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.
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.
F- 5
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)
|
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)
|
F- 6
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.
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
|
F- 7
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.
Between December 1, 2016 and March 16, 2017, the Company received aggregate proceeds of $101,299 from John Lemak, an affiliate of a 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.
F- 8
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.
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
|
|
$
|
-
|
F- 9
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
|
|
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.
F- 10
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.
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.
F- 11
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.
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 )
|
F- 12
|
|
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
|
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.
F- 13
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.
F-14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors Northsight Capital, Inc.
We have audited the accompanying balance sheets of Northsight Capital, Inc. (“the Company”) as of December 31, 2016 and 2015, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two year period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Northsight Capital, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered net losses since inception and has accumulated a significant deficit. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sadler, Gibb & Associates, LLC
Sadler, Gibb & Associates, LLC
Salt Lake City, UT
April 17, 2017
F-15
NORTHSIGHT CAPITAL, INC.
BALANCE SHEETS
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
14,405
|
|
$
|
22,951
|
Advances – related party, net
|
|
|
-
|
|
|
-
|
Accounts Receivable
|
|
|
-
|
|
|
400
|
Total Current Assets
|
|
|
14,405
|
|
|
23,351
|
|
|
|
|
|
|
|
Deposits
|
|
|
-
|
|
|
131,000
|
Property and equipment, net $9,763 and $5,617 depreciation
|
|
|
2,675
|
|
|
6,821
|
Web Development Costs, net $134,949 and $73,833 amortization
|
|
|
176,963
|
|
|
249,329
|
Investment in joint venture
|
|
|
17,361
|
|
|
-
|
Total Assets
|
|
$
|
211,404
|
|
$
|
410,501
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
340,805
|
|
$
|
384,631
|
Accounts payable and accrued expenses – related party
|
|
|
704,997
|
|
|
173,942
|
Notes payable – related party
|
|
|
1,542,217
|
|
|
949,307
|
Notes payable
|
|
|
79,900
|
|
|
79,900
|
Convertible notes payable
|
|
|
100,000
|
|
|
-
|
Total Current Liabilities
|
|
|
2,767,919
|
|
|
1,587,780
|
|
|
|
|
|
|
|
Noncurrent Liabilities
|
|
|
|
|
|
|
Notes payable – related party, net of current portion
|
|
|
400,000
|
|
|
400,000
|
Total Liabilities
|
|
|
3,167,919
|
|
|
1,987,780
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
Common stock - 200,000,000 shares authorized having a par value of $.001 per share; 112,836,581 and 112,761,581 shares issued and outstanding as of December 31, 2016 and 2015, respectively
|
|
|
112,837
|
|
|
112,762
|
Subscription payable
|
|
|
62,000
|
|
|
62,000
|
Additional paid-in capital
|
|
|
17,552,058
|
|
|
16,966,288
|
Accumulated deficit
|
|
|
(20,683,410)
|
|
|
(18,718,329)
|
Total Stockholders' Deficit
|
|
|
(2,956,515)
|
|
|
(1,577,279)
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
211,404
|
|
$
|
410,501
|
See accompanying notes to financial statements.
F-16
NORTHSIGHT CAPITAL, INC.
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
For The Years Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
15,680
|
|
$
|
13,393
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
General administrative
|
|
|
488,116
|
|
|
1,582,021
|
Settlement expense
|
|
|
-
|
|
|
82,000
|
Consulting expense - related party
|
|
|
180,000
|
|
|
265,993
|
Executive compensation
|
|
|
282,594
|
|
|
1,830,124
|
Professional fees
|
|
|
212,815
|
|
|
332,172
|
Rent - related party
|
|
|
134,400
|
|
|
103,000
|
Travel
|
|
|
2,327
|
|
|
19,780
|
Total operating expenses
|
|
|
1,300,252
|
|
|
4,215,090
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,284,572)
|
|
|
(4,201,697)
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
Loss on investments
|
|
|
(475,751)
|
|
|
-
|
Loss from equity investment
|
|
|
(10,695)
|
|
|
-
|
Interest expense
|
|
|
(63,063)
|
|
|
(3,766,145)
|
Loss on deposit
|
|
|
(131,000)
|
|
|
-
|
Total other income (expenses)
|
|
|
(680,509)
|
|
|
(3,766,145)
|
|
|
|
|
|
|
|
Net Loss Before Income Taxes
|
|
|
(1,965,081)
|
|
|
(7,977,842)
|
|
|
|
|
|
|
|
Income tax
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Net Loss After Income Taxes
|
|
$
|
(1,965,081)
|
|
$
|
(7,977,842)
|
|
|
|
|
|
|
|
Weighted Average Number of Common Shares
|
|
|
|
|
|
|
Outstanding - Basic and Diluted
|
|
112,818,088
|
|
107,987,931
|
Loss per Common Share - Basic and Diluted
|
|
$
|
(0.02)
|
|
$
|
(0.07)
|
See accompanying notes to financial statements.
F-17
NORTHSIGHT CAPITAL, INC.
STATEMENTS OF CASH FLOWS
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,965,081)
|
|
$
|
(7,977,872)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
4,146
|
|
|
4,145
|
Amortization of web development costs
|
|
|
72,366
|
|
|
62,583
|
Amortization of debt discounts
|
|
|
-
|
|
|
71,832
|
Stock issued for release
|
|
|
-
|
|
|
82,000
|
Stock issued for executive compensation
|
|
|
-
|
|
|
1,282,500
|
Stock issued pursuant to contracts
|
|
|
-
|
|
|
502,800
|
Stock issued for settlement of employment contract
|
|
|
-
|
|
|
208,000
|
Stock issued for advertising incentive
|
|
|
-
|
|
|
750
|
Loss on deposit
|
|
|
131,000
|
|
|
-
|
Warrants issued for executive compensation
|
|
|
102,594
|
|
|
54,156
|
Warrants issued for debt issue costs
|
|
|
-
|
|
|
3,702,272
|
Loss on investments
|
|
|
475,751
|
|
|
-
|
Loss from equity investment
|
|
|
10,695
|
|
|
-
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
-
|
|
|
31,500
|
Web development costs
|
|
|
-
|
|
|
16,000
|
Accounts receivable
|
|
|
400
|
|
|
(400)
|
Accounts payable and accrued expenses
|
|
|
(36,326)
|
|
|
349,992
|
Accounts payable - related party
|
|
|
531,055
|
|
|
124,266
|
Net Cash Used In Operating Activities
|
|
|
(673,400)
|
|
|
(1,485,446)
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
Investment in joint venture
|
|
|
(28,056)
|
|
|
-
|
Net Cash Used In Investing Activities
|
|
|
(28,056)
|
|
|
-
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
Proceeds from sale of common stock, net of offering costs
|
|
|
-
|
|
|
465,500
|
Proceeds from notes payable
|
|
|
-
|
|
|
79,900
|
Proceeds from convertible notes payable
|
|
|
100,000
|
|
|
-
|
Proceeds from notes payable – related party
|
|
|
656,600
|
|
|
1,112,407
|
Payments on notes payable – related party
|
|
|
(63,690)
|
|
|
(170,100)
|
Net Cash Provided by Financing Activities
|
|
|
692,910
|
|
|
1,487,707
|
Net (Decrease) Increase In Cash
|
|
|
(8,546)
|
|
|
2,261
|
Cash, Beginning of Period
|
|
|
22,951
|
|
|
20,690
|
Cash, End of Period
|
|
$
|
14,405
|
|
$
|
22,951
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
158
|
|
$
|
-
|
Cash paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
Non-Cash Activities
|
|
|
|
|
|
|
Issuance of common stock for investment
|
|
$
|
-
|
|
$
|
131,000
|
Issuance of common stock in conjunction with debt agreements
|
|
$
|
-
|
|
$
|
64,934
|
Issuance of warrants in conjunction with debt agreements
|
|
$
|
-
|
|
$
|
6,898
|
Finder’s fees settled with stock
|
|
$
|
-
|
|
$
|
16,449
|
Issuance of common stock as settlement of obligations
|
|
$
|
7,500
|
|
$
|
-
|
See accompanying notes to financial statements.
F-18
NORTHSIGHT CAPITAL, INC.
