NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2017
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Northsight Capital Inc. (“Northsight” or “the Company”) is an early stage company incorporated in the State of Nevada on May 21, 2008. In May 2011, Safe Communications, Inc. (n/k/a Kuboo, Inc.) acquired 80% of the Company’s issued and outstanding common stock, and, as a result, became its parent company. On June 25, 2014, the Company completed the acquisition of approximately 7,500 cannabis related Internet domain names, in exchange for which the Company issued 78.5 million shares of its common stock and a promissory note in the principal amount of $500,000. As a result of this transaction, the seller of the domain names became an 81% stockholder of the Company. Kuboo, Inc. continues to be a significant stockholder of the Company. John Venners, a director of Kuboo, Inc., is our EVP, Operations and also sits on our board of directors. See Note 13 - Related Party Transactions.
The Company’s principal business is to provide a wide variety of online directories for a broad range of businesses engaged in the lawful sale and distribution of cannabis and hemp related products. The following constitute the Company’s major product categories: a monthly listing in one or more of the Company’s online directories, paid advertising in one or more of the Company’s online directories and leasing to customers one or more Internet domain names for the customer’s exclusive use.
The accompanying financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The interim financial statements reflect all adjustments, consisting of normal recurring adjustments which, in the opinion of management, are necessary to present a fair statement of the results for the period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations for the three and nine month periods ended September 30, 2017, are not necessarily indicative of the operating results for the full year.
NOTE 2 – LIQUIDITY/GOING CONCERN
The Company had net losses of $201,378 and $580,502 for the three and nine months ended September 30, 2017, respectively, has accumulated losses of $21,263,912 and has had consistent negative cash flows from operating activities since inception (May 2008). These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. During the nine months ended September 30, 2017 the Company received a net $321,961 in loans from related party shareholders to fund operations. Management plans to (i) raise additional capital as soon as possible, to fund continued operations of the Company and (ii) continue its efforts to generate revenues and income from operations.
In the event the Company does not generate sufficient funds from revenues or financing through the issuance of its common stock or from debt financing, the Company will be unable to fully implement its business plan and pay its obligations as they become due, any of which circumstances would have a material adverse effect on its business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities.
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
Management believes the impact of recently issued standards and updates, which are not yet effective, will not have a material impact on the Company’s financial position, results of operations or cash flows upon adoption.
6
NOTE 4 – INVESTMENT IN JOINT VENTURE
On February 29, 2016, the Company entered into a joint venture agreement with Tumbleweed Holdings, Inc. (“TW”), pursuant to which a newly formed joint venture company is developing an online dating service around the URL, www.jointlovers.com. The Company and TW own 60% and 40% respectively of equity of the joint venture company.
On August 15, 2016, the Company instituted a legal action in Arizona against, Tumbleweed Holdings Inc., (“TW”). The complaint alleged that (i) TW breached the joint venture agreement by failing to fund the remaining $15,000 due to the joint venture company by April 29, 2016, (ii) TW breached the joint venture agreement by failing to fund the last $50,000 convertible note due to the Company by April 29, 2016, and (iii) TW breached the joint venture agreement by failing to fund their respective 40% of development expense in excess of the initial $100,000. The Company sought damages in the amount of $128,000 plus interest.
On September 22, 2016, Tumbleweed Holdings Inc., instituted a counterclaim in Arizona in response to the above legal action. The complaint alleged that (i) The Company breached the joint venture agreement by failing to leverage relationships and failing to provide budgeting and accounting records, (ii) the Company breached implied covenant of good faith and fair dealing by enticing TW into making significant contributions and then failing to perform under the agreement, (iii) the Company was unjustly enriched by having use of funds contributed by TW, (iv) the Company converted funds contributed by TW into its own assets, and (v) the Company has not provided accounting for all funds received by TW.
On July 17, 2017, the Company and Tumbleweed settled the litigation relating to the joint venture. As part of the settlement, Tumbleweed converted its $100,000 convertible note and it’s $85,000 joint venture investment into shares of company common stock at a rate of $.10 per share, resulting in a net loss on settlement of $30,750. The warrants issuable to Tumbleweed and the company were cancelled. The parties released each other from all claims related to the joint venture. Following the settlement, the Company wrote down its investment in the joint venture to zero.
