NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018
(Unaudited)
1.
ORGANIZATION AND BASIS OF PRESENTATION
During
the periods covered by these financial statements, GTX Corp and subsidiaries (collectively, the “Company,” “GTX,”
“we” or “our”) were engaged in businesses that design, develop manufacture and sell various interrelated
and complementary products and services in the Personal Location Wearable Technology marketplace. GTX Corp owns 100% of the issued
and outstanding capital stock of Global Trek Xploration and LOCiMOBILE, Inc.
Global
Trek Xploration designs, develops, manufactures and sells hardware, software, connectivity services of Global Positioning System
(“GPS”) cellular, RF and Bluetooth Low Energy (“BLE”) monitoring and tracking solutions that provide real-time
tracking of the whereabouts of people and high valued assets. Utilizing a miniature quad band GPRS transceiver, antenna, circuitry,
battery and inductive charging circuitry, our product(s) can be customized and integrated into numerous products and form factors
whose location and movement can be monitored in real time through our 24x7 tracking portal or web enabled mobile devices Our core
products and services are supported by an extensive IP portfolio of patents, patents pending, registered trademarks, copyrights,
URLs and a library of software source code.
LOCiMOBILE,
Inc. develops Smartphone application (“App”) for both consumer and enterprise deployment. With a suite of mobile applications
that turn the iPhone, iPad, Android and other GPS enabled handsets into a tracking device which can be tracked from handset to
handset or through our tracking portal or on any connected device with internet access. LOCiMOBILE has launched numerous Apps
across multiple mobile device operating systems and continues to launch consumer and enterprise apps. LOCiMOBILE apps have over
2 million downloads across 50 plus countries and have been ranked in the iTunes top 10 downloads and highest grossing App category.
Basis
of Presentation
The
accompanying unaudited consolidated financial statements of GTX have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and applicable regulations of the U.S. Securities and Exchange
Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations. In the
opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement
of financial position and results of operations have been included. Our operating results for the six months ended June 30, 2018
are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The accompanying unaudited
consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year
ended December 31, 2017, which are included in our Annual Report on Form 10-K.
The
accompanying consolidated financial statements reflect the accounts of GTX Corp and its wholly owned subsidiaries. All significant
inter-company balances and transactions have been eliminated.
O
n
June 22, 2018, as previously disclosed, the Company effected a 1-for-75 reverse stock split of its common stock. All references
to shares of common stock outstanding, average number of shares outstanding and per share amounts in these consolidated financial
statements and notes to consolidated financial statements have been restated to reflect the reverse stock split on a retroactive
basis.
Going
Concern
The
consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize
its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred
a net loss of $1,046,330 and used cash in operations of $289,719 for the six months ended June 30, 2018 and as of June
30, 2018 has a stockholders’ deficit of $2,859,924. The Company anticipates further losses in the development
of its business.
The
Company’s independent registered public accounting firm has also included explanatory language in their opinion accompanying
the Company’s audited financial statements for the year ended December 31, 2017. The Company’s financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
The
ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining
the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come
due. The Company’s ability to raise additional capital through the future issuances of debt or equity is unknown. The obtainment
of additional financing, the successful development of the Company’s contemplated plan of operations, or its attainment
of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors
raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements
of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
2.
SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of the accompanying unaudited consolidated financial statements requires the use of estimates that affect the reported
amounts of assets, liabilities, revenues, expenses and contingencies. These estimates include, but are not limited to, estimates
related to revenue recognition, allowance for doubtful accounts, inventory valuation, tangible and intangible long-term asset
valuation, warranty and other obligations and commitments. Estimates are updated on an ongoing basis and are evaluated based on
historical experience and current circumstances. Changes in facts and circumstances in the future may give rise to changes in
these estimates which may cause actual results to differ from current estimates.
Fair
Value Estimates
Pursuant
to the Accounting Standards Codification (“ASC”) No. 820, “
Disclosures About Fair Value of Financial Instruments
”,
the Company records its financial assets and liabilities at fair value. ASC No. 820 provides a framework for measuring fair value,
clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between
market participants at the reporting date. ASC No. 820 establishes a three-tier hierarchy, which prioritizes the inputs used in
the valuation methodologies in measuring fair value:
Level
1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level
2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability
through correlation with market data at the measurement date and for the duration of the asset/liability’s anticipated life.
