The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements
The accompanying notes are
an integral part of these unaudited condensed consolidated financial statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Next
Group Holdings, Inc, (the “Company”) was incorporated under the laws of the State of Florida on September 21, 2005
to act as a holding company for its subsidiaries, both current and future. Its subsidiaries are Meimoun and Mammon, LLC (100%
owned), Next Cala, Inc (94% owned), NxtGn, Inc. (65% owned) and Next Mobile 360, Inc. (100% owned). Additionally, Next Cala,
Inc. has a 60% interest in NextGlocal, a subsidiary formed in May 2016.
Meimoun
and Mammon, LLC (“M&M”) was formed under the laws of the State of Florida on May 21, 2001 as a real estate investment
company. During the year ended December 31, 2010, M&M began winding down real estate operations and engaged in telecommunications
services. M&M acquired telecom registrations, licenses and authorities to provide telecom services to the retail and wholesale
markets including sales of prepaid long distance telecom services and Mobile Virtual Network Operator (MVNO) services. The services
are sold under the brand name Next Mobile 360 and through the subsidiary of the same name.
Next
Cala, Inc, (“Cala”) was formed under the laws of Florida on July 10, 2009 to the purpose of offering prepaid and reloadable
debit cards to the retail market. Cala serves consumers in the underbanked and unbanked populations through Incomm, a leading
provider of payment remittance services worldwide.
NxtGn,
Inc. (“NxtGn”) was formed under the laws of Florida on August 24, 2011 to develop a unique High Definition telepresence
product (AVYDA) which allows users to connect with celebrities, public figures, healthcare and education applications via a mobile
phone, tablet or personal computer.
On
January 1, 2016, NGH completed an Agreement and Plan of Merger (the “Merger Agreement”) with Pleasant Kids, Inc. (“Pleasant
Kids”) and its wholly owned subsidiary, NGH Acquisition Corp. (“Acquisition Sub”), pursuant to which NGH merged
with Acquisition Sub and Acquisition Sub was then merged into PLKD effective January 1, 2016. Under the terms of the Merger Agreement,
the NGH shareholders received shares of PLKD common stock such that the NGH shareholders received approximately 80% of the total
common shares and 100% of the preferred shares of PLKD issued and outstanding following the merger. Due to the nominal assets
and limited operations of PLKD prior to the merger, the transaction was accorded reverse recapitalization accounting treatment
under the provision of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805 whereby
NGH became the accounting acquirer (legal acquiree) and PLKD was treated as the accounting acquiree (legal acquirer). The historical
financial records of the Company are those of the accounting acquirer (NGH) adjusted to reflect the legal capital of the accounting
acquire (PLKD).
As the transaction was treated as a recapitalization, no intangibles, including goodwill, were
recognized. Concurrent with the effective date of the reverse recapitalization transaction, the Company adopted the fiscal year
end of the accounting acquirer of December 31.
On
May 27, 2016, the Cala entered into a Joint Venture Agreement (the “Agreement”) with Glocal Payments Solutions, Inc
(“Glocal”) to form a joint venture in which Cala has a 60% controlling interest and Glocal has a 40% interest. The
Joint Venture will seek to launch and activate up to 45,000 prepaid debit cards under the Cala brand by December 31, 2016 and
360,000 additional cards during the 2017 calendar year. Either party may terminate the agreement at December 31, 2016 if certain
objectives are not met.
On July 22, 2016, the Company completed
its acquisition of Transaction Processing Products, Inc. (“TPP”) which has a 64% interest in Accent InterMedia, LLC
(“AIM”) and no other assets or liabilities. AIM operates as a leading gift card provider and in business activities
very synergistic with those the Company is currently engaged in. The Company sold its interest in TPP during the three months ended
March 31, 2017 to an unaffiliated third party.
On
August 10, 2016, M&M, a wholly owned subsidiary of the Company, closed the acquisition of Tel3 from a related party. Tel3
provides prepaid international long distance telephone services.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The accompanying
unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”) for reporting of interim financial information. Pursuant to such rules and regulations,
certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted. Accordingly, these statements do not include all the disclosures
normally required by accounting principles generally accepted in the United States for annual financial statements and should be
read in conjunction with the consolidated financial statements for the year ended December 31, 2016 and notes thereto and other
pertinent information contained in our annual report on form 10-K as filed with the Securities and Exchange Commission on July
3, 2017. The unaudited condensed consolidated statements of operations and cash flows for the three months ended March 31, 2017
are not necessarily indicative of the consolidated results of operations or cash flows to be expected for any future period or
for the year ending December 31, 2017.
The accompanying
unaudited condensed consolidated financial statements have been prepared by management and in the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position
and results of operations as of the dates and for the periods presented.
Basis
of Presentation
This
summary of accounting policies for Next Group Holdings, Inc. is presented to assist in understanding the Company’s financial
statements. The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States
of America (“GAAP” accounting) and have been consistently applied in the preparation of the unaudited consolidated financial
statements.
Use
of Estimates
The preparation of unaudited condensed
consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the financial statements. Actual results could differ from those estimates. Estimates are used
when accounting for allowances for bad debts, stock based compensation collectability of loans receivable, potential impairment
losses of the capitalized license fee and fair value calculations related to embedded derivative features of outstanding convertible
notes payable.
Cash
For purposes of the statements of cash
flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents
to the extent the funds are not being held for investment purposes. The Company held no cash equivalents as of March 31, 2017 or
December 31, 2016. As of March 31, 2017 and December 31, 2016, the Company did not hold cash with any one financial institution
in excess of the FDIC insured limit of $250,000.
