conversion price of the outstanding balance is the lower
of 55% of the lowest trading price for the previous 20 days at date of conversion or 55% of the lowest trading price for the previous
20 days before the effective date of the note. During the year ended December 31, 2015, the Company converted $8,204 of the convertible
debt for 21,394,225 shares of common stock.
|
|
December 31, 2015
|
|
Convertible debenture
|
|
$
|
50,000
|
|
Conversion of debt to common stock
|
|
|
(8,204
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
41,796
|
|
On March 25, 2015, the Company executed
and sold a $250,000 Convertible Promissory Note. The note has a one-time 12% interest rate and a term of one year. The Company
received $25,000 along with an original issue discount of $2,778 upon closing of the transaction. The conversion price of the outstanding
balance is the lower of $0.087 or 60% of the lowest trading price for the previous 25 days prior to conversion. During the year
ended December 31, 2015, the Company converted $7,814 of the convertible debt for 12,021,000 share of common stock.
|
|
December 31, 2015
|
|
Convertible debenture
|
|
$
|
27,778
|
|
Conversion of debt to common stock
|
|
|
(7,814
|
)
|
Original issue discount
|
|
|
(1,229
|
)
|
Discount – derivative
|
|
|
(15,390
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
3,345
|
|
On May 20, 2015, the Company executed a
$31,500 Convertible Promissory Note. The note has an 8% interest rate and a term of one year. The Company received $30,000 upon
closing of the transaction with $1,500 paid to the lender for legal fees. The conversion price of the outstanding balance is the
55% of the lowest trading price for the previous 18 days at date of conversion.
|
|
December 31, 2015
|
|
Convertible debenture
|
|
$
|
31,500
|
|
Discount
|
|
|
(578
|
)
|
Discount – derivative
|
|
|
(11,557
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
19,365
|
|
On May 21, 2015, the Company executed a
$55,000 Convertible Promissory Note. The note has a 10% interest rate and a term of nine months. The Company received $49,250 upon
closing of the transaction with $5,750 paid to the lender for legal and service fees. The conversion price of the outstanding balance
is 50% of the average of the two lowest trading price for the previous 25 days at date of conversion.
|
|
December 31, 2015
|
|
Convertible debenture
|
|
$
|
55,000
|
|
Discount
|
|
|
(1,083
|
)
|
Discount – derivative
|
|
|
(9,279
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
44,638
|
|
On May 22, 2015, the Company executed a
$55,000 Convertible Promissory Note. The note has an 8% interest rate and a term of one year. The note includes an original issue
discount of $5,000 and the Company paid $5,000 in legal fees to the lender upon execution of this loan. The conversion price of
the outstanding balance is 50% of the average of the three lowest trading price for the previous 20 days at date of conversion.
|
|
December 31, 2015
|
|
Convertible debenture
|
|
$
|
55,000
|
|
Original issue discount
|
|
|
(1,954
|
)
|
Discount
|
|
|
(1,953
|
)
|
Discount – derivative
|
|
|
(17,582
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
33,511
|
|
On June 3, 2015, the Company executed a
$43,500 Convertible Promissory Note. The note has an 8% interest rate and a term of nine months. As consideration for entering
into this transaction, the Company granted 543,750 warrants to the lender. See Note 5. The conversion price of the outstanding
balance is 51% of the average of the three lowest trading price for the previous 15 days at date of conversion.
|
|
December 31, 2015
|
|
Convertible debenture
|
|
$
|
43,500
|
|
Discount – warrants
|
|
|
(9,072
|
)
|
Discount – derivative
|
|
|
(1,172
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
33,256
|
|
On August 10, 2015, the Company executed
a $809,205 Convertible Debenture with a related party in exchange for 145,000 shares of Preferred Stock held by the related party
lender. The note has a 10% interest rate and a term of one year. The conversion price of the outstanding balance is 45% of the
lowest trading price for the previous 10 days at date of conversion.
|
|
December 31, 2015
|
|
Convertible debenture
|
|
$
|
809,205
|
|
Discount – derivative
|
|
|
(485,070
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
324,135
|
|
On August 10, 2015, the Company entered
into a $50,000 Convertible Debenture with a related party. The note has a 10% interest rate and a term of one year. Additionally,
the Company entered into three additional notes, each for principal of $50,000, consisting of two notes in September and one in
October, with the same party and under the same terms as the note on August 10, 2015. The conversion price of the outstanding balance
is 40% of the lowest trading price for the previous 10 days at date of conversion. A portion of the proceeds were used to repay
in full the note dated December 18, 2014.
|
|
December 31, 2015
|
|
Convertible debenture
|
|
$
|
200,000
|
|
Discount – derivative
|
|
|
(140,084
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
59,916
|
|
On November 18, 2015, the Company entered
into a 10% Secured Convertible Debenture. The debenture carries a one year term. The debenture was issued in the amount of $200,000.