Summary revenue information on the joint venture for the three months ended September 30, 2017 and 2016 is as follows:
|
For the Three Months Ended
|
|
September 30, 2017
|
|
September 30, 2016
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
Revenues
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
General administrative
|
|
-
|
|
|
9,123
|
Rent – related party
|
|
|
|
|
3,600
|
Total operating expenses
|
|
-
|
|
|
12,723
|
|
|
|
|
|
|
Loss from operations
|
|
-
|
|
|
(12,723)
|
|
|
|
|
|
|
Net Loss
|
$
|
-
|
|
$
|
(12,723)
|
|
|
|
|
|
|
Company Share of Net Loss
|
$
|
-
|
|
$
|
(10,200)
|
7
Summary revenue information on the joint venture for the nine months ended September 30, 2017 and 2016 is as follows:
|
For the Nine Months Ended
|
|
September 30, 2017
|
|
September 30, 2016
|
|
(Unaudited)
|
|
(Unaudited)
|
Revenues
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
General administrative
|
|
-
|
|
|
14,025
|
Rent – related party
|
|
|
|
|
3,600
|
Total operating expenses
|
|
-
|
|
|
17,625
|
|
|
|
|
|
|
Loss from operations
|
|
-
|
|
|
(17,625)
|
|
|
|
|
|
|
Net Loss
|
$
|
-
|
|
$
|
(17,625)
|
|
|
|
|
|
|
Company Share of Net Loss
|
$
|
-
|
|
$
|
(13,141)
|
NOTE 5 – WEB DEVELOPMENT COSTS AND DOMAIN NAMES ASSETS
In accordance with ASC 350-50, during the nine months ended September 30, 2017 and the year ended December 31, 2016, the Company did not capitalize any expenses towards the development of multiple websites on which third parties can advertise the sale and distribution of cannabis related products and services: an online “yellow pages.” The Company does not intend to engage in the sale or distribution of marijuana or related products. During the nine months ended September 30, 2017 and 2016 the Company recorded website development expenses of $5,750 and $10,470, respectively, which is included in general and administrative expenses on the Company’s consolidated statements of operations.
The Company amortizes these assets over their related useful lives (approximately 1 to 5 years), using a straight-line basis. Assets are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable, or at least annually. Measurement of the amount of impairment, if any, is based upon the difference between the asset's carrying value and estimated fair value. Fair value is determined through various valuation techniques, including market and income approaches as considered necessary. During the nine months ended September 30, 2017 and 2016 the Company recorded amortization expense of $54,274 and $54,273, respectively, related to websites previously launched.
|
|
As of
September 30,
2017
|
|
As of
December 31,
2016
|
|
Amortization
Period
|
Web development costs
|
|
|
311,912
|
|
|
311,912
|
|
5 years
|
Capitalized costs
|
|
|
-
|
|
|
-
|
|
|
Less: accumulated depreciation
|
|
|
(189,223)
|
|
|
(134,949)
|
|
|
|
|
$
|
122,689
|
|
$
|
176,963
|
|
|
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 2017 and December 31, 2016:
|
|
As of
September 30,
2017
|
|
As of
December 31,
2016
|
|
Estimated
Useful Life
|
Furniture and equipment
|
|
|
12,438
|
|
|
12,438
|
|
3 years
|
Total
|
|
|
12,438
|
|
|
12,438
|
|
|
Less: Accumulated depreciation
|
|
|
(12,211)
|
|
|
(9,763)
|
|
|
|
|
$
|
227
|
|
$
|
2,675
|
|
|
The Company records depreciation expense on a straight-line basis over the estimated life of the related asset (approximately 3 years). The Company recorded depreciation expense of $2,448 and $3,110 during the nine months ended September 30, 2017 and 2016, respectively.
8
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES RELATED PARTY
At September 30, 2017, the Company had a balance in related party accounts payable and accrued expenses of $841,876 which consisted of the following:
Party Name:
|
Relationship:
|
|
|
Amount
|
Howard Baer
|
Spouse of significant shareholder
|
Consulting fees
|
|
338,000
|
Howard Baer
|
Spouse of significant shareholder
|
Accrued interest
|
|
98,739
|
John Venners
|
Director/EVP, President and CEO of Kuboo, Inc.
|
Consulting fees/salaries
|
|
233,466
|
John Venners
|
Director/EVP, President and CEO of Kuboo, Inc.
|
Advances
|
|
3,000
|
Kuboo, Inc.