Revenue
recognition
The Company follows paragraph 605-10-S99
of the FASB
Accounting Standards Codification
for revenue recognition. The Company will recognize revenue when it is realized
or realizable and earned. The Company considers revenue realized or realizable and earned when all the following criteria are met:
(i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer,
(iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The Company primarily generates
revenues through the sale of prepaid calling minutes to consumers through its Tel3 division. While the Company collects payment
for such minutes in advance, revenue us recognized upon delivery to and consumption of minutes by the consumer. Next Cala generated
revenues from commissions earned from Incomm, a leading financial services provider during the three months ended March 31, 2017
and 2016.
Property
and equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization
using the straight-line method over the estimated useful lives of the related assets, which range from three to five years.
Maintenance
and repair costs are expensed as they are incurred while renewals and improvements which extend the useful life of an asset are
capitalized. At the time of retirement or disposal of property and equipment, the cost and related accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss is reflected in the consolidated results of operations.
Impairment
of Long-Lived Assets
In
accordance with ASC Topic 360, formerly SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets,
the
Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of these assets may not be fully recoverable. The assessment of possible impairment is based on the Company’s ability to
recover the carrying value of its asset based on estimates of its undiscounted future cash flows. If these estimated future cash
flows are less than the carrying value of the asset, an impairment charge is recognized for the difference between the asset’s
estimated fair value and its carrying value. There was no impairment losses recorded to long-lived assets during the three months
ended March 31, 2017 or 2016.
Non-Controlling
Interest
The
Company reports the non-controlling interest in its majority owned subsidiaries in the consolidated balance sheets within the
stockholders’ deficit section, separately from the Company’s stockholders’ deficit. Non-controlling interest
represents the non-controlling interest holders’ proportionate share of the equity of the Company’s majority-owned
subsidiaries. Non-controlling interest is adjusted for the non-controlling interest holders’ proportionate share of the
earnings or losses and other comprehensive income (loss) and the non-controlling interest continues to be attributed its share
of losses even if that attribution results in a deficit non-controlling interest balance.
Derivative and Fair Value of Financial
Instruments
Fair value accounting requires bifurcation
of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their
fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt
host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement.
If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process
of these instruments as derivative financial instruments under ASC 815.
Once determined, derivative liabilities
are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded
in results of operations as an adjustment to fair value of derivatives.
Fair
value of certain of the Company’s financial instruments including cash, accounts receivable, account payable, accrued expenses,
notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports
fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair
value investments.
Fair
value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best
use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair
value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit
risk.
Valuation
techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The
selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the
characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair
value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides
fair value hierarchy for inputs and resulting measurement as follows:
Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
Level
2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities
in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that
are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities;
and
Level
3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant
to the fair values.
Fair
value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements
in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to
expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes
during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating
those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported
in the statement of income.
Except
as discussed in
Note 7 – Derivative Liabilities
the Company did not identify any other assets or liabilities that
are required to be presented on the consolidated balance sheet at fair value in accordance with ASC 825-10 as of March 31, 2017
or December 31, 2016.
Income
Taxes
Income
taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Use
of net operating loss carry forwards for income tax purposes may be limited by Internal Revenue Code section 382 if a change of
ownership occurs.
Basic
Income (Loss) Per Share
Basic
income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average
number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available
to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average
number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
At
March 31, 2017, the Company had eighteen outstanding convertible notes payable with conversion rights that are exercisable. The
amount of outstanding principal on these convertible notes total $1,179,828 plus accrued interest of $261,537 for total convertible
debts as of March 31, 2017 of $1,441,365 representing 76,304,181 new dilutive common shares if converted at the applicable rates.
The effects of these notes have been included in net income per diluted share for the three months ended March 31, 2017.
Dividends
The
Company has not adopted any policy regarding payment of dividends. No dividends have been paid during any of the periods shown.
As discussed in the report on form 8K
filed on May 18, 2016, the Company declared a special dividend on its outstanding common stock of one share of Class D Redeemable
Preferred Stock. Pursuant to the dividend, the special stock dividend will be distributed to owners of the Company’s
common stock as of the record date in a ratio of one share of Class D Redeemable Preferred Stock common stock for every 1 share
of common stock owned as of the record date. The Company originally had set the record date as June 10, 2016 but was later
modified to July 22, 2016. The Class D Preferred Stock must be redeemed within six months within six (6) months (or as soon thereafter
as permitted by law) following final resolution of the Corporation’s affiliates lawsuit against ViberMedia , Inc. (Next Communications,
Inc. and Nxtgn, Inc. v. Viber Media, Inc.) which is, as of the date of this filing, pending in U.S. District Court for the Southern
District of New York or any successor or other lawsuit relating to the subject matter thereof in which the Corporation (or any
successor-in-interest) is named as a plaintiff (the “Lawsuit”). The Designation fixes the redemption price of each
share of class D Preferred stock as the greater of par value or the amount obtained by dividing (a) 9.03 percent of the net proceeds
to the Corporation of the Lawsuit after payment of fees and expenses incurred in connection with such law suit and the resolution
of any creditor claims against Next Communications and all taxes on net income accrued or paid with respect to such amount,
by (b) the total number of shares of Class D Preferred stock issued and outstanding as of the Redemption Date, which amount shall
be rounded to the nearest whole cent.
The
Company has accrued common stock dividends payable of $30,000 as of March 31, 2017.
Advertising
Costs
The
Company’s policy regarding advertising is to expense advertising when incurred.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance
of subtopic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”) and subtopic 718-20 for awards
classified as equity to employees.
Derivative Liabilities
The Company records a debt discount
related to the issuance of convertible debts that have conversion features at adjustable rates. The debt discount for the convertible
instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and
as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features. The
debt discount will be accreted by recording additional non-cash gains and losses related to the change in fair market values of
derivative liabilities over the life of the convertible notes. Changes in value of the derivative liabilities that result from
conversions of the underlying instrument to common stock are written off to additional paid in capital.
