The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). While these statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto, which are included in the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2017 as filed with the SEC on April 18, 2018.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The interim condensed financial statements included herein, presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), have been prepared by the Company, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim condensed financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2018 and notes thereto included in the Company's Annual Report on Form 10-K/A. The Company follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim periods are not indicative of annual results.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
The Company considers cash and cash equivalents to include all stable, highly liquid investments with an original maturity of three months or less from the date of purchase.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
Revenue recognition
We have analyzed our revenue transactions pursuant to ASU 2014-09, Revenue, and we have no material impact due to the transition from ASC 605 to ASU 2014-09. Our revenues are recognized when control of the promised services is transferred to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services. In discussion with management, we apply the following five steps to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements:
a)
identify the contract with a customer;
b)
identify the performance obligations in the contract;
c)
determine the transaction price;
d)
allocate the transaction price to performance obligations in the contract; and
e)
recognize revenue as the performance obligation is satisfied.
Accounts receivable, net
Accounts receivable is reported at the customers’ outstanding balances, less any allowance for doubtful accounts. An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. Interest is not accrued on overdue accounts receivable.
7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Property and equipment
Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs that do not improve or extend the lives of the respective assets are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.
Depreciation is computed on the straight-line and accelerated methods for financial reporting and income tax reporting purposes based upon the following estimated useful lives:
|
| |
|
Computer software
|
3 years
|
|
Computer hardware
|
5 years
|
|
Office furniture
|
7 years
|
Long-lived assets
We account for long-lived assets in accordance with Accounting Standards Codification (“ASC”) Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. We assess recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value.
Beneficial Conversion Feature
If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). We record a BCF as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and we amortize the discount to interest expense over the life of the debt using the effective interest method.
Debt Discount
The Company determines if a convertible debenture should be accounted for as liability or equity under ASC 480, Liabilities - Distinguishing Liabilities from Equity (“ASC 480”). ASC 480 applies to certain contracts involving a company’s own equity and requires that issuers classify the following freestanding financial instruments as liabilities. Mandatorily redeemable financial instruments, obligations that require or may require repurchase of the issuer’s equity shares by transferring assets (e.g., written put options and forward purchase contracts), and certain obligations where at inception the monetary value of the obligation is based solely or predominantly on:
-
A fixed monetary amount known at inception, for example, a payable settleable with a variable number of the issuer’s equity shares with an issuance date fair value equal to a fixed dollar amount,
-
Variations in something other than the fair value of the issuer’s equity shares, for example, a financial instrument indexed to the S&P 500 and settleable with a variable number of the issuer’s equity shares, or
-
Variations inversely related to changes in the fair value of the issuer’s equity shares, for example, a written put that could be net share settled.
If the entity determined the instrument meets the guidance under ASC 480 the instrument is accounted for as a liability with a respective debt discount. The Company records debt discounts in connection with raising funds through the issuance of promissory notes (see Notes 9 and 10). These costs are amortized to non-cash interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
8
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Valuation of Derivative Instruments
ASC 815-40 requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their issuance date and in accordance with ASC 815-40-15 to determine whether they should be considered a derivative liability and measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Binomial option pricing formula and present value pricing. At March 31, 2018, we adjusted our derivative liability to its fair value, and reflected the change in fair value in our consolidated statements of operations.
Stock-based compensation
The Company accounts for stock-based payments to employees in accordance with ASC 718, “Stock Compensation” (“ASC 718”). Stock-based payments to employees include grants of stock, grants of stock options and issuance of warrants that are recognized in the statement of operations based on their fair values at the date of grant.
We account for stock-based payments to non-employees in accordance with ASC 505-50, “Equity-Based Payments to Non-Employees” (“ASC 505-50”). Stock-based payments to non-employees include grants of stock, grants of stock options and issuances of warrants that are recognized in the statement of operations based on the value of the vested portion of the award over the requisite service period as measured at its then-current fair value as of each financial reporting date. The Company calculates the fair value of option grants and warrant issuances utilizing the Black-Scholes pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued to employees and non-employees, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock option or warrant.
