The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Next
Group Holdings, Inc. (the “Company”) invests in financial technology and currently derives its revenues from the sales
of prepaid and wholesale calling minutes. Additionally, the Company has an agreement with Incomm, a leading processor of general
purpose reloadable (“GPR”) debit cards, to market and distribute a line of GPR cards targeted towards the Latin American
market. The Company intends to launch the cards upon successful completion of appropriate financing and has yet to generate revenues
from this activity.
Next
Group Holdings, Inc was incorporated under the laws of the State of Florida on September 21, 2005 to act as a holding company
for its subsidiaries, both current and future. Its subsidiaries are Meimoun and Mammon, LLC (100% owned), Next Cala, Inc (94%
owned), NxtGn, Inc. (65% owned) and Next Mobile 360, Inc. (100% owned) and Transaction Processing Products (100% owned). Additionally,
Next Cala, Inc. has a 60% interest in NextGlocal, a subsidiary formed in May 2016. During the year ended December 31, 2016, the
Company acquired a business segment, Tel3, from an existing corporation. Tel3 was merged into Meimoun and Mammon, LLC effective
January 1, 2017. On October 23, 2017, the Company acquired 100% of the outstanding interests in Limecom, Inc.
Meimoun
and Mammon, LLC (“M&M”) was formed under the laws of the State of Florida on May 21, 2001 as a real estate investment
company. During the year ended December 31, 2010, M&M began winding down real estate operations and engaged in telecommunications
services. M&M acquired telecom registrations, licenses and authorities to provide telecom services to the retail and wholesale
markets including sales of prepaid long distance telecom services and Mobile Virtual Network Operator (MVNO) services. The services
are sold under the brand name Next Mobile 360 and through the subsidiary of the same name.
Next
Cala, Inc, (“Cala”) was formed under the laws of Florida on July 10, 2009 for the purpose of offering prepaid and
reloadable debit cards to the retail market. Cala serves consumers in the underbanked and unbanked populations through Incomm,
a leading provider of payment remittance services worldwide.
NxtGn,
Inc. (“NxtGn”) was formed under the laws of Florida on August 24, 2011 to develop a High Definition telepresence product
(AVYDA) which allows users to connect with celebrities, public figures, healthcare and education applications via a mobile phone,
tablet or personal computer. NxtGn has entered into a joint venture with telephony platform industry leader Telarix, Inc.
to develop and market the AVYDA Powered by Telarix™ HD telepresence platform. The AVYDA Powered by Telarix™ product
is marketed throughout the world by the Telarix sales force.
On January 1, 2016, NGH completed an Agreement
and Plan of Merger (the “Merger Agreement”) with Pleasant Kids, Inc. (“Pleasant Kids”) and its wholly owned
subsidiary, NGH Acquisition Corp. (“Acquisition Sub”), pursuant to which NGH merged with Acquisition Sub and Acquisition
Sub was then merged into PLKD effective January 1, 2016. Under the terms of the Merger Agreement, the NGH shareholders received
shares of PLKD common stock such that the NGH shareholders received approximately 80% of the total common shares and 100% of the
preferred shares of PLKD issued and outstanding following the merger. Due to the nominal assets and limited operations of PLKD
prior to the merger, the transaction was accorded reverse recapitalization accounting treatment under the provision of Financial
Accounting Standards Board Accounting Standards (“FASB”) Codification (“ASC”) 805 whereby NGH became the
accounting acquirer (legal acquiree) and PLKD was treated as the accounting acquiree (legal acquirer). The historical financial
records of the Company are those of the accounting acquirer (NGH) adjusted to reflect the legal capital of the accounting acquiree
(PLKD).
As the transaction was treated as a recapitalization, no intangibles, including goodwill, were recognized.
Concurrent with the effective date of the reverse recapitalization transaction, the Company adopted the fiscal year end of the
accounting acquirer of December 31.
On
May 27, 2016, Next Cala entered into a Joint Venture Agreement (the “Agreement”) with Glocal Payments Solutions, Inc
(“Glocal”) to form a joint venture, NextGlocal, in which Cala has a 60% controlling interest and Glocal has a 40%
interest. The Joint Venture sought to launch and activate up to 45,000 prepaid debit cards under the Cala brand by December 31,
2016 and 360,000 additional cards during the 2017 calendar year. Neither milestone was achieved. Either party may terminate the
agreement at December 31, 2016 if certain objectives are not met. The joint venture has not had activity since the year ended
December 31, 2016 but has not been formally dissolved.
On July 22, 2016, the Company completed
its acquisition of Transaction Processing Products, Inc. (“TPP”) which has a 64% interest in Accent InterMedia, LLC
(“AIM”) and no other assets or liabilities. The Company disposed of TPP during the year ended December 31, 2017.
On
August 10, 2016, M&M, a wholly owned subsidiary of the Company, closed the acquisition of Tel3 from a related party. Tel3
provides prepaid calling cards to consumers directly and operates in a complimentary space as M&M. Tel3 was originally acquired
by the Company’s CEO in a private transaction and sold to the Company for $10 cash. See
On October 23, 2017, the Company closed
the acquisition of Limecom, Inc. (“Limecom”). Limecom is a global telecommunication company, providing services to
telecommunication providers from all over the world. Limecom operates a network built on internet protocol (“IP”) switching
equipment. It was organized as a Florida limited liability company (“LLC”) on November 21, 2014 and known as Limecom
LLC. On September 29, 2015, Limecom converted to a Florida C-Corporation.
The
Company has a Market Partner Agreement with InsightPOS, LLC since September 17, 2016. InsightPOS is a “State of the Art”,
“Super Functional Point Of Sale” system that has a combination of tools that we believe makes the retail experience
quicker and better both for the shopper and for store management. The Company previously installed about 10 units including training
by InsightPOS. These units were withdrawn due to required programming development and improved network interconnections.
On December 6, 2017, the Company
completed its formation of SDI NEXT Distribution LLC in which it holds a 51% interest, previously announced August 24, 2017
as a Letter of Intent with Fisk Holdings, LLC. As Managing Member of the newly formed LLC, the Company will contribute a
total of $500,000, to be paid per an agreed-upon schedule over a twelve-month period beginning December 2017. Fisk Holdings,
LLC will contribute 30,000 active Point of Sale locations for distribution of retail telecommunications and prepaid financial
products and services to include, but not be limited to: prepaid general purpose reloadable cards, prepaid gift cards,
prepaid money transfer, prepaid utility payments, and other prepaid products. There has been no activity in or cash
contributions to this entity since formation.