Related
Parties
The
registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and
disclosure of related party transactions.
Pursuant
to Section 850-10-20 the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their
equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section
825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees,
such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of
the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or
can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the
management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: (a) the nature of the relationship(s) involved; (b) description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar
amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the
method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of
the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Accounts
Receivable
Accounts
receivable balances are established for amounts owed to the Company from its customers from the sales of services and products.
The Company closely monitors the collectability of outstanding accounts receivable and provide an allowance for doubtful accounts
based on estimated collections of outstanding amounts.
License
Fee
The
Company entered into an agreement with a certain vendor whereby it obtained a license to market and distribute certain closed
loop general purpose reloadable debit cards for an initial term of three years. The Company remitted $250,000 as a license fee
in connection with the agreement which it is recognizing over the initial term of the agreement on a straight line basis. The
unamortized balance of the license fee was $97,222 and $118,056 as of March 31, 2017 and December 31, 2016, respectively.
Recently
Issued Accounting Standards
In
April 7, 2015 the FASB issued Accounting Standards Update “ASU” 2015-03 on “Interest — Imputation of Interest
(Subtopic 835-30)” To simplify presentation of debt issuance costs, the amendments in this Update would require that debt
issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent
with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by the
amendments in this Update. This ASU 2015-3
is effective for annual periods ending after
December 15, 2015, and interim periods and annual periods thereafter.
We reviewed the provisions of this ASU and determined
there was an impact on our consolidated financial position and results of operations.
In
May 2014, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2014-09, Revenue from Contracts with Customers
(Topic 606) (“ASU 2014-09”), that outlines a comprehensive five-step revenue recognition model based on the principle
that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved
a one-year deferral of the effective date of ASU 2014-09 to the beginning of 2018 for public companies, with an option that would
permit companies to adopt the standard as early as the original effective date of 2017. The updated standard will replace most
existing revenue recognition guidance in U.S. GAAP. ASU 2014-09 may be adopted either retrospectively or on a modified retrospective
basis whereby it would be applied to new contracts and existing contracts with remaining performance obligations as of the effective
date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for those contracts.
The updated standard is effective for us in the first quarter of 2018 and we do not plan to early adopt. We have not yet selected
a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial
statements and related disclosures.
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires
an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also
require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the
amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December
15, 2018, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial
position or results of operations.
In
March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers - Principal versus Agent Considerations.”
This Update provides clarifying guidance regarding the application of ASU No. 2014-09 - Revenue From Contracts with Customers
when another party, along with the reporting entity, is involved in providing a good or a service to a customer. In these circumstances,
an entity is required to determine whether the nature of its promise is to provide that good or service to the customer (that
is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is,
the entity is an agent). The amendments in the Update clarify the implementation guidance on principal versus agent considerations.
The Update is effective, along with ASU 2014-09, for annual and interim periods beginning after December 15, 2017. The adoption
of ASU 2016- 08 is not expected to have a material impact on our consolidated financial position or results of operations.
In
March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718)” (“ASU 2016- 09”).
ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the
income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company
has implemented ASU 2016-09 effective January 1, 2017.
In
April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing” (“ASU 2016-1O”). The amendments in this update clarify the following two aspects to Topic 606: identifying
performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The
entity first identifies the promised goods or services in the contract and reduce the cost and complexity. An entity evaluates
whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether an entity’s
promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied
at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The Company is currently
evaluating ASU 2016-10 and its impact on its consolidated financial statements or disclosures.
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326).” For most financial
assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model
to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses.
The new standard is effective for the Company at the beginning of fiscal year 2019. Entities are required to apply the provisions
of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating
the impact of the adoption of ASU 2016-02 on our consolidated financial statements.
I
n
August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230)”,
which provides guidance for eight specific cash flow issues with the objective of reducing the existing diversity in practice.
ASU 2016-15 is effective retrospectively for annual reporting periods beginning after December 15, 2017, including interim periods
within those annual reporting periods. Early adoption is permitted. The new standard is effective for the Company at the beginning
of fiscal year 2018. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements and
do not expect adoption to have a material impact.
In November 2015, the FASB issued ASU
No. 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires that all deferred tax liabilities
and assets be classified as noncurrent amounts on the balance sheet. ASU 2015-17 will be effective for interim and annuals periods
beginning after December 15, 2016 and may be applied prospectively or retrospectively. Early adoption of the standard is permitted.
The new standard is effective for the Company at the beginning of fiscal year 2017. There was no impact on the Company’s
unaudited condensed consolidated financial statements as the Company does not currently have a deferred tax asset or liability.
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on our financial statements upon adoption.
NOTE
3 – GOING CONCERN
The Company’s unaudited condensed consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business.
The Company had a net income before non-controlling
interest of $801,684 and a net loss of $754,877 and net cash used in operating activities of $38,802 and $369,839, for the three
months ended March 31, 2017 and 2016, respectively. The Company has a working capital deficit of $7,946,033 and $9,723,119, and
an accumulated deficit of $12,687,845 and $13,499,303 as of March 31, 2017 and December 31, 2016, respectively.
These conditions
raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
The Company has a minimum cash balance
available for payment of ongoing operating expense, has experienced losses from operations since inception, and it does not have
a source of revenue sufficient to cover its operating costs. Its continued existence is dependent upon its ability to continue
to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or
equity financing will be available, or will be available on terms acceptable to the Company.
Management plans to fund operations
through additional debt and equity financing. Debt instruments may be convertible or non-convertible and will vary based on the
Company’s needs and financing options available at such times.