Level
3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability
at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs
to the model.
The
carrying values for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities
approximate their fair value due to their short maturities. The Company uses Level 2 inputs for its valuation methodology for
the derivative liabilities.
Derivative
Instruments
Our
debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances
may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.
Our
derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative
liability recorded as charges or credits to income, in the period in which the changes occur. For bifurcated conversion options
that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using the Black-Scholes
option pricing model. This model requires assumptions related to the remaining term of the instrument and risk-free rates of return,
our current Common Stock price and expected dividend yield, and the expected volatility of our Common Stock price over the life
of the option.
Comprehensive
Loss
FASB
ASC 220 establishes rules for reporting and displaying comprehensive loss and its components. Comprehensive loss is the sum of
net loss as reported in the consolidated statements of operations and comprehensive loss transactions as reported in the consolidated
statement of stockholders’ deficit. Comprehensive loss transactions that currently apply to the Company result from unrealized
losses on available for sale investments.
Reclassifications
For
comparability, certain prior period amounts have been reclassified, where appropriate, to conform to the financial statement presentation
used in 2017. These reclassifications have no impact on net loss.
Revenue
Effective
January 1, 2018 the Company adopted Accounting Standards Update (“ASU”) no. 2014-09,
Revenue from Contracts with
Customers (ASC 606)
. Under the update, revenue is recognized based on a five-step model. The core principle of the model is
that revenue will be recognized when the transfer of promised goods or services to customers is made in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption of this standard
did not result in any changes to previously reported amounts.
We
account for revenue in accordance with ASC 606. A performance obligation is a promise in a contract to transfer a distinct good
or service to the customer, and is the unit of account in ASC 606. Revenue is measured as the amount of consideration we expect
to receive in exchange for transferring goods or providing services. The contract transaction price is allocated to each distinct
performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We do not have any significant
payment terms, as payment is received shortly after goods are delivered or services are provided.
We
derive our revenues primarily from hardware sales, subscription services fees, IP licensing and professional services fees. Hardware
includes our SmartSole, Military and other Stand-Alone Devices. Subscription services revenues consist of fees from customers
accessing our cloud-based software solutions and subscription or license fees for our platform. Professional services and other
revenues consist primarily of fees from implementation services, configuration, data services, training and managed services related
to our solutions. IP licensing is related to our agreement with Inventergy whereby we have partnered in order to monetize our
IP portfolio (see, Note 3, below).
Product
sales
At
the inception of each contract, we assess the goods and services promised in our contracts and identify each distinct performance
obligation. The Company recognizes revenue upon the transfer of control of promised products or services to the customer in an
amount that depicts the consideration the Company expects to be entitled to for the related products or services. For the large
majority of the Company’s sales, transfer of control occurs once product has shipped and title and risk of loss have transferred
to the customer.
Some
of our contracts have multiple performance obligations, including contracts that combine hardware with post-implementation customer
support. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance
obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary
method used to estimate standalone selling price is the expected cost plus a margin approach, under which we estimate our expected
costs of satisfying a performance obligation and add an appropriate margin for that distinct good or service. We also use the
adjusted market approach whereby we estimate the price that customers in the market would be willing to pay. In assessing whether
to allocate variable consideration to a specific part of the contract, we consider the nature of the variable payment and whether
it relates specifically to its efforts to satisfy a specific part of the contract. Certain of our software implementation performance
obligations are satisfied at a point in time, typically when customer acceptance is obtained.
Services
Income
The
Company’s software solutions are available for use as hosted application arrangements under subscription fee agreements
without licensing perpetual rights to the software. Subscription fees from these applications are recognized over time on a ratable
basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. Our
subscription contracts are generally one to three months in length. Amounts that have been invoiced are recorded in accounts receivable
and deferred revenues or revenues, depending on whether the revenue recognition criteria have been met.
The
majority of our professional services arrangements are recognized on a time and materials basis. Professional services revenues
recognized on a time and materials basis are measured monthly based on time incurred and contractually agreed upon rates. Certain
professional services revenues are based on fixed fee arrangements and revenues are recognized based on the proportional performance
method. In some cases, the terms of our time and materials and fixed fee arrangements may require that we defer the recognition
of revenue until contractual conditions are met. Data services and training revenues are generally recognized as the services
are performed.