|
Former parent company, significant shareholder
|
Rent
|
|
167,476
|
John Lemak
|
Significant shareholder
|
Accrued interest
|
|
1,195
|
|
|
|
$
|
841,876
|
NOTE 8 – NOTES PAYABLE RELATED PARTY
On May 19, 2015, the Company issued Kae Yong Park and her spouse Howard Baer (together, “Park”) a non-interest bearing, unsecured demand promissory note to evidence all unpaid advances received by the Company to that point and to cover all additional advances received afterward. Unpaid principal under the note is due and payable upon the earlier of (i) an “event of default” (as defined), (ii) written demand and (iii) the Company’s receipt of capital (to the extent of net proceeds received) from any capital raising transaction after May 15, 2015, whether in the form of debt, equity or otherwise.
On September 30, 2015, the Company amended and restated its promissory note to Park to include all advances to date and provide certain assets, including all internet domain names, websites and related assets as collateral. Repayment terms remain the same, and Park has to date not enforced the provision requiring repayment upon receipt of net proceeds from capital raising transactions.
During the nine months ended September 30, 2017, Park advanced an aggregate of $55,250 on an unsecured basis to the Company for short-term capital needs. During this period, the Company also repaid $25,550 of its secured debt to Park and recaptured $110,038 worth of payroll expenses for Park’s use of Company personnel. Amounts recaptured for use of Company personnel have been treated as repayments on the Company’s Statements of Cash Flows. At September 30, 2017, the Company had a note payable to Park for these advances of $1,334,329 which is secured by the assets of the Company. Park’s security interest in certain of the Company’s domains and websites has been subordinated to the security interest granted to John Lemak, an affiliate of Sandor Capital, a significant shareholder, in connection with advances Mr. Lemak made to the company. Due to the on-demand nature of the amount owed to Park, the company has classified it as a current liability.
The following table summarizes the Company’s balance for these advances for the nine months ended September 30, 2017:
Amount due - December 31, 2016
|
$
|
1,414,667
|
Advances received from Park
|
|
55,250
|
Repayments made to Park
|
|
(25,550)
|
Recapture of Company expenses
|
|
(110,038)
|
Balance due–September 30, 2017
|
$
|
1,334,329
|
On June 23, 2014, the Company issued a $500,000 promissory note in conjunction with the purchase of approximately 7,500 cannabis-related internet domain names. The note originally bore interest at the rate of 3.25% per annum and the first $100,000 of which was payable upon the Company’s receipt of an aggregate of $1,000,000 in funding (whether debt or equity). The remaining $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month the Company realizes at least $150,000 in gross revenue (see Note 14 - Commitments and Contingencies).
On July 25, 2014, the Company amended and restated its promissory note in the principal amount of $500,000 owing to Kae Yong Park (the Company’s then majority shareholder) to provide that it would make the first $100,000 installment payment due under the Note on July 25, 2014 (earlier than required), in exchange for which Kae Yong Park agreed to waive all interest due over the term of the note. Thereafter, Kae Yong Park waived the requirement that the Company pay the $100,000 due under the Amended and Restated Note until August 25, 2014, at which time it was paid. The Company subsequently recaptured all previously recorded interest expense related to the note.
9
Between December 1, 2016 and March 16, 2017, the Company received aggregate proceeds of $101,299 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which notes were issued bearing 8% interest annually. On April 1, 2017, the Company issued a note for $102,465 consisting of $101,000 in principal and $1,465 in accrued interest for the previous notes. The $299 forgiven as part of the note restructure was recorded as a gain on extinguishment of debt. The note is non-interest bearing, matures on December 31, 2017, as amended, and is unsecured.
Between December 15, 2016 and January 13, 2017, the Company received aggregate proceeds of $41,550 from Sandor Capital, a related party and significant shareholder, for which notes were issued bearing 8% interest annually. On April 1, 2017, the Company issued a note for $42,374 consisting of $41,550 in principal and $824 in accrued interest for the previous notes. The note is non-interest bearing, matures on December 31, 2017, as amended, and is unsecured.
On April 1, 2017, the company renegotiated a $65,000 note to Sandor Capital, a related party and significant shareholder, with interest tied to the performance of its joint venture agreement into a new $71,067 note. The note is non-interest bearing, matures on December 31, 2017, as amended, and is unsecured. At the time of the refinance, the joint venture had not produced positive income, so no interest was due on the note. The $6,097 consideration given on the new note was recorded as a loss on extinguishment of debt.