The conversion price of the outstanding balance is 50% of the lowest closing price in a 10 day period prior to conversion.
|
|
December 31, 2015
|
|
Convertible debenture
|
|
$
|
200,000
|
|
Discount – derivative
|
|
|
(176,438
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
23,562
|
|
On November 25, 2015, the Company executed
a $300,000 Convertible Debenture. The note has a 10% interest rate and a term of one year. The conversion price of the outstanding
balance is 50% of the lowest trading price for the previous 10 days at date of conversion.
|
|
December 31, 2015
|
|
Convertible debenture
|
|
$
|
300,000
|
|
Discount
|
|
|
(270,411
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
29,589
|
|
4. DERIVATIVE LIABILITIES
Due to the variable conversion prices in
the convertible notes described above, the Company treats the convertible debenture and outstanding warrants as derivative liabilities
in accordance with the provisions of ASC 815 “Derivatives and Hedging” (ASC 815). ASC 815 applies to any freestanding
financial instruments or embedded features that have the characteristics of a derivative and to any freestanding financial instruments
that potentially settle in an entity’s own common stock.
The Company assesses the fair value of
the convertible debentures and warrants using the Black Scholes pricing model and records a derivative liability for the value.
The Company then assesses the fair value quarterly based on the Black Scholes Model and increases or decreases the liability to
the new value, and records a corresponding gain or loss. The Company uses expected volatility based primarily on historical volatility
using weekly pricing observations for recent periods that correspond to the expected life of the instruments. The risk-free interest
rate is based on U.S. Treasury securities rates.
The following table describes the significant
assumptions used in the Black Scholes pricing model:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Risk-free interest rate at grant date
|
|
|
.08 - .65%
|
|
|
|
.25 – 1.59%
|
|
Expected stock price volatility
|
|
|
218 - 465%
|
|
|
|
139%
|
|
Expected dividend payout
|
|
|
–
|
|
|
|
–
|
|
Expected option in life-years
|
|
|
.1 - .65
|
|
|
|
1.25 - 3
|
|
The table below presents the change in
the fair value of the derivative liabilities during the years ended December 31, 2015 and 2014:
Fair Value as of December 31, 2013
|
|
$
|
–
|
|
Additions recognized as derivative expense
|
|
|
307,462
|
|
Additions recognized as debt discount
|
|
|
17,364
|
|
Change in fair value
|
|
|
–
|
|
Fair value as of December 31, 2014
|
|
$
|
324,826
|
|
Additions recognized as derivative expense
|
|
|
1,925,071
|
|
Additions recognized as debt discounts
|
|
|
1,945,014
|
|
Resolution upon conversion of debt
|
|
|
(176,030
|
)
|
Change in fair value
|
|
|
4,727,770
|
|
Fair value as of December 31, 2015
|
|
$
|
8,746,651
|
|
5. WARRANTS AND OPTIONS
As of December 31, 2015, these warrants
include the following:
Warrants granted on November 21, 2014 in
connection with the 12% convertible debenture, the right to purchase up to 282,575 shares of the Company’s common stock
with an original exercise price of $0.0005. The warrants carry a provision for the adjustment based on the terms of the contract,
wherein the number of warrants is adjusted to equal $30,000. As a result of this provision, the lender has the right to purchase
up to 128,571,429 shares of the Company’s common stock as of December 31, 2015. A derivative liability on the fair value
of the warrants as of December 31, 2015 amounted to $89,986. Fair value was determined using the following variables:
|
|
Grant Date
|
|
|
December 31, 2015
|
|
Risk-free interest rate at grant date
|
|
|
1.63%
|
|
|
|
1.15%
|
|
Expected stock price volatility
|
|
|
139%
|
|
|
|
129%
|
|
Expected dividend payout
|
|
|
–
|
|
|
|
–
|
|
Expected option in life-years
|
|
|
5
|
|
|
|
4
|
|
The following table summarizes the warrant activity during the
years ended December 31, 2015 and 2014:
|
|
Number of
Warrants
|
|
|
Weighted-Average
Price Per Share
|
|
Outstanding at December 31, 2013
|
|
–
|
|
|
–
|
|
Granted
|
|
|
282,575
|
|
|
$
|
.11
|
|
Adjusted for variable conversion
|
|
|
721,889
|
|
|
|
–
|
|
Exercised
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
1,004,464
|
|
|
$
|
.03
|
|
Granted
|
|
|
543,750
|
|
|
|
.08
|
|
Adjusted for variable conversion
|
|
|
127,566,965
|
|
|
|
–
|
|
Canceled or expired
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
128,571,429
|
|
|
$
|
.0006
|
|
On June 17, 2014, the Company granted 550,000
options to six employees for services. As of December 31, 2015, a total of 235,000 options have been vested for a total of 340,000
options vested. No options have been exercised and 140,000 options have been canceled due to termination of service contracts.