NOTE
4 – CONVERTIBLE NOTES PAYABLE
The Company has entered into a series
of convertible notes payable to fund operations. While with differing noteholders, the terms of the outstanding convertible notes
are substantially similar and accrue interest at 8% annually with a default interest rate of 24% and allow for the conversion of
outstanding principal and interest to common stock at a price equal to a 45% to 50% from the lowest trading price in the preceding
20 days.
In February 2017, the Company agreed
with certain noteholders to extend a redemption freeze agreement whereby the convertible note holders agreed to not convert outstanding
principal and accrued interest into common stock for a period of 60 days. Upon the expiration of these agreements, a 90 day extension
was executed whereby the noteholders agreed to not convert additional amounts through the first week of July 2017. Under the terms
of the extension, each noteholder was granted the right to convert a limited amount of outstanding principal to common stock at
a rate equal to the stated rate in the convertible note payable but not less than $0.02 per share and extended the due dates of
the notes to July 2017. The convertible notes outstanding contain cross default features and the Company defaulted on all notes
in November 2016.
The
following table summarizes all convertible notes payable activity for the three months ended March 31, 2017:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Original Principal
|
|
|
Balance, December 31, 2016
|
|
|
Advances
|
|
|
Conversions to Common Stock
|
|
|
Balance, March 31, 2017
|
|
Noteholder 1
|
|
11/25/2015
|
|
11/24/2016
|
|
$
|
82,500
|
|
|
$
|
82,500
|
|
|
$
|
-
|
|
|
$
|
(35,971
|
)
|
|
$
|
46,529
|
|
Noteholder 1
|
|
12/21/2015
|
|
12/21/2016
|
|
|
27,000
|
|
|
|
27,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,000
|
|
Noteholder 1
|
|
1/15/2016
|
|
1/15/2017
|
|
|
131,250
|
|
|
|
131,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
131,250
|
|
Noteholder 1
|
|
3/8/2016
|
|
3/8/2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
82,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,500
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
82,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,500
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
82,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,500
|
|
Noteholder 1
|
|
5/16/2016
|
|
5/16/2017
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
Noteholder 1
|
|
7/22/2016
|
|
7/22/2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Noteholder 1
|
|
8/2/2016
|
|
8/2/2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Noteholder 2
|
|
11/20/2015
|
|
11/20/2016
|
|
|
37,000
|
|
|
|
37,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,000
|
|
Noteholder 3
|
|
3/8/2016
|
|
3/8/2017
|
|
|
50,000
|
|
|
|
14,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,000
|
|
Noteholder 3
|
|
5/16/2016
|
|
5/16/2017
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
(15,000
|
)
|
|
|
85,000
|
|
Noteholder 3
|
|
7/22/2016
|
|
7/22/2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
Noteholder 3
|
|
3/8/2016
|
|
3/8/2017
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
|
-
|
|
Noteholder 4
|
|
1/19/2016
|
|
1/15/2017
|
|
|
131,250
|
|
|
|
131,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
131,250
|
|
Noteholder 4
|
|
3/9/2016
|
|
3/8/2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
(16,098
|
)
|
|
|
33,902
|
|
Noteholder 5
|
|
11/9/2015
|
|
11/9/2016
|
|
|
100,000
|
|
|
|
61,397
|
|
|
|
-
|
|
|
|
(5,000
|
)
|
|
|
56,397
|
|
Noteholder 6
|
|
11/2/2016
|
|
11/2/2017
|
|
|
52,500
|
|
|
|
52,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,500
|
|
Noteholder 7
|
|
1/2/2017
|
|
8/2/2017
|
|
|
70,000
|
|
|
|
-
|
|
|
|
70,000
|
|
|
|
-
|
|
|
|
70,000
|
|
Totals
|
|
|
|
|
|
$
|
1,404,000
|
|
|
$
|
1,259,397
|
|
|
$
|
70,000
|
|
|
$
|
(97,069
|
)
|
|
$
|
1,232,328
|
|
The
following is a summary of all convertible notes outstanding as of March 31, 2017:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Principal
|
|
|
Discount
|
|
|
Unamortized Debt Issue Costs
|
|
|
Carrying Value
|
|
|
Accrued Interest
|
|
Noteholder 1
|
|
11/25/2015
|
|
11/24/2016
|
|
|
46,529
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46,529
|
|
|
|
17,313
|
|
Noteholder 1
|
|
12/21/2015
|
|
12/21/2016
|
|
|
27,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,000
|
|
|
|
7,527
|
|
Noteholder 1
|
|
1/15/2016
|
|
1/15/2017
|
|
|
131,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
131,250
|
|
|
|
35,873
|
|
Noteholder 1
|
|
3/8/2016
|
|
3/8/2017
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
11,770
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
(2,413
|
)
|
|
|
(125
|
)
|
|
|
79,962
|
|
|
|
18,805
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
(2,413
|
)
|
|
|
(125
|
)
|
|
|
79,962
|
|
|
|
18,805
|
|
Noteholder 1
|
|
4/11/2016
|
|
4/11/2017
|
|
|
82,500
|
|
|
|
(2,413
|
)
|
|
|
(125
|
)
|
|
|
79,962
|
|
|
|
18,805
|
|
Noteholder 1
|
|
5/16/2016
|
|
5/16/2017
|
|
|
100,000
|
|
|
|
(4,430
|
)
|
|
|
(630
|
)
|
|
|
94,940
|
|
|
|
20,537
|
|
Noteholder 1
|
|
7/22/2016
|
|
7/22/2017
|
|
|
50,000
|
|
|
|
(9,853
|
)
|
|
|
(774
|
)
|
|
|
39,373
|
|
|
|
4,734
|
|
Noteholder 1
|
|
8/2/2016
|
|
8/2/2017