Royalty
Revenue
Royalty
revenue recorded by the Company relates exclusively to the Company’s License and Partnership agreement with Inventergy which
provides for ongoing royalties based on monetization of IP licenses. The Company recognizes revenue for royalties under ASC 606,
which provides revenue recognition constraints by requiring the recognition of revenue at the later of the following: 1) sale
or usage of the products or 2) satisfaction of the performance obligations. The Company has satisfied its performance obligations
and therefore recognizes royalty revenue when the sales to which the royalties relate are completed.
Accounts
receivable, net
The
timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable are recorded at the invoiced
amount, net of any necessary allowance for doubtful accounts. A receivable is recognized in the period the Company provides the
underlying services or when the right to consideration is unconditional. The balance of accounts receivable, net of the allowance
for doubtful accounts, as of June 30, 2018 and December 31, 2017 is presented in the accompanying condensed consolidated balance
sheets. The Company established an allowance for doubtful accounts of $14,056 and $22,312 as of June 30, 2018 and December
31, 2017, respectively.
Deferred
revenue
Deferred
revenue consists primarily of the transaction price allocated to performance obligations that are recognized over a period of
time basis. Billings associated with such items are typically completed upon the transfer of control of promised products or services
to the customer and recorded to accounts receivable until payment is received. Deferred costs primarily refer to the recurring
fees in excess of a $500 minimum that is prorated over the term of the contract. Deferred revenue also consists of advance payments
from customers for uncompleted contracts.
Loss
per Common Share
Basic
earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed by dividing the
net income applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional
common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock
method. Potential common shares are excluded from the computation when their effect is antidilutive.
For
the periods ended June 30, 2018 and 2017, the calculations of basic and diluted loss per share are the same because potential
dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
Convertible
promissory notes
|
|
|
8,079,388
|
|
|
|
8,568,609
|
|
|
Convertible
promissory notes related parties
|
|
|
1,179,394
|
|
|
|
611,959
|
|
|
Warrants
|
|
|
366,667
|
|
|
|
398,667
|
|
|
Total
|
|
|
9,625,459
|
|
|
|
9,599,235
|
|
Recently
Issued Accounting Pronouncements
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires
a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease
payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about
leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that
the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification
of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount,
timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees
for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company has
not yet evaluated the impact of the adoption of ASU 2016-02 on the Company’s financial statement presentation or disclosures.
In
June 2018, the FASB issued Accounting Standards Update 2018-07, Compensation – Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718 to include
share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 also clarifies that Topic 718
does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction
with selling goods or services to customers as part of a contract accounted for under Revenue from Contracts with Customers (Topic
606). ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. Early adoption is permitted. The Company will adopt the provisions of ASU 2018-07 in the quarter beginning January 1, 2019.
The adoption of ASU 2018-07 is not expected to have any impact on the Company’s financial statement presentation or disclosures.
Other
recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on
the Company’s present or future consolidated financial statements.
3.
JOINT VENTURE AND INVESTMENT IN EQUITY SECURITIES
Joint
Venture Agreement
On
June 16, 2016, the Company entered into a Definitive Agreement with Inventergy Innovations, LLC (“Inventergy”), a
subsidiary of Inventergy Global, Inc. (NASDAQ: INVT). The Company partnered with Inventergy to monetize three (3) GTX Patents.
Upon signing the Agreement, the Patents were assigned to an Inventergy subsidiary, and Inventergy assigned a 45% interest in the
entity to GTX. Inventergy is also obligated to make a sequence of quarterly payments to GTX beginning in January 2017, which payments
represent non-refundable advances against future royalty and other payments. Pursuant to a non-exclusive license back to GTX,
GTX will still retain all use rights of the 3 patents. During the period ended June 30, 2018, the Company has received $12,500
as a non-refundable advance from Inventergy.
The
Company uses the equity method to account for its 45% investment in the Inventergy subsidiary. Under the equity method, the Company
recognizes its share of the earnings and losses of the subsidiary as they accrue instead of when they are realized. As of June
30, 2018 and December 31, 2017, the Company’s investment in the subsidiary was $0.
Investment
in Equity Securities
As
of June 30, 2018, we own 42,500 shares of common stock of INVT at a closing price of $0.0326, for a value of $1,386. The Company
previously accounted for this as an investment in available for sale securities, and as such unrealized gains and losses were
recorded as adjustment to accumulated other comprehensive income.
