NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The interim condensed financial statements included herein, presented in accordance with accounting principles generally accepted in the United States of America (GAAP), have been prepared by the Company, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim condensed financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2016 and notes thereto included in the Company's Annual Report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim periods are not indicative of annual results.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
The Company considers cash and cash equivalents to include all stable, highly liquid investments with an original maturity of three months or less from the date of purchase.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue recognition
Revenue is derived on a per transaction basis through the Companys gateway and payments platforms. The Company also earns revenue for services, account establishment fees and licensure on Software as a Service (SaaS) basis, and on a performance basis, such as when a client acquires a new customer through our platform. Revenue is recognized in accordance with Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. As such, the Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable, and collectability is probable. Sales are recorded net of sales discounts.
Accounts receivable, net
Accounts receivable is reported at the customers outstanding balances, less any allowance for doubtful accounts. An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired.
Property and equipment
Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs that do not improve or extend the lives of the respective assets are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.
7
Depreciation is computed on the straight-line and accelerated methods for financial reporting purposes based upon the following estimated useful lives:
| |
Computer software
|
10 years
|
Computer hardware
|
5 years
|
Office furniture
|
7 years
|
Long-lived assets
The Company accounts for its long-lived assets in accordance with Accounting Standards Codification (ASC) Topic 360-10-05, Accounting for the Impairment or Disposal of Long-Lived Assets (ASC Topic 360-10-05). ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the assets carrying value and fair value or disposable value.
Fair value of financial instruments
We account for non-recurring fair value measurements of our non-financial assets and liabilities in accordance with ASC 820-10 Fair Value Measurement. This guidance defines fair value, establishes a framework for measuring fair value and addresses required disclosures about fair value measurements. This standard establishes a three-level hierarchy for fair value measurements based upon the significant inputs used to determine fair value. Observable inputs are those which are obtained from market participants external to the Company while unobservable inputs are generally developed internally, utilizing managements estimates, assumptions and specific knowledge of the assets/liabilities and related markets. The three levels are defined as follows:
·
Level 1 - Valuation is based on quoted prices in active markets for identical assets and liabilities.
·
Level 2 - Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.
·
Level 3 -Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the companys own estimates about the assumptions that market participants would use to value the asset or liability.
If the only observable inputs are from inactive markets or for transactions which the Company evaluates as distressed, the use of Level 1 inputs should be modified by the company to properly address these factors, or the reliance of such inputs may be limited, with a greater weight attributed to Level 3 inputs.
Due to the short-term nature of our financial assets and liabilities, we consider their carrying amounts to approximate fair value.
Goodwill
The Company accounts for goodwill in accordance with ASC Topic 805-30-25, Accounting for Business Combinations (ASC Topic 805-30-25) and ASC Topic 350-20-35, Accounting for Goodwill - Subsequent Measurement (ASC Topic 350-20-35).
ASC Topic 805-30-25 requires that the acquirer recognize goodwill as of the acquisition date as the excess of the fair value of the consideration transferred over the fair value of the net acquisition-date amounts of the identifiable assets and liabilities assumed.
8
ASC Topic 350-20-35 requires that goodwill acquired in a purchase and determined to have an indefinite useful life is not amortized, but instead tested for impairment annually or more frequently when events or circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. The Companys annual goodwill impairment testing date is December 31 of each year. The Company first assesses qualitative factors to determine whether its necessary to perform the two-step goodwill impairment test. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. If the qualitative assessment results in an indication that its more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative assessment must be performed. Management has determined that the Company has one reporting unit for purposes of testing goodwill.
The quantitative analysis involves estimating the fair value of its reporting unit utilizing a combination of valuation methods including market capitalization, the income approach and cash flows. Income and cash flow forecasts were used in the evaluation of goodwill based on managements estimate of future performance. If goodwill is determined to be impaired as a result of this analysis, an impairment loss is recorded equal to the difference between the assets carrying value and fair value. The Company recorded no impairment to goodwill during the three quarters ended September 30, 2017. Goodwill was fully impaired at December 31, 2016.