STATEMENT OF STOCKHOLDER’S DEFICIT
|
|
Additional
|
|
|
|
|
Common Stock
|
Paid-in
|
Subscription
|
Accumulated
|
|
|
Shares
|
Amount
|
Capital
|
Receivable
|
Deficit
|
Total
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
104,019,196
|
$ 104,019
|
$ 10,536,221
|
$ -
|
$ (10,740,487)
|
$ (100,247)
|
|
|
|
|
|
|
|
Common stock sold, net offering costs
|
2,781,285
|
2,782
|
462,718
|
-
|
-
|
465,500
|
Warrants issued as compensation
|
-
|
-
|
54,156
|
-
|
-
|
54,156
|
Warrants issued in conjunction with debt agreements
|
-
|
-
|
3,709,170
|
-
|
-
|
3,709,170
|
Common stock issued in conjunction with debt agreements
|
1,549,000
|
1,549
|
63,385
|
-
|
-
|
64,934
|
Common stock issued as advertising incentive
|
3,000
|
3
|
747
|
-
|
-
|
750
|
Common stock issued for release
|
200,000
|
200
|
19,800
|
62,000
|
-
|
82,000
|
Common stock issued for compensation
|
1,000,000
|
1,000
|
1,281,500
|
-
|
-
|
1,282,500
|
Common stock issued for consulting
|
1,440,000
|
1,440
|
501,360
|
-
|
-
|
502,800
|
Common stock issued for letter of intent
|
100,000
|
100
|
130,900
|
-
|
-
|
131,000
|
Common stock issued for settlement employment contract
|
1,600,000
|
1,600
|
206,400
|
-
|
-
|
208,000
|
Finders Fees settled with stock
|
69,000
|
69
|
(69)
|
-
|
-
|
-
|
Net loss for the year ended December 31, 2015
|
-
|
-
|
-
|
-
|
(7,977,842)
|
(7,977,842)
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
112,761,581
|
$ 112,762
|
$ 16,966,288
|
$ 62,000
|
$ (18,718,329)
|
$ (1,577,279)
|
|
|
|
|
|
|
|
Common stock issued for settlement of obligations
|
75,000
|
75
|
7,425
|
-
|
-
|
7,500
|
Warrants issued as compensation
|
-
|
-
|
102,594
|
-
|
-
|
102,594
|
Warrants issued in conjunction with joint venture
|
-
|
-
|
475,751
|
-
|
-
|
475,751
|
Net loss for the year ended December 31, 2016
|
-
|
-
|
-
|
-
|
(1,965,081)
|
(1,965,081)
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
112,836,581
|
$ 112,837
|
$ 17,552,058
|
$ 62,000
|
$ (20,683,410)
|
$ (2,956,515)
|
See accompanying notes to financial statements.
F-19
NORTHSIGHT CAPITAL, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Northsight Capital Inc. (“Northsight” or “the Company”) was 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 7500 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, our EVP of Operations and a director, is also a director of Kuboo, Inc. See Note 17 - 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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, allowance for doubtful accounts and valuations of intangible assets, among others. Actual results could differ from those estimates.
Risk and Uncertainties
The Company operates in an industry that is subject to rapid change and intense competition. The Company’s operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase and money market accounts to be cash equivalents. As of December 31, 2016 and 2015, the Company had no cash equivalents and all cash amounts consisted of cash on deposit.
Stock-Based Compensation
Share-based compensation awards, including stock options and restricted stock awards, are recorded at estimated fair value on the awards’ grant date, based on estimated number of awards that are expected to vest. The grant date fair value is amortized on a straight-line basis over the time in which the awards are expected to vest, or immediately if no vesting is required. Share-based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the fair value of the share-based payments whichever is more readily determinable. The fair value of restricted stock awards is based on the fair value of the stock underlying the awards on the grant date as there is no exercise price.
F-20
The fair value of stock options is estimated using the Black-Scholes option-pricing model. The determination of the fair value of each stock award using this option-pricing model is affected by our assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards and the expected term of the awards based on an analysis of the actual and projected employee stock option exercise behaviors and the contractual term of the awards. We recognize stock-based compensation expense over the requisite service period, which is generally consistent with the vesting of the awards, based on the estimated fair value of all stock-based payments issued to employees and directors that are expected to vest.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of various payments that the Company has made in advance for goods or services to be received in the future. These prepaid expenses include service contracts paid in advance.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable represents obligations from customers that are subject to normal collection terms and are recorded at the invoiced amount, net of any allowance for doubtful accounts, and do not typically bear interest. The Company assesses the collectability of the accounts by taking into consideration the aging of accounts receivable, changes in customer credit worthiness, general market and economic conditions, and historical experience. Bad debt expenses are recorded as part of selling, general and administrative expenses in the statements of operations. The Company writes off the receivable balance against the allowance when management determines a balance is uncollectible. At December 31, 2016, the Company has recorded a full allowance of $34,204 against its receivable balance due to the uncertainty of its collectability.
Property and Equipment/Web Development Costs
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the respective assets or, in the case of leasehold improvements, the remaining lease term, if shorter. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are removed and the resulting gains or losses are recorded as part of other income or expense in the statements of operations. Repairs and maintenance costs are expensed as incurred.
The estimated useful lives of the property and equipment are as follows:
Property and Equipment
|
|
Estimated Useful Life
|
Furniture, fixtures and equipment
|
|
3 years
|
Web development costs
|
|
5 years
|
Investment in joint Venture
The Company’s ownership of the joint venture company is accounted for under the equity method of accounting, in accordance with ASC 323. Under the equity method of accounting, an Investee Company’s accounts are not reflected within the Company’s Balance Sheets and Statements of Operations; however, the Company’s share of the earnings or losses of the Investee Company is reflected as a gain or loss on the Company’s investment. Additionally, under the equity method of accounting, the Company’s initial investment in the joint venture company was recorded at the historic cost basis of the contributed domain of $0. Accordingly, the Company expensed $475,751 related to the value of warrants the Company issued and is included as a component of loss on investments in the Company’s Statements of Operations.
When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s financial statements unless the Company guaranteed obligations of the Investee Company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized. On disposal of investments in joint ventures and associated companies, the difference between disposal proceeds and the carrying amounts of the investments are recognized in profit or loss.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable. When indicators of impairment exist, an estimate of undiscounted future cash flows is used in measuring whether the carrying amount of the asset or related asset group is recoverable. Measurement of the amount of impairment, if any, is based upon the difference between the asset's carrying value and estimated fair value.
F-21
Revenue Recognition
Revenue is recognized when all of the following criteria are met:
Persuasive evidence of an arrangement exists. Evidence of an arrangement consists of an order from the Company’s distributors, resellers or customers.
Delivery has occurred. Delivery is deemed to have occurred when title and risk of loss has transferred, either upon shipment of products to customers or upon delivery.
The fee is fixed or determinable. The Company assesses whether the fee is fixed or determinable based on the terms associated with the transaction.
Collection is reasonably assured. The Company assesses collectability based on credit analysis and payment history.
Revenue for adds sold is recognized upon delivery of the advertising or is amortized over the time period the advertisement runs using the straight-line method if the advertising contract spans multiple periods.
Advertising and Promotion
Advertising and promotion expenses include digital and print advertising, trade show events, endorsements and sponsorships, and promotional giveaways. Advertising costs are expensed as incurred unless they cover a specific period of time, in which case they are amortized over the service period. Advertising costs of $328 and $81,568 were incurred for the years ended December 31, 2016 and 2015, respectively.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Company records interest and penalties related to unrecognized tax benefits in income tax expense. There were no interest or penalties related to unrecognized tax benefits for the years ended December 31, 2016 and 2015.
Fair Value of Financial Instruments
The fair values of the Company’s assets and liabilities that qualify as financial instruments under FASB ASC Topic 825, “Financial Instruments,” approximate their carrying amounts presented in the accompanying financial statements at December 31, 2016 and 2015.
Loss Contingencies
The Company recognizes contingent losses that are both probable and estimable. In this context, the Company defines probability as circumstances under which events are likely to occur. In regards to legal costs, we record such costs as incurred.
Earnings per Share Policy
The Company complies with the accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share incorporates the dilutive effect of common stock equivalents on an average basis during the period.
The calculation of diluted net loss per share excludes all warrants as of December 31, 2016 and 2015, since their effect is anti-dilutive.
F-22
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption
NOTE 3 – LIQUIDITY/GOING CONCERN
The Company has accumulated losses of $20,683,410 and has sustained 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 year ended December 31, 2016, the Company raised gross proceeds of $100,000 from non-related parties and $656,600 from related parties in capital through the issuance of notes payable. Management plans to (i) raise additional capital as soon as possible, to fund continued operations of the Company and (ii) eventually to generate profits from operations.
In the event the Company does not generate sufficient funds from operations or financing through the issuance of its common stock or from debt financing, the Company will be unable to 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 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 had been developing an online dating service around the URL, www.jointlovers.com. Per the Joint Venture Agreement, the Company and TW own 60% and 40% respectively of equity of the joint venture company. Under the joint venture agreement, the Company and TW agreed as follows:
The Company contributed the URL www.jointlovers.com to the joint venture entity, in exchange for 60% of the joint venture company.
TW contributed $30,000 and agreed to contribute an additional $70,000 towards the development of the online web portal, in exchange for 40% of the joint venture company. With any additional funds required for development to be contributed 60% by the Company and 40% by TW.
Revenue from the joint venture company will be shared proportionally with a portion of operating income to be used to repay principal and income due under the convertible notes referenced below (up to $500,000 in principal amount of notes).
TW agreed to purchase an aggregate of $150,000 in principal amount of convertible notes, convertible into shares of the Company’s common stock at a conversion price of $.20 per share. In addition to repayment of principal, if the joint venture company has revenues, the notes are entitled to receive a portion of the joint venture company’s operating income until they have received an amount equal to 50% of the face value of the notes.
During the year ended December 31, 2016, Tumbleweed contributed a total of $85,000 to the joint venture company.