|
|
|
50,000
|
|
|
|
(12,621
|
)
|
|
|
(774
|
)
|
|
|
36,605
|
|
|
|
4,614
|
|
Noteholder 2
|
|
11/20/2015
|
|
11/20/2016
|
|
|
37,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,000
|
|
|
|
6,155
|
|
Noteholder 3
|
|
3/8/2016
|
|
3/8/2017
|
|
|
14,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,000
|
|
|
|
7,028
|
|
Noteholder 3
|
|
5/16/2016
|
|
5/16/2017
|
|
|
85,000
|
|
|
|
(3,765
|
)
|
|
|
(630
|
)
|
|
|
80,605
|
|
|
|
19,715
|
|
Noteholder 3
|
|
7/22/2016
|
|
7/22/2017
|
|
|
50,000
|
|
|
|
(9,853
|
)
|
|
|
(772
|
)
|
|
|
39,375
|
|
|
|
4,734
|
|
Noteholder 3
|
|
3/8/2016
|
|
3/8/2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Noteholder 4
|
|
1/19/2016
|
|
1/15/2017
|
|
|
131,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
131,250
|
|
|
|
35,758
|
|
Noteholder 4
|
|
3/9/2016
|
|
3/8/2017
|
|
|
33,902
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,902
|
|
|
|
7,759
|
|
Noteholder 5
|
|
11/9/2015
|
|
11/9/2016
|
|
|
56,397
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56,397
|
|
|
|
20,253
|
|
Noteholder 6
|
|
11/2/2016
|
|
11/2/2017
|
|
|
52,500
|
|
|
|
(2,096
|
)
|
|
|
-
|
|
|
|
50,404
|
|
|
|
1,715
|
|
Noteholder 7
|
|
1/2/2017
|
|
8/2/2017
|
|
|
70,000
|
|
|
|
(30,008
|
)
|
|
|
-
|
|
|
|
39,992
|
|
|
|
1,350
|
|
Totals
|
|
|
|
|
|
$
|
1,232,328
|
|
|
$
|
(79,865
|
)
|
|
$
|
(3,955
|
)
|
|
$
|
1,148,508
|
|
|
$
|
263,250
|
|
Accrued
Interest
There
was $263,252 and $207,951 of accrued interest due on all convertible notes as of March 31, 2017 and December 31, 2016, respectively.
NOTE
5 – DERIVATIVE LIABILITIES
The
Company analyzed the conversion features of the convertible notes payable as discussed in Note 7 for derivative accounting consideration
under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified
as a derivative liability because the exercise price of these convertible notes are subject to a variable conversion rate.
The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock
and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of
the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability
is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement
and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the
embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the reverse
capitalization date of the convertible notes payable and certain outstanding option grants was $1,236,007 which was recorded as
a derivative liability on the balance sheet.
As
of March 31, 2017, the Company had a $1,713,686 derivative liability balance on the balance sheet and recorded a loss from derivative
liability fair value adjustment of $414,037 during the three months ended March 31, 2017. The derivative liability
activity comes from convertible notes payable as discussed in Note 4. In addition to derivative liabilities associated with convertible
notes payable, the Company recorded a derivative liability due to a ratchet strike price feature associated with the options issued
in the acquisition of TPP. The options are exercisable at $0.18 per share unless the Company’s common stock is quoted at
a price greater than $0.50 per share at which point the options are exercisable at $0.001 per share.
A
summary of outstanding derivative liabilities as of March 31, 2017 is as follows:
Holder
|
|
Derivative Balance
|
|
Noteholder 1
|
|
$
|
59,852
|
|
Noteholder 1
|
|
|
34,731
|
|
Noteholder 1
|
|
|
168,833
|
|
Noteholder 1
|
|
|
64,317
|
|
Noteholder 1
|
|
|
74,268
|
|
Noteholder 1
|
|
|
74,268
|
|
Noteholder 1
|
|
|
74,268
|
|
Noteholder 1
|
|
|
90,154
|
|
Noteholder 1
|
|
|
54,035
|
|
Noteholder 1
|
|
|
57,279
|
|
Noteholder 2
|
|
|
47,695
|
|
Noteholder 3
|
|
|
23,199
|
|
Noteholder 3
|
|
|
76,906
|
|
Noteholder 3
|
|
|
54,035
|
|
Noteholder 4
|
|
|
168,833
|
|
Noteholder 4
|
|
|
43,610
|
|
Noteholder 5
|
|
|
182,212
|
|
Option Holder
|
|
|
285,000
|
|
Noteholder 7
|
|
|
80,191
|
|
Total
|
|
$
|
1,713,686
|
|
The
value of the embedded derivative liabilities for the convertible notes payable and outstanding option awards was determined using
the Black-Scholes option pricing model based on the following assumptions:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Expected volatility
|
|
|
35% - 824
|
%
|
|
|
155% - 871
|
%
|
Expected term
|
|
|
.03 - 2.29 years
|
|
|
|
.19 – 2.54 years
|
|
Risk free rate
|
|
|
0.74% - 1.27
|
%
|
|
|
.51% - 1.47
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
A
summary of the changes in derivative liabilities balance for the three months ended March 31, 2017 is as follows:
Fair Value of Embedded Derivative Liabilities
:
|
|
|
|
Balance, December 31, 2016
|
|
$
|
1,210,281
|
|
Initial measurement of derivative liabilities
|
|
|
132,289
|
|
Change in fair market value
|
|
|
414,037
|
|
Write off due to conversion
|
|
|
(42,921
|
)
|
Balance, March 31, 2017
|
|
$
|
1,713,686
|
|
NOTE
6 – STOCK OPTIONS
The
following table summarizes all stock option activity for the three months ended March 31, 2017:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
Outstanding, December 31, 2016
|
|
|
17,500,000
|
|
|
$
|
0.18
|
|
Granted
|
|
|
7,500,000
|
|
|
|
0.18
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(7,500,000
|
)
|
|
|
0.18
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, March 31,
2017
|
|
|
17,500,000
|
|
|
$
|
0.