We estimate forfeiture rates for all unvested awards when calculating the expense for the period. In estimating the forfeiture rate, the Company monitors both stock option and warrant exercises as well as employee termination patterns. The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized as compensation under ASC Topic 505-50. In accordance with ASC 505-50, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes option-pricing model, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount that must be paid to acquire the stock.
Loss per share
We report earnings (loss) per share in accordance with ASC Topic 260-10, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of warrants and debt to purchase common shares would have an anti-dilutive effect. Potential common shares as of March 31, 2018 that have been excluded from the computation of diluted net loss per share amounted to 3,414,439 shares comprised of 1,742,500 options and 1,671,939 warrants. At March 31, 2018, 130,000 of the 1,742,500 potential common shares that could be issued upon the exercise of the options had not vested, and 50,000 of the 1,671,939 common shares that could be issued upon the exercise of the warrants had not vested.
Income taxes
We account for income taxes under the provisions of “Income Taxes” (“ASC 740”). The method of accounting for income taxes under ASC 740 is an asset and liability method. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and liabilities.
9
Fair value of financial instruments
We account for non-recurring fair value measurements of our non-financial assets and liabilities in accordance with ASC 820-10 Fair Value Measurement. This guidance defines fair value, establishes a framework for measuring fair value and addresses required disclosures about fair value measurements. This standard establishes a three-level hierarchy for fair value measurements based upon the significant inputs used to determine fair value. Observable inputs are those which are obtained from market participants external to the Company while unobservable inputs are generally developed internally, utilizing management’s estimates, assumptions and specific knowledge of the assets/liabilities and related markets. The three levels are defined as follows:
•
Level 1 - Valuation is based on quoted prices in active markets for identical assets and liabilities.
•
Level 2 - Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.
•
Level 3 -Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the company’s own estimates about the assumptions that market participants would use to value the asset or liability.
If the only observable inputs are from inactive markets or for transactions which the Company evaluates as “distressed”, the use of Level 1 inputs should be modified by the company to properly address these factors, or the reliance of such inputs may be limited, with a greater weight attributed to Level 3 inputs. Due to the short-term nature of our financial assets and liabilities, we consider their carrying amounts to approximate fair value.
Recent accounting pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects our financial reporting, we undertake a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that our financials properly reflect the change.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”). This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective for interim and annual period beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017.
In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-01
Business Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU 2017-01”), which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under this guidance, when substantially all the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. This guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606),
(“ASU 2014-09”). ASU 2014-09 requires entities to recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted ASU 2014-09 on January 1, 2018 using a modified retrospective method. As of and for the three months ended March 31, 2018 the adoption of ASU 2014-09 did not have a material impact on our balance sheet, net earnings, stockholders' equity or our statement of cash flows. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
10
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared assuming we will continue as a going concern. As shown in the accompanying financial statements, we incurred a net loss of $715,678 for the three months ended March 31, 2018, and at March 31, 2018, the accumulated deficit was $32,048,692.
To continue as a going concern, the Company may need, among other things, additional capital resources. There are no assurances that without generating new revenue during 2018 that we will be successful without additional financing. Should revenues not grow sufficiently, and should we be unable to secure additional financing through the sale of our securities or debt, it would be unlikely for us to continue as a going concern for one year from the issuance of the financial statements.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These conditions raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty.
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable consist of the following at:
|
|
|
|
|
| |
|
|
March 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
Due from customers and vendors
|
$
|
200
|
|
$
|
91
|
|
Due from sale of licenses
|
|
2,900
|
|
|
5,000
|
|
Total accounts receivable, net
|
$
|
3,100
|
|
$
|
5,091
|
NOTE 5 - PREPAID EXPENSES AND DEPOSITS
Prepaid expenses and deposits consist of the following at:
|
|
|
|
|
| |
|
|
March 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
Prepaid insurance
|
$
|
90,000
|
|
$
|
--
|
|
Prepaid consulting fees - stock based
|
|
5,156
|
|
|
12,193
|
|
Deposits
|
|
5,074
|
|
|
5,074
|
|
Total prepaid expenses and deposits
|
$
|
100,230
|
|
$
|
17,267
|
NOTE 6 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following at:
|
|
|
|
|
| |
|
|
March 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
Office furniture & equipment
|
$
|
33,225
|
|
$
|
33,225
|
|
Less: accumulated depreciation
|
|
(25,531)
|
|
|
(23,980)
|
|
Total property and equipment, net
|
$
|
7,694
|
|
$
|
9,245
|
During the three months ended March 31, 2018 and 2017, we recorded depreciation expense of $1,551 and $1,344, respectively.