Additionally, both parties agreed to issue the other a warrant to purchase 4.9% of their outstanding common stock. Pursuant to this agreement, TW agreed to issue a warrant to the Company to purchase 9,770,878 shares of its common stock at an exercise price of $0.02 per share, and the Company agreed to issue a warrant to TW to purchase 5,525,318 shares of the Company’s common stock at an exercise price of $0.08 per share, valued at $475,751. The warrants have a three-year term and a cashless exercise right (see Note 6 – Securities and Note 13 – Stock Warrants for details). As of the date of these financial statements, TW has not yet issued the warrants due to the Company. Therefore, the Company has not yet recorded their value on its balance sheet.
F-23
The Company’s ownership of the joint venture company is accounted for under the equity method of accounting, in accordance with ASC 323. Under the equity method of accounting, an Investee Company’s accounts are not reflected within the Company’s Balance Sheets and Statements of Operations; however, the Company’s share of the earnings or losses of the Investee Company is reflected as a gain or loss on the Company’s investment. Additionally, under the equity method of accounting, the Company’s initial investment in the joint venture company was recorded at the historic cost basis of the contributed domain of $0. Accordingly, the Company expensed $475,751 related to the value of warrants the Company issued and is included as a component of loss on investments in the Company’s Statements of Operations.
When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s financial statements unless the Company guaranteed obligations of the Investee Company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized. During the year ended December 31, 2016, the joint venture company experienced a net loss attributable to the Company’s 60% ownership of $10,695 which is included on the company’s statements of operations.
As of December 31, 2016, Tumbleweed was in default under the terms of the joint venture agreement and owed the joint venture company the remaining $15,000 in development funding and the Company $50,000 for the final note purchase, both of which were due by April 29, 2016. Additionally, Tumbleweed owes the joint venture company $18,904, representing its 40% share of costs in excess of the first $100,000. The Company instituted litigation with TW, seeking to compel TW to comply with its funding obligations under the Joint Venture Agreement.
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. TW seeks damages in the amount to be determined at trial. The Company believes these claims are without merit and intends to vigorously defend itself against them.
Summary balance sheet information on the joint venture for at December 31, 2016 and 2015 is as follows:
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
(unaudited)
|
|
(unaudited)
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Accounts Receivable – Related Party
|
|
$
|
33,704
|
|
$
|
-
|
Total Current Assets
|
|
|
33,704
|
|
|
-
|
|
|
|
|
|
|
|
Web Development Costs
|
|
|
128,936
|
|
|
-
|
Total Assets
|
|
$
|
162,640
|
|
$
|
-
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable – related party
|
|
$
|
34,204
|
|
$
|
-
|
Total Current Liabilities
|
|
|
33,704
|
|
|
-
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
Common stock
|
|
|
1
|
|
|
-
|
Additional paid-in capital
|
|
|
146,560
|
|
|
-
|
Accumulated deficit
|
|
|
(18,125)
|
|
|
-
|
Total Stockholders' Equity
|
|
|
128,436
|
|
|
-
|
Total Liabilities and Stockholders' Equity
|
|
$
|
162,640
|
|
$
|
-
|
F-24
Summary revenue information on the joint venture for the years ended December 31, 2016 and 2015 is as follows:
|
For the Years Ended
|
|
December 31, 2016
|
|
December 31, 2015
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
Revenues
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
General administrative
|
|
14,525
|
|
|
-
|
Rent - related party
|
|
3,600
|
|
|
-
|
Total operating expenses
|
|
18,125
|
|
|
-
|
|
|
|
|
|
|
Loss from operations
|
|
(18,125)
|
|
|
-
|
|
|
|
|
|
|
Net Loss
|
$
|
(18,125)
|
|
$
|
-
|
|
|
|
|
|
|
Company Share of Net Loss
|
$
|
(10,695)
|
|
$
|
-
|
NOTE 5 – ADVANCES – RELATED PARTY
With the formation of the Company’s joint venture (see Note 4 – Investment in Joint Venture), Tumbleweed Holdings agreed to fund one hundred percent of the first $100,000 of web development costs related to the web site www.jointlovers.com. During the year ended December 31, 2016, the Joint Venture Company incurred costs totaling $128,936 related to the development of jointlovers.com as well as $18,125 in general and administrative costs. Per the Joint Venture Agreement, the Company is responsible for 60% of all costs after the initial $100,000, representing a total share of $28,056 in the joint venture’s costs. During this same period, the company paid costs totaling $62,260 on behalf of the Joint Venture Company satisfying the Company’s share of $28,056 while the excess $34,204 is due to the Company. Due to the uncertainty of collectability, the Company has recorded an allowance for bad debt equaling the amount due.
NOTE 6 – SECURITIES
In conjunction with the formation of the joint venture discussed in Note 4, Tumbleweed Holdings agreed to issue the Company a warrant to purchase up to 9,770,878 shares of Tumbleweed Holdings, Inc. at an exercise price of $0.02 with an expiration date three years from the date of issuance. At December 31, 2016, Tumbleweed had not yet issued these warrants to the Company. The Company will record the value of these warrants on its balance sheet once they are received.
NOTE 7 – WEB DEVELOPMENT COSTS AND DOMAIN NAMES ASSETS
In accordance with ASC 350-50, during the years ended December 31, 2016 and 2015, the Company did not capitalize any costs incurred towards the development of various websites, including a website 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. The Company recorded website development expenses of $25,184 and $79,205 which is included in general and administrative expenses during the years ended December 31, 2016 and 2015, respectively.
The Company amortizes web development costs over their related useful lives (approximately 1 to 5 years), using a straight-line basis. Fair value is determined through various valuation techniques, including market and income approaches as considered necessary. The Company recorded amortization of $72,366 and 62,583 during the years ended December 31, 2016 and 2015, respectively.
|
|
As of December 31, 2016
|
|
As of December 31, 2015
|
|
Amortization Period
|
Web development costs
|
|
|
311,912
|
|
|
327,912
|
|
5 years
|
Less: recapture of costs
|
|
|
-
|
|
|
(16,000)
|
|
|
Less: accumulated depreciation
|
|
|
(134,949)
|
|
|
(62,583)
|
|
|
|
|
$
|
176,963
|
|
$
|
249,329
|
|
|
F-25
NOTE 8 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2016 and 2015:
|
|
As of December 31, 2016
|
|
As of December 31, 2015
|
|
Estimated Useful Life
|
Furniture and equipment
|
|
|
12,438
|
|
|
12,438
|
|
3 years
|
Total
|
|
|
10,996
|
|
|
10,996
|
|
|
Less: accumulated depreciation
|
|
|
(9,763)
|
|
|
(5,617)
|
|
|
|
|
$
|
2,675
|
|
$
|
6,821
|
|
|
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 $4,146 and $4,145 during the years ended December 31, 2016 and 2015, respectively.
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES RELATED PARTY
At December 31, 2016, the Company had a balance in related party accounts payable and accrued expenses of $704,997 which consisted of the following:
Party Name:
|
Relationship:
|
|
|
Amount
|
Howard Baer
|
Spouse of significant shareholder
|
Consulting fees
|
$
|
270,500
|
Howard Baer
|
Spouse of significant shareholder
|
Accrued Interest
|
|
56,555
|
John Venners
|
Director/EVP, President and CEO of Kuboo, Inc.
|
Consulting fees
|
|
233,466
|
John Venners
|
Director/EVP, President and CEO of Kuboo, Inc.
|
Advances
|
|
3,000
|
Kuboo, Inc.
|
Former parent company, significant shareholder
|
Rent
|
|
141,476
|
|
|
|
$
|
704,997
|
NOTE 10 – 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.
On April 13, 2016, the Company agreed to amend the promissory note so as to make $564,000 in principal amount due under said Note interest bearing at the rate of 10% per annum. At December 31, 2016, the Company had accrued interest under this note of $56,555.
During the year ended December 31, 2016, Park advanced an aggregate of $594,050 to the Company for short-term capital needs. During this period the Company repaid $63,690 of its secured debt to Park. Park assigned $65,000 of debt owed to her by the Company to another investor who received a replacement note from the Company to evidence the debt. At December 31, 2016, the Company had a note payable to Park for these advances of $1,414,667 which is secured by the assets of the Company. Because this debt is payable on demand, the company has classified it as a current liability.
On May 11, 2016, Kae Park, a significant shareholder, assigned $65,000 of debt owed to her by the Company to an investor who is a significant shareholder. The investor received a one-year note from the Company to evidence the debt. 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. See Note 4 – Investment in Joint Venture.
F-26
The following table summarizes the Company’s balance for these advances for the year ended December 31, 2016:
Amount due - December 31, 2015
|
$
|
949,307
|
Advances received from Park
|
|
594,050
|
Debt assigned to investor
|
|
(65,000)
|
Repayments made to Park
|
|
(63,690)
|
Balance due – December 31, 2016
|
$
|
1,414,667
|
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 15 - 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.
Between December 1, 2016 and December 30, 2016, the company received proceeds of $62,550 from a related party and significant shareholder for which a note was issued bearing 8% interest annually. The notes, as extended, mature on August 1, 2017 and are unsecured. At December 31, 2016, the company had accrued interest of $125 related to the notes.
NOTE 11 – 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 December 31, 2016, these notes have not yet been repaid and principal and interest totaling $38,032 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 and has a security interest over the domain www.jointlovers.com. 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 December 31, 2016, these notes have not yet been repaid and principal and interest totaling $48,325 is in default.