18
|
|
The
following table discloses information regarding outstanding and exercisable options at March 31, 2017:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise
Prices
|
|
|
Number of
Option Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Life
(Years)
|
|
|
Number of
Option Shares
|
|
|
Weighted Average
Exercise Price
|
|
$
|
0.18
|
|
|
|
17,500,000
|
|
|
$
|
0.18
|
|
|
|
3.48
|
|
|
|
10,833,334
|
|
|
$
|
0.18
|
|
|
|
|
|
|
17,500,000
|
|
|
$
|
0.18
|
|
|
|
3.48
|
|
|
|
10,833,334
|
|
|
$
|
0.18
|
|
On May 31, 2016, the Company issued
10,000,000 options to a board member pursuant to its agreement with the member. One third of the 10,000,000 options issued vested
immediately upon execution of the related agreement, resulting in an immediate stock based expense of $558,323 being recognized.
The remaining shares of this issuance vest based on performance milestones which the Company believes is 60% likely of occurring
resulting in stock based expense of $558,328 during the year ended December 31, 2016, at which point there was a 50% probability
of attainment, and $111,666 during the three months ended March 31, 2017 at which point the probability of attainment was updated
to 60%. The remaining fair value of the unvested shares of $446,663 will be recognized according to the estimated probability
of the performance obligations being achieved.
On
July 14, 2016, the Company issued 7,500,000 options as part of its acquisition of TPP. The options are exercisable for a period
of three years and carry an exercise price of $0.18 per share. The options carry a ratchet pricing feature whereby they become
exercisable at $0.001 per share if the Company’s common stock trades at a price greater than $0.50 per share. The options
carried a value of $898,490 which was recorded as a derivative liability as discussed in
Note 7 – Derivative Liabilities
.
On March 31, 2017, the Company, as part of its sale of TPP, cancelled these options and reissued 7,500,000 options that are exercisable
for a period of three years and carry an exercise price of $0.18 per share. The options carry a ratchet pricing feature whereby
they become exercisable at $0.05 per share if the Company’s common stock trades at a price greater than $0.50 per share.
The
Company issued 1,000,000 stock options exercisable at $1.00 pursuant to its agreement with Glocal. This agreement was amended
on August 9, 2016 in which the option owners forfeited these options. The fair value of the 1,000,000 stock options granted with
an exercise price of $1.00 was amortized through the forfeiture resulting in stock based compensation expense of $14,166.
Total
stock based compensation expense was $0 during the three months ended March 31, 2017 and 2016 leaving an unrecognized expense
of $558,328 as of March 31, 2017. In determining the compensation cost of the stock options granted, the fair value of each option
grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations
are summarized as follows:
|
|
March 31,
2017
|
|
Expected term of options granted
|
|
|
0 - 5 years
|
|
Expected volatility range
|
|
|
778 - 850
|
%
|
Range of risk-free interest rates
|
|
|
0.82 - 1.41
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
NOTE
7 – RELATED PARTY TRANSACTIONS
The
Company follows the provisions of ASC 850—
Related Party Transactions & Disclosures
relating to the identification
of related parties and disclosure of related party transactions.
Our
financial statements include disclosures of material related party transactions, other than expense allowances, and other similar
items in the ordinary course of business. The disclosures include: (a) the nature of the relationship(s) involved; (b) a description
of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for
which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions
on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented
and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts
due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner
of settlement.
The
Company has had extensive dealings with related parties including those in which our Chief Executive Officer holds a significant
ownership interest as well as an executive position during the three months ended March 31, 2017 and 2016. Due to our operational
losses, the Company has relied to a large extent on funding received from Next Communications, Inc., an organization in which
our Chief Executive Officer and Chairman holds a controlling equity interest and our Chief Executive Officer holds an executive
position.
With
the exception of the Company’s purchase of a 9% interest in Next Cala, Inc. from a related party as described below, amounts
scheduled below as “due to related parties” and “due from related parties” have not had their terms, including
amounts, collection or repayment terms or similar provisions memorialized in formalized written agreements.
Related
party balances at March 31, 2017 and December 31, 2016 consisted of the following:
Due
from related parties
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
(a) Glocal Card Services
|
|
|
36,000
|
|
|
|
36,000
|
|
Total Due from related parties
|
|
$
|
36,000
|
|
|
$
|
36,000
|
|
Due
to related parties
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
(b) Due to Next Communications, Inc.
|
|
$
|
2,953,351
|
|
|
$
|
2,961,271
|
|
(c) Due to Asiya Communications SAPI de C.V.
|
|
|
3,000
|
|
|
|
95,120
|
|
(d) Michael DePrado
|
|
|
99,604
|
|
|
|
99,604
|
|
Total Due from related parties
|
|
$
|
3,055,955
|
|
|
$
|
3,155,995
|
|
(a)
|
Glocal
Card Services is our partner in the Glocal Joint Venture
|
(b)
|
Next
Communication, Inc. is a corporation in which our Chief Executive Officer holds a controlling interest and serves as the Chief
Executive Officer
|
(c)
|
Asiya
Communications SAPI de C.V.is a telecommunications company organized under the laws of Mexico, in which our Chief Executive
Officer holds a substantial interest and is involved in active management.
|
(d)
|
Michael
DePrado is our Chief Operating Officer and Chief Financial Officer
|
During
the three months ended March 31, 2017 and 106, the Company recorded interest expense of $59,758 and $60,168 using an interest
rate equal to that on the outstanding convertible notes payable as discussed in
Note 6 – Convertible Notes Payable
as imputed interest on the related party payable due to Next Communications. The interest was immediately forgiven by the related
party and recorded to additional paid in capital.