Capitalized software development costs
The Company sometimes capitalizes internal software development costs after establishing technological feasibility of a software application. Capitalized software development costs represent the costs associated with the development of the Companys software applications used to generate revenue from our customers. Amortization of such costs is recorded on a software application-by-application basis, based on the greater of the proportion of current year sales to the total of current and estimated future sales for the applications or the straight-line method over the remaining estimated useful life of the software application. The Company continually evaluates the recoverability of capitalized software costs, if any, and charges to operations amounts that are deemed unrecoverable for projects it abandons. The Company had no capitalized software development costs during the three and nine months ended September 30, 2017, and therefore no impairment of such cost for the periods was necessary. The Company recorded impairments to its software development costs of $1,518,328 and $1,561,985 for the three and nine months ended September 30, 2016. Capitalized software development costs were zero at December 31, 2016.
Beneficial Conversion Feature
If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (BCF). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
Debt Discount
The Company determines if the convertible debenture should be accounted for as liability or equity under ASC 480, Liabilities - Distinguishing Liabilities from Equity (ASC 480). ASC 480, applies to certain contracts involving a companys own equity, and requires that issuers classify the following freestanding financial instruments as liabilities. Mandatorily redeemable financial instruments, obligations that require or may require repurchase of the issuers equity shares by transferring assets (e.g., written put options and forward purchase contracts), and certain obligations where at inception the monetary value of the obligation is based solely or predominantly on:
·
A fixed monetary amount known at inception, for example, a payable settleable with a variable number of the issuer
s equity shares with an issuance date fair value equal to a fixed dollar amount,
·
Variations in something other than the fair value of the issuer
s equity shares, for example, a financial instrument indexed to the S&P 500 and settleable with a variable number of the issuer
s equity shares, or
·
Variations inversely related to changes in the fair value of the issuer
s equity shares, for example, a written put that could be net share settled.
9
If the entity determined the instrument meets the guidance under ASC 480, the instrument is accounted for as a liability with a respective debt discount. The Company records debt discounts in connection with raising funds through the issuance of promissory notes (see Notes 8 and 9). These costs are amortized to non-cash interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Stock-based compensation
The Company accounts for stock-based payments to employees in accordance with ASC 718, Stock Compensation (ASC 718). Stock-based payments to employees include grants of stock and grants of stock options that are recognized in the statement of operations based on their fair values at the date of grant.
The Company accounts for stock-based payments to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees (ASC 505-50). Stock-based payments to non-employees include grants of stock, grants of stock options and issuances of warrants that are recognized in the statement of operations based on the value of the vested portion of the award over the requisite service period as measured at its then-current fair value as of each financial reporting date. The Company calculates the fair value of option grants and warrant issuances utilizing the Black-Scholes pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued to employees and non-employees, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term forfeitures is distinct from cancellations or expirations and represents only the unvested portion of the surrendered stock option or warrant.
The Company estimates forfeiture rates for all unvested awards when calculating the expense for the period. In estimating the forfeiture rate, the Company monitors both stock option and warrant exercises as well as employee termination patterns. The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized as compensation under ASC Topic 505-50. In accordance with ASC 505-50, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes option-pricing model, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount that must be paid to acquire the stock.
Loss per share
We report earnings (loss) per share in accordance with ASC Topic 260-10, Earnings per Share. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect. Potential common shares as of September 30, 2017 that have been excluded from the computation of diluted net loss per share were 2,057,500 shares, composed of 400,000 warrants and 1,657,500 options.
Income taxes
The Company accounts for its income taxes under the provisions of Income Taxes (ASC 740). The method of accounting for income taxes under ASC 740 is an asset and liability method. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and liabilities. The Company did not recognize any deferred tax liabilities or assets at December 31, 2016 or during the nine months ended September 30, 2017 or September 30, 2016.
Recent accounting pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Companys financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Companys financials properly reflect the change.
10
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2017-04 Intangibles--Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(ASU 2017-04). This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017.
In January 2017, the FASB issued Accounting Standards Update (ASU)
2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business
(ASU 2017-01), which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under this guidance, when substantially all the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. This guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted.
The Company has evaluated other recent pronouncements and believes that none of them will have a material effect on the companys financial statements.
NOTE 3 - GOING CONCERN
The accompanying unaudited condensed financial statements have been prepared assuming we will continue as a going concern. As shown in the accompanying unaudited condensed financial statements, the Company incurred a net loss of ($359,315) and ($1,794,144) for the three and nine months ended September 30, 2017, respectively, and at September 30, 2017, has an accumulated deficit of ($29,988,116).
To continue as a going concern, the Company may need, among other things, additional capital resources. There are no assurances that without generating new revenue during the remainder of 2017 that the Company will be successful without additional financing. Should revenues not grow sufficiently, and should the Company be unable to secure additional financing through the sale of its securities or debt, it would be unlikely for us to continue as a going concern for one year from the issuance of the financial statements.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These conditions raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty.