Between May 1, 2017 and June 29, 2017, the Company received aggregate proceeds of $140,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which notes were issued bearing 8% interest annually. On April 1, 2017, the Company issued a note for $140,000 to restructure the previous notes. The note is non-interest bearing, matures on December 31, 2017 as amended, and is secured by certain domain names owned by the Company.
Between August 14, 2017 and September 28, 2017, the Company received aggregate proceeds of $182,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which several notes were issued bearing 8% interest annually. The notes, have maturity dates ranging from November 15, 2017 and December 31, 2017 and are unsecured.
NOTE 9 – NOTES PAYABLE
Notes
On July 1, 2015, the Company entered into a seven (7) day loan agreement with two parties for aggregate proceeds of $34,900. The note bears interest at the rate of six percent (6%) annually. In addition to the loans, the Company issued an aggregate 349,000 shares of common stock valued at $26,016 and warrants to purchase an aggregate 100,000 shares of the Company’s common stock at an exercise price of $0.25 per share valued at $6,898. The relative fair value of the shares and warrants associated with these notes have been recorded as debt discount to be amortized over the life of the loans. As of September 30, 2017, these notes have not yet been repaid and principal and interest totaling $39,599 is in default.
On August 10, 2015, the Company entered into a one hundred twenty (120) day loan agreement with an existing investor for aggregate proceeds of $45,000 (two installments of $22,500 each). The note bears interest at the rate of six percent (6%) annually. As additional consideration for these loans, the Company issued an aggregate 1,200,000 shares of common stock valued at $38,918. The relative fair value of the shares associated with these notes have been recorded as debt discount to be amortized over the life of the loans). As of September 30, 2017, these notes have not yet been repaid and principal and interest totaling $50,345 is in default.
Between June 5, 2017 and June 29, 2017 notes payable to a vendor in the aggregate amount of $116,553 were settled with the issuance of 1,631,660 shares of the Company’s common stock (an implied conversion price of $.10 per share). The common stock was valued at $82,049 on the dates of issuance, resulting in a gain on settlement of $76,617.
Convertible Notes
On February 29, 2016, in conjunction with its joint venture agreement (see Note 4 – Investment in Joint Venture), the Company entered an agreement to issue three $50,000, one-year convertible notes. These notes are convertible into shares of the Company’s stock at a price of $0.20 per share or a total of 250,000 shares each, of which only two were issued for a total of $100,000. Interest on the note is payable quarterly in an amount equal to a percentage of the Company’s joint venture company’s net revenues, up to fifty percent of the original face value This interest will be payable only in the event that the joint venture company generates net revenues. Concurrent with this agreement, the Company issued the first of these convertible notes. On April 8, 2016, the Company issued the second of these convertible notes.
10
On July 17, 2017, the Company entered into a settlement agreement with Tumbleweed wherein it was agreed that Tumbleweed would convert its notes into common stock at the rate of $0.10 per share. The Company recognized a gain on settlement from the conversions of $29,600 based on the stock price of $0.0704 on July 17, 2017.
The following table summarizes the Company’s notes and convertible notes payable for the nine months ended September 30, 2017:
|
Notes
|
|
Convertible Notes
|
Balance – December 31, 2016
|
$
|
196,433
|
|
$
|
100,000
|
Note proceeds received
|
|
-
|
|
|
-
|
Settlement of note
|
|
(116,553)
|
|
|
(100,000)
|
Repayments on notes
|
|
-
|
|
|
-
|
Balance –September 30, 2017
|
$
|
79,900
|
|
$
|
-
|
NOTE 10 – EQUITY
On January 10, 2017, the Company issued 400,000 shares of the Company’s common stock previously recorded as a subscription payable valued at $62,000 as settlement of its previously settled lawsuit with Lee Ori.
On April 10, 2017, we sold 1,000,000 shares of common stock in a private transaction at a per share price of $.025, for gross proceeds of $25,000, to an “accredited investor” within the meaning of Rule 502 of Regulation D under the Securities Act of 1933, as amended.
Between June 5 and June 29, 2017, the Company issued a total of 1,631,660 shares of the Company’s common stock as settlement for an aggregate $163,166 in payables (an implied conversion price of $.10 per share). The Company recognized an aggregate gain of $76,617 on these settlements.