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 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. As December 31, 2016, the proceeds from the third note investment of $50,000 had not been received.
F-27
Dilutive shares associated with convertible notes outstanding at December 31, 2016 is as follows:
|
Principal
|
|
Shares
|
Note dated February 29, 2016, convertible at $0.20 per share
|
$
|
50,000
|
|
|
250,000
|
Note dated April 8, 2016, convertible at $0.20 per share
|
|
50,000
|
|
|
250,000
|
Total Dilutive shares –December 31, 2016
|
$
|
100,000
|
|
|
500,000
|
The following table summarizes the Company’s notes and convertible notes payable for the year ended December 31, 2016:
|
Notes
|
|
Convertible
Notes
|
Balance – December 31, 2015
|
$
|
79,900
|
|
$
|
-
|
Note proceeds received
|
|
-
|
|
|
100,000
|
Repayments on notes
|
|
-
|
|
|
-
|
Balance –December 31, 2016
|
$
|
79,900
|
|
$
|
100,000
|
NOTE 12 - EQUITY
Between January 5 and October 26, 2015, the Company sold 2,781,285 shares of its common stock for $484,500 in gross cash proceeds. The Company incurred a finder’s fees of $34,950, which the company has satisfied as follows: $18,500 in cash, $16,450 through the issuance of 69,100 shares of common stock.
On February 12, 2015, the Company issued 3,000 shares of its common stock valued at $750 as an advertising incentive, the value of which has been recorded against revenue in the Company’s statements of operations.
Between July 1 and August 10, 2015, the Company issued an aggregate 1,549,000 shares of its common stock valued at $64,934 in conjunction with debt agreements.
Between August 20 and November 30, 2015, the Company issued an aggregate 1,440,000 shares of its common stock valued at $502,800 for services pursuant to multiple contracts.
On January 1 and April 1, 2015, the Company issued 250,000 shares of common stock valued at $252,500 and $230,000, respectively, to its then Chief Executive Officer, John Bluher, pursuant to his employment letter.
On July 15, 2015, the Company issued 1,000,000 shares of its common stock valued at $800,000 to its then Chief Executive Officer, William Lupo, pursuant to his employment letter. Upon Mr. Lupo’s resignation on September 15, 2015, a separation agreement was signed in which he agreed to return 500,000 of these shares to the Company. The Company subsequently received the shares on November 19, 2015.
On July 1, 2015, the Company issued 100,000 shares of its common stock valued at $131,000 as consideration for an exclusive option to acquire the web portal LaMarihuana.com, subject to satisfaction of conditions.
On September 16, 2015, in conjunction with John Bluher’s resignation as President, the Company issued 1,600,000 shares of its common stock, valued at $208,000, as payment in full of all amounts due Mr. Bluher under his employment letter.
On October 9, 2015, the Company issued 200,000 shares of common stock valued at $20,000 as settlement of a contract dispute.
During the year ended December 31, 2015, without admitting any responsibility, the Company agreed in principle to issue 400,000 shares of common stock valued at $62,000 as settlement of legal proceedings, the value of which is included in Subscription payable on the Company’s Balance Sheet at December 31, 2015, pending execution of a definitive agreement. The Settlement Agreement was executed in November, 2016 and the 400,000 shares were issued.
On March 30, 2016, the Company issued 75,000 shares of common stock as settlement of a contract obligation to a vendor valued at $7,500.
F-28
NOTE 13 – STOCK WARRANTS
On May 15, 2015, the Company entered into an agreement to grant to a lender a two year warrant to purchase 2,000,000 shares of the Company’s stock at $0.05 per share in conjunction with a sixty-day loan taken out by the Company’s then majority shareholder, Kae Yong Park, and her spouse, Howard Baer; a significant portion of these loan proceeds were advanced by Park/Baer to the Company to fund operations. The note to Park and Baer commenced on May 15th with an initial term of sixty days with an automatic thirty-day extension, if not paid in full by the maturity date. The Company had agreed that, if the note were automatically extended, it would grant an additional warrant to purchase 1,000,000 shares of the Company’s stock (on the same terms as the original warrant) as consideration for the extension. On July 15, 2015, the Company issued an additional 1,000,000 warrants in consideration for the thirty-day extension. On August 5, 2015, October 3, 2015 and December 5, 2015 the Company issued three additional warrants, respectively, to purchase 2,000,000 shares of common stock, in each case as consideration for additional sixty (60) day extensions on the debt agreement. These warrants have been expensed as interest.
The Company 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. The fair value at the commitment date for the above warrants were based upon the following management assumptions:
On July 1, 2015, the Company issued three year warrants to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.25 per share in conjunction with debt agreements (see Note 11 – Notes Payable).
Between September 29, 2015 and October 27, 2015, the Company issued two year warrants to purchase an aggregate 1,130,285 shares of the Company’s common stock, at an exercise price of $0.25 per share, in conjunction with equity sales.
On October 21, 2015, the Company issued two year warrants to John Hollister, Interim CEO, to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.09 per share in conjunction with his employment contract. These warrants were valued at $32,250 using the Black-Scholes pricing model and were fully vested upon issuance.
On December 31, 2015, the Company issued two year warrants to John Hollister, Interim CEO, to purchase 375,000 shares of the Company’s common stock at an exercise price of $0.09 per share in conjunction with his employment contract. These warrants were valued at $19,906 using the Black-Scholes pricing model and were fully vested upon issuance.
On February 29, 2016, in conjunction with the Company’s joint venture agreement (see Note 4 – Investment in Joint Venture), the company agreed to issue a warrant to purchase 5,525,318 shares of the Company’s common stock at an exercise price of $0.08 per share. These warrants were valued at $475,751 using the Black-Scholes pricing model, were fully vested upon issuance and have a cashless exercise provision.
On March 31, 2016, the Company issued two year warrants to John Hollister, Interim CEO, to purchase 375,000 shares of the Company’s common stock at an exercise price of $0.09 per share in conjunction with his employment contract. These warrants were valued at $33,236 using the Black-Scholes pricing model and were fully vested upon issuance.
On June 30, 2016, the Company issued two year warrants to John Hollister, Interim CEO, to purchase 375,000 shares of the Company’s common stock at an exercise price of $0.09 per share in conjunction with his employment contract. These warrants were valued at $29,720 using the Black-Scholes pricing model and were fully vested upon issuance.
On September 30, 2016, the Company issued two year warrants to John Hollister, Interim CEO, to purchase 375,000 shares of the Company’s common stock at an exercise price of $0.09 per share in conjunction with his employment contract. These warrants were valued at $39,638 using the Black-Scholes pricing model and were fully vested upon issuance.
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. The fair value at the commitment date for the above warrants were based upon the following management assumptions:
|
|
Commitment Date
|
Expected dividends
|
|
|
0%
|
Expected volatility
|
|
|
163% - 177%
|
Expected term:
|
|
|
2 - 3 years
|
Risk free interest rate
|
|
|
0.55% – 1.06%
|
F-29
A summary of the Company’s warrant activity for the year ended December 31, 2016 is as follows:
|
|
|
|
|
|
|
Number of
Warrants
|
|
Weighted Average
Exercise Price
|
Outstanding – December 31, 2015
|
|
11,105,285
|
|
$
|
0.08
|
Granted
|
|
6,650,318
|
|
|
0.08
|
Exercised/settled
|
|
-
|
|
|
-
|
Balance as December 31, 2016
|
|
17,755,603
|
|
$
|
0.08
|
The Company’s outstanding warrants at December 31, 2016 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
|
|
|
|
17,755,603
|
|
|
1.2
|
|
$
|
0.08
|
|
|
17,755,603
|
|
$
|
0.08
|
|
|
1,208,468
|
The weighted average fair value per warrant issued during the year ended December 31, 2016 was $0.09.
NOTE 14 – 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 years ended December 31, 2016 and 2015, 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 at December 31, 2016 and 2015, respectively:
|
|
As of
December 31,
2016
|
|
As of
December 31,
2015
|
Warrants (exercise price $0.05 - $0.25/share)
|
|
|
17,755,603
|
|
|
11,105,285
|
Convertible debt (exercise price $0.20/share)
|
|
|
500,000
|
|
|
-
|
|
|
|
18,255,603
|
|
|
11,105,285
|
NOTE 15 – 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 (see Note 17 - Related Party Transactions).
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.
F-30
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.
On August 7, 2015, Lee Ori ("Plaintiff") instituted a legal action in Missouri against us, Wealthcorp, LLC, Winterwalk Capital, LLC, Christopher S. Walkup ("Walkup"), Marshall P. Winters and Paradigm Healthcare Solutions, LLC. The complaint alleged that (i) Walkup represented to the Plaintiff that he had the right to subscribe to shares of our common stock at a per share price of $.25 and (ii) that Walkup was the Company’s agent and individually and in such alleged agency capacity offered to sell Plaintiff an aggregate of 1,075,000 shares of company common stock for a total purchase price of $425,000. The Complaint alleges that we are liable to the Plaintiff for the acts and omissions of Walkup, based on the allegation that he was our agent. The complaint seeks from us and Walkup (1) 1,075,000 shares of our common stock and (2) money damages in the amount of $425,000.