The
Company, through its affiliate, Next Communications, Inc., has the right to sell STI Mobile, Next Cala and any Next products to
8,800 locations that were serviced by a prepaid distribution network. The Company will offer the InsightPOS system to clients
of this distribution network as well via direct sales through its own sales force and affiliates. When a system is installed,
NGH receives 50% of the gross profits received by InsightPOS after retailer commissions are paid.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The
accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission (“SEC”) for reporting of interim financial information. Pursuant to such
rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been condensed or omitted. Accordingly, these statements
do not include all the disclosures normally required by accounting principles generally accepted in the United States for annual
financial statements and should be read in conjunction with the consolidated financial statements for the year ended December
31, 2017 and notes thereto and other pertinent information contained in our annual report on form 10-K as filed with the Securities
and Exchange Commission. The unaudited condensed consolidated statements of operations and cash flows for the three months ended
March 31, 2018 are not necessarily indicative of the consolidated results of operations or cash flows to be expected for any future
period or for the year ending December 31, 2018.
The
accompanying unaudited condensed consolidated financial statements have been prepared by management and in the opinion of management,
the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated
financial position and results of operations as of the dates and for the periods presented.
Basis
of Presentation
This
summary of accounting policies for the Company is presented to assist in understanding the Company’s financial statements.
The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America
(“GAAP” accounting) and have been consistently applied in the preparation of the unaudited consolidated financial
statements.
Principles of Consolidation
The
consolidated financial statements are prepared in accordance with US GAAP. The consolidated financial statements of the Company
include the Company and its wholly-owned and majority-owned subsidiaries. All inter-company balances and transactions have been
eliminated.
Use
of Estimates
The preparation of unaudited condensed
consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the financial statements. Actual results could differ from those estimates. Estimates are used
when accounting for allowances for bad debts, stock based compensation, collectability of loans receivable, potential impairment
losses of intangible assets and fair value calculations related to embedded derivative features of outstanding convertible notes
payable.
Cash
For purposes of the statements of cash
flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents
to the extent the funds are not being held for investment purposes. The Company held no cash equivalents as of March 31, 2018 or
December 31, 2017. The Company did not hold cash with any one financial institution in excess of the FDIC insured limit of $250,000.
Revenue
recognition
The
Company follows ASC 606 of the FASB Accounting Standards Codification for revenue recognition. Adoption of ASC 606 did not have
a significant impact on the Company’s financial statements. The Company recognizes revenue upon transfer of control of promised
products or services to customers in an amount that reflects the consideration expected to be received in exchange for those products
or services. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently
remitted to governmental authorities. The Company primarily generates revenues through the sale of prepaid calling minutes to
consumers through its Tel3 division and the sale of wholesale telecom minutes through its Limecom subsidiary. While the Company
collects payment for prepaid consumer minutes in advance, revenue is recognized upon delivery to and consumption of minutes by
the consumer or upon the forfeiture of minutes with forfeitures occurring after 12 consecutive months of non-use.
Consumer
Prepaid Minutes Revenues
The
Company recognizes revenues from the sale of prepaid telecommunications minutes directly to consumers at the retail level. While
the Company collects payment for prepaid consumer minutes in advance, revenue is recognized upon delivery to and consumption of
minutes by the consumer or upon the forfeiture of minutes with forfeitures occurring after 12 consecutive months of non-use. Generally,
consumers will prepay a fixed dollar amount then consume the prepayment upon making telephone calls on the Company’s telecommunications
network. Revenues from direct to consumer retail sales were $411,223 and $500,591 during the three months ended March 31, 2018
and 2017, respectively.
Wholesale
Telecommunications Revenues
The Company recognizes revenues from the
brokering of sales of minutes from one telecommunications carrier to another. The Company receives an order for a defined number
of minutes to a defined geographic region at which point it sources those minutes and purchases them with an immediate resale to
the customer. Revenues from wholesale telecommunications minutes were $19,586,997 and $0 during the three months ended March 31,
2018 and 2017, respectively.
Significant
Judgments
The
Company’s contracts with consumers and telecommunications wholesalers can include promises to transfer multiple products
and services. Determining whether multiple products and services are considered distinct performance obligations that should be
accounted for separately versus together may require significant judgment. The Company’s retail products are sold with
a limited right of return and the Company may provide other credits or incentives, which are accounted for as variable consideration
when estimating the amount of revenue to recognize.
Deferred
Revenue
Deferred
revenue is comprised mainly of unearned revenue related to prepayments from retail consumers for telecommunications minutes. The
following table presents the changes in deferred revenue for the three months ended March 31, 2018:
|
|
Deferred Revenue
|
|
Balance at December 31, 2017
|
|
$
|
685,905
|
|
Deferred revenue
|
|
|
379,491
|
|
Recognition of deferred revenue
|
|
|
(411,223
|
)
|
Balance at March 31, 2018
|
|
$
|
654,173
|
|
Revenue
allocated to remaining performance obligations represent contracted revenue that has not yet been recognized (“contracted
not recognized”). Contracted not recognized revenue was $654,173 as of March 31, 2018, of which the Company expects to recognize
100% of the revenue over the next 12 months.
Assets
Recognized from the Costs to Obtain a Contract with a Customer
The
Company has elected to immediately expense contract acquisition costs that would be amortized in one year or less. The Company
recognizes an asset for the incremental costs of obtaining a contract with a customer if the benefit of those costs is expected
to be longer than one year. There were no capitalized contract acquisition costs as of March 31, 2018.
Property
and equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization
using the straight-line method over the estimated useful lives of the related assets, which range from three to five years.
Maintenance
and repair costs are expensed as they are incurred while renewals and improvements which extend the useful life of an asset are
capitalized. At the time of retirement or disposal of property and equipment, the cost and related accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss is reflected in the consolidated results of operations.
Goodwill and Intangible Assets
Goodwill represents
the excess cost over the fair value of the assets of an acquired business. Goodwill and intangible assets acquired in a business
combination accounted for as a purchase and determined to have an indefinite useful life are not amortized but are tested for impairment
at least annually. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to
their estimated residual values and reviewed periodically for impairment. The Company evaluates the possible impairment of goodwill
annually as part of its reporting process for the fourth quarter of each fiscal year. The Company determines the fair value of
each subsidiary the goodwill relates to and compares the fair value to the carrying amount of the subsidiary. To the extent the
carrying amount of the subsidiary exceeds the fair value of it, an impairment loss is recorded.
Amortization of
intangible assets for each of the next five years and thereafter is expected to be as follows:
Year ended December 31,
|
|
|
|
2018
|
|
|
321,429
|
|
2019
|
|
|
428,571
|
|
2020
|
|
|
428,571
|
|
2021
|
|
|
428,571
|
|
2022
|
|
|
428,571
|
|
Thereafter
|
|
|
792,902
|
|
Total
|
|
$
|
2,828,615
|
|
Amortization expense was $107,143 and
$0 for the three months ended March 31, 2018 and 2017, respectively. Amortization expense for each period is included in cost of
revenue.