On July 17, 2017, the Company issued 1,000,000 shares of the Company’s common stock as settlement of a $100,000 convertible note. The Company recognized a gain on settlement of $29,600.
On July 17, 2017, the company issued 850,000 shares of the Company’s common stock as settlement of its joint venture lawsuit with Tumbleweed. The Company recognized a loss on settlement of $60,350 from the transaction.
NOTE 11 – STOCK WARRANTS
The Company has applied fair value accounting for all warrants issued. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model. See Note 16 – Subsequent Events.
A summary of the Company’s warrant activity for the nine months ended September 30, 2017 is as follows:
|
|
Number of
Warrants
|
|
Weighted Average
Exercise Price
|
Outstanding – December 31, 2016
|
|
|
17,755,603
|
|
$
|
0.08
|
Granted
|
|
|
-
|
|
|
-
|
Expired
|
|
|
(5,525,318)
|
|
|
0.05
|
Cancelled
|
|
|
(5,416,000)
|
|
|
0.08
|
Exercised/settled
|
|
|
-
|
|
|
-
|
Balance as September 30, 2017
|
|
|
6,814,285
|
|
$
|
.05
|
11
The Company’s outstanding warrants at September 30, 2017 are as follows:
Warrants Outstanding
|
|
Warrants Exercisable
|
|
Exercise Price Range
|
|
Number
Outstanding
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
Weighted Average
Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise Price
|
|
Intrinsic Value
|
|
$0.05 - $0.25
|
|
|
6,814,285
|
|
|
0.20
|
|
$
|
0.09
|
|
|
6,814,285
|
|
$
|
0.09
|
|
|
52,000
|
|
NOTE 12 – EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.
Since the Company reflected a net loss for the three and nine months ended September 30, 2017 and 2016, respectively, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive. Therefore, a separate computation of diluted earnings (loss) per share is not presented.
The Company has the following common stock equivalents as of September 30, 2017:
|
|
As of
September 30,
2017
|
Warrants (exercise price $0.05 - $0.25/share)
|
|
|
6,814,285
|
Convertible debt (exercise price $0.20/share)
|
|
|
-
|
|
|
|
6,814,285
|
NOTE 13 – RELATED PARTY TRANSACTIONS
We are headquartered in Scottsdale, Arizona where we rent space from Howard R. Baer, the spouse of a significant shareholder. We previously rented space form Kuboo, Inc., our former parent company. We began renting approximately 2,100 square feet of space from Howard. Baer on a month-to-month basis on July 1, 2017. The monthly rent for our space is about $2,700 (all inclusive). During the nine months ended September 30, 2017 we incurred related party rent expense of $77,477.
During the nine months ended September 30, 2017, the Company received aggregate proceeds of $402,299 from Sandor Capital, a related party and significant shareholder and John Lemak, its affiliate, for which notes were issued. The notes, as extended, mature between November 15, 2017 and December 31, 2017 with some being secured and others unsecured. At September 30, 2017, the Company had accrued interest of $1,195 related to the notes.
During the nine months ended September 30, 2017, Kae Yong Park, a significant shareholder, and her spouse, Howard Baer (collectively, “Park”), advanced an aggregate of $55,250 on an unsecured basis to the Company for short-term capital needs. During this period, the Company also repaid $25,550 of its secured debt to Park and recaptured $110,038 worth of payroll expenses for Park’s use of Company personnel. At September 30, 2017, the Company had a note payable to Park for these advances of $1,334,329 which is secured by the assets of the Company.
During the nine months ended September 30, 2017, the Company incurred expenses of $135,000 related to its consulting contract with Howard Baer, the spouse of Kae Yong Park, our significant shareholder.
On April 13, 2016, the Company agreed to amend the promissory note with Kae Yong Park and Howard R. Baer so as to make $564,000 in principal amount due under said Note interest bearing at the rate of 10% per annum, effective January 1, 2016. The remaining principal is non-interest bearing. During the nine months ended September 30, 2017, the company incurred interest expense of $42,214 related to this note. At September 30, 2017, the Company has accrued interest owed under this agreement of $98,739.
12
NOTE 14 – COMMITMENTS AND CONTINGENCIES
In May 2014, The Company entered into an asset purchase agreement that requires the Company to pay a monthly royalty equal to six percent of gross monthly revenues over $150,000. The royalty payment is payable for a period of thirty-six months from and after the first month in which the Company’s gross revenues are in excess of $150,000.