Stock based compensation for the years ended December 31, 2015 and 2014, amounted to $248,964 and $200,531, respectively.
The following table summarizes the option
activity during the years ended December 31, 2015 and 2014:
|
|
Number of
Options
|
|
|
Option Price Per Share
|
|
Outstanding at December 31, 2013
|
|
|
–
|
|
|
|
–
|
|
Granted
|
|
|
550,000
|
|
|
|
1.00
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
Canceled or expired
|
|
|
(100,000
|
)
|
|
|
1.00
|
|
Outstanding at December 31, 2014
|
|
|
450,000
|
|
|
$
|
1.00
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
Canceled or expired
|
|
|
(40,000
|
)
|
|
|
1.00
|
|
Outstanding at December 31, 2015
|
|
|
410,000
|
|
|
$
|
1.00
|
|
6. EQUITY
Common Stock
The Company was formed in the state of
Nevada on October 31, 2012. The Company had authorized capital of 75,000 shares of common stock with a par value of $0.01. On April
17, 2014, the Company filed Amended and Restated Articles of Incorporation with the state of Nevada, increasing its authorized
shares from 75,000,000 to 100,000,000 shares of common stock.
On April 14, 2014, the Company, entered
into an a reverse acquisition transaction with Apptigo Inc., a Nevada corporation incorporated on October 31, 2012, and its shareholders,
pursuant to an Agreement and Plan of Reorganization Agreement, dated April 14, 2014 between the Company, its principal shareholder,
and Apptigo and its shareholders. Under the terms of the Agreement the shareholders of Apptigo agreed to exchange all of the outstanding
common and preferred shares of Apptigo for common and preferred shares of the Company. The closing of the Transaction was completed
effective April 15, 2014 (the “
Closing Date
”).
A 3.5-for-1 forward stock split of the
Company’s outstanding common shares became effective at the open of business on April 30, 2014. As a result of the forward
stock split, the number of outstanding shares of common stock was increased from 8,250,000 to 29,225,000, and the 145,000 outstanding
shares of Series A Convertible Preferred Stock will be convertible into 15,925,000 rather than 4,550,000 in the event of conversion.
On October 6, 2015, the Company filed with
the Secretary of State of the State of Nevada an Amendment to Articles of Incorporation to increase the authorized shares of Common
Stock of the Company. The Amendment authorizes the Company to issue 2,000,000,000 shares of Common Stock, par value $0.001 per
share, and 10,000,000 shares of Preferred Stock. The Preferred Stock may be issued in one or more series, each series to be appropriately
designated by a distinguishing letter or title, prior to the issuance of any shares thereof.
2014
In May 2014, the Company entered into an
agreement for services which included the issuance of 50,000 shares of common stock. As of December 31, 2014 the shares remain
unissued.
On June 17, 2014, the Company issued 550,000
options for service by six employees for stock based compensation in the amount of $200,531. As of December 31, 2014, 105,000 options
have vested. For the year ended December 31, 2015 an additional 235,000 options have vested for a total of 340,000 vested, additional
compensation expense for the year ended December 31, 2015 totaled $248,964.
During the year ended December 31, 2014,
the Company sold 22,375,000 shares of common stock pursuant to stock purchase agreements in the amount of $600,000. In addition,
the Company purchased Intellectual Property from the Company’s head designer for 400,000 shares of common stock at a price
of $644,000.
During the year ended December 31, 2014,
the Company received $22,100 from subscription receivable.
The Company issued warrant in connection
with convertible debentures as described in Note 5.
2015
The Company issued 96,367,715 shares of
common stock for the conversion of debt in the amount of $140,824, consisting of principal of $136,646 and accrued interest of
$4,178.
The Company issued 2,861,250 shares of
common stock to consultants and employees for their services totaling $101,816.
During 2015, the Company issued 1,033,333
common shares for a stock payable.
The Company issued warrants in connection
with convertible debentures as described in Note 5.
Preferred Stock
On April 17, 2014, the Company filed Amended
and Restated Articles of Incorporation with the state of Nevada, authorizing 1,000,000 shares of preferred stock with a par value
of $0.001.