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following at:
|
|
|
|
| |
|
September 30,
|
|
December 31,
|
|
2017
|
|
2016
|
|
|
|
|
Due from customers and vendors
|
$
|
126
|
|
$
|
32,913
|
Due from sale of licenses
|
|
15,000
|
|
|
--
|
Due from processing activity
|
|
--
|
|
|
50,000
|
Total accounts receivable, net
|
$
|
15,126
|
|
$
|
82,913
|
11
NOTE 5 - PREPAID EXPENSES AND DEPOSITS
Prepaid expenses and deposits consist of the following at:
|
|
|
|
| |
|
September 30,
|
|
December 31,
|
|
2017
|
|
2016
|
|
|
|
|
Prepaid insurance
|
$
|
10,106
|
|
$
|
46,489
|
Prepaid consulting fees - stock based
|
|
374,272
|
|
|
113,791
|
Other prepaid fees
|
|
2,500
|
|
|
--
|
Deposits
|
|
5,075
|
|
|
--
|
Total prepaid expenses and deposits
|
$
|
391,953
|
|
$
|
160,280
|
NOTE 6 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following at:
|
|
|
|
| |
|
September 30,
|
|
December 31,
|
|
2017
|
|
2016
|
|
|
|
|
Office furniture & equipment
|
$
|
33,225
|
|
$
|
33,225
|
Software
|
|
--
|
|
|
1,200
|
Less: accumulated depreciation
|
|
(22,934)
|
|
|
(20,141)
|
Total property and equipment, net
|
$
|
10,291
|
|
$
|
14,284
|
During the three and nine months ended September 30, 2017, the Company recorded depreciation expense of $1,306 and $3,993, respectively, and during the three and nine months ended September 30, 2016, we recorded depreciation expense of $1,408 and $3,919, respectively.
NOTE 7 - OTHER INTANGIBLE ASSETS, NET
Other intangible assets, net consist of the following at:
|
|
|
|
|
|
|
| |
|
September 30,
|
|
Accumulated
|
|
September 30,
|
|
2017 Gross
|
|
Amortization
|
|
2017 Net
|
|
|
|
|
|
|
License agreements and contracts
|
$
|
75,000
|
|
$
|
(21,250)
|
|
$
|
53,750
|
Domain names
|
|
75,000
|
|
|
(37,500)
|
|
|
37,500
|
Software
|
|
43,500
|
|
|
(4,832)
|
|
|
38,668
|
|
$
|
193,500
|
|
$
|
(63,582)
|
|
$
|
129,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Accumulated
|
|
December 31,
|
|
2016 Gross
|
|
Amortization
|
|
2016 Net
|
|
|
|
|
|
|
|
|
License agreements and contracts
|
$
|
75,000
|
|
$
|
(10,000)
|
|
$
|
65,000
|
Domain names
|
|
75,000
|
|
|
(30,242)
|
|
|
44,758
|
Capitalized software costs
|
|
25,000
|
|
|
-
|
|
|
25,000
|
|
$
|
175,000
|
|
$
|
(40,242)
|
|
$
|
134,758
|
On July 31, 2017, the Company sold an unrestricted license to its payment service provider (PSP) software for a total $30,000 to be paid in 3 tranches. $15,000 was paid in the quarter ended September 30, 2017. A $10,000 payment was made during October 2017 and the remainder will be paid prior to the end of December 31, 2017. In 2016, it was believed that this asset had little to no value as part of the Companys strategy at that time and was fully impaired.
12
On July 18, 2017, the Company agreed to sell its portfolio of merchant accounts for a total of $341,021, and on July 28, 2017, the Buyer paid $238,715 to the Company at closing. The remainder of the purchase price of $102,306 will be released subject to certain performance metrics of the portfolio. Up to half will be released after 18 months, and up to half released after 24 months after Closing.
On February 14, 2017, the Company sold a previously impaired patent license revenue stream pursuant to a License Agreement with goEmerchant, LLC (goEmerchant). The patents which were the subject of the revenue stream expired on or about February 5, 2016. On February 20, 2017, goEmerchant contacted the Company asking for repayment of $54,784 (the Repayment Amount). The Company disputes the amount owed and believes there are additional payment obligations owed from goEmerchant to the Company which more than offsets the Repayment Amount. The Company is reviewing its options to enforce all its rights under the License Agreement and collect any obligations owed to it.