11
NOTE 7 - RESIDUAL CONTRACTS
To raise immediate cash, in 2017, we sold our remaining merchant processing portfolio to a larger merchant processor (the “Purchaser”) at industry standard multiples. We were paid a percentage of the net revenues generated by each merchant. As with any type of portfolio, there is attrition, which can come from (1) the merchant processing fewer dollars in sales, or (2) the merchant closing its business (i.e. going out of business), or (3) the merchant taking its processing business to another ISO/processor. The sales agreement with the Purchaser allows zero attrition.
From July 2017 to January 2018, the average monthly residual was less than half of the valuation of the original guaranteed portfolio monthly residual. Any uncured shortfall of the guaranteed residual may be requested by the Purchaser. The Agreement also stipulated that we board a minimum number of Merchant Accounts per year for two years with the Purchaser. The Purchaser may demand that we pay them a specific amount for the number of unacquired Merchant Accounts below the Minimum Requirement per month. From July 1, 2017 to May 1, 2018 (11 months) Spindle has not boarded any merchants on the Purchaser’s platform, and it is likely that we may not board a merchant in the remaining 13 months. As of December 31, 2017, Management recorded a contingent liability of $171,312 as a potential return for consideration received and $126,000 for not boarding merchants, totaling $297,312.
NOTE 8 - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE, NET OF UNAMORTIZED DISCOUNT
Notes Payable
The following table is a summary of the changes of our Promissory Notes liabilities as of March 31, 2018:
|
|
|
| |
|
Balance at December 31, 2017
|
|
$
|
44,552
|
|
Repayments on notes
|
|
|
--
|
|
Balance at March 31, 2018
|
|
$
|
44,552
|
On December 15, 2011, we issued a Promissory Grid Note (“Grid Note”) to a former director of the Company under various terms and at December 31, 2017, had a balance of $44,552. The Grid Note included warrants to purchase up to 250,000 shares of our common stock at a price per share of $1.00, none of which have been exercised as of March 31, 2018. During the three months ended March 31, 2018 and March 31, 2017, interest expense of $557 and $606 was recorded, respectively. No principal payments were made on the Grid Note during the three months ended March 31, 2018 and March 31, 2017.
Convertible Notes Payable
Convertible notes payable consists of the following:
|
|
|
|
|
|
| |
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Convertible notes payable, interest free to annual interest rate of 10%, due date ranges from May 2018 to January 2019 and convertible into common stock at prices ranging from $0.046 to $0.135 per share.
|
|
$
|
514,000
|
|
$
|
317,000
|
|
Unamortized debt discount
|
|
|
(152,324)
|
|
|
(61,878)
|
|
Balance at end of period
|
|
$
|
361,676
|
|
$
|
255,122
|
12
NOTE 8 - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE, NET OF UNAMORTIZED DISCOUNT, CONTINUED
The following table is a summary of the changes of our Convertible Notes Payable as of March 31, 2018:
|
|
|
| |
|
Balance at December 31, 2017
|
|
$
|
255,122
|
|
Issuance of notes
|
|
|
244,500
|
|
Repayment of notes
|
|
|
(10,000)
|
|
Replacement of notes
|
|
|
(37,500)
|
|
Increase in debt discount
|
|
|
(160,188)
|
|
Amortization of debt discount
|
|
|
69,742
|
|
Balance at March 31, 2018
|
|
$
|
361,676
|
On January 30, 2018, we signed a convertible promissory note (“Convertible Note”) with a third party (“Holder”). The Convertible Note is subordinate to the convertible note owed to Michael Kelly which the Company filed with its Current Report on Form 8-K on February 1, 2018 and amended on February 6, 2018. The principal amount of the Convertible Note is $152,000 and matures on January 30, 2019. The Convertible Note bears an annual interest rate of ten percent and may be converted to stock under certain circumstances. The total value of the Convertible Note balance, if converted to stock at March 31, 2018, would be $154,499. The debt discount and derivative liability recorded at issuance were $152,000 and $174,234, respectively. The Convertible Note discount is amortized to interest expense - related party over the term of the note and at March 31, 2018 has an unamortized balance of $115,625. During the three months ended March 31, 2018, interest expense of $2,499 and interest expense related to amortization of the discount on the unpaid note of $36,375 were recorded.