Impairment
of Long-Lived Assets
In
accordance with ASC Topic 360, formerly SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets,
the
Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of these assets may not be fully recoverable. The assessment of possible impairment is based on the Company’s ability to
recover the carrying value of its asset based on estimates of its undiscounted future cash flows. If these estimated future cash
flows are less than the carrying value of the asset, an impairment charge is recognized for the difference between the asset’s
estimated fair value and its carrying value. There was no impairment losses recorded to long-lived assets during the three months
ended March 31, 2018 or 2017.
Non-Controlling
Interest
The
Company reports the non-controlling interest in its majority owned subsidiaries in the consolidated balance sheets within the
stockholders’ deficit section, separately from the Company’s stockholders’ deficit. Non-controlling interest
represents the non-controlling interest holders’ proportionate share of the equity of the Company’s majority-owned
subsidiaries. Non-controlling interest is adjusted for the non-controlling interest holders’ proportionate share of the
earnings or losses and other comprehensive income (loss) and the non-controlling interest continues to be attributed its share
of losses even if that attribution results in a deficit non-controlling interest balance.
Derivative
and Fair Value of Financial Instruments
Fair
value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity
instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management
determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion
feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will
continue its evaluation process of these instruments as derivative financial instruments under ASC 815.
Once
determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease
in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.
Fair
value of certain of the Company’s financial instruments including cash, accounts receivable, account payable, accrued expenses,
notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports
fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair
value investments.
Fair
value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best
use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair
value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit
risk.
Valuation
techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The
selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the
characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair
value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides
fair value hierarchy for inputs and resulting measurement as follows:
Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
Level
2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities
in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that
are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities;
and
Level
3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant
to the fair values.
Fair
value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements
in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to
expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes
during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating
those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported
in the statement of income.
Except
as discussed in
Note 5 – Derivative Liabilities
the Company did not identify any other assets or liabilities that
are required to be presented on the consolidated balance sheet at fair value in accordance with ASC 825-10 as of March 31, 2018
or December 31, 2017.
Income
Taxes
Income
taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Use
of net operating loss carry forwards for income tax purposes may be limited by Internal Revenue Code section 382 if a change of
ownership occurs.
Basic
Income (Loss) Per Share
Basic
income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted
average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net
income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted
weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt
or equity.
At
March 31, 2018, the Company had one outstanding convertible note payable with conversion rights that are exercisable. The amount
of outstanding principal on this convertible note is $0 plus accrued interest of $5,326 for total convertible debts as of March
31, 2018 of $5,326 representing 455,215 new dilutive common shares if converted at the applicable rates. Additionally the Company
has committed to issue a total of 30,699,159 shares of common stock for the settlement of a related party note payable
and services which are not yet issued or outstanding. The effects of this note and total common shares committed to be issued
have been included in net income per diluted share for the three months ended March 31, 2018.
At March 31, 2017, the Company had eighteen outstanding convertible notes payable with conversion rights
that are exercisable. The amount of outstanding principal on these convertible notes total $1,179,828 plus accrued interest of
$261,537 for total convertible debts as of March 31, 2017 of $1,441,365 representing 76,304,181 new dilutive common shares if converted
at the applicable rates. The effects of these notes have been excluded in net income per diluted share for the three months ended
March 31, 2017 as the impacts would be antidilutive due to the Company recording a net loss for the period.
Dividends
The
Company has not adopted any policy regarding payment of dividends. No dividends have been paid during any of the periods shown.
As
discussed in the report on form 8K filed on May 18, 2016, the Company declared a special dividend on its outstanding common stock
of one share of Class D Redeemable Preferred Stock. Pursuant to the dividend, the special stock dividend will be distributed
to owners of the Company’s common stock as of the record date in a ratio of one share of Class D Redeemable Preferred Stock
for every 1 share of common stock owned as of the record date. The Company originally had set the record date as June 10,
2016 but was later modified to July 22, 2016. The Class D Preferred Stock must be redeemed within six months within six (6) months
(or as soon thereafter as permitted by law) following final resolution of the Corporation’s affiliates lawsuit against ViberMedia,
Inc. (Next Communications, Inc. and Nxtgn, Inc. v. Viber Media, Inc.) which is, as of the date of this filing, pending in U.S.
District Court for the Southern District of New York or any successor or other lawsuit relating to the subject matter thereof
in which the Corporation (or any successor-in-interest) is named as a plaintiff (the “Lawsuit”). The Designation fixes
the redemption price of each share of class D Preferred stock as the greater of par value or the amount obtained by dividing (a)
9.03 percent of the net proceeds to the Corporation of the Lawsuit after payment of fees and expenses incurred in connection with
such law suit and the resolution of any creditor claims against Next Communications and all taxes on net income accrued
or paid with respect to such amount, by (b) the total number of shares of Class D Preferred stock issued and outstanding as of
the Redemption Date, which amount shall be rounded to the nearest whole cent.
The Company has accrued common stock dividends
payable of $30,000 as of March 31, 2018 and December 31, 2017 as the Class D Preferred Stock has yet to be issued for the dividend.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance
of subtopic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”) and subtopic 718-20 for awards
classified as equity to employees.
Derivative
Liabilities
The
Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates.
An instrument determined to be a derivative liability is recorded at fair value with a debt discount being recorded up to the
face value of the related convertible note payable with any excess value being recognized as a day one loss on initial measurements
of derivative liabilities. The debt discount is amortized as interest expense over the life of the convertible notes. Changes
in value of the derivative liabilities that result from conversions of the underlying instrument to common stock are written off
to earnings.
Related
Parties
The
registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and
disclosure of related party transactions.
Pursuant
to Section 850-10-20 the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their
equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section
825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees,
such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of
the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or
can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the
management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests.
The
financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall
include: (a) the nature of the relationship(s) involved; (b) description of the transactions, including transactions to which
no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other
information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar
amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the
method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of
the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Accounts
Receivable
Accounts
receivable balances are established for amounts owed to the Company from its customers from the sales of services and products.
The Company closely monitors the collectability of outstanding accounts receivable and provides an allowance for doubtful accounts
based on estimated collections of outstanding amounts. The Company had an allowance for doubtful accounts of $20,000 and $20,000
as of March 31, 2018 and December 31, 2017, respectively.
Accounts
Receivable Factoring
Limecom
executed a factoring and security agreement with a financial institution on June 22, 2017, whereby it sells certain of its accounts
receivable in exchange for cash. These factoring transactions qualify for sales treatment in accordance with FASB ASC 860, Transfers
and Servicing. Upon purchase of the accounts receivable, the Company shall be deemed to have sold, transferred, assigned, set
over and conveyed to the financial institution, without recourse except as expressly stated in the agreement, all of the Company’s
right, title and interest in and to the purchased accounts receivable. Purchases have an initial gross liquidation advance rate
of 90%, up to a maximum cumulative outstanding face amount of $4,000,000. The initial discount fee is 2.1%, and an additional
0.85% of certain receivables.
