Basic earnings (loss) per share calculations are determined by dividing net income (loss) by the weighted average number of shares outstanding during the year. Diluted earnings (loss) per share calculations are determined by dividing net income by the weighted average number of shares plus any potentially dilutive shares. The Company does not have any potentially dilutive instruments and, thus, anti-dilution issues are not applicable.
Financial instruments that potentially subject the Company to concentrations of credit risk include cash in banks in excess of federally insured amounts. The Company manages this risk by maintaining all deposits in high quality financial institutions.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a history of losses resulting in an accumulated deficit. The Company has been dependent on financing from its majority shareholder and related parties to meet its operating obligations. In view of these matters, there is substantial doubt regarding the Company’s ability to continue as a going concern, which is dependent upon the Company’s ability to identify revenue sources and to achieve a level of profitability. The Company intends on financing its future development activities, marketing plan and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The consolidated financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
We have reviewed the FASB issued Accounting Standards Updates (“ASU”) and interpretations thereof that have effectiveness dates during the periods reported and in future periods.
In February 2016, the FASB issued ASU No. 2016-02, “Leases”. This standard requires the lessee to recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. Public business entities will be required to adopt this standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted upon issuance of this standard. The Company is currently assessing the impact of the new standard in order to determine the impact on the consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” that supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the new guidance is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. Additionally, the guidance requires disaggregated disclosures related to the nature, amount, timing, and uncertainty of revenue that is recognized. The amendments were adopted by the Company on January 1, 2018. Transition to the new guidance may be done using either a full or modified retrospective method. As the Company currently has not realized revenues during 2018 or 2017, there is no impact related to the adoption of this standard for the periods presented.
On April 13, 2018, the Board of Directors approved a Board resolution to issue 250,000 shares of common stock to James Whelan, Chief Technology Officer, which is comprised of a signing bonus and compensation in lieu of salary from the start of his employment with the Company until the time of the equity financing that was completed in May 2018 (see discussion below). The fair value of these shares was determined based on Mr. Whelan’s annual salary prorated over the service period covered by this non-cash compensation. The resulting stock-based compensation expense was approximately $51,000.
On April 14, 2018 the Board of Directors approved a Board resolution to issue an aggregate total of 7,700,000 shares of common stock to American Capital Ventures and Leone Group, LLC (3,850,000 to each party) in exchange for consulting services related to capital raise efforts, legal and compliance guidance, and strategic business planning. The service period covered in the respective consulting agreements ended in August 2018. The resulting expense of $539,000 is included in professional fees in the consolidated statement of operations.
On May 7, 2018, the Company received cash totaling $100,000 from four investors in exchange for an aggregate total of 4,200,000 shares of the Company’s common stock and warrants to purchase an aggregate total of 4,000,000 shares of the Company’s common stock. The warrants have a term of 3 years from the date of issuance and an exercise price of $0.10 per share. The proceeds were allocated among the shares and the warrants based on their relative fair values. The fair value of the shares was determined using the closing price of the Company’s common stock on the transaction date ($0.07 per share). The fair value of the warrants was determined using the Black Scholes Merton option-pricing model, assuming stock price volatility of 174% and a risk-free interest rate of 2.67%. Approximately $55,000 and $45,000 was allocated to the shares and the warrants, respectively. As the warrants are classified as equity instruments, the resulting allocation is deemed a dividend on the shares issued and is reflected in additional paid-in capital in the consolidated balance sheet.
On May 23, 2018, the Company received cash totaling $250,000 from one investor in exchange for an aggregate total of 4,950,000 shares of the Company’s common stock and warrants to purchase an aggregate total of 9,000,000 shares of the Company’s common stock. As a condition of the closing, the Company issued an additional 1,100,000 shares of common stock to a non-profit organization named by the investor. The warrants have a term of 3 years from the date of issuance and an exercise price of $0.10 per share. The proceeds were allocated among the total number of shares issued (6,050,000) and the warrants based on their relative fair values. The fair value of the shares was determined using the closing price of the Company’s common stock on the transaction date ($0.06 per share). The fair value of the warrants was determined using the Black Scholes Merton option-pricing model, assuming stock price volatility of 174% and a risk-free interest rate of 2.67%. Approximately $111,000 and $139,000 was allocated to the shares and the warrants, respectively. As the warrants are classified as equity instruments, the resulting allocation is deemed a dividend on the shares issued and is reflected in additional paid-in capital in the consolidated balance sheet.
On June 15, 2018, the Company issued 500,000 shares of common stock to an Advisory Board Member for services to be rendered in the future. The fair value of these shares was determined based on the closing stock price on that date ($0.11). The resulting stock-based compensation totaled $55,000, of which $27,500 was expensed and included in professional fees in the consolidated statement of operations. The remaining balance of $27,500 is reflected in prepaid expenses and other current assets in the consolidated balance sheet and will be expensed over the remaining service period of nine months.
