Notes
to the Financial Statements
Note
1 - Organization and Operations
LifeLogger
Technologies Corp. (the “Company”) was incorporated under the laws of the State of Nevada on June 4, 2012 under the
name Snap Online Marketing Inc. The Company changed its name effective as of January 31, 2014 and is a lifelogging software company
that developed and hosts a proprietary cloud-based software solution accessible on iOS and Android devices that offers an enhanced
media experience for consumers by augmenting videos, livestreams and photos with additional context information and providing
a platform that makes it easy to find and use that data when viewing or sharing media. See Note 11 “Subsequent Events”
for organizational changes that occurred after December 31, 2018.
Effective
as of February 22, 2017, the Company amended its Articles of Incorporation to increase its authorized capital stock from 125,000,000
to 500,000,000 shares, of which 495,000,000 will be common stock and 5,000,000 will be preferred stock, of which, 1,000 preferred
shares have been previously designated as Series A Preferred Stock (the “Series A Preferred Stock”) and effected a
1 for 30 reverse stock split of its issued and outstanding shares of common stock. The number of shares outstanding prior to the
reverse stock split was 68,976,690, and was converted into 2,299,223 number of shares. All per share amounts and number of shares
in the financial statements and related notes have been retroactively restated to reflect the reverse stock split.
Note
2 - Summary of Significant Accounting Policies
Basis
of Presentation
The
financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the Unites
States of America (“US GAAP”), applied on a consistent basis, and are expressed in United States dollars (“USD”).
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting
period. Areas involving significant estimates and assumptions include: deferred income tax assets and related valuation allowance,
accruals and valuation of derivatives, convertible promissory notes, stock options, and assumptions used in the going concern
assessment. Actual results could differ from those estimates. These estimates are reviewed periodically, and, as adjustments become
necessary, they are reported in earnings in the period in which they become known.
Fair
Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37
establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three
(3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical
assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by
Paragraph 820-10-35-37 are described below:
|
Level
1
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
|
Level
2
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either
directly or indirectly observable as of the reporting date.
|
|
|
|
|
Level
3
|
Pricing
inputs that are generally observable inputs and not corroborated by market data.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument. The Company’s assessment of the significance of a particular input to the fair value measurement
in its entirety requires judgment, and considers factors specific to the asset or liability including certain market assumptions
and pertinent information available to management.
The
carrying amount of the Company’s financial assets and liabilities, such as cash, accounts payable and accrued liabilities
approximate their fair value because of the short maturity of those instruments. The notes payables and derivative liabilities
are fair valued as described below.
Valuation
of Derivatives
The
Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded
components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and
Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance
sheet date. The change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or
exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is
reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under
ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. The Company analyzed
the derivative financial instruments in accordance with ASC 815. The objective is to provide guidance for determining whether
an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception
which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative
instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s
own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must
be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed
to an entity’s own stock. First, the instrument’s contingent exercise provisions, if any, must be evaluated, followed
by an evaluation of the instrument’s settlement provisions. The Company utilized multinomial lattice models that value the
derivative liability based on a probability weighted discounted cash flow model. The Company utilized the fair value standard
set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought
(or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation
sale.
The
derivative liabilities result in a reduction of the initial carrying amount (as unamortized discount) of the Convertible Notes.
This derivative liability is marked-to-market each quarter with the change in fair value recorded in the statement of operations.
Unamortized discount is amortized to interest expense using the effective interest method over the life of the Convertible Note.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents.
Related
Parties
The
Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure
of related party transactions.
Commitments
and contingencies
The
Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and
such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that
are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived
merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought therein.
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 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,
is disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would
be disclosed.
Stock-Based
Compensation
The
Company accounts for stock-based compensation awards issued in accordance with the provision of ASC 718, which requires that all
stock-based compensation issued to acquire goods or services, including grants of employee stock options, be recognized in the
statement of operations based on their fair values, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Compensation
expense related to stock-based awards is recognized over the requisite service period, which is generally the vesting period.
There
were 200,000 options outstanding as of December 31, 2018 (December 31, 2017 – 200,000).
Research
and Development
The
Company follows paragraph 730-10-25-1 of the FASB Accounting Standards Codification (formerly Statement of Financial Accounting
Standards No. 2
“Accounting for Research and Development Costs”
) and paragraph 730-20-25-11 of the FASB Accounting
Standards Codification (formerly Statement of Financial Accounting Standards No. 68
“Research and Development Arrangements”
)
for research and development costs. Research and development costs are charged to expense as incurred. Research and development
costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research
and development equipment, material and testing costs for research and development as well as research and development arrangements
with unrelated third party research and development institutions.
Deferred
Tax Assets and Income Tax Provision
The
Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely
than not that the assets will not be realized.
Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the statements of operations in the period that includes the enactment date.
Management
makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous
estimates of tax liability. In management’s opinion, adequate provisions for income taxes have been made for all years.