In
January 2018, the Company adopted ASU 2016-01, Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities ("ASU 2016-01 using the modified retrospective transition method. Upon adoption, we reclassified
$59,249 related to available-for-sale investment securities from accumulated other comprehensive income to accumulated deficit
as a cumulative-effect adjustment. Under the new guidance, these securities will continue to be measured at fair value; however,
the changes in unrealized net holding gains and losses will be reported in earnings. Comparative information continues to be reported
under the accounting standards in effect for the period. The effect of the change for the three months ended June 30, 2018 was
an increase to net loss of approximately $1,844, which is included in Other income (expense) on the Condensed Consolidated Statements
of Operations.
4.
RELATED PARTY TRANSACTIONS
In
order to preserve cash for other working capital needs, various officers and members of management have agreed to accrue, and
defer payment of, portions of their salaries since fiscal 2011. As of June 30, 2018 and December 31, 2017, the Company owed $94,886
and $0, respectively for such accrued wages which are included in accounts payable on the balance sheet.
5.
DEBT
Convertible
Notes
As
of June 30, 2018 and December 31, 2017, the Company had a total of $1,174,875 and $923,875, respectively, of convertible
notes payable, which consisted of the following:
|
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
a)
Convertible Notes – with fixed conversion
|
|
$
|
911,000
|
|
|
$
|
517,500
|
|
|
b)
Convertible Notes – with variable conversion
|
|
|
273,
875
|
|
|
|
406,375
|
|
|
Total
|
|
|
1,184,875
|
|
|
|
923,875
|
|
|
Less:
Debt discount
|
|
|
(106,887
|
)
|
|
|
(142,117
|
)
|
|
Total
convertible notes, net of debt discount
|
|
$
|
1,077,988
|
|
|
$
|
781,758
|
|
|
|
a)
|
Convertible
notes payable with principal balance of $517,500 as of December 31, 2017 consist of loans provided to the Company from various
investors. These notes carry simple interest at a rate ranging from 0% to 12% per annum and with terms ranging from 1 to 2
years. In lieu of the repayment of the principal and accrued interest, the outstanding amounts are convertible, at the option
of the note holder, generally at any time on or prior to maturity and automatically under certain conditions, into the Company’s
common shares at $0.015 to $0.002 per share. These notes became due in 2017 and prior.
|
|
|
|
|
|
|
|
During
the period ended June 30, 2018, the Company entered into Convertible Promissory Agreements with accredited investors for an
aggregate principal balance of $425,000. The Purchasers may convert their notes after six months into common shares in the
Company at a price equal to $0.15. The notes bear interest of 12% mature at various dates ranging from four to six months.
The notes were issued pursuant to Section 4(a)(2) of the Securities Act of 1933
|
|
|
|
|
|
|
|
On
the dates of the agreement, the closing price of the common stock range from $0.0018
to $0.23 per share. As the conversion price embedded in the note agreements was below
the trading price of the common stock on the dates of issuance, a beneficial conversion
feature (BCF) was recognized at the date of issuance. The Company recognized a debt discount
at the date of issuance in the aggregate amount of $181,250 related to
the intrinsic value of beneficial conversion feature. During the period ended June 30,
2018 the Company amortized $148,852 of debt discount leaving an unamortized
balance of $95,410 at June 30, 2018. See subsequent events for Amendment
to the Notes.
|
|
|
|
|
|
|
b)
|
Convertible
notes payable with principal balance of $406,375 as of December 31, 2017 consist of loans provided to the Company from various
investors. During the period ended June 30, 2018, the Company entered into Convertible Promissory Agreement with a third
party for a principal balance of $41,500. These notes are non-interest bearing and with terms ranging from 1 to 2 years.
In lieu of the repayment of the principal and accrued interest, the outstanding amounts are convertible, at the option of
the note holder, generally at any time on or prior to maturity and automatically under certain conditions, into the Company’s
common shares at 60% of the lowest trading price in the prior 30 days.
|
The
Company determined that since the conversion floor of these notes had no limit to the conversion price, the Company could no longer
determine if it had enough authorized shares to fulfil its conversion obligation. As such, pursuant to current accounting guidelines,
the Company determined that the conversion feature of these notes created a derivative with a fair value totaling $303,192 at
the date of issuances and recorded it as a valuation discount to be amortized over the life of the notes. During the period
ended June 30, 2018, the Company recognized a debt discount of $33,456 related to the note issued during the current period.