The
Company has a credit insurance policy covering all factored accounts receivable, under which the financial institution is the
beneficiary on the policy if default were to occur.
License
Fee
The
Company entered into an agreement with a certain vendor whereby it obtained a license to market and distribute certain closed
loop general purpose reloadable debit cards for an initial term of three years. The Company remitted $250,000 as a license fee
in connection with the agreement which it is recognizing over the initial term of the agreement on a straight line basis. The
unamortized balance of the license fee was $13,889 and $34,722 as of March 31, 2018 and December 31, 2017, respectively.
Investments
The
Company accounts for equity investments under ASC 321. Equity investments with a readily determinable market price are measured
at fair value as of the date of the financial statements with any unrealized gains or losses being recognized in current period
income or loss.
During
the year ended December 31, 2017, the Company acquired 50,000 shares of common stock of Green Spirit Industries, a publicly held
company, as a referral fee. The total value of the common shares was recorded as other income using the price of the common stock
as quoted on Nasdaq on the date received resulting in other income of $550,000. At December 31, 2017, the Company marked the value
of the shares to fair value resulting in an unrealized loss of $300,000 being recorded as other comprehensive loss for the year
ended December 31, 2017. There was no change in the fair value of the shares during the three months ended March 31, 2018. The
fair value of the common shares, as quoted by Nasdaq, as of March 31, 2018 and December 31, 2017 was $250,000 and $250,000, respectively.
On January 1, 2018, the Company adopted
FASB Accounting Standards Update (“ASU) 2016-01 Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities
. The update provides guidance to improve certain aspects of recognition, measurement,
presentation, and disclosure of financial instruments. The Company’s adoption of ASU 2016-01 resulted in an adjustment to
beginning retained earnings in the current period equal to the accumulated unrealized net losses on available for sale securities
previously carried in other accumulated comprehensive income totaling $300,000.
Recently
Issued Accounting Standards
In
March 2016, the FASB issued ASU 2016-09,
“Compensation - Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting
.
”
The amendments in this update simplify several aspects of the accounting
for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding
requirements, as well as classification in the statement of cash flows. The Company adopted the new guidance on January 1, 2017.
The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes rather than paid-in
capital. A corresponding adjustment was recorded to increase the valuation allowance.
In
January 2017, the FASB issued ASU 2017-04, “
Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for
Goodwill Impairment”.
The amendments in this update simplify how an entity is required to test goodwill for impairment
by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests
in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will
implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update
will have a material impact on the consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-01, “
Business Combinations (Topic 805): Clarifying the Definition of a Business,
”
which revises the definition of a business. This update is effective for annual periods beginning after December 15, 2017, including
interim periods within those years. Early adoption is permitted. The Company notes that this guidance will impact its acquisitions
beginning January 1, 2018.
In
April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing” (“ASU 2016-10”). The amendments in this update clarify the following two aspects to Topic 606:
identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those
areas. The entity first identifies the promised goods or services in the contract and reduces the cost and complexity. An entity
evaluates whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether
an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property
(which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over
time). The Company evaluated the impacts of ASU 2016-10 and determined it did not have an impact on the Company’s revenue
recognition practices.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which supersedes the guidance in ASC 840, “Leases.”
The purpose of the new standard is to improve transparency and comparability related to the accounting and reporting of leasing
arrangements. The guidance will require balance sheet recognition for assets and liabilities associated with rights and obligations
created by leases with terms greater than twelve months. The guidance is effective for fiscal years beginning after December 15,
2018, including interim periods within those years. Modified retrospective application is required. Early adoption is permitted.
The Company does not expect the standard to have a material impact on its consolidated balance sheets or consolidated statements
of operations.
On August 26, 2016, the FASB issued ASU
2016-15, Classification of Certain Cash Receipts and Cash Payments, seeking to eliminate diversity in practice related to how certain
cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU 2016-15 address
eight specific cash flow issues and apply to all entities, including both business entities and not-for-profit entities that are
required to present a statement of cash flows under FASB ASC 230, Statement of Cash Flows. The amendments in ASU 2016-15 are effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted, including adoption in an interim period. The Company has adopted this standard and did not have
an impact on the Company’s presentation of the consolidated statements of cash flows.
On May 10, 2017, The FASB issued ASU 2017-09,
Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements, provides
guidance on the types of changes to the terms of conditions of share-based payment awards to which an entity would be required
to apply modification accounting under ASC 718. For all entities, ASU 2017-09 is effective to annual reporting periods, including
interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including
adoption in any interim period. The Company does not anticipate this standard to have an impact on its accounting practices.
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on our financial statements upon adoption.
NOTE
3 – LIQUIDITY AND PROFITABILITY
During the three months ended March 31,
2018 the Company’s net loss from operations was $130,811 and cash provided by operations was $14,564, which included the
reduction of accounts payable in the amount of $1,595,835. As of March 31, 2018, the Company had $37,846 of cash, a working capital
deficit of $5,168,077, which included accounts payable of $5,404,276, and the Company’s stockholders’ deficit was $2,777,029.
Due
to our operational losses, the Company has relied to a large extent on funding received from Next Communications, Inc., an organization
in which our Chief Executive Officer and Chairman holds a controlling equity interest and holds an executive position. During
the first calendar quarter of 2017, Next Communications, Inc. filed for bankruptcy protection. As a result, the related party
payable is being handled by a court appointed trustee as an asset of Next Communications, Inc. and the Company may need to begin
repaying the amounts due on a more fixed schedule.
Our
liquidity needs for the next 12 months and beyond are principally for the funding of our operations and the purchase of property
and equipment. Based on the foregoing, management believes the Company will generate sufficient funds from operations and certain
available debt financings available to finance its operations over the next twelve months. The Company is actively engaging in
various strategies to ensure the continuance of operations for the foreseeable future. Specifically;
|
●
|
During
the year ended December 31, 2017, the Company acquired a cash flow positive business
in Limecom.
|
|
●
|
The
Company plans to seek a new accounts receivable factoring agreement to both raise its
credit limit and lower its borrowing costs.
|
|
●
|
The
Company has negotiated to extend the maturation dates of certain related party payables
totaling approximately $2.0 million.
|
|
●
|
Next
Communications, a significant related party to which the Company owes approximately $2.9
million and is currently in bankruptcy, is actively negotiating with the court appointee
trustee to extend the maturation date of the related party payable.
|
|
●
|
Certain
officers of the Company have entered into a commitment letter whereby they have agreed
to enter into a credit line agreement. The credit line agreement will allow the Company
to borrow up to $250,000 at an annual interest rate of 8% and be in place for a minimum
of 12 months.
|
|
●
|
The
Company will seek additional capital through a debt offering.
|
Based
on the foregoing, management believes the Company will generate sufficient funds from operations and certain available debt financings
available to finance its operations over the next twelve months.