During the three months ended March 31, 2018, we entered into two Bridge Note Agreements totaling $37,500 with one of our investors. These Bridge Notes were rolled into a new Bridge Note (the “New Note”) with a total of $55,000. The New Note is secured by the Company’s assets and is convertible to shares of the Company’s restricted stock at a price of $0.08 per share. The discounts attributable to the two Bridge Notes that were rolled into the New Note totaled $8,188 which was expensed as interest at the date of the New Note. There is no discount attributable to the New Note, as the conversion price of $0.08 was the same as the share price on the date the New Note was issued. The New Note was converted into 687,500 shares of Spindle common stock in April 2018.
During the twelve months ended December 31, 2017, we entered into seven Bridge Note Agreements totaling $145,000 with one of our investors. The seven Bridge Notes were interest free, secured by the Company’s assets, convertible to shares of the Company’s restricted stock at $0.10 and $0.135 per share and had maturity dates ranging from June 30, 2017 to June 29, 2018. Three of the seven Bridge Notes included warrants to purchase two shares of the Company’s common stock, at an exercise price of $0.135 or $0.20 per share, for each dollar loaned to Spindle. The total discount attributable to the seven transactions was $98,457. During the three months ended March 31, 2018, interest expense related to the warrants and the amortization of the discount on the unpaid note balances totaled $15,632. The unamortized debt discount on these notes was $1,272 at March 31, 2018. During the three months ended March 31, 2018, $5,000 was repaid on one of these notes.
In December 2016, we entered into a $5,000 Bridge Note Agreement with one of our investors. The Bridge Note was secured by the Company’s assets and includes warrants to purchase two shares of the Company’s common stock for each dollar loaned to Spindle. The total discount attributable to this transaction was $525, which was expensed to interest during the three months ended March 31, 2017. At March 31, 2018, the $5,000 Bridge Note was paid in full. At March 31, 2018, none of the warrants related to this Note had been exercised.
On May 18, 2016, we converted a $182,000 payable to an investor in the Company and entered into a Convertible Promissory Note (the “Note”) with that investor. The Note bears an interest rate of 6% per annum and has a maturity date of May 18, 2018. The total value of the note, if converted to stock, would be $404,444 and therefore a discount in the amount of $182,000 was recorded, as the conversion feature cannot be greater than the amount of the debt. This amount is amortized to interest expense over the term of the note. During the three months ended March 31, 2018 and March 31, 2017, interest expense of $2,471 and $2,471 and interest expense related to amortization of the discount on the unpaid notes of $20,589 and $20,589 was recorded, respectively. The balance of the unamortized discount at March 31, 2018 was $24,395. The Company made no payments to the Note’s principal balance during the three months ended March 31, 2018 and March 31, 2017, and at March 31, 201, the unpaid balance of the Note was $167,000.
13
NOTE 9 -CONVERTIBLE NOTES PAYABLE - RELATED PARTY, NET OF UNAMORTIZED DISCOUNT
Convertible notes payable to related parties consists of the following:
|
|
|
|
|
|
| |
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Convertible notes payable, annual interest rate of 6% to 10%, due date ranges from October 2018 to March 2019 and convertible into common stock at a price of $0.10 to $0.135 per share.