Because of change in management in January 2017 and subsequent change in strategy, on March 3, 2017, the Company sold all the assets associated with Yowza!! for $25,000. The assets were sold to iOT Broadband LLC, an LLC owned by Michael Kelly, a previously reported 5% shareholder of the Companys common stock. Mr. Kelly became a director of the Company on September 13, 2017.
During the three and nine months ended September 30, 2017, the Company recorded amortization expense of $9,793 and $23,340, respectively. Amortization expense for the three and nine months ended September 30, 2016 was $116,758 and $338,518, respectively.
NOTE 8 - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE, NET OF UNAMORTIZED DISCOUNT
During the three months ended March 31, 2017, we entered into three Bridge Note Agreements totaling $46,000 with one of our investors.
The three Bridge Notes were interest free, secured by the Companys assets, convertible to shares of the Companys restricted stock at $0.10 per share and had maturity dates of April 30, 2017. The Bridge Notes also included warrants to purchase two shares of the Companys common stock, at a price of $0.135, for each dollar loaned to Spindle. The total discount attributable to these transactions was $32,716. During the three months ended June 30, 2017, two of these Bridge Notes totaling $31,000 were paid in full through conversion to Spindle stock. The remaining $15,000 Bridge Note was repaid in cash during the three months ended September 30, 2017. In August of 2017, the holder of the Bridge Notes exercised the related warrants for 92,000 shares of restricted common stock at a price of $0.135 per share. During the three and nine months ended September 30, 2017, interest expense related to the warrants and the beneficial conversion feature totaled $0 and $32,716, respectively.
In December 2016, we entered into a $5,000 Bridge Note Agreement with one of our investors. The Bridge Note is secured by the Companys assets and includes warrants to purchase two shares of the Companys common stock for each dollar loaned to Spindle. The total discount attributable to this transaction is $525. During the three and nine months ended September 30, 2017, interest expense related to the warrants and the beneficial conversion feature totaled $0 and $525, respectively. At September 30, 2017, no payments had been made on the $5,000 Bridge Note. The holder of the $5,000 Bridge Note, which was due 45 days from the date of the note, waived the 45-day term.
In August of 2017, the holder of the Note exercised the related warrants for 10,000 shares of restricted common stock at a price of $0.135 per share.
On May 18, 2016, we converted a $182,000 payable to an investor in the Company and entered into a Convertible Promissory Note (Note) with that investor. The Note bears an interest rate of 6% per annum and has a maturity date of May 18, 2018. The total value of the note, if converted to stock, would be $404,444 and therefore a discount in the amount of $182,000 was recorded, as the conversion feature cannot be greater than the amount of the debt. This amount is amortized to interest expense over the term of the note. During the three and nine months ended September 30, 2017, interest expense of $2,525 and $7,494 and interest expense related to amortization of the discount on the unpaid notes of $21,047 and $62,453 was recorded, respectively. The balance of the unamortized discount at September 30, 2017, was $66,021. During the nine months ended September 30, 2017, the Company made no payments to the Notes principal balance. At September 30, 2017, the unpaid balance of the Note was $167,000.
13
On December 15, 2011, we issued a Promissory Grid Note (Grid Note) to a former director of the Company which formalized various advances previously received from the former director in the amount of $51,300 and allowing for future advances at a rate of 2% per annum and recorded a discount in the amount of $10,640. In connection with one of the previous advances in the amount of $25,000, we issued warrants to purchase up to 250,000 shares of our common stock at a price per share of $1.00 resulting in an additional discount of $17,709. The total discount attributable to the Grid Note totaled $28,349 and was amortized to interest expense over the term of the Grid Note. During the three and nine months ended September 30, 2017, the Company repaid $0 and $4,000 of the principal balance of the Grid Note, respectively. During the three and nine months ended September 30, 2016, the Company repaid $0 and $7,500 of the principal balance of the Grid Note, respectively. At September 30, 2017, the balance of the Grid Note was $44,552.