Unamortized debt discount as of December 31, 2017 was $107,742. During the period ended June 30, 2018, the Company recorded an
amortization of debt discount of $142,584 and recorded it as interest expense. Unamortized debt discount as of June
30, 2018 was $11,477.
During
the six-month period ended June 30, 2018, we issued 1,165,651 shares of common stock to convert $118,000
of outstanding convertible notes.
Convertible
Notes Due to Related Parties
On
September 30, 2016, management elected to convert accrued salaries into long-term convertible promissory notes. The balance
of such note at December 31, 2016 was $438,997. On December 31, 2017, management elected to transfer additional accrued salaries
into long-term convertible promissory notes, due on March 31, 2019, totaling $231,050 and are due 18 months after issuance. The
notes bear a 10% annual interest rate. Management shall have the right, but not the obligation to convert up to 50% of the amount
advanced and accrued interest into shares, warrants or options of common or preferred stock of the Company at $0.75 per share.
As of December 31, 2017, outstanding balance on the convertible note was $670,047.
During
the period ended June 30, 2018, the Company recognized additional notes with an aggregate amount of $214,499 which represent 50%
of the related party notes that matured on March 31, 2018. The notes are due on March 31, 2019. Such amount was recorded as noncash
financing cost during the six months ended June 30, 2018.
As of June 30, 2018, the outstanding balance on the convertible promissory notes was $884,546.
On
June 30, 2018 we had accrued $24,643 in interest expense on $670,047 of employee convertible notes at a rate of 10%.
Term
loans
In
2015, the Company entered into an unsecured term loan agreement with a third party for an aggregate principal balance of $200,000
at an interest rate of 14% per annum. The term loan became due on April 14, 2017. The principal balance outstanding on the note
as of June 30, 2018 and December 31, 2017 was $200,000 and is past due.
6.
DERIVATIVE LIABILITY
Under
authoritative guidance used by the FASB on determining whether an instrument (or embedded feature) is indexed to an entity’s
own stock, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has
issued certain convertible notes whose conversion price is based on a future market price. However, since the number of shares
to be issued is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available
to share settle the conversion option.
As
a result, the conversion option is classified as a liability and bifurcated from the debt host and accounted for as a derivative
liability in accordance with ASC 815 and will be re-measured at the end of every reporting period with the change in value reported
in the statement of operations.
At
December 31, 2017, the balance of the derivative liabilities was $261,172. During the period ended June 30, 2018, the Company
recorded a decrease in derivative liability of $33,456 and recorded an extinguishment of debt of $98,644
related to notes that were converted. During the period ended June 30, 2018, the Company recorded an increase in derivative
liability of $107,208. At June 30, 2018, the balance of the derivative liabilities was $303,192.
At
June 30, 2018 and December 31, 2017, the derivative liabilities were valued using a probability weighted Black-Scholes-Merton
pricing model with the following assumptions:
|
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
Conversion
feature:
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
2.11
|
%
|
|
|
1.53
|
%
|
|
Expected
volatility
|
|
|
181.83
|
%
|
|
|
165.68
|
%
|
|
Expected
life (in years)
|
|
|
.1
to .5 years
|
|
|
|
.1
to .5 years
|
|
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
Fair
Value:
|
|
|
|
|
|
|
|
|
|
Conversion
feature
|
|
$
|
303,192
|
|
|
$
|
261,172
|
|
The
risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility
of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the
notes was based on the remaining contractual term of the notes. The expected dividend yield was based on the fact that the Company
has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders
in the future.
7.
EQUITY
Preferred
Stock
During
the six months ended June 30, 2018, the Company authorized its preferred shares to have voting rights equal to two-thirds of all
the issued and outstanding shares of common stock, shall be entitled to vote on all matters of the corporation, and shall have
the majority vote of the board of directors. The subject preferred stock lacks any dividend rights, does not have liquidation
preference, and is not convertible into common stock. During the six months ended June 30, 2018, the Company issued one million
shares to certain officers and board members. The Company retained a third-party valuation firm whose input was utilized in determining
the related per share valuation of the preferred shares. Based on the valuation report, the fair value of the preferred shares
was determined to be $0.0463 per share or an aggregate of $46,363.