On July 5, 2018, the Company issued a total of 180,000 shares of common stock to two executive recruitment
firms (90,000 shares to each party) in exchange for services valued at an aggregate amount of $36,000. This amount is included
in general and administrative expenses in the consolidated statement of operations.
On July 24, 2018 the Company issued 200,000 shares of common stock to a vendor as partial consideration for
software development services. The shares were valued at $0.11 per share for a total expense of $22,000, which is included
in research and development costs in the consolidated statement of operations.
On July 25, 2018 the Company issued 250,000 shares of common stock to a new member of the Board of Directors.
The shares were valued at $0.06 per share for a total expense of $15,000, of which $6,534 is included in professional fees
in the consolidated statement of operations. The remaining balance of $8,466 is included in prepaid expenses and other current
assets in the consolidated balance sheet and will be expensed over the remaining service period of approximately seven months.
On August 20, 2018, the Company issued 250,000 shares of common stock to an Advisory Board Member for services to be rendered in the future. The fair value of these shares was determined based on the closing stock price on that date ($0.04). The resulting stock-based compensation totaled $10,000, of which $3,671 was expensed and included in professional fees in the consolidated statement of operations. The remaining balance of $6,329 is reflected in prepaid expenses and other current assets in the consolidated balance sheet and will be expensed over the remaining service period of approximately eight months.
On October 18, 2018, the Company issued 250,000 shares of common stock to an Advisory Board Member for services to be rendered in the future. The fair value of these shares was determined based on the closing stock price on that date ($0.04). The resulting stock-based compensation totaled $10,000, of which $3,342 was expensed and included in professional fees in the consolidated statement of operations. The remaining balance of $6,658 is reflected in prepaid expenses and other current assets in the consolidated balance sheet and will be expensed over the remaining service period of approximately seven months.
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On November 20, 2018, the Company received cash totaling $199,955 from two investors in exchange for an aggregate total of 4,950,000 shares of the Company’s common stock and warrants to purchase an aggregate total of 4,500,000 shares of the Company’s common stock. The warrants have a term of 3 years from the date of issuance and an exercise price of $0.07 per share. The proceeds were allocated among the total number of shares issued and the warrants based on their relative fair values. The fair value of the shares was determined using the closing price of the Company’s common stock on the transaction date ($0.05 per share). The fair value of the warrants was determined using the Black Scholes Merton option-pricing model, assuming stock price volatility of 176% and a risk-free interest rate of 2.88%. Approximately $108,000 and $92,000 was allocated to the shares and the warrants, respectively. As the warrants are classified as equity instruments, the resulting allocation is deemed a dividend on the shares issued and is reflected in additional paid-in capital in the consolidated balance sheet. The shares were not issued until January of 2019, and accordingly are not reflected as issued and outstanding at December 31, 2018.
5. Related Party Transactions
Advances from Shareholders
In support of the Company’s efforts and cash requirements, it has historically relied upon advances from related parties. At December 31, 2018 and December 31, 2017, advances from shareholders totaled $173,594 and $214,132, respectively. These advances are non-interest bearing with no set repayment terms.
Additionally, at December 31, 2018 and December 31, 2017, the Company had accrued compensation payable to the Principal Executive Officer in the amount of $664,700 and $430,100, respectively.
6. Income Taxes
The Company has not recognized any income tax expense or benefit for the years ended December 31, 2018 and 2017. The Company has a net operating loss (NOL) carryforward of approximately $3.1 million at December 31, 2018 ($2.3 million at December 31, 2017) which has been offset in its entirety by a valuation allowance due to the uncertainty of realization.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the carryforward period.
7. Commitments
The Company entered into a month to month rental agreement for its office facilities in Sarasota Florida.
The Company is currently making rent payments on a month-to-month basis. The rental agreement calls for monthly payments of rent
of $1,881 plus the costs of utilities and maintenance to the facilities. Rent expense for the years ended December 31, 2018 and
2017 for the facility in Sarasota Florida was $37,000 and $25,000, respectively.
8. Contingencies
Some of the officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available. They may face a conflict in selecting between the Company and other business interests. The Company has not formulated a policy for the resolution of such conflicts. In addition, officers and certain members of upper management have executed employment agreements with the Company, which include, among other things, bonuses contingent on the achievement of certain performance targets and provisions for severance payments in the event of termination without cause.
Litigation
From time to time the Company may become a party to litigation matters involving claims against the Company. Current regulations and reporting requirements require the Company to disclose any legal proceedings that are ongoing and could have a material impact on the consolidated financial statements.
9. Subsequent events
Management has evaluated subsequent events that occurred through the date of this report that would have a material impact on our financial statements.
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