Without admitting any responsibility, the Company and the Plaintiff have settled the matter. Under the settlement agreement, the Company agreed to issue 400,000 restricted shares of common stock valued at $62,000 to the Plaintiff as consideration for the settlement. These shares are being issued after the date of these financial statements. In addition, the Company has agreed to issue an additional 275,000 shares as liquidated damages if it breaches a certain material representation to be included in the settlement agreement.
The Company will value these if and when the shares become issuable.
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 seeks 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. TW seeks damages in the amount to be determined at trial. The Company believes these claims are without merit and intends to vigorously defend itself against them.
NOTE 16 – INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due. Deferred taxes relate to differences between the basis of assets and liabilities for financial and income tax reporting which will be either taxable or deductible when the assets or liabilities are recovered or settled.
At December 31, 2016 and 2015, the Company had net operating loss (“NOL”) carry-forwards for federal and state income purposes approximating $5,434,137 and $4,333,812, respectively. These losses are available for future years and expire through 2034. Pursuant to Internal Revenue Code Section 382, utilization of these losses may be severely or completely limited due to more than 50% ownership changes in 2014, 2011 and 2010.
F-31
The deferred tax asset at December 31, 2016 and 2015 is summarized as follows:
Income Tax Footnote
|
|
12/31/2016
|
|
12/31/2015
|
Cumulative NOL
|
$
|
(5633,041)
|
$
|
(4,333,812)
|
|
|
|
|
|
Deferred Tax assets:
|
|
|
|
|
(34% Federal, 7% Avg. Corp. Rate)
|
|
|
|
|
Net operating loss carry forwards
|
|
(8,473,442)
|
|
(7,668,510)
|
Stock/options issued for services
|
|
5,312,555
|
|
5,270,524
|
Stock/options issued for release
|
|
415,621
|
|
415,621
|
Depreciation and amortization
|
|
93,322
|
|
61,977
|
Impairment expense
|
|
144,913
|
|
144,913
|
Unrealized losses on investment
|
|
199,287
|
|
-
|
Valuation allowance
|
|
2,307,744
|
|
1,775,475
|
|
$
|
-
|
$
|
-
|
The Company has taken a 100% valuation allowance against the deferred asset attributable to the NOL carry-forwards of approximately $2,307,744 and $1,775,000 at December 31, 2016 and
2015
, respectively, due to the uncertainty of realizing the future tax benefits. The increase in valuation allowance of approximately $532,000 is primarily attributable to the Company’s net operating loss during the year ended December 31, 2016.
The components of the income tax provision for the years ended December 31, 2016 and 2015 are as follows:
|
|
2016
|
|
2015
|
Book income (loss) from operations
|
$
|
(804,932)
|
$
|
(3,268,362)
|
Stock/options issued for services
|
|
42,031
|
|
2,355,856
|
Stock/options issued for release
|
|
-
|
|
33,594
|
Depreciation and amortization
|
|
31,345
|
|
56,765
|
Unrealized losses on investment
|
|
199,287
|
|
-
|
Change in valuation allowance
|
|
532,269
|
|
822,147
|
|
$
|
-
|
$
|
-
|
NOTE 17 – RELATED PARTY TRANSACTIONS
Effective May 2, 2014, the Company entered into an asset purchase agreement with Kae Park (the “Seller”), who became a related party upon the closing of the acquisition, which occurred on June 23, 2014.
Under this agreement, the Company agreed to acquire approximately 7,500 cannabis related Internet domain names, in exchange for which, the Company:
(a)
Issued to the Seller on the closing date 78.5 million shares of the Company’s restricted common stock which represented approximately 81% of the Company’s issued and outstanding common stock upon the closing;
(b)
Issued to the Seller a promissory note in the principal amount of $500,000. The note originally 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 to be paid, and the Company was required to pay the remaining balance of $400,000 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; and
(c)
Is obligated to pay a monthly royalty to the Seller equal to the product of (i) six percent (6%) and (ii) the excess of the Company’s gross monthly revenue over $150,000 (“Royalty Payment”). The Royalty Payment is payable for a period of thirty-six months from and after the first month in which the Company has gross revenues in excess of $150,000.
On July 25, 2014, the Company amended and restated the promissory note 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 point such $100,000 was paid.
F-32
In addition, the Seller was required to provide such consulting services as the Company may require during the twelve-month period following the closing of the acquisition. In consideration for these services, the Company was required to pay the Seller $9,500 per month, for a period of twelve months, commencing on the closing date and, on the first of each month thereafter.
We are headquartered in Scottsdale, Arizona where we rent space from Kuboo Inc. our former parent company and a significant shareholder. Currently, the Company is renting approximately 6,100 square feet of space on a month-to-month basis. The monthly rent for this facility is $11,500. During the year ended December 31, 2016 the company incurred expenses payable to Kuboo, Inc. of $138,000 for rent and allocated rent expenses of $3,600 to the Joint Venture Company.
During the year ended December 31, 2016, Kae Yong Park, a significant shareholder, and her spouse, Howard Baer, advanced an aggregate of $594,050 to the Company for short-term capital needs. During this period, the Company also repaid $63,690 of its secured debt to Park. Additionally, on May 11, 2016, Park assigned $65,000 of debt owed to her by the Company to another investor for which the Company issued the investor a one-year replacement note for $65,000. At December 31, 2016, the Company had a note payable to Park for these advances of $1,414,667 which is secured by the assets of the Company.
During the year ended December 31, 2016, the Company incurred expenses of $180,000 related to its consulting contract with Howard Baer, the spouse of Kae Yong Park, a significant shareholder.
During the year ended December 31, 2016, the Company received funds related to its joint venture of $85,000 and spent cash on behalf of its joint venture totaling $147,261. During this period, the Company’s 60% share of the joint venture’s expenses were $127,356. The remaining $34,204 is due from the Joint Venture Company, and is included in advances – related party.
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. At December 31, 2016, the Company has accrued interest owed under this agreement of $56,555.
NOTE 18 – 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.
Capital Activity
Since December 31, 2016, Kae Yong Park, a significant shareholder, and her spouse, Howard R. Baer, have made additional advances to the Company of $36,400, have received repayments of $7,550, and have credited $35,938 against the amount due them, in exchange for the use of Company personnel, leaving a balance due of $1,407,579 at April 17, 2017. These advances are secured by certain Company assets, including all of its internet domain names, websites and related assets, non-interest bearing and payable on demand.
Equity Transactions
On January 10, 2017, the Company issued 400,000 previously accrued shares of the Company’s commons stock as settlement of its lawsuit with Lee Ori (see Note 15 – Commitments and Contingencies).
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.
F-33
CRUSH MOBILE, LLC
BALANCE SHEETS
(unaudited)
|
|
September 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
13,883
|
|
$
|
6,071
|
Total Current Assets
|
|
|
13,883
|
|
|
6,071
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
13,883
|
|
$
|
6,071
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS' DEFICIT
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,314
|
|
$
|
7,419
|
Total Current Liabilities
|
|
|
2,314
|
|
|
7,419
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
|
|
|
|
Notes payable – related party
|
|
|
325,000
|
|
|
300,000
|
Total Long Term Liabilities
|
|
|
325,000
|
|
|
300,000
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
327,314
|
|
|
307,419
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Members’ Deficit
|
|
|
|
|
|
|
Members’ equity
|
|
|
1,447,756
|
|
|
1,447,756
|
Accumulated deficit
|
|
|
(1,761,187)
|
|
|
(1,749,104)
|
Total Members' Deficit
|
|
|
(313,431)
|
|
|
(301,348)
|
Total Liabilities and Members' Deficit
|
|
$
|
13,883
|
|
$
|
6,071
|
See accompanying notes to financial statements.
F-34
CRUSH MOBILE, LLC
STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
|
|
|
|
|
|
For The Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
167,550
|
|
$
|
59,330
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
Advertising and promotion
|
|
|
200
|
|
|
105,162
|
IT services
|
|
|
162,519
|
|
|
311,415
|
General and administrative
|
|
|
8,095
|
|
|
161,513
|
Professional fees
|
|
|
8,819
|
|
|
34,573
|
Rent – related party
|
|
|
-
|
|
|
14,245
|
Travel
|
|
|
-
|
|
|
35
|
Total operating expenses
|
|
|
179,633
|
|
|
626,943
|
|
|
|
|
|
|
|
Net Loss Before Income Taxes
|
|
|
(12,083)
|
|
|
(576,613)
|
|
|
|
|
|
|
|
Income tax
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Net Loss After Income Taxes
|
|
$
|
(12,083)
|
|
$
|
(576,613)
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-35
CRUSH MOBILE, LLC
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,083)
|
|
$
|
(567,613)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
2,000
|
Accounts payable and accrued expenses
|
|
|
(5,105)
|
|
|
(34,250)
|
Net Cash Used In Operating Activities
|
|
|
(17,188)
|
|
|
(599,863)
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
Proceeds from shareholder equity contributions
|
|
|
-
|
|
|
300,000
|
Proceeds from notes payable – related party
|
|
|
25,000
|
|
|
260,000
|
Net Cash Provided by Financing Activities
|
|
|
25,000
|
|
|
560,000
|
Net Increase (Decrease) In Cash
|
|
|
7,812
|
|
|
(39,863)
|
Cash, Beginning of Period
|
|
|
6,071
|
|
|
46,413
|
Cash, End of Period
|
|
$
|
13,883
|
|
$
|
6,550
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
$
|
-
|
Cash paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
See accompanying notes to financial statements.