NOTE 9 - CONVERTIBLE NOTES PAYABLE - RELATED PARTY, NET OF UNAMORTIZED DISCOUNT
On March 3, 2017, we entered into an $100,000 Bridge Note Agreement with a stockholder of over 5% of the Company. The Bridge Note was secured by the Companys assets, was convertible to shares of the Companys restricted stock at $0.10 per share and included warrants to purchase two shares of the Companys common stock, at a price of $0.15, for each dollar loaned to Spindle. This Bridge Note had no stated maturity date. The total discount attributable to this transaction was $100,000. The Bridge Note was converted to Spindle stock on March 3, 2017, and interest expense related to the warrants and the beneficial conversion feature totaling $100,000 was recorded. No warrants related to this Bridge Note have been exercised.
In December 2016, we entered into a $10,500 Bridge Note Agreement with one of our directors. The Bridge Note was secured by the Companys assets and included warrants to purchase two shares of the Companys common stock for each dollar loaned to Spindle. The total discount attributable to this transaction was $1,102. During the three and nine months ended September 30, 2017, interest expense related to the warrants and the beneficial conversion factor totaled $0 and $1,102, respectively. At September 30, 2017, the $10,500 Bridge Note had been paid in full. No warrants related to this Bridge Note have been exercised.
On March 25, 2016, we entered into an agreement with a stockholder of over 5% of the Company. This agreement is for a $100,000 promissory note, convertible to stock under certain circumstances. The note bears an interest rate of 6% per annum and has a maturity date of March 25, 2018. The total value of the note, if converted to stock, would be $133,333 and therefore a discount in the amount of $33,333 was recorded. This amount is amortized to interest expense - related party over the term of the note. During the three and nine months ended September 30, 2017, interest expense of $1,512 and $4,488, and interest expense related to amortization of the discount on the unpaid note of $4,201 and $12,466 was recorded, respectively. The balance of the unamortized discount at September 30, 2017 was $8,037.
NOTE 10 - STOCKHOLDERS DEFICIT
The Company is authorized to issue up to 50,000,000 shares of preferred stock, par value $0.001. There are no preferred shares issued or outstanding as of September 30, 2017.
The Company is authorized to issue up to 300,000,000 shares of common stock, par value $0.001. During the three months ended March 31, 2017, the Company:
·
Authorized the issuance of 397,148 shares of common stock for cash proceeds totaling $47,490. 100,000 of these shares were unissued at March 31, 2017.
·
Authorized the issuance of 1,870,000 shares of common stock valued at $187,000 as an incentive to purchase Company assets. At March 31, 2017, 370,000 of these shares were unissued.
·
Authorized the issuance of 1,000,000 shares of common stock to as repayment of debt thru the conversion of a $100,000 note payable.
·
Authorized the issuance of 96,000 shares of common stock to third-party consultants as payment for their services. The estimated fair value of these shares totaled $11,300. At March 31, 2017, 21,000 of these shares were unissued.
14
·
Authorized the issuance of 2,011,508 shares of common stock to Company directors and employees for their services. The estimated fair value of these shares totaled $217,817. At March 31, 2017, 187,000 of these shares were unissued.
During the three months ended June 30, 2017, the Company:
·
Issued 558,000 shares of common stock that were unissued at March 31, 2017.
·
Authorized and issued 815,832 shares of common stock for cash proceeds totaling $110,000.
·
Authorized the issuance of 444,444 shares of common stock to repay a $60,000 cash advance from a former Director of the Company.
·
Authorized the issuance of 700,000 shares of common stock valued at $103,900 for the purchase of software and domain names. At June 30, 2017, 400,000 of these shares with a value of $60,400 are to be returned to the Company and the value is recorded as stock receivable on our balance sheet.
·
Authorized the issuance of 310,000 shares of common stock as repayment of debt thru the conversion of two Bridge Loans payable totaling $31,000.
·
Authorized the issuance of 1,475,669 shares of common stock to third-party consultants and attorneys as payment for their services. The estimated fair value of these shares totaled $258,266. At June 30, 2017, $198,080 of consulting fee value to third parties was recorded as a prepaid expense on the balance sheet. At June 30, 2017, 21,503 of these shares were unissued.
·
Authorized and issued 3,587,482 shares of common stock to Company directors and employees for their services. The estimated fair value of these shares totaled $448,109. At June 30, 2017, 100,000 of these shares were unissued. At June 30, 2017, $316,250 of consulting fee value to a related party was recorded as a prepaid expense on the Balance Sheet.
During the three months ended September 30, 2017, the Company:
·
Issued 121,503 shares of common stock to attorneys and a former director for services provided. These shares were authorized but unissued at June 30, 2017.