On June 23, 2014, the Company issued a $500,000 promissory note in conjunction with the purchase of approximately 7,500 cannabis-related internet domain names. The original note bore interest at the rate of 3.25% per annum and was payable as follows: upon the Company’s receipt of an aggregate of $1,000,000 in funding (whether debt or equity), $100,000 was required to be paid. The remaining $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month the Company realizes at least $150,000 in gross revenue.
On July 25, 2014, the Company amended and restated its promissory note in the principal amount of $500,000 owing to Kae Yong Park (the Company’s then majority shareholder) to provide that it would make the first $100,000 installment payment due under the Note on July 25, 2014 (earlier than required), in exchange for which Kae Yong Park agreed to waive all interest due over the term of the note. Thereafter, Kae Yong Park waived the requirement that the Company pay the $100,000 due under the Amended and Restated Note until August 25, 2014, at which time it was paid.
In May 2017, we signed a non-binding memorandum of terms to acquire Crush Mobile, LLC. On August 8, 2017, the company entered into a definitive agreement to acquire all the outstanding membership interests of Crush Mobile. Under the terms of the Agreement, the company will acquire all the outstanding membership interests of Crush Mobile, in exchange for an aggregate of approximately 8 million shares of common stock, plus $85,000 in cash. The Company also agreed to piggy-back registration rights with respect to the shares of common stock issuable to the sellers in connection with the acquisition. Consummation of the Crush Mobile acquisition is subject to completion of the company’s financial due diligence and the Company completing a funding of at least $500,000, which has not yet occurred.
Upon the closing, the Crush Mobile management team will take over our day to day operations, with the Crush Mobile current CEO, Sonya Kreizman, taking over as our interim CEO.
Consummation of the acquisition transaction is subject to a variety of conditions, including our raising $500,000 prior to closing and our financial due diligence. Accordingly, there can be no assurance that this transaction will be consummated.
Subject to the foregoing conditions, the closing is expected to occur before December 31, 2017.
Upon the closing of the Crush Mobile deal, and as part of the Tumbleweed settlement, Tumbleweed shall be issued 500,000 shares of the Company’s common stock. Additionally, if prior to the closing, Tumbleweed raises $250,000 of the $500,000 the Company needs to close, then Tumbleweed shall receive an additional 500,000 shares of the Company’s common stock.
On July 17, 2017, the Company and Tumbleweed settled the litigation relating to the joint venture. As part of the settlement, Tumbleweed converted its $100,000 convertible note and it’s $85,000 joint venture investment into shares of company common stock at a rate of $.10 per share, resulting in a net loss on settlement of $30,750. The warrants issuable to Tumbleweed and the company were cancelled. The parties released each other from all claims related to the joint venture. Following the settlement, the Company wrote down its investment in the joint venture to zero.
NOTE 15 – REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS
The Company identified an error relating to the recognition of warrants not yet received during the year ended December 31, 2016. The effect of error is to increase the net loss for the periods ended September 30, 2016.
In accordance with the guidance provided by the SEC’s Staff Accounting Bulletin 99, Materiality, and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Measurements in Current Year Financial Statements, the Company determined that the impact of the adjustments relating to the correction of this accounting error are not material to previously issued unaudited financial statements. Accordingly, these changes are disclosed herein and will be disclosed prospectively.