Notes
Payable, Related Party
During the year ended December 31,
2014, the Company entered into two notes with its President to purchase his interest in Next Cala, Inc. and separately his voting
control in Next Cala. Inc. During the three months ended March 31, 2017, the outstanding principal and accrued interest was converted
to 8,900,000 shares of common stock.
Revenues
(Related Party)
The Company generated revenues from
related parties of $3,793 during the three month ended March 31, 2017, all of which was generated from Next Cala 360.
NOTE
8 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities consisted of the following as of March 31, 2017:
|
|
March 31, 2017
|
|
Trade payables
|
|
$
|
848,675
|
|
Accrued expenses
|
|
|
192,656
|
|
Accrued interest
|
|
|
266,057
|
|
Accrued salaries and wages
|
|
|
82,487
|
|
Total
|
|
$
|
1,389,875
|
|
During
the year ended December 31, 2014, a former employee, Franjose Yglesias-Bertheau of Pleasant Kids (PLKD) filed lawsuit against
PLKD claiming unpaid wages of $622,968 and was initially awarded that amount in a judgement. However, the judgement was later
revised and the Company settled for $80,000 in March 2017 for which the Company paid $10,000 cash and entered into a convertible
note payable for $70,000. There was $80,000 accrued related to this item as of March 31, 2017.
NOTE
9 – STOCKHOLDERS’ EQUITY
Preferred
Stock
At
the time of incorporation, the Company was authorized to issue 60,000,000 shares of preferred stock with a par value of $0.001
of which 50,000,000 was designated Series A and 10,000,000 as Series B. With the completion of the recapitalization as discussed
in Note 2, the outstanding Series A preferred shares were cancelled leaving a balance outstanding of Preferred Series A of -0-.
The
Company has 10,000,000 shares of Preferred Stock designated as Series B. The Series B Preferred Stock is not convertible into
Common Stock at any time and is not entitled to dividends of any kind or liquidation, dissolution rights of any kind. The holders
of Series B Preferred Stock shall be entitled to 1,000 votes for each share of Series B Stock that is held when voting together
with holders of the Common Stock.
The
Company has 36,000,000 shares of Preferred Stock designated as Series D. The Class D Preferred Stock must be redeemed within six(6)
months (or as soon thereafter as permitted by law) following final resolution of the Corporation’s affiliates lawsuit against
ViberMedia , Inc. (Next Communications, Inc. and Nxtgn, Inc. v. Viber Media, Inc.) which is, as of the date of this filing, pending
in U.S. District Court for the Southern District of New York or any successor or other lawsuit relating to the subject matter
thereof in which the Corporation (or any successor-in-interest) is named as a plaintiff (the “Lawsuit”). There were
no Series D Preferred shares issued or outstanding as of March 31, 2017 or December 31, 2016.
Common
Stock
Effective
November 20, 2015 the Company amended its Articles of Incorporation to decrease the common shares authorized from 9,500,000,000
to 360,000,000 with a par value of $0.001.
During the three months ended March
31, 2017, the Company has issued 5,312,690 shares of commons stock for the conversion of $97,069 of principal of convertible notes
payable and 501,530 shares for the conversion of $10,031 of accrued interest. The conversion of principal and accrued interest
on convertible notes payable to common stock were done so at the contractual terms of each respective agreement. Additionally,
the Company issued 8,449,654 common shares valued at $280,000 as repayment of a non-convertible related party loan and 450,346
common shares valued at $14,932 as repayment of non-convertible related party accrued interest. The fair value of the shares issued
as repayment of the related party payable was $338,200 using the close price of $0.038 per share on the date of the transaction
resulting in an offset to additional paid in capital of $43,277 as a result of the related party nature of the transaction. The
Company also issued 8,900,000 shares of common stock valued at $338,200 Common stock issued for services were valued using the
close price of the Company’s common stock on the date of issuance as quoted on the OTCBB.
Summary of common stock activity for the three months ended March 31, 2017
|
|
Outstanding shares
|
|
Balance, December 31, 2016
|
|
|
249,225,683
|
|
Shares issued for services
|
|
|
8,900,000
|
|
Shares issued as repayment of related party loan and accrued interest (a)
|
|
|
8,900,000
|
|
Shares issued for conversion of convertible notes payable and accrued interest (b)
|
|
|
5,814,220
|
|
Balance, March 31, 2017
|
|
|
272,839,903
|
|
(a)
|
Shares
issued as repayment of outstanding loan principal of $280,000 plus accrued interest of $14,923. The lender did not have conversion
rights to convert the principal to common stock. However, the lender agreed to accept shares in lieu of cash repayment.
|
(b)
|
Shares
issued in connection with outstanding convertible notes payable and convertible accrued interest on convertible notes payable
in accordance with contractual terms of noteholders as discussed in
Note 6 – Convertible Notes Payable
.
|
NOTE
10 – CUSTOMER CONCENTRATION
The
Company did not have any one customer account for more than 10% of its revenues during the three months ended March 31, 2017.