Common
Stock
O
n
June 22, 2018, the Company effected 1-for-75 reverse stock split of its common shares. All share amounts and per share
amounts have been have been retroactively restated to reflect the split as if it had occurred as of the earliest period presented.
During
the six months ended June 30, 2018, we issued 2,565,651 shares of common stock to noteholders upon conversion of $149,500 convertible
notes.
The
Company issued the following shares of common stock during the three months ended June 30, 2018:
|
|
|
Value
of Shares
|
|
|
Number
of Shares
|
|
|
Shares
issued for conversion of debt
|
|
$
|
149,500
|
|
|
|
2,565,650
|
|
|
Shares
issued for services rendered
|
|
|
17,770
|
|
|
|
80,667
|
|
|
Total
shares issued
|
|
$
|
167,270
|
|
|
|
2,646,317
|
|
During
the period ended June 30, 2018, the Company issued 80,667 shares of common stock for services rendered to various members of management,
the Board of Directors, employees and consultants. The fair value of the shares was determined to be $17,770 and was recorded
Stock-Based Compensation in the accompanying consolidated statement of operations.
Common
Stock Warrants
Since
inception, the Company has issued warrants to purchase shares of the Company’s common stock to shareholders, consultants
and employees as compensation for services rendered and/or through private placements.
A
summary of the Company’s warrant activity and related information is provided below (the exercise price and the number of
shares of common stock issuable upon the exercise of outstanding warrants have been adjusted to reflect a 1-for-75 reverse stock
split.):
|
|
|
Exercise
Price $
|
|
|
Number
of
Warrants
|
|
|
Outstanding
and exercisable at December 31, 2017
|
|
|
0.9375
– 2.25
|
|
|
|
532,000
|
|
|
Warrants
exercised
|
|
|
-
|
|
|
|
-
|
|
|
Warrants
granted
|
|
|
-
|
|
|
|
-
|
|
|
Warrants
expired
|
|
|
1.125
– 1.50
|
|
|
|
(165,333
|
)
|
|
Outstanding
and exercisable at June 30, 2018
|
|
|
0.9375
- 2.25
|
|
|
|
366,667
|
|
|
Stock
Warrants as of June 30, 2018
|
|
|
Exercise
|
|
|
Warrants
|
|
|
Remaining
|
|
|
Warrants
|
|
|
Price
|
|
|
Outstanding
|
|
|
Life
(Years)
|
|
|
Exercisable
|
|
|
$
|
1.5
|
|
|
|
66,667
|
|
|
|
0.69
|
|
|
|
66,667
|
|
|
$
|
1.125
|
|
|
|
251,333
|
|
|
|
0.68
|
|
|
|
251,333
|
|
|
$
|
0.9375
|
|
|
|
6,667
|
|
|
|
0.80
|
|
|
|
6,667
|
|
|
$
|
2.25
|
|
|
|
42,000
|
|
|
|
1.01
|
|
|
|
42,000
|
|
8.
SUBSEQUENT EVENTS
On
July 11, 2018, the Company’s 75-1 reverse of its common shares was approved by FINRA.
On
July 18, 2018 a 6,667 share warrant priced at $1.125 and at a closing price of $0.1499 was converted into 458,395 shares of common
stock.
On
July 30, 2018 we received $35,000 from an accredited investor for a Convertible Promissory Agreement with the following terms.
The Purchaser may convert the note after six months into common shares in the Company at a price equal to $0.75. The notes bear
interest of 12% and is due and payable on demand.
On
July 18, 2018, we amended a 4th quarter 2017 Note to reflect a change in conversion price from $0.002 to $0.02.
On
August 3, 2018, we signed a contract with a reseller and strategic partner for securing government and private sector deals and
acting as a non-exclusive reseller of the Company’s products and services. Under the terms of the one-year agreement, the
partner received 250,000 warrants and will also receive sales commissions ranging from 3% to 12% depending on the sales transaction,
and bonus warrants if the first transaction is valued at over $50,000.
On
August 7, 2018, we paid down two fourth quarter of 2014 Convertible Notes by $1,000 each.
On
August 7, 2018, we issued 585,000 shares of common stock to an investor for converting $11,700 in debt and interest at a conversion
price of $0.02, that was issued in the first quarter of 2018.