|
|
$
|
319,000
|
|
$
|
319,000
|
|
Unamortized debt discount
|
|
|
(133,435)
|
|
|
(192,294)
|
|
Balance at end of period
|
|
$
|
185,565
|
|
$
|
126,706
|
The following table is a summary of the changes of our Convertible Notes Payable - Related Party as of March 31, 2018:
|
|
|
| |
|
Balance at December 31, 2017
|
|
$
|
126,706
|
|
Amortization of debt discount
|
|
|
58,859
|
|
Balance at March 31, 2018
|
|
$
|
185,565
|
On October 17, 2017, we entered into a Convertible Note Agreement with a stockholder of over 5% of the Company. The Note was revised and amended on November 27, 2017 and is for a promissory note up to $359,000, convertible to stock under certain circumstances. At March 31, 2018, the Company had borrowed $219,000 under this agreement. The Note bears an interest rate of 10% per annum and has a maturity date of October 17, 2018. The total value of the Note balance, if converted to stock at March 31, 2018, would be $227,581. The discount and derivative liability recorded at issuance were $219,000 and $311,125, respectively. The Note discount is amortized to interest expense - related party over the term of the note and at March 31, 2018 has an unamortized balance of $133,435. During the three months ended March 31, 2018, interest expense of $5,400 and interest expense related to amortization of the discount on the unpaid note of $54,750 were recorded.
On March 3, 2017, we entered into an $100,000 Bridge Note Agreement with a stockholder of over 5% of the Company. The Bridge Note was secured by the Company’s assets, was convertible to shares of the Company’s restricted stock and included warrants to purchase two shares of the Company’s common stock for each dollar loaned to Spindle. The total discount attributable to this transaction was $100,000. The Bridge Note was converted to Spindle stock on March 3, 2017, and interest expense related to the warrants and the beneficial conversion factor totaling $100,000 was recorded. At March 31, 2018, the warrants related to the Bridge Loan had not been exercised.
On March 25, 2016, we entered into an agreement with a stockholder of over 5% of the Company. This agreement was for a $100,000 promissory note, convertible to stock under certain circumstances. The note bears an interest rate of 6% per annum and has a maturity date of March 25, 2018. The total value of the note, if converted to stock, would be $133,333 and therefore a discount in the amount of $33,333 was recorded. This amount is amortized to interest expense - related party over the term of the note. During the three months ended March 31, 2017, interest expense of $1,479 and interest expense related to amortization of the discount on the unpaid note of $4,110 was recorded. The discount was fully amortized at March 31, 2018.
In December 2016, we entered into a $10,500 Bridge Note Agreement with one of our directors. The Bridge Note was secured by the Company’s assets and included warrants to purchase two shares of the Company’s common stock for each dollar loaned to Spindle. The total discount attributable to this transaction was $1,102 and was fully expensed to interest in the three months ended March 31, 2017. At December 31, 2017, the $10,500 Bridge Note had been paid in full. No warrants related to this Bridge Note have been exercised.
14
NOTE 10 - DERIVATIVE LIABILITIES
The following table summarizes fair value measurements by level at March 31, 2018 for assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
| |
|
|
Level I
|
Level II
|
Level III
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on note payable
|
$
|
--
|
$
|
--
|
$
|
178,120
|
$
|
178,120
|
|
Derivative liability on note payable - related party
|
$
|
--
|
$
|
--
|
$
|
238,271
|
$
|
238,271
|
The following table summarizes fair value measurements by level at December 31, 2017 for assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
| |
|
|
Level I
|
Level II
|
Level III
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on note payable - related party
|
$
|
--
|
$
|
--
|
$
|
261,784
|
$
|
261,784
|
The Company issued a convertible promissory note in January 2018 and a convertible promissory note to a related party in 2017. The convertible notes require us to record the value of the conversion features as liabilities, at fair value, pursuant to ASC 815, including provisions in the notes that protect the holder from declines in our stock price, which is considered outside the control of the Company. The derivative liabilities are marked-to-market each reporting period and changes in fair value are recorded as a non-operating gain or loss in our statement of operations, until they are completely settled. The fair value of the conversion features are determined each reporting period using the Black-Scholes option pricing model and is affected by changes in inputs to that model including our stock price, expected stock price volatility, interest rates and expected term. The assumptions used in valuing the derivative liabilities at March 31, 2018 were as follows:
|
|
|
|
| |
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Significant assumptions (weighted-average):
|
|
|
|
|
|
Risk-free interest rate at grant date
|
|
2.09%
|
|
1.41% - 1.76%
|
|
Expected stock price volatility
|
|
155.66%
|
|
187.14% - 198.52%
|
|
Expected dividend payout
|
|
--
|
|
--
|
|
Expected option life (in years)
|
|
1
|
|
1
|
|
Expected forfeiture rate
|
|
0%
|
|
0%
|
The following is a reconciliation of the derivative liabilities at March 31, 2018 and December 31, 2017:
|
|
|
|
|
|
| |
|
|
|
Note Payable
|
|
Note Payable
Related Party
|
|
Value at December 31, 2016
|
|
$
|
--
|
|
$
|
--
|
|
Initial value at debt issuance
|
|
|
--
|
|
|
311,125
|
|
Decrease in value
|
|
|
--
|
|
|
(49,341)
|
|
Value at December 31, 2017
|
|
$
|
--
|
|
$
|
261,784
|
|
Initial value at debt issuance
|
|
|
174,234
|
|
|
--
|
|
Increase (decrease) in value
|
|
|
3,886
|
|
|
(23,513)
|
|
Value at March 31, 2018
|
|
$
|
178,120
|
|
$
|
238,271
|
15
NOTE 11 - STOCKHOLDERS’ DEFICIT
The Company is authorized to issue up to 300,000,000 shares of common stock, par value $0.001. During the three months ended March 31, 2018, the Company:
·
Authorized the issuance of 3,000,000 shares of common stock to third-party consultants as payment for their services. The estimated fair value of these shares totaled $200 and $240,000 was recorded as consulting expense. These shares were issued in April 2018.
·
Authorized the issuance of 6,000 shares of common stock valued at $580 to employees and members of our Board of Directors for their services. These shares were unissued at March 31, 2018.
·
Issued 100,000 shares of common stock valued at $14,000 to a third-party consultant. These shares were authorized but unissued at December 31, 2017.
We also recorded a beneficial conversion feature on convertible debt of $8,188 to additional paid-in capital.
NOTE 12 - OPTIONS AND WARRANTS
On October 29, 2012, our stockholders approved the 2012 Stock Incentive Plan (the “Plan”) that governs equity awards to our management, employees, directors and consultants. On November 7, 2013, our stockholders approved an amendment to the Plan which increased the total authorized amount of common stock issuable under the Plan from 3,000,000 to 6,000,000 shares.
Options:
The following is a summary of the status of the Company’s stock options as of March 31, 2018:
|
|
|
|
|
| |
|
|
Number of Options
|
|
Weighted-Average
Exercise Price
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
2,067,500
|
|
$0.309
|
|
7.40
|
|
Granted
|
--
|
|
--
|
|
--
|
|
Exercised
|
--
|
|
--
|
|
--
|
|
Forfeited/Cancelled
|
(325,000)
|
|
$0.175
|
|
9.28
|
|
Outstanding at March 31, 2018
|
1,742,500
|
|
$0.342
|
|
6.59
|
|
Exercisable at March 31, 2018
|
1,612,500
|
|
$0.351
|
|
6.41
|
Stock-based compensation expense of $865 and $23,710 was recognized during the three months ended March 31, 2018 and March 31, 2017, respectively, as amortization of various options over the life of the related vesting periods.
16
NOTE 12 - OPTIONS AND WARRANTS, CONTINUED
Warrants:
The following is a summary of the status of the Company’s stock warrants as of March 31, 2018:
|
|
|
|
|
| |
|
|
Number of Warrants
|
|
Weighted-Average
Exercise Price
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2017
|
1,621,939
|
|
$0.217
|
|
2.35
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
1,671,939
|
|
$0.225
|
|
2.06
|
|
Granted
|
--
|
|
--
|
|
--
|
|
Exercised
|
--
|
|
--
|
|
--
|
|
Forfeited/Cancelled
|
--
|
|
--
|
|
--
|
|
Outstanding at March 31, 2018
|
1,671,939
|
|
$0.225
|
|
1.82
|
|
Exercisable at March 31, 2018
|
1,621,939
|
|
$0.217
|
|
1.87
|
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
| |
|
|
Three Months Ended March 31,
|
|
|
2018
|
|
2017
|
|
Supplemental disclosure
|
|
|
|
|
Cash paid for interest
|
$
|
1,531
|
|
$
|
818
|
|
Cash paid for income taxes
|
$
|
--
|
|
$
|
--
|
|
Debt converted into common stock
|
$
|
--
|
|
$
|
100,000
|
|
Prepaid D&O insurance
|
$
|
101,150
|
|
$
|
--
|
|
Cash advances converted to common stock
|
$
|
--
|
|
$
|
12,000
|
|
Beneficial conversion feature on convertible notes
|
$
|
8,188
|
|
$
|
100,000
|
|
Proceeds from convertible note payable from note replacement
|
$
|
37,500
|
|
$
|
--
|
|
Proceeds from convertible note payable from note replacement
|
$
|
(37,500)
|
|
$
|
--
|
NOTE 14 - SUBSEQUENT EVENTS
On May 3, 2018, we entered into two Bridge Note Agreements totaling $22,500 with one of our investors. The two Bridge Notes are interest free, secured by the Company’s assets, convertible to shares of the Company’s restricted stock at $0.05 per share and have maturity dates of November 3, 2018.