NOTE
4 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
Notes
Payable
During the year ended December 31, 2017,
the Company entered into two separate loans to be paid by collection of its future accounts receivable and secured by substantially
all assets of the Company including accounts receivable, cash, equipment, intangible assets, inventory and other receivables. The
first loan resulted in cash proceeds of $125,000 to the Company for future payments totaling $168,750 from future receivables and
requires daily repayments of $1,339. The second resulted in cash proceeds of $50,000 for future payments totaling $68,000 from
future receivables and requires daily cash repayments of $540. There was $0 and $46,048 due for the agreements as of March 31,
2018 and December 31, 2017, respectively, included in current notes payable.
On
May 1, 2017, the Company received a loan from an unrelated party for $25,000. The loan is due on demand and as such is included
in current notes payable. The note does not accrue interest and had a principal balance due of $25,000 as of March 31, 2018 and
December 31, 2017, respectively.
Convertible
Notes Payable
The
Company has entered into a series of convertible notes payable to fund operations. While with differing noteholders, the terms
of the outstanding convertible notes are substantially similar and accrue interest at 8% annually with a default interest rate
of 24% and allow for the conversion of outstanding principal and interest to common stock at a price equal to a 45% to 50% from
the lowest trading price in the preceding 20 days.
The
Company settled the majority of its convertible notes payable in December 2017 for a combination of cash and shares of common
stock. An additional convertible note payable was settled in January 2018 for a combination of cash and shares of common stock.
The
following table summarizes all convertible notes payable activity for the three months ended March 31, 2018:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Original Principal
|
|
|
Balance, December 31, 2017
|
|
|
Repayments
|
|
|
Conversions to Common Stock
|
|
|
Forgiveness of Principal
|
|
|
Balance, March 31, 2018
|
|
Noteholder 5
|
|
11/9/2015
|
|
11/9/2016
|
|
|
100,000
|
|
|
|
48,897
|
|
|
|
(12,000
|
)
|
|
|
(26,640
|
)
|
|
|
(10,257
|
)
|
|
|
-
|
|
Totals
|
|
|
|
|
|
$
|
100,000
|
|
|
$
|
48,897
|
|
|
$
|
(12,000
|
)
|
|
$
|
(26,640
|
)
|
|
$
|
(10,257
|
)
|
|
$
|
-
|
|
The
following is a summary of all convertible notes outstanding as of March 31, 2018:
Holder
|
|
Issue Date
|
|
Due Date
|
|
Principal
|
|
|
Discount
|
|
|
Unamortized Debt Issue Costs
|
|
|
Carrying Value
|
|
|
Accrued Interest
|
|
Noteholder 6
|
|
11/2/2016
|
|
11/2/2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,326
|
|
Totals
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,326
|
|
Accrued
Interest
There
was $5,326 and $35,136 of accrued interest due on all convertible notes as of March 31, 2018 and December 31, 2017, respectively
which is included in accounts payable and accrued liabilities on the balance sheet (see
Note 8 – Accounts Payable and
Accrued Liabilities)
.
NOTE
5 – DERIVATIVE LIABILITIES
The
Company analyzed the conversion features of the convertible notes payable as discussed in
Note 4 – Notes Payable and
Convertible Notes Payable
for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and
determined that the embedded conversion features should be classified as a derivative liability because the exercise price of
these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature
is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance
with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
As
of March 31, 2018, the Company had a $133,998 derivative liability balance on the balance sheet and recorded a gain from derivative
liability fair value adjustment of $413,206 during the three months ended March 31, 2018. The derivative liability
activity comes from convertible notes payable as discussed in
Note 4
–
Notes Payable and Convertible Notes Payable
.
In addition to derivative liabilities associated with convertible notes payable, the Company recorded a derivative liability due
to a ratchet strike price feature associated with the options issued in the sale of TPP. The options are exercisable at $0.18
per share unless the Company’s common stock is quoted at a price greater than $0.50 per share at which point the options
are exercisable at $0.001 per share.
A
summary of outstanding derivative liabilities as of March 31, 2018 is as follows:
Holder
|
|
Derivative Balance
|
|
Option Holder
|
|
$
|
133,998
|
|
Total
|
|
$
|
133,998
|
|
The
value of the embedded derivative liabilities for the convertible notes payable and outstanding option awards was determined using
the Black-Scholes option pricing model based on the following assumptions:
|
|
March 31,
2018
|
|
December 31,
2017
|
Expected volatility
|
|
209%
|
|
178% - 334%
|
Expected term
|
|
2.01 years
|
|
.01 - 2.25 years
|
Risk free rate
|
|
2.27%
|
|
0.97% - 1.89%
|
Forfeiture rate
|
|
0%
|
|
0%
|
Expected dividend yield
|
|
0%
|
|
0%
|
A
summary of the changes in derivative liabilities balance for the three months ended March 31, 2018 is as follows:
Fair Value of Embedded Derivative Liabilities:
|
|
|
|
Balance, December 31, 2017
|
|
$
|
574,130
|
|
Initial measurement of derivative liabilities
|
|
|
-
|
|
Change in fair value
|
|
|
(413,206
|
)
|
Change due to conversion
|
|
|
(26,926
|
)
|
Balance, March 31, 2018
|
|
$
|
133,998
|
|
NOTE
6 – STOCK OPTIONS
The
following table summarizes all stock option activity for the three months ended March 31, 2018:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
Outstanding, December 31, 2017
|
|
|
31,613,142
|
|
|
$
|
0.131
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, March 31, 2018
|
|
|
31,613,142
|
|
|
$
|
0.131
|
|
The
following table discloses information regarding outstanding and exercisable options at March 31, 2018:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise
Prices
|
|
|
Number of
Option Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Life
(Years)
|
|
|
Number of
Option Shares
|
|
|
Weighted Average
Exercise Price
|
|
$
|
0.18
|
|
|
|
17,500,000
|
|
|
$
|
0.18
|
|
|
|
2.59
|
|
|
|
10,833,334
|
|
|
$
|
0.18
|
|
|
0.07
|
|
|
|
14,113,142
|
|
|
|
.07
|
|
|
|
2.24
|
|
|
|
14,113,142
|
|
|
|
0.07
|
|
|
|
|
|
|
31,613,142
|
|
|
$
|
0.131
|
|
|
|
2.41
|
|
|
|
24,946,476
|
|
|
$
|
0.118
|
|
On
May 31, 2016, the Company issued 10,000,000 options to a board member pursuant to its agreement with the member. One third of
the 10,000,000 options issued vested immediately upon execution of the related agreement, resulting in an immediate stock based
expense of $558,323 being recognized. The remaining shares of the issuance vest based on performance milestones which the Company
believes is 80% likely of occurring resulting in stock based expense of $558,328 during the year ended December 31, 2016, at which
point there was a 50% probability of attainment, and $334,997 during the year ended December 31, 2017 at which point the probability
of attainment was updated to 80%. There was no change in the estimated probability to attain the performance criteria during the
three months ended March 31, 2018. The remaining fair value of the unvested shares of $223,331 will be recognized according to
the estimated probability of the performance obligations being achieved.