F-36
CRUSH MOBILE, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 1 – ORGANIZATION
Crush Mobile, LLC (“the Company”) was formed in the State of Delaware on April 8, 2014. The Company’s principal business is to provide an online platform to help singles find love through demographically targeted apps for iPhone and Android platforms for specific audiences such as Jewish, Latino and African American.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Risk and Uncertainties
The Company operates in an industry that is subject to rapid change and intense competition. The Company’s operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase and money market accounts to be cash equivalents. As of September 30, 2017 and December 31, 2016, the Company had no cash equivalents and all cash amounts consisted of cash on deposit.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable represents obligations from customers that are subject to normal collection terms and are recorded at the invoiced amount, net of any allowance for doubtful accounts, and do not typically bear interest. The Company assesses the collectability of the accounts by taking into consideration the aging of accounts receivable, changes in customer credit worthiness, general market and economic conditions, and historical experience. Bad debt expenses are recorded as part of selling, general and administrative expenses in the statements of operations. The Company writes off the receivable balance against the allowance when management determines a balance is uncollectible. At September 30, 2017 and December 31, 2016, the Company had no receivables.
Revenue Recognition
Revenue is recognized when all of the following criteria are met:
Persuasive evidence of an arrangement exists. Evidence of an arrangement consists of an order from the Company’s distributors, resellers or customers.
Delivery has occurred. Delivery is deemed to have occurred when title and risk of loss has transferred, either upon shipment of products to customers or upon delivery.
The fee is fixed or determinable. The Company assesses whether the fee is fixed or determinable based on the terms associated with the transaction.
Collection is reasonably assured. The Company assesses collectability based on credit analysis and payment history.
Revenue for adds sold is recognized upon delivery of the advertising or is amortized over the time period the advertisement runs using the straight-line method if the advertising contract spans multiple periods.
F- 37
Fair Value of Financial Instruments
The fair values of the Company’s assets and liabilities that qualify as financial instruments under FASB ASC Topic 825, “Financial Instruments,” approximate their carrying amounts presented in the accompanying financial statements at September 30, 2017 and December 31, 2016.
Loss Contingencies
The Company recognizes contingent losses that are both probable and estimable. In this context, the Company defines probability as circumstances under which events are likely to occur. In regards to legal costs, we record such costs as incurred.
Income Taxes
The Company has elected to be treated as a limited liability company for income tax purposes. Accordingly, taxable income and losses of the Company are reported on the income tax returns of the Company’s members, and no provision for federal income taxes has been recorded on the accompanying consolidated financial statements.
The Company follows guidance that prescribes a morelikelythannot measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return. If taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the members rather than the Company. Accordingly, there would be no effect on the Company’s consolidated financial statements.
Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. No interest or penalties have been assessed from the Company’s inception through December 31, 2016. The Company’s information returns for the tax years subject to examination by tax authorities included 2014 through the current year for state and federal tax reporting purposes.
Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The cash balance at times may exceed federally insured limits. Management believes the financial risk associated with these balances is minimal and has not experienced any losses to date. At September 30, 2017 and December 31, 2016, Company did not have any cash balances in excess of FDIC insured limits.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption
NOTE 3 – LIQUIDITY/GOING CONCERN
The Company has accumulated losses of $1,761,187 and has sustained negative cash flows from operating activities since inception. 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 issued $25,000 in debt to a related party to fund its operations. Management plans to (i) raise additional capital as soon as possible, to fund continued operations of the Company and (ii) eventually to generate profits 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.
F- 38
NOTE 4 – NOTES PAYABLE RELATED PARTY
On April 30, 2016, the Company issued a $50,000 promissory note to Ed Murphy, a member and related party. The note is non-interest bearing and has no specific maturity date. As of December 31, 2016, this note had not been repaid and the full principal amount is outstanding.
During the year ended December 31, 2016, the Company issued an aggregate $250,000 in promissory notes to Itay Koren, a member and related party. The notes are non-interest bearing and have no specific maturity date. As of December 31, 2016, these notes had not been repaid and the full principal amount is outstanding.
During the period ended September 30, 2017, the Company issued an aggregate $25,000 in promissory notes to 17 Media Group, LLC, a related party majority owned by Itay Koren. The notes are non-interest bearing and have no specific maturity date. As of September 30, 2017, these notes had not been repaid and the full principal amount is outstanding.
NOTE 5 – MEMBERS’ EQUITY
During the nine months ended September 30, 2016, the Company received an aggregate $100,000 in equity contributions from Itay Koren, a member and related party.
On February 29, 2016, the Company received $150,000 from an investor, as payment for an equity interest in the company.
On February 8, 2016, the Company received $50,000 from an investor, as payment for an equity interest in the company.
NOTE 6 – RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2016, the Company rented office space from Intercom Media, which is partially owned by Itay Koren, a member and related party. During the year ended December 31, 2016 the company incurred expenses payable to Intercom Media of $12,895.
During the nine months ended September 30, 2016, the Company received an aggregate $100,000 in equity contributions from Itay Koren, a member and related party.
NOTE 7 – 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.
Debt Activity
Subsequent to September 30, 2017, the company issued an aggregate $55,000 in debt agreements to a related party.
Business Transactions
On January 8, 2018, the Company’s members completed the sale of the Company to Northsight Capital, Inc (“Northsight”).
The Company and its members received an aggregate of 7,904,000 shares of common stock in Northsight as follows: (i) 4,904,000 shares to the Company’s members and (ii) 3,000,000 shares to certain creditors (who are also members) in full satisfaction of $300,000 of indebtedness owed to them by the Company. In addition, within one year of the closing, (i) certain members will receive cash for their interests and (ii) Northsight will pay $85,000 in cash to an affiliate of Itay Koren in satisfaction of indebtedness owed by the company to such affiliate.
F-39
CRUSH MOBILE
BALANCE SHEETS
(unaudited)
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
6,071
|
|
$
|
46,413
|
Accounts Receivable
|
|
|
-
|
|
|
2,000
|
Total Current Assets
|
|
|
6,071
|
|
|
48,413
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
6,071
|
|
$
|
48,413
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS' DEFICIT
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
7,419
|
|
$
|
44,374
|
Total Current Liabilities
|
|
|
7,419
|
|
|
44,374
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
|
|
|
|
Notes payable – related party
|
|
|
300,000
|
|
|
-
|
Total Long Term Liabilities
|
|
|
300,000
|
|
|
-
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
307,419
|
|
|
44,374
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members’ Deficit
|
|
|
|
|
|
|
Members’ equity
|
|
|
1,447,756
|
|
|
1,147,756
|
Accumulated deficit
|
|
|
(1,749,104)
|
|
|
(1,143,717)
|
Total Members’ (Deficit) Equity
|
|
|
(301,348)
|
|
|
4,039
|
Total Liabilities and Members’ Deficit
|
|
$
|
6,071
|
|
$
|
48,413
|
See accompanying notes to financial statements.
F-40
CRUSH MOBILE, LLC
STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
|
|
|
|
|
|
For The Years Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
76,903
|
|
$
|
22,883
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
Advertising and promotion
|
|
|
105,362
|
|
|
144,770
|
IT services
|
|
|
344,347
|
|
|
506,102
|
General and administrative
|
|
|
169,866
|
|
|
163,263
|
Professional fees
|
|
|
48,435
|
|
|
107,726
|
Rent – related party
|
|
|
14,245
|
|
|
75,015
|
Travel
|
|
|
35
|
|
|
5,964
|
Total operating expenses
|
|
|
682,290
|
|
|
1,002,840
|
|
|
|
|
|
|
|
Net Loss Before Income Taxes
|
|
|
(605,387)
|
|
|
(979,957)
|
|
|
|
|
|
|
|
Income tax
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Net Loss After Income Taxes
|
|
$
|
(605,387)
|
|
$
|
(979,957)
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-41
CRUSH MOBILE, LLC
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Years Ended December 31,
|
|
|
2016
|
|
2015
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(605,387)
|
|
$
|
(979,957)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
|
2,000
|
|
|
(2,000)
|
Accounts payable and accrued expenses
|
|
|
(36,955)
|
|
|
8,147
|
Net Cash Used In Operating Activities
|
|
|
(640,342)
|
|
|
(973,810)
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
Proceeds from shareholder equity contributions
|
|
|
300,000
|
|
|
900,000
|
Proceeds from notes payable – related party
|
|
|
300,000
|
|
|
-
|
Net Cash Provided by Financing Activities
|
|
|
600,000
|
|
|
900,000
|
Net Increase (Decrease) In Cash
|
|
|
(42,342)
|
|
|
(73,810)
|
Cash, Beginning of Period
|
|
|
46,413
|
|
|
120,223
|
Cash, End of Period
|
|
$
|
6,071
|
|
$
|
46,413
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
$
|
-
|
Cash paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
See accompanying notes to financial statements.