On April 23, 2018, the Board of Directors of the Company appointed Christopher Lank as a Director. Mr. Lank has over 25 years of Technology and Services sales experience. In 2002, he founded Ivis Technologies, LLC (“Ivis”) where he serves as CEO and Chairman of the Management Committee. Ivis provides a Software as a Service (SaaS) solution that helps companies implement, automate and execute on their day-to-day activities that revolve around the management of ethics and compliance programs and helps reduce the risk for organizations needing to comply with various regulations. Mr. Lank also serves on the Board of Directors of Autonet Mobile, Inc., a private company located in Scottdale, Arizona. On May 14, 2018, Mr. Lank resigned from the Company’s Board of Directors. Mr. Lank’s resignation was not due to any dispute with the Company.
On April 13, 2018, we signed a convertible promissory note (the “Convertible Note”) with Labrys Fund, LP, a Delaware limited partnership (the “Holder”). The principal amount of the Convertible Note is $200,000 and matures on April 13, 2019. The Convertible Note carries an original issue discount of $20,000 and accrues interest at the rate of ten percent per annum. The Convertible Note may be prepaid by the Company with various redemption premiums applicable depending on when the Company prepays the principal balance. The Convertible Note is convertible into shares of the Company’s common stock under certain circumstances.
17
NOTE 14 - SUBSEQUENT EVENTS, CONTINUED
On April 13, 2018, one of our investors exercised the conversion feature of a $55,000 Note held. The conversion price was $0.08 per share, and 687,500 shares were issued to the investor on April 15, 2018.
On April 11, 2018, we issued 3,000,000 shares of common stock to third-party consultants as payment for their services per an agreement signed on March 30, 2018. The estimated fair value of these shares totaled $200, and $240,000 was recorded as consulting expense.
On April 6, 2018, we entered into an asset purchase agreement (the “Agreement”) whereby we will acquire substantially all of the assets of a privately held payments processing company (the “Acquisition”). In connection with the Acquisition, certain management of the target company would join the Company as the CEO and CTO upon closing. The Acquisition is scheduled to close on or before May 15, 2018. The purchase price for the scheduled assets will be paid in four installments. There are three conditions precedent to closing: (1) a third-party valuation of the assets must be conducted and result in a minimum threshold, (2) two key employees of the target company must agree to employment agreements with the Company, and (3) the Company must have sufficient funds to make the initial payment installment. A third party has a right of first refusal on certain assets to be purchased for a period of 30 days.
On April 3, 2018, the Board of Directors of the Company elected Ronald S. McIntyre to be a Director and to be Chairman of the Audit Committee replacing John Devlin, who passed away in March of 2018. Mr. McIntyre has extensive management experience with technology companies and start-ups in the United States and Canada, and from 2009 to the present, has worked as an SEC compliance consultant providing securities law services to private and public companies.
On April 2, 2018, the Company received notification from Habib Yunus, the Company’s Chief Financial Officer, indicating that effective that date, Mr. Yunus will be taking a leave of absence for up to forty-five days due to personal reasons. Mr. Yunus remains on the Company’s Board of Directors. On April 6, 2018, the Board of Directors elected Dr. Jack Scott to serve as interim Chief Financial Officer in Mr. Yunus’ absence.
18