On
July 14, 2016, the Company issued 7,500,000 options as part of its acquisition of TPP. The options were exercisable for a period
of three years and carried an exercise price of $0.18 per share. The options carried a ratchet pricing feature whereby they become
exercisable at $0.001 per share if the Company’s common stock trades at a price greater than $0.50 per share. The options
carried a value of $898,490 which was recorded as a derivative liability as discussed in
Note 5 – Derivative Liabilities
.
On March 31, 2017, the Company, as part of its sale of TPP, cancelled these options and reissued 7,500,000 options that are exercisable
for a period of three years and carry an exercise price of $0.18 per share. The options carry a ratchet pricing feature whereby
they become exercisable at $0.05 per share if the Company’s common stock trades at a price greater than $0.50 per share.
There
was an unrecognized stock option based expense of $223,331 as of March 31, 2018.
As
discussed in
Note 9 – Stockholders’ Equity,
the Company has committed to issue more shares of common stock
than it has authorized. The Company does not have available shares in its treasury to issue should option holders choose to exercise.
As a result, the value of certain stock options are included in stock based liabilities on the balance sheet and subject to remeasurement
at each reporting period.
NOTE
7 – RELATED PARTY TRANSACTIONS
The
Company has had extensive dealings with related parties including those in which our Chief Executive Officer holds a significant
ownership interest as well as an executive position during the years ended December 31, 2017 and 2016. Due to our operational
losses, the Company has relied to a large extent on funding received from Next Communications, Inc., an organization in which
our Chief Executive Officer and Chairman holds a controlling equity interest and holds an executive position. During the first
calendar quarter of 2017, Next Communications, Inc. filed for bankruptcy protection. As a result, the related party payable is
being handled by a court appointed trustee as an asset of Next Communications, Inc. and the Company may need to begin repaying
the amounts due on a more fixed schedule.
With the exception of the Company’s
purchase of a 9% interest in Next Cala, Inc. from a related party and the related party payable to Orlando Taddeo for the acquisition
of Limecom as described below, amounts scheduled below as “due to related parties” and “due from related parties”
have not had their terms, including amounts, collection or repayment terms or similar provisions memorialized in formalized written
agreements.
Related
party balances at March 31, 2018 and December 31, 2017 consisted of the following:
Due
from related parties
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
(a) Glocal Card Services
|
|
|
36,000
|
|
|
|
36,000
|
|
Total Due from related parties
|
|
$
|
36,000
|
|
|
$
|
36,000
|
|
Related
party payables, net of discounts
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
(b) Due to Next Communications, Inc. (current)
|
|
$
|
2,919,331
|
|
|
$
|
2,919,615
|
|
(c) Due to Asiya Communications SAPI de C.V. (current)
|
|
|
5,998
|
|
|
|
5,998
|
|
(d) Michael DePrado (current)
|
|
|
99,604
|
|
|
|
99,604
|
|
(e) Orlando Taddeo, net of discount of $36,035 and $72,069 (long term, due July 21, 2019)
|
|
|
2,571,635
|
|
|
|
2,535,601
|
|
(f) Next Cala 360 (current)
|
|
|
10,350
|
|
|
|
7,350
|
|
Total Due from related parties
|
|
$
|
5,606,918
|
|
|
$
|
5,568,168
|
|
(a)
|
Glocal
Card Services is our partner in the Glocal Joint Venture
|
(b)
|
Next
Communication, Inc. is a corporation in which our Chief Executive Officer holds a controlling interest and serves as the Chief
Executive Officer
|
(c)
|
Asiya
Communications SAPI de C.V.is a telecommunications company organized under the laws of Mexico, in which our Chief Executive
Officer holds a substantial interest and is involved in active management.
|
(d)
|
Michael
DePrado is our Chief Operating Officer
|
(e)
|
Amount
due to Orlando Taddeo from the acquisition of Limecom
|
(f)
|
Next
Cala 360, is a Florida corporation established and managed by our Chief Executive Officer.
|
During
the three months ended March 31, 2018 and 2017, the Company recorded interest expense of $59,757 and $59,758 using an
interest rate equal to that on the outstanding convertible notes payable as discussed in
Note 4 – Notes Payable and
Convertible Notes Payable
as imputed interest on the related party payable due to Next Communications. The interest was
immediately forgiven by the related party and recorded to additional paid in capital.
Accounts
Receivable, Related Party
The
Company had outstanding accounts receivable of $10,221 from related parties as of March 31, 2018 of which $9,527 was due from
Next Communications and $694 was due from Asiya Communications SAPI de C.V. The accounts receivable arose from the sale of wholesale
telecommunications minutes to these entities.
Accounts Payable, Related Party
The Company had outstanding accounts payable of $1,310,712 to related parties as of March 31, 2018 of
which $811,893 was due to Next Communications and $498,819 was to Asiya Communications SAPI de C.V.
Revenues
(Related Party)
The Company generated revenues from related
parties of $2,247,944 and $3,793 during the three months ended March 31, 2018 and 2017 as itemized below:
|
|
For the Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Next Communications, Inc.
|
|
$
|
1,124,477
|
|
|
$
|
-
|
|
Asiya Communications SAPI de C.V.
|
|
|
1,123,467
|
|
|
|
-
|
|
Next Cala 360
|
|
|
-
|
|
|
|
3,793
|
|
Total
|
|
$
|
2,247,944
|
|
|
$
|
3,793
|
|
NOTE
8 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities consisted of the following as of March 31, 2018 and December 31, 2017:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Trade payables
|
|
$
|
3,818,180
|
|
|
$
|
5,067,841
|
|
Settlements payable
|
|
|
602,431
|
|
|
|
892,431
|
|
Accrued expenses
|
|
|
586,342
|
|
|
|
699,786
|
|
Accrued interest
|
|
|
12,131
|
|
|
|
40,955
|
|
Accrued salaries and wages
|
|
|
385,192
|
|
|
|
329,037
|
|
Total
|
|
$
|
5,404,276
|
|
|
$
|
7,030,050
|
|
NOTE
9 – STOCKHOLDERS’ EQUITY
Preferred
Stock
At
the time of incorporation, the Company was authorized to issue 60,000,000 shares of preferred stock with a par value of $0.001
of which 50,000,000 was undesignated and 10,000,000 as Series B. With the completion of the recapitalization as discussed in
Note
1 – Organization and Description of Business
, the outstanding Series A preferred shares were cancelled leaving a balance
outstanding of Preferred Series A of -0-.