F-42
CRUSH MOBILE, LLC
STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)
|
|
Members’ Equity
|
|
|
Accumulated Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
$
|
247,756
|
|
$
|
(163,760)
|
|
$
|
83,996
|
|
|
|
|
|
|
|
|
|
Shareholder equity contributions
|
|
900,000
|
|
|
-
|
|
|
900,000
|
Net loss for the year ended December 31, 2015
|
|
-
|
|
|
(979,957)
|
|
|
(979,957)
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
$
|
1,147,756
|
|
$
|
(1,143,717)
|
|
$
|
4,039
|
|
|
|
|
|
|
|
|
|
Shareholder equity contributions
|
|
300,000
|
|
|
-
|
|
|
300,000
|
Net loss for the year ended December 31, 2016
|
|
-
|
|
|
(605,387)
|
|
|
(605,387)
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
$
|
1,447,756
|
|
$
|
(1,749,104)
|
|
$
|
(301,348)
|
See accompanying notes to financial statements.
F-43
CRUSH MOBILE, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2016
NOTE 1 – ORGANIZATION
Crush Mobile, LLC (“the Company”) was formed in the State of Delaware on April 8, 2014. The Company’s principal business is to provide an online platform to help singles find love through demographically targeted apps for iPhone and Android platforms for specific audiences such as Jewish, Latino and African American.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, allowance for doubtful accounts, among others. Actual results could differ from those estimates.
Risk and Uncertainties
The Company operates in an industry that is subject to rapid change and intense competition. The Company’s operations are subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase and money market accounts to be cash equivalents. As of December 31, 2016 and 2015, the Company had no cash equivalents and all cash amounts consisted of cash on deposit.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable represents obligations from customers that are subject to normal collection terms and are recorded at the invoiced amount, net of any allowance for doubtful accounts, and do not typically bear interest. The Company assesses the collectability of the accounts by taking into consideration the aging of accounts receivable, changes in customer credit worthiness, general market and economic conditions, and historical experience. Bad debt expenses are recorded as part of selling, general and administrative expenses in the statements of operations. The Company writes off the receivable balance against the allowance when management determines a balance is uncollectible. At December 31, 2016 and 2015 the Company has determined that all receivable balances are fully collectible and, accordingly, no allowance for doubtful accounts has been recorded.
Revenue Recognition
Revenue is recognized when all of the following criteria are met:
Persuasive evidence of an arrangement exists. Evidence of an arrangement consists of an order from the Company’s distributors, resellers or customers.
Delivery has occurred. Delivery is deemed to have occurred when title and risk of loss has transferred, either upon shipment of products to customers or upon delivery.
The fee is fixed or determinable. The Company assesses whether the fee is fixed or determinable based on the terms associated with the transaction.
Collection is reasonably assured. The Company assesses collectability based on credit analysis and payment history.
F- 44
Revenue for adds sold is recognized upon delivery of the advertising or is amortized over the time period the advertisement runs using the straight-line method if the advertising contract spans multiple periods.
Income Taxes
The Company has elected to be treated as a limited liability company for income tax purposes. Accordingly, taxable income and losses of the Company are reported on the income tax returns of the Company’s members, and no provision for federal income taxes has been recorded on the accompanying consolidated financial statements.
The Company follows guidance that prescribes a morelikelythannot measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return. If taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the members rather than the Company. Accordingly, there would be no effect on the Company’s consolidated financial statements.
Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. No interest or penalties have been assessed from the Company’s inception through December 31, 2016. The Company’s information returns for the tax years subject to examination by tax authorities included 2014 through the current year for state and federal tax reporting purposes.
Fair Value of Financial Instruments
The fair values of the Company’s assets and liabilities that qualify as financial instruments under FASB ASC Topic 825, “Financial Instruments,” approximate their carrying amounts presented in the accompanying financial statements at December 31, 2016 and 2015.
Loss Contingencies
The Company recognizes contingent losses that are both probable and estimable. In this context, the Company defines probability as circumstances under which events are likely to occur. In regard to legal costs, we record such costs as incurred.
Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The cash balance at times may exceed federally insured limits. Management believes the financial risk associated with these balances is minimal and has not experienced any losses to date. At December 31, 2016 and 2017, Company did not have any cash balances in excess of FDIC insured limits.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption
NOTE 3 – LIQUIDITY/GOING CONCERN
The Company has accumulated losses of $1,749,104 and has sustained negative cash flows from operating activities since inception. 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 year ended December 31, 2016, the Company raised gross proceeds of $300,000 from owner contributions, and issued $300,000 in debt to fund its operations. Management plans to (i) raise additional capital as soon as possible, to fund continued operations of the Company and (ii) eventually to generate profits 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.
F- 45
NOTE 4 – NOTES PAYABLE RELATED PARTY
On April 30, 2016, the Company issued a $50,000 promissory note to Ed Murphy, a member and related party. The note is non-interest bearing and has no specific maturity date. As of December 31, 2016, this note had not been repaid and the full principal amount is outstanding.
Between April 30, and November 1, 2016, the Company issued an aggregate $250,000 in promissory notes to Itay Koren, a member and related party. The notes are non-interest bearing and have no specific maturity date. As of December 31, 2016, these notes had not been repaid and the full principal amount is outstanding.
NOTE 5 – MEMBERS’ EQUITY
During the year ended December 31, 2015, the Company received an aggregate $500,000 from an investor, as payment for an equity interest in the company.
During the year ended December 31, 2015, the Company received an aggregate $400,000 in equity contributions from Itay Koren, a member and related party.
During the year ended December 31, 2016, the Company received an aggregate $100,000 in equity contributions from Itay Koren, a member and related party.
On February 29, 2016, the Company received $150,000 from an investor, as payment for an equity interest in the company.
On February 8, 2016, the Company received $50,000 from an investor, as payment for an equity interest in the company.
NOTE 6 – RELATED PARTY TRANSACTIONS
During the year ended December 31, 2015, the Company rented office space from Redwood Growth Capital, which is partially owned by Itay Koren, a member and related party. During the year ended December 31, 2015 the company incurred expenses to Redwood Growth Capital of $6,733.
During the year ended December 31, 2015, the Company rented office space from Intercom Media, which is partially owned by Itay Koren, a member and related party. During the year ended December 31, 2015 the company incurred expenses to Intercom Media of $48,861.
During the year ended December 31, 2015, the Company received an aggregate $400,000 in equity contributions from Itay Koren, a member and related party.
During the year ended December 31, 2016, the Company rented office space from Intercom Media, which is partially owned by Itay Koren, a member and related party. During the year ended December 31, 2016 the company incurred expenses payable to Intercom Media of $12,895.
During the year ended December 31, 2016, the Company received an aggregate $100,000 in equity contributions from Itay Koren, a member and related party.
NOTE 7 – 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.
Debt Activity
Subsequent to December 31, 2016, the company issued an aggregate $80,000 in debt agreements to a related party.
F- 46
Business Transactions
On January 8, 2018, the Company’s members completed the sale of the Company to Northsight Capital, Inc (“Northsight”).
The Company and its members received an aggregate of 7,904,000 shares of common stock in Northsight as follows: (i) 4,904,000 shares to the Company’s members and (ii) 3,000,000 shares to certain creditors (who are also members) in full satisfaction of $300,000 of indebtedness owed to them by the Company. In addition, within one year of the closing, (i) certain members will receive cash for their interests and (ii) Northsight will pay $85,000 in cash to an affiliate of Itay Koren in satisfaction of indebtedness owed by the company to such affiliate.
F-47
NORTHSIGHT CAPITAL, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 2017
|
|
Northsight
Capital,
Inc.
|
|
|
Crush
Mobile,
LLC
|
|
|
Combined
Before
Pro
Forma
Adjustments
|
|
|
Pro Forma
Adjustments
|
|
|
Northsight
Capital,
Inc.