For
the three months ended March 31, 2016, 92% of revenues were derived from four separate customers. The concentration of revenues
during the three months ended March 31, 2016 was:
|
|
March 31, 2016
|
|
|
|
Revenues
|
|
|
% of Total
|
|
Customer 1
|
|
$
|
8,499
|
|
|
|
10
|
%
|
Customer 2
|
|
|
20,000
|
|
|
|
24
|
%
|
Customer 3
|
|
|
12,301
|
|
|
|
15
|
%
|
Customer 4
|
|
|
35,000
|
|
|
|
43
|
%
|
Customer 5
|
|
|
-
|
|
|
|
0
|
%
|
Customer 6
|
|
|
-
|
|
|
|
0
|
%
|
Customer 7
|
|
|
-
|
|
|
|
0
|
%
|
Customer 8, related party
|
|
|
-
|
|
|
|
0
|
%
|
Customer 9, related party
|
|
|
-
|
|
|
|
0
|
%
|
All Others
|
|
|
6,503
|
|
|
|
8
|
%
|
Total
|
|
$
|
82,303
|
|
|
|
100
|
%
|
NOTE
11 – COMMITMENTS AND CONTINGENCIES
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the
assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable
and material, would be disclosed.
On
April 7, 2016, the Company executed an agreement with a third party to provide certain services for the Company. The agreement
requires 1% of the outstanding common share equivalent to be issued to the third party when the market capitalization of the Company
reaches $500,000,000 and an additional 1% when it reached $750,000,000. The probability of this event is uncertain at present
and the Company has not accrued a contingent loss as of September 30, 2016 as a result.
On October 14, 2014, one of our operating
subsidiaries, NxtGn, Inc. and Next Communications, Inc., an entity controlled by our CEO, (collectively the “Plaintiffs”)
filed suit in the United States District Court for the Southern district of New York against Viber Media, Inc. Plaintiffs
filed an Amended Complaint asserting four claims: misappropriation of a business idea, misappropriation of trade secrets, breach
of contract, and unjust enrichment. Viber moved the Court to dismiss the Amended Complaint. On March 30, 2016, U.S.
District Judge Richard Sullivan issued an opinion and order on Viber’s motion to Dismiss. Specifically, Judge Sullivan
ordered that Viber’s motion to dismiss is granted on Plaintiffs’ misappropriation of a business idea claim, but denied
as to their misappropriation of trade secrets, breach of contract, and unjust enrichment claims. The Company has not accrued any
gains or losses associated with this case as it would be a contingent gain and recorded when received.
On
September 20, 2016, the Company received a notice it has been named as a defendant in a suit brought against Next Communications,
an entity controlled by our CEO. In addition to being named a defendant, it was requested the Company provide certain documents
for the discovery process. Due to the original suit being filed against a related party and not against the Company or its subsidiaries,
we believe it likely the Company and its subsidiaries be dismissed as defendants and has not accrued a contingent loss as of March
31, 2017 as a result.
On July 6, 2017, the Company received
notice an existing legal claim against Accent InterMedia (“AIM”) had been amended to include claims against the Company.
The claims brought against the Company include failure to comply with certain judgments for collection of funds by the plaintiff
while having a controlling interest in AIM via its ownership of Transaction Processing Products (“TPP”). The Company
believes the amended case is without merit and that, per its agreement to sell its interest in TPP, any claims brought against
AIM or TPP would be the responsibilities of the current interest holders. Due to the original suit being filed against AIM and
amended to include the Company after it disposed of its interest in TPP, which had a controlling interest in AIM, we believe it
likely the Company and its subsidiaries be dismissed as defendants. As a result, no contingent loss as been accrued as of March
31, 2017.
NOTE
12 – SUBSEQUENT EVENTS
Common
Stock Issuances
On various dates through June 30,
2017, the Company issued a total of 3,500,000 common shares in exchange for $70,000 of principal on convertible notes payable
and 77,480 common shares in exchange for $1,550 of accrued interest on convertible notes payable. The conversions of
principal and accrued interest were done within contractual terms at $0.02 per share. Additionally, the Company issued
2,000,000 common shares at $0.094 per share for services valued at $188,000 and 1,000,000 common shares at $0.094 per share
for services valued at $94,000.
Advisory Agreement
On April 7, 2017, the Company executed
an agreement with Jeff Lewis Advisory to act as a special advisor to the board of directors. The agreement is for one year effective
May 1, 2017 and requires a monthly retainer of $5,000. In addition to monthly cash payments, the Company agreed to issue $100,000
of common shares which equated to 909,091 on the date of execution at a value of $0.11 per share. These 909,901 common shares are
excluded from the shares issued for services as disclosed in “common stock issuances” in the preceding paragraph.
Letters
of Intent
Effective
March 30, 2017, the Company entered into a non-binding letter of intent (“LOI”) with AZUGROUP USA, LLC (“AZUGROUPUSA”),
to acquire assets owned or controlled by AZUGROUP USA, LLC and its majority shareholder, Mr. Antonio Faranda. AZUGROUP USA, LLC
and Mr. Antonio Faranda own or control the following Italian companies: AZUGROUP SRL Socio Unico, Cardnology S.R.L. and Go Card
S.R.L. (collectively “AZUGROUP”), which together, generated €13.2 Million ($14.2 million USD) in revenue during
the 2016 calendar year. The sole minority partner in AZUGROUP will be compensated $267,000 in exchange for the remaining interest
in AZUGROUP. After the buyout of the remaining minority partner, Antonio Faranda will be the sole shareholder of AZUGROUP.
Effective
May 16, 2017, the Company entered into a non-binding letter of intent (“LOI”) with LIMECOM INC. (“LIMECOM”),
to acquire assets owned or controlled by LIMECOM INC. and its President & CEO, Mr. Orlando Taddeo.
Under
the terms of the LOI, subject to a definitive agreement and customary due diligence and shareholder approval, the Company will
acquire the assets of or merge with LIMECOM, which is expected to generate approximately $125,000,000 of revenue with $2.5 million
EBITA in fiscal year 2017.