The
Company has 10,000,000 shares of Preferred Stock designated as Series B issued and outstanding. The Series B Preferred Stock is
not convertible into Common Stock at any time and is not entitled to dividends of any kind or liquidation, dissolution rights
of any kind. The holders of Series B Preferred Stock shall be entitled to 1,000 votes for each share of Series B Stock that is
held when voting together with holders of the Common Stock.
The
Company has 36,000,000 shares of Preferred Stock designated as Series D. The Class D Preferred Stock must be redeemed
within six (6) months (or as soon thereafter as permitted by law) following final resolution of the Corporation’s affiliates
lawsuit against ViberMedia , Inc. (Next Communications, Inc. and Nxtgn, Inc. v. Viber Media, Inc.) which is, as of the date of
this filing, pending in U.S. District Court for the Southern District of New York or any successor or other lawsuit relating to
the subject matter thereof in which the Corporation (or any successor-in-interest) is named as a plaintiff (the “Lawsuit”).
There were no Series D Preferred shares issued or outstanding as of March 31, 2018 or December 31, 2017.
Common
Stock
Effective
November 20, 2015 the Company amended its Articles of Incorporation to decrease the common shares authorized from 9,500,000,000
to 360,000,000 with a par value of $0.001.
During
the three months ended March 31, 2018, the Company issued 11,428,572 common shares as the settlement for common stock subscriptions
totaling $400,000; 3,443,847 common shares valued at $154,973 for the settlement of stock based liabilities and 600,000 common
shares for the settlement of a convertible note payable.
Summary of common stock activity for the three months ended March 31, 2018
|
|
Outstanding shares
|
|
Balance, December 31, 2017
|
|
|
342,118,912
|
|
Shares issued for common stock subscriptions
|
|
|
11,428,572
|
|
Shares issued as settlement of stock based liabilities
|
|
|
3,443,847
|
|
Shares issued for settlement of convertible notes payable and accrued interest (b)
|
|
|
600,000
|
|
Balance, March 31, 2018
|
|
|
357,591,331
|
|
(a)
|
Shares
issued in connection with outstanding convertible note payable and convertible accrued interest on convertible notes payable in
accordance with a settlement agreement entered into as discussed in
Note 4 – Notes Payable and Convertible Notes Payable
.
|
The
Company has 357,591,331 common shares issued and outstanding and 30,699,159 common shares committed to be issued as of March 31,
2018. The Company authorized common shares of 360,000,000 resulting in a commitment of common shares in excess of authorized totaling
28,290,490.
Due to the shortfall in authorized common
shares, the Company carries the fair value of the common shares committed not yet issued as a stock based liability. The values
of the unissued shares are subject to fair value measurement at each reporting period. As of March 31, 2018, stock based liabilities
consisted of:
|
|
Number of Common Shares and Common Share Equivalents
|
|
|
Fair Value
|
|
Common stock to be issued (1)
|
|
|
30,699,159
|
|
|
$
|
798,178
|
|
Options to purchase common stock (2)
|
|
|
24,113,142
|
|
|
|
416,150
|
|
Totals
|
|
|
54,812,301
|
|
|
$
|
1,214,328
|
|
(1)
|
Includes
10,360,962 common shares committed to be issued in connection with our acquisition of Limecom as discussed in
Note 1 Organization
and Description of Business
.
|
(2)
|
Excludes
7,500,000 options with ratchet pricing features included in derivative liabilities.
|
As
of March 31, 2018, the Company did not have adequate authorized common shares to fulfill its obligations under certain agreements.
Specifically, the Company has committed to issue common shares in excess of authorized totaling 28,290,490; has 31,613,142 options
to purchase common stock issued of which 24,946,476 are exercisable and has outstanding convertible accrued interest on a convertible
note payable the the holder of which has the right to convert into 455,215 shares of common stock as of March 31. Total common
stock and common stock equivalents in excess of the Company’s authorized common shares are summarized as follows:
Committed shares beyond authorized
|
|
|
28,290,490
|
|
Stock options granted
|
|
|
31,613,142
|
|
Convertible notes payable and accrued interest
|
|
|
455,215
|
|
Total
|
|
|
60,358,847
|
|
The Company is actively working to remedy
the common shares committed to be issued beyond its total authorized and is currently assessing increasing the authorized
common shares or effecting a reverse stock split.
NOTE
10 – CUSTOMER CONCENTRATION
The
Company generated approximately 57% of its revenues for the three months ended March 31, 2018 from four separate customers. The
Company did not have any one customer account for more than 10% of its revenues during the three months ended March 31, 2017.
As
of March 31, 2018, three separate customers accounted for approximately 89% of the Company’s total accounts receivable.
As of December 31, 2017, three separate customers accounted for approximately 78% of the Company’s total accounts receivable.
NOTE
11 – RESTATEMENT OF THE THREE MONTHS ENDED MARCH 31, 2017
The Company has restated its statement of
operations and statement of cash flows for the three months ended March 31, 2017 to correct an error in the treatment of the disposal
of a subsidiary. The Company had originally recorded the elimination of the non-controlling interest component of equity as an
equity only transaction by absorbing $2,540,903 of non-controlling interest equity into that of the Company. The correct treatment
of the disposal necessitates the amount of non-controlling interest included in equity to be recognized through the income statement
as a gain or loss on the disposal of a subsidiary. The impact to the financial statements is an increase loss from discontinued
operations and net loss of $2,540,903. There was no impact on the net cash used in operations during the three months ended March
31, 2017 as a result of the restatement.
Although not presented, the impact of the restatement
on the Company’s balance sheet as of March 31, 2017 is an increase to additional paid in capital and increase to accumulated
deficit of $2,540,903.
NOTE
12 – COMMITMENTS AND CONTINGENCIES
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the
assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable
and material, would be disclosed.
On
April 7, 2016, the Company executed an agreement with a service provider to provide certain services for the Company. In addition
to cash and stock compensation, the agreement requires 1% of the outstanding common share equivalent to be issued to the third
party when the market capitalization of the Company reaches $500,000,000 and an additional 1% when it reaches $750,000,000. The
Company recorded an expense associated with the non-variable portion of the agreement. However, the probability of the Company’s
market capitalization reaching these thresholds is uncertain at present and the Company has not accrued a contingent loss as of
March 31, 2018 or December 31, 2017 as a result.