13
As a result of the aforementioned correction of accounting errors, the revised prior unaudited financial statements have been revised as follows:
|
|
September 30, 2016
|
|
|
As Previously
|
|
|
|
|
|
As
|
Balance Sheet
|
|
Reported
|
|
|
Adjustments
|
|
|
Revised
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
$
|
104,084
|
|
|
$
|
(104,084)
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
(70,960)
|
|
|
|
70,960
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(2,830,729)
|
|
|
|
(104,084)
|
|
|
|
(2,934,813)
|
|
|
For the Three Months Ended September 30, 2016
|
|
|
As Previously
|
|
|
|
|
|
As
|
Statement of Operations
|
|
Reported
|
|
|
Adjustments
|
|
|
Revised
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on securities
|
|
$
|
(13,141)
|
|
|
$
|
-
|
|
|
$
|
(13,141)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(422,546)
|
|
|
|
-
|
|
|
|
(422,546)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on marketable securities
|
|
|
(182,817)
|
|
|
|
182,817
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
(605,363)
|
|
|
|
(182,817)
|
|
|
|
(422,546)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss-basic and diluted
|
|
|
(0.00)
|
|
|
|
-
|
|
|
|
(0.00)
|
|
|
For the Nine Months Ended September 30, 2016
|
|
|
As Previously
|
|
|
|
|
|
As
|
Statement of Operations
|
|
Reported
|
|
|
Adjustments
|
|
|
Revised
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on securities
|
|
$
|
(313,848)
|
|
|
$
|
(175,044)
|
|
|
$
|
(488,892)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,760,835)
|
|
|
|
(175,044)
|
|
|
|
(1,935,879)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on marketable securities
|
|
|
(70,960)
|
|
|
|
70,960
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
(1,831,795)
|
|
|
|
(104,084)
|
|
|
|
(1,935,879)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss-basic and diluted
|
|
|
(0.02)
|
|
|
|
-
|
|
|
|
(0.02)
|
|
|
For the Nine Months ended September 30, 2016
|
|
|
As Previously
|
|
|
|
|
|
As
|
Statement of Cash Flows
|
|
Reported
|
|
|
Adjustments
|
|
|
Revised
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,760,835)
|
|
|
$
|
(175,044)
|
|
|
$
|
(1,935,879)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on investments
|
|
|
313,848
|
|
|
|
175,044
|
|
|
|
488,892
|
14
NOTE 16 – SUBSEQUENT EVENTS
We have evaluated all events that occurred after the balance sheet date through the date when our financial statements were issued to determine if they must be reported. Management has determined that other than as disclosed below, there were no additional reportable subsequent events to be disclosed.
Loan Advances
Between October 11, 2017 and November 14, 2017, John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, advanced the Company $100,000 to fund business operations.
Warrant Issuances
As previously disclosed in the Company’s Current Report on Form 8-K filed September 20, 2017, since January 1, 2017, John Lemak and Sandor Capital Master Fund (a significant shareholder and affiliate of John Lemak) (together, “Lemak”) have advanced the Registrant an aggregate of $502,299, including an aggregate of $282,000 since June 30, 2017. Lemak has been the Registrant’s primary funding source during 2017. On October 16, 2017, the Company agreed to (i) issue to Sandor Capital warrants to purchase an aggregate of 7 million shares of common stock at an exercise price of $.05 per share for a term of three years (these warrants are in replacement of recently expired warrants for the same number of shares at the same exercise price), (ii) issue to Sandor Capital warrants to purchase an aggregate of 1,130,285 shares of common stock at an exercise price of $.10 per share for a term of three years (416,000 of these warrants are in replacement of recently expired warrants for the same number of shares at an exercise price of $.25 per share and 714,285 of these warrants are in replacement of warrants being cancelled for the same number of shares at an exercise price of $.25 per share), and (iii) issue to Sandor Capital warrants to purchase an aggregate of 2 million shares of common stock at an exercise price of $.05 per share for a term of three years (these warrants are in replacement of warrants being cancelled for the same number of shares at the same exercise price).
Entry into Definitive Agreement
On November 11, 2017, the Company entered into a preliminary agreement ("Preliminary Agreement") to acquire (i) 80% of Westcliff Technologies ("Westcliff"), a company engaged in the business of operating ATM's that dispense Bitcoins, and (ii) 49% of a company to be formed by Westcliff which will is developing its own cryptocurrency (collectively, the "Business").
The Preliminary Agreement contemplates that the Company will acquire the Business in exchange for (i) 18 million shares of Company restricted stock at closing, with a guaranteed value of $36 million on the first anniversary of the closing (as described below), (ii) $3 million to be paid in 36 equal monthly installments of $83,333, commencing on the closing date, and (iii) $3 million of funding at closing, as part of the purchase price, of which half will be invested into each of the companies being acquired.
The Company has agreed, subject to the Business' attainment of milestones to be negotiated, that if the Company's common stock is quoted at less than $2 per share on the twelve month anniversary of the closing, the Company will issue the sellers of the Business that number of additional shares of company common stock, such that the aggregate value of the shares issued to the sellers of the Business will be $36 million (the guaranteed value).
The foregoing transactions are subject to board approval and the negotiation, execution and delivery of definitive agreements. Therefore, there is no assurance that the foregoing transaction will be consummated.
15