·
Authorized the issuance of 6,000 shares of common stock to attorneys as payment for their services. The estimated fair value of these shares totaled $1,000. At September 30, 2017, these shares were unissued.
·
Cancelled 900,000 of common stock due to non-performance of agreements. These shares had a fair value of $142,900 and were returned to the Company as of September 30, 2017.
·
Issued 112,000 shares of common stock with a value of $15,120 to a holder of Company stock warrants upon exercise of such warrants related to certain Bridge Notes Payable and a Security Purchase Agreement.
NOTE 11 - OPTIONS AND WARRANTS
On October 29, 2012, our stockholders approved the 2012 Stock Incentive Plan (the Plan) that governs equity awards to our management, employees, directors and consultants. On November 7, 2013, our stockholders approved an amendment to the Plan which increased the total authorized amount of common stock issuable under the Plan from 3,000,000 to 6,000,000 shares.
Options:
During the three months ended September 30, 2017, the Company granted 100,000 employee options to purchase shares of common stock at an exercise price of $0.15 per share, with grant date fair values of $0.13, and granted 200,000 employee options to purchase shares of common stock at an exercise price of $0.18, with a grant date fair value of $0.156. The options vest ratably on an annual basis over three years, and expire ten years from grant date.
During the three months ended March 31, 2017, the Company granted 690,000 options to employees and consultants to purchase shares of common stock at an exercise price of $0.23 per share, with grant date fair values of $0.05. The options vest ratably on an annual basis over three years, and expire ten years from grant date.
15
|
|
|
|
| |
|
Number of
Options
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-
Average
Remaining
Contractual Life
(in years)
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
2,990,000
|
|
$0.426
|
|
8.10
|
Granted
|
--
|
|
--
|
|
--
|
Exercised
|
--
|
|
--
|
|
--
|
Forfeited/Cancelled
|
(1,442,500)
|
|
--
|
|
--
|
Outstanding at December 31, 2016
|
1,547,500
|
|
$0.357
|
|
7.56
|
Exercisable at December 31, 2016
|
1,431,666
|
|
$0.345
|
|
7.44
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
1,547,500
|
|
$0.357
|
|
7.56
|
Granted
|
990,000
|
|
$0.170
|
|
9.81
|
Exercised
|
--
|
|
--
|
|
--
|
Forfeited/Cancelled
|
(280,000)
|
|
$0.230
|
|
--
|
Outstanding at September 30, 2017
|
2,257,500
|
|
$0.309
|
|
7.66
|
Exercisable at September 30, 2017
|
1,547,500
|
|
$0.357
|
|
6.81
|
Warrants:
In conjunction with the sale of Spindle assets, during the three months ended March 31, 2017, the Company granted common stock purchase warrants that entitle the buyer to purchase 50,000 additional shares of Spindle common stock at a price of $0.135 per share. The holder may exercise his purchase rights at any time up to the third anniversary of the agreement.
In conjunction with the Stock Purchase Agreements in three months ended March 31, 2017 (SPA), the Company granted common stock purchase warrants that entitle the holders to purchase 200,000 additional shares of Spindle common stock at a price of $0.135 per share. The holder may exercise his purchase rights at any time up to the third anniversary of the agreement.
In conjunction with a Stock Purchase Agreements in September 2016, the Company granted common stock purchase warrants that entitle the holder to purchase 35,000 additional shares of Spindle common stock at a price of $0.135 per share. The holder may exercise his purchase rights at any time up to the third anniversary of the agreement. In August 2017, the holder exercised his purchase rights for 10,000 of these shares.
In conjunction with a Bridge Loan Agreement in December 2016, the Company granted common stock purchase warrants that entitle the holder to purchase 10,000 additional shares of Spindle at a price of $0.135 per share. The holder exercised his purchase rights for these 10,000 shares in August of 2017.
In conjunction with the Bridge Loan Agreements in the three months ended March 31, 2017, the Company granted common stock purchase warrants that entitle the holder to purchase 92,000 additional shares of Spindle at a price of $0.135 per share. The holder exercised his purchase rights for these 92,000 shares in August of 2017.
During the three months ended September 30, 2017, the Company granted common stock purchase warrants that entitle the holder to purchase 18,519 shares of the Companys common stock at a price of $0.135 per share. These warrants were issued in relation to a Stock Purchase Agreement dated April 25, 2017, and the holder may exercise his purchase rights at any time up to the third anniversary of the agreement.