On
October 14, 2014, one of our operating subsidiaries, NxtGn Inc., and Next Communications, Inc., an entity controlled by our CEO,
(collectively the “Plaintiffs”) filed suit in the United States District Court for the Southern district of New York
against Viber Media, Inc. (“Viber”). Plaintiffs filed an Amended Complaint asserting four claims: misappropriation
of a business idea, misappropriation of trade secrets, breach of contract, and unjust enrichment. Viber moved the Court
to dismiss the Amended Complaint. On March 30, 2016, U.S. District Judge Richard Sullivan issued an opinion and order on
Viber’s motion to dismiss. Specifically, Judge Sullivan ordered that Viber’s motion to dismiss is granted on
Plaintiffs’ misappropriation of a business idea claim, but denied as to their misappropriation of trade secrets, breach
of contract, and unjust enrichment claims. The Company has not accrued any gains associated with this case as it would be a contingent
gain and recorded when received.
On February 12, 2018, the Company was served
with a complaint from Viber for reimbursement of attorney’s fees and costs totaling $527,782 arising from the litigation
listed above. The Company is vigorously defending their rights in this case as we believe this demand is premature as litigation
is ongoing. The Company has not accrued an estimated loss related to this complaint as of March 31, 2018 or December 31, 2017
given the premature nature of the motion.
On
October 20, 2016, the Company received a notice it has been named as a defendant in a suit brought against Next Communications,
an entity controlled by our CEO. In addition to being named a defendant, it was requested the Company provide certain documents
for the discovery process. Due to the original suit being filed against a related party and not against the Company or its subsidiaries,
we believe it likely the Company and its subsidiaries will be dismissed as defendants and has not accrued a contingent loss as
of March 31, 2018 or December 31, 2017 as a result.
On
July 6, 2017, the Company received notice an existing legal claim against Accent InterMedia (“AIM”) had been amended
to include claims against the Company. The claims brought against the Company include failure to comply with certain judgments
for collection of funds by the plaintiff while having a controlling interest in AIM via its ownership of Transaction Processing
Products (“TPP”). The Company believes the amended case is without merit and that, per its agreement to sell its interest
in TPP, any claims brought against AIM or TPP would be the responsibilities of the current interest holders. Due to the original
suit being filed against AIM and amended to include the Company after it disposed of its interest in TPP, which had a controlling
interest in AIM, we believe it likely the Company and its subsidiaries will be dismissed as defendants.
On
December 20, 2017, a Complaint was filed by J. P. Carey Enterprises, Inc., alleging a claim for $473,264 related to the FranjoseYglesias-Bertheau
filed lawsuit against PLKD listed above. Even though NGH made the agreed payment of $10,000 on January 2, 2017 and issued 3,600,720
shares as conversion of the $70,000 note as agreed in the settlement agreement, the Plaintiff alleges damages which NGH claims
are without merit because they received full compensation as agreed. NGH is in the process of defending itself against these claims.
During 2016, the Limecom had disputed accounts payable with three (3) carriers, which the Company entered
into separate settlement agreements, totaling approximately $1,147,000. Under the terms of these settlement agreements, the Company
was provided with extended payment terms on the outstanding balances. These settlement agreements are non-interest bearing and
include certain default provisions as disclosed in the related agreements. The Company assumed a total of $676,563 of this liability
on October 23, 2017 as part of its acquisition of Limecom and made repayments totaling $10,000 during the period of acquisition
to December 31, 2017 and $95,136 during the three months ended March 31, 2018. The remaining outstanding principal balance of these
settlement agreements amounted to approximately $666,563 and $571,427 as of December 31, 2017 and March 31, 2018, respectively.
Of these totals, $451,427 and $546,563 is current and included in accrued liabilities and $120,000 and $120,000 is long term and
represented by other long term liabilities as of March 31, 2018 and December 31, 2017, respectively.
On October 23, 2017, the Company assumed a
settlement liability Limecom had entered into with American Express as part of its acquisition as discussed in
Note 1 –
Organization and Description of Business.
As of the date of acquisition, there was a total outstanding balance of $995,158.
The Company made repayments totaling $102,727 from the period of October 23, 2017 to December 31, 2017 and $290,000 during the
three months ended March 31, 2018 leaving a remaining balance due of $602,431 and $892,431 as of March 31, 2018 and December 31,
2017, respectively. The balance due is included in accounts payable accrued liabilities as of March 31, 2018 and December 31,
2017.
The
Company maintains office space on a month to month basis and has no long term leases in effect.
NOTE
13 – PRO FORMA STATEMENTS OF OPERATIONS
On
October 23, 2017, the Company completed its acquisition of Limecom as discussed in
Note 1 – Organization and Description
of Business
. The Company is furnishing the following pro forma statements of operations representing the combined results
of the Company and Limecom had the acquisition been completed on January 1, 2017.
NEXT GROUP HOLDINGS, INC.
COMBINED PRO FORMA STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2017
|
|
NGH
|
|
|
Limecom
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma
|
|
Revenue
|
|
$
|
500,591
|
|
|
$
|
25,834,029
|
|
|
$
|
-
|
|
|
$
|
26,334,620
|
|
Cost of revenue
|
|
|
335,257
|
|
|
|
25,193,706
|
|
|
|
107,143
|
(a)
|
|
|
25,636,106
|
|
Gross margin
|
|
|
165,334
|
|
|
|
640,323
|
|
|
|
(107,143
|
)
|
|
|
698,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer compensation
|
|
|
216,166
|
|
|
|
-
|
|
|
|
-
|
|
|
|
216,166
|
|
Professional fees
|
|
|
491,284
|
|
|
|
50,618
|
|
|
|
-
|
|
|
|
541,902
|
|
General and administrative
|
|
|
96,892
|
|
|
|
220,209
|
|
|
|
-
|
|
|
|
317,101
|
|
Total operating expenses
|
|
|
804,342
|
|
|
|
270,827
|
|
|
|
-
|
|
|
|
1,075,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(639,008
|
)
|
|
|
369,496
|
|
|
|
(107,143
|
)
|
|
|
(376,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
868
|
|
|
|
42,450
|
|
|
|
-
|
|
|
|
43,318
|
|
Interest expense
|
|
|
(359,242
|
)
|
|
|
(84,953
|
)
|
|
|
-
|
|
|
|
(444,195
|
)
|
Loss on derivative liability
|
|
|
(414,037
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(414,037
|
)
|
Total other income (expense)
|
|
|
(772,411
|
)
|
|
|
(42,503
|
)
|
|
|
-
|
|
|
|
(814,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(1,411,419
|
)
|
|
$
|
326,993
|
|
|
$
|
(107,143
|
)
|
|
$
|
(1,191,569
|
)
|
(a)
|
Amortization of acquired intangible assets from acquisition
|
NOTE
14 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events
through the date of the filing of this report on Form 10-Q. The Company is not aware of any significant events that occurred subsequent
to the balance sheet date but prior to the filing of this report that would have a material impact on its consolidated financial
statements.