Pro Forma
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
97
|
|
|
$
|
13,883
|
|
|
$
|
13,980
|
|
|
$
|
-
|
|
|
$
|
13,980
|
Total current assets
|
|
|
97
|
|
|
|
13,883
|
|
|
|
13,980
|
|
|
|
-
|
|
|
|
13,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Crush Mobile
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
382,512
|
(a)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(382,512)
|
(c)
|
|
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
459,650
|
(c)
|
|
|
459,650
|
Property and equipment – net
|
|
|
227
|
|
|
|
-
|
|
|
|
277
|
|
|
|
-
|
|
|
|
277
|
Web development costs - net
|
|
|
122,689
|
|
|
|
-
|
|
|
|
122,689
|
|
|
|
-
|
|
|
|
122,689
|
Total assets
|
|
$
|
123,013
|
|
|
$
|
13,883
|
|
|
$
|
136,896
|
|
|
$
|
459,650
|
|
|
$
|
596,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
228,191
|
|
|
$
|
2,314
|
|
|
$
|
230,505
|
|
|
$
|
-
|
|
|
$
|
230,505
|
Accounts payable and accrued expenses – related party
|
|
|
841,876
|
|
|
|
-
|
|
|
|
841,876
|
|
|
|
-
|
|
|
|
841,876
|
Notes payable – related party
|
|
|
1,872,265
|
|
|
|
-
|
|
|
|
1,872,265
|
|
|
|
-
|
|
|
|
1,872,265
|
Notes payable
|
|
|
79,900
|
|
|
|
-
|
|
|
|
79,900
|
|
|
|
-
|
|
|
|
79,900
|
Total Current Liabilities
|
|
|
3,022,232
|
|
|
|
2,314
|
|
|
|
3,024,546
|
|
|
|
|
|
|
|
3,024,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable – related party
|
|
|
400,000
|
|
|
|
325,000
|
|
|
|
725,000
|
|
|
|
(300,000)
|
(b)
|
|
|
425,000
|
Total Liabilities
|
|
|
3,422,232
|
|
|
|
327,314
|
|
|
|
3,749,546
|
|
|
|
(300,000)
|
|
|
|
3,449,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value
|
|
|
117,718
|
|
|
|
-
|
|
|
|
117,718
|
|
|
|
4,904
|
(a)
|
|
|
125,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
(b)
|
|
|
|
Owners’ Equity
|
|
|
-
|
|
|
|
1,447,756
|
|
|
|
1,447,756
|
|
|
|
(1,447,756)
|
(a)
|
|
|
-
|
Additional paid-in capital
|
|
|
17,846,975
|
|
|
|
-
|
|
|
|
17,846,975
|
|
|
|
1,825,364
|
(a)
|
|
|
19,903,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,000
|
(b)
|
|
|
|
Accumulated deficit
|
|
|
(21,263,912 )
|
|
|
|
(1,761,187 )
|
|
|
|
(23,025,099 )
|
|
|
|
66,000
|
(b)
|
|
|
(22,881,961)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,138
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Deficit
|
|
|
(3,229,219 )
|
|
|
|
(303,169 )
|
|
|
|
(3,612,650 )
|
|
|
|
759,650
|
|
|
|
(2,853,000)
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
123,013
|
|
|
$
|
13,883
|
|
|
$
|
136,896
|
|
|
$
|
459,650
|
|
|
$
|
596,546
|
F-48
NORTHSIGHT CAPITAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2017
|
Northsight Capital, Inc.
|
|
Crush Mobile, LLC
|
|
Combined
Before
Pro
Forma
Adjustments
|
|
Pro Forma
Adjustments
|
|
|
Northsight Capital, Inc.
Pro Forma
|
Revenue
|
$
|
13,907
|
|
$
|
167,550
|
|
$
|
181,457
|
|
$
|
-
|
|
|
$
|
181,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
164,699
|
|
|
8,295
|
|
|
172,994
|
|
|
-
|
|
|
|
172,994
|
Information technology services
|
|
-
|
|
|
162,519
|
|
|
192,519
|
|
|
-
|
|
|
|
192,519
|
Consulting expense – related party
|
|
135,000
|
|
|
-
|
|
|
135,000
|
|
|
-
|
|
|
|
135,000
|
Professional fees
|
|
190,813
|
|
|
8,819
|
|
|
199,632
|
|
|
-
|
|
|
|
199,632
|
Rent – related party
|
|
77,477
|
|
|
-
|
|
|
77,477
|
|
|
-
|
|
|
|
77,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(554,082 )
|
|
|
(12,083 )
|
|
|
(566,165 )
|
|
|
|
|
|
|
(566,165)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on investment
|
|
(17,361 )
|
|
|
-
|
|
|
(17,361 )
|
|
|
-
|
|
|
|
(17,361 )
|
Interest expense
|
|
(49,128 )
|
|
|
-
|
|
|
(49,128 )
|
|
|
-
|
|
|
|
(49,128 )
|
Gain on settlement of debt
|
|
45,867
|
|
|
-
|
|
|
45,867
|
|
|
-
|
|
|
|
45,867
|
Loss on extinguishment of debt
|
|
(5,798 )
|
|
|
-
|
|
|
(5,798 )
|
|
|
-
|
|
|
|
(5,798 )
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from operations
|
|
(580,502 )
|
|
|
(12,083 )
|
|
|
(592,585 )
|
|
|
-
|
|
|
|
(572,585 )
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
$
|
(580,502 )
|
|
$
|
(12,083 )
|
|
$
|
(592,585 )
|
|
$
|
-
|
|
|
$
|
(592,585)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
(0.01 )
|
|
|
|
|
|
(.01 )
|
|
|
|
|
|
|
(.01 )
|
Weighted average number of common shares outstanding during the period – basic and diluted
|
|
115,048,140
|
|
|
|
|
|
115,048,140
|
|
|
7,904,000
|
(d)
|
|
|
122,952,140
|
F-49
NORTHSIGHT CAPITAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 2016
|
Northsight Capital, Inc.
|
|
Crush Mobile, LLC
|
|
Combined
Before
Pro
Forma
Adjustments
|
|
Pro Forma
Adjustments
|
|
Northsight Capital, Inc.
Pro Forma
|
Revenue
|
$
|
15,680
|
|
$
|
76,903
|
|
$
|
92,583
|
|
$
|
-
|
|
$
|
92,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
773,037
|
|
|
275,263
|
|
|
1,048,300
|
|
|
|
|
|
1,048,300
|
Information technology services
|
|
-
|
|
|
344,347
|
|
|
344,347
|
|
|
|
|
|
344,347
|
Consulting expense – related party
|
|
180,000
|
|
|
-
|
|
|
180,000
|
|
|
|
|
|
180,000
|
Professional fees
|
|
212,815
|
|
|
48,435
|
|
|
261,250
|
|
|
|
|
|
261,250
|
Rent – related party
|
|
134,400
|
|
|
14,245
|
|
|
148,645
|
|
|
-
|
|
|
148,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(1,284,572 )
|
|
|
(605,387 )
|
|
|
(1,889,959 )
|
|
|
-
|
|
|
(1,889,959 )
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on investment
|
|
(475,751 )
|
|
|
-
|
|
|
(475,751 )
|
|
|
-
|
|
|
(475,751 )
|
Loss from equity investment
|
|
(10,695 )
|
|
|
-
|
|
|
(10,695 )
|
|
|
|
|
|
(10,695 )
|
Interest expense
|
|
(63,063 )
|
|
|
-
|
|
|
(63,063 )
|
|
|
|
|
|
(63,063 )
|
Loss on deposit
|
|
(131,000 )
|
|
|
-
|
|
|
(131,000 )
|
|
|
-
|
|
|
(131,000 )
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from operations
|
|
(1,965,081 )
|
|
|
(605,387 )
|
|
|
(2,570,468 )
|
|
|
-
|
|
|
(2,570,468 )
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
$
|
(1,965,081 )
|
|
$
|
(605,387 )
|
|
$
|
(2,570,468 )
|
|
$
|
-
|
|
$
|
(2,570,468 )
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted
|
|
(0.02 )
|
|
|
|
|
|
(0.02 )
|
|
|
|
|
|
(0.02 )
|
Weighted average number of common shares outstanding during the period – basic and diluted
|
|
112,818,088
|
|
|
|
|
|
112,818,088
|
|
|
7,904,000
|
(d)
|
|
120,722,088
|
F-50
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma condensed combined financial statements have been prepared assuming that the acquisition is accounted for using the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed of the Seller are recorded at their historical book value.
NOTE 2 – PROPOSED TRANSACTION
On January 8, 2018, the Registrant (the “Company”) completed the acquisition of Crush Mobile, LLC (“Crush Mobile”) from its members.
Crush Mobile’s assets consist primarily of trademarks, domain names, mobile dating applications and related software and intellectual property. In connection with the closing of the acquisition, the Registrant is issuing an aggregate of 7,904,000 shares of common stock as follows: (i) 4,904,000 shares to the Crush Mobile members and (ii) 3,000,000 shares to certain Crush Mobile creditors (who are also members) in full satisfaction of $300,000 of indebtedness owed to them by Crush Mobile.
NOTE 3 – PRELIMINARY PURCHASE PRICE ALLOCATION
The Company has performed a preliminary valuation analysis of the fair market value of Crush Mobile, LLC’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:
Purchase Price
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4,904,000 shares of common stock valued at $0.078 per share
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$
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382,512
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Allocation of Purchase Price
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|
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Cash
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$
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5,812
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Goodwill
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459,650
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Accounts payable
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(2,950 )
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Debt Obligations
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(80,000 )
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$
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382,512
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NOTE 4 - PRO FORMA PRESENTATION ADJUSTMENTS AND ASSUMPTIONS
The adjustments included in the column under the heading "Pro Forma Adjustments" in the unaudited pro forma condensed combined financial statements are as follows:
Pro Forma Adjustments to the Condensed Combined Balance Sheet
(a)
To record the issuance of 4,904,000 shares of Northsight Capital common stock issued to shareholders of Crush Mobile in exchange for their ownership shares.
(b)
To record the issuance of 3,000,000 shares of Northsight Capital common stock issued to debtholders of Crush Mobile as payment of an aggregate $300,000 in outstanding debt.
(c)
To record the elimination of the historical deficit of Crush Mobile
Pro Forma Adjustments to the Condensed Combined Statements of Operations
(d)
To record the issuance of an aggregate 7,904,000 shares of Northsight Capital common stock attributable to the acquisition agreement
F-51
38,241,793
SHARES
COMMON STOCK
PROSPECTUS
NORTHSIGHT CAPITAL, INC.
February 7, 2018
YOU SHOULD RELY ONLY UPON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT A PUBLIC OFFERING OF OUR COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS (February 7, 2018), ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.