16
The following is a summary of the status of the Companys stock warrants as of September 30, 2017:
|
|
|
|
| |
|
Number of
Warrants
|
|
Weighted-
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual Life
(in years)
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
600,000
|
|
$0.500
|
|
1.47
|
Granted
|
883,420
|
|
$0.135
|
|
2.79
|
Exercised
|
--
|
|
--
|
|
--
|
Forfeited/Cancelled
|
(200,000)
|
|
$0.500
|
|
--
|
Outstanding at December 31, 2016
|
1,283,420
|
|
$0.249
|
|
2.99
|
Exercisable at December 31, 2016
|
1,183,420
|
|
$0.228
|
|
3.12
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
1,283,420
|
|
$0.249
|
|
2.99
|
Granted
|
360,519
|
|
$0.135
|
|
2.43
|
Exercised
|
(112,000)
|
|
$0.135
|
|
--
|
Forfeited/Cancelled
|
--
|
|
--
|
|
--
|
Outstanding at September 30, 2017
|
1,531,939
|
|
$0.230
|
|
2.28
|
Exercisable at September 30, 2017
|
1,481,939
|
|
$0.221
|
|
2.48
|
NOTE 12 - SUBSEQUENT EVENTS
On October 2, 2017, the Company entered into a binding term sheet whereby the Company would acquire all the shares of a privately held payments processing company. As part of this transaction, certain management of the target company would join the Company as the CEO and CTO upon closing. The binding term sheet will expire on December 31, 2017.
On October 2, 2017, we entered into a $15,000 Bridge Note Agreement with one of our investors. The Bridge Note is interest free, secured by Company assets, convertible to shares of the Companys restricted stock at $0.10 per share and has a maturity date of April 2, 2018.
On October 17, 2017, we entered into a convertible promissory note with a director of the Company. The principal amount of the Convertible Note is $103,000 and matures on October 17, 2018. The Convertible Note accrues interest at the rate of ten percent (10%) per annum. The Convertible Note may be prepaid by the Company with various redemption premiums applicable depending on when the Company prepays the principal balance. The Convertible Note is convertible into shares of the Companys common stock at a conversion price of thirty-five (35%) discount to the lowest trading price during the previous twenty trading days to the date of a notice of conversion. The Convertible Note is convertible, at the Holders election, only after 180 days after issuance.
On October 23, 2017, the Company received a $10,000 payment for an installment of the amount due for the PSP software code described in the Overview section of the MD&A section of this Form 10-Q.
On October 24, 2017, the Company issued 112,000 previously authorized shares of restricted common stock upon receipt of funds for the exercise of warrants attached to various bridge notes with one of our investors.
On November 13, 2017, the Company issued 50,000 shares of restricted common stock priced at $0.10 per share as a conversion of a $5,000 advance from one of our former directors.
17
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following table presents certain supplemental cash flow information:
|
|
|
|
| |
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
Supplemental disclosure
|
|
|
|
Cash paid for interest
|
$
|
1,442
|
|
$
|
1,147
|
Cash paid for income taxes
|
|
--
|
|
|
--
|
Accounts receivable reduced due to sale of assets
|
|
(1,656)
|
|
|
--
|
Increase in prepaid due to prepaid share-based compensation
|
|
(445,580)
|
|
|
70,000
|
Shares issued for purchase of software
|
|
(43,500)
|
|
|
--
|
Shares issued to settle accrued liabilities
|
|
(266,300)
|
|
|
--
|
Shares issued to settle accrued liabilities - related party
|
|
(30,747)
|
|
|
--
|
Repayment of advance in shares
|
|
(12,000)
|
|
|
--
|
Notes payable reclassified from convertible notes payable
|
|
(5,000)
|
|
|
--
|
Convertible notes payable reclassified from notes payable
|
|
5,000
|
|
|
--
|
Repayment of notes payable related party in lieu of shares
|
|
(31,000)
|
|
|
--
|
Initial BCF credited to paid-in-capital
|
|
(34,343)
|
|
|
--
|
Repayment of convertible note payable - related party in lieu of shares
|
|
(100,000)
|
|
|
--
|
Discount on notes payable reclassified to discount on notes payable - related party
|
|
(100,000)
|
|
|
--
|
Cancellation of shares issued for services
|
|
(142,900)
|
|
|
--
|
Shares returned for legal services
|
|
--
|
|
|
(1,595,000)
|
Conversion of advances to notes payable
|
$
|
--
|
|
$
|
282,000
|
18