On April 17, 2014, the Company converted
the outstanding balance of the Convertible Promissory Note of $80,000 including accrued interest of $4,933 and the balance of the
stock purchase of $60,000 from the same note holder in exchange for 145,000 shares of Series A Preferred Stock. The promissory
note conversion was retrospectively recorded as of December 31, 2013 due to the reverse acquisition transaction with Apptigo.
On August 10, 2015, the Company and The
Vantage Group, Ltd. entered into an Exchange Agreement. Under the terms of the Exchange Agreement the Holder, who was the owner
of a 145,000 shares of the Company’s Series A Convertible Preferred stock, exchanged the Preferred Shares for a 10% Convertible
Debenture in the amount of $809,205. The principal amount of the Debenture represented the principal price paid for the Preferred
Shares and any dividends which the Holder was entitled under the terms of the Preferred Shares.
On October 6, 2015, the Company filed with
the Secretary of State of the State of Nevada an Amendment to Articles of Incorporation to increase the authorized shares of Common
Stock of the Company. The Amendment authorizes the Company to issue 10,000,000 shares of Preferred Stock. The Preferred Stock may
be issued in one or more series, each series to be appropriately designated by a distinguishing letter or title, prior to the issuance
of any shares thereof.
2014 Stock Incentive Plan
On June 19, 2014 (the “
Effective
Date
”), the Board of Directors of the Company approved the 2014 Stock Incentive Plan (the “
Plan
”).
Awards may be made under the Plan for up to 4,500,000 shares of common stock, $0.001 par value per share, of the Company. All of
the Company’s employees, officers and directors, as well as consultants and advisors to the Company are eligible to be granted
awards under the Plan. No Awards can be granted under the Plan after the expiration of 10 years from the Effective Date, but awards
previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory options, restricted stock
units, stock appreciation rights, and restricted stock grants.
7. INCOME TAXES
Deferred income taxes are determined using
the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company's
assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences
are included in the Company's tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
The Company is subject to US taxes. Historically, the Company
has had no net taxable income, and therefore has paid no income tax.
As of December 31, 2015 and 2014, the Company
had cumulative net operating loss (NOL) carryforwards of approximately $2,640,000 and $1,520,000, respectively. The NOL carryforward
begin to expire in 2032. Because management is unable to determine that it is more likely than not that the Company will realize
the tax benefit related to the NOL carryforward, by having future taxable income, a full valuation allowance has been established
at December 31, 2015 to reduce the tax benefit asset value to zero.
Components of net deferred tax assets,
including a valuation allowance, are as follows at December 31st:
|
|
2015
|
|
|
2014
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Federal deferred tax assets
|
|
|
898,687
|
|
|
|
595,834
|
|
Valuation allowance
|
|
|
(898,687
|
)
|
|
|
(595,834
|
)
|
Total deferred tax assets
|
|
$
|
–
|
|
|
$
|
–
|
|
The valuation allowance for deferred tax
assets as of December 31, 2015 and 2014 was $898,687 and $595,834, respectively. In assessing the recovery of the deferred tax
assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which
those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was
more likely than not the deferred tax assets would not be realized as of December 31, 2015 and 2014, and recorded a full valuation
allowance.
8. RELATED PARTY TRANSACTIONS
On November 18, 2014, the Company entered
into a 12% Secured Convertible Debenture with a related party in the principal amount of $50,000. The note was paid off in September
2015. See Note 3.
Between August and October 2015, the Company
entered into four separate 10% Secured Convertible Debentures with a related party. The outstanding balance of these notes, net
of unamortized discount, is $59,916 as of December 31, 2015. See Note 3.
The Company entered into an Exchange Agreement
on August 10, 2015. Under the terms of the Exchange Agreement the Holder, who was the owner of a 145,000 shares of the Company’s
Series A Convertible Preferred stock, exchanged the Preferred Shares for a 10% Convertible Debenture in the amount of $809,205.
See Note 3.
9. SUBSEQUENT EVENTS
During April 2016, the Company entered
into a 10% Secured Convertible Debenture in the amount of $30,000 with a related party. The term of the note is 6 months. The conversion
price of the outstanding balance is 40% of the lowest trading price for the previous 10 days at date of conversion.
Between January and May 2016, the Company
has converted a total of $62,278 in convertible debt and accrued interest of $5,752 for 1,109,940,894 shares of common stock.
On January 7, 2016, the Company filed with the Secretary of State of the State of Nevada an Amendment to Articles of Incorporation
to increase the authorized shares of Common Stock of the Company. The Amendment authorizes the Company to issue 5,000,000,000
shares of Common Stock, par value $0.001 per share, and 10,000,000 shares of Preferred Stock. The Preferred Stock may be issued
in one or more series, each series to be appropriately designated by a distinguishing letter or title, prior to the issuance
of any shares thereof.