If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Earnings
per Share
Earnings
Per Share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term
is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards
Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available
to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the
period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred
stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned)
from income from continuing operations (if that amount appears in the statements of operations) is increased to include the number
of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the
period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement,
stock options or warrants.
Diluted
earnings per share exclude all potentially dilutive shares if their effect is anti-dilutive. The Company excluded 200,000 shares
of their common stock issuable upon exercise of options and 36,667 shares of their common stock issuable upon exercise of warrants
as of December 31, 2018 as their effect was anti-dilutive.
Subsequent
Events
The
Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent
events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU
2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when
they are widely distributed to users, such as through filing them on EDGAR.
Recently
issued accounting pronouncements
In
August, 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement, which eliminates disclosures such as the amount of and reasons for transfers between
Level 1 and Level 2 of the fair value hierarchy and adds new disclosure requirements for Level 3 measurements. The ASU is effective
for fiscal years beginning after December 15, 2019, with early adoption is permitted. We are currently in the process of evaluating
the effects of this pronouncement on our financial statements, including potential early adoption.
In
June 2018, the FASB issued an accounting pronouncement (FASB ASU 2018-07) to expand the scope of ASC Topic 718, Compensation -
Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement
is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early
adoption permitted. We are currently in the process of evaluating the effects of this pronouncement on our financial statements,
including potential early adoption.
Classification
of restricted cash – In November 2016, the FASB issued accounting guidance related to the presentation and classification
of changes in restricted cash on the statement of cash flows where diversity in practice exists. The new standard is required
to be applied with a retrospective approach. The guidance is effective January 1, 2018, with early adoption permitted. The adoption
did not have a material impact on our financial statements.
In
May 2017, an accounting pronouncement was issued by the Financial Accounting Standards Board (“FASB”) ASU 2017-09,
“Compensation - Stock Compensation: Scope of Modification Accounting.” ASU 2017-09 provides guidance about which changes
to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The updated guidance
is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The adoption of
this pronouncement did not have a material impact on the financial position and/or results of operations.
The
Company adopted the accounting pronouncement issued by the Financial Accounting Standards Board (“FASB”) to update
guidance on how companies account for certain aspects of share-based payments to employees.
In
February 2016, an accounting pronouncement was issued by the FASB to replace existing lease accounting guidance. This pronouncement
is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding
lease liabilities on the balance sheet for most leases. Expenses associated with leases will continue to be recognized in a manner
similar to current accounting guidance. This pronouncement is effective for annual and interim periods beginning after December
15, 2018, with early adoption permitted. The adoption is required to be applied on a modified retrospective basis for each prior
reporting period presented. The Company has not yet determined the effect that the adoption of this pronouncement may have on
the financial position and/or results of operations.
Simplifying
the measurement for goodwill – In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment.
The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill
impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying
amount of goodwill. The new guidance will be applied prospectively and is effective January 1, 2020, with early adoption permitted
beginning January 1, 2017.
Clarification
on stock-based compensation – In May 2017, the FASB issued accounting guidance to clarify which changes to the terms or
conditions of a share-based payment award require an entity to apply modification accounting. The new standard is required to
be applied prospectively. The guidance is effective January 1, 2018, with early adoption permitted. The adoption did not have
a material impact on our financial statements.
Note
3 - Going Concern
The
financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of
assets, and liquidation of liabilities in the normal course of business.
As
reflected in the financial statements, the Company had an accumulated deficit of $7,128,606 at December 31, 2018, a net loss of
$1,144,696 and net cash used of $781 in operating activities for the year ended December 31, 2018. These factors raise substantial
doubt about the Company’s ability to continue as a going concern.
Although
the Company has recently broadened its business and operating model in an effort to generate more sufficient and stable sources
of revenues and cash flows, its cash position may not be sufficient to support its daily operations. While the Company believes
that its new business and operating model presents a viable strategy to generate sufficient revenue and believes in its ability
to raise additional funds by way of a public or private offering, there can be no assurances to that effect.
The
financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
Note
4 - Accounts Payable
|
|
|
As
at
December 31, 2018
($)
|
|
|
As
at
December 31, 2017
($)
|
|
|
Trade accounts payable and
related parties
|
|
$
|
181,831
|
|
|
$
|
104,988
|
|
|
Other payable
|
|
|
24,307
|
|
|
|
24,307
|
|
|
|
|
$
|
206,138
|
|
|
$
|
129,295
|
|
Trade
accounts payable include $28,623 (2017: $28,623) due to a former executive of the Company, primarily due to the consulting charges.
Also included in accounts payable is $49,441 (2017:$0) due to a current executive and significant convertible note holder of the
Company, primarily due to payments made on behalf of the Company. The payables are unsecured, non-interest bearing and due on
demand.
Note
5 – Convertible Notes Payable
|
a.
|
Convertible
Notes Payable
|
The
movement in convertible notes payable is as follows:
|
|
|
|
|
Original
amount
|
|
|
Unamortized
discount
|
|
|
Guaranteed
interest
accrued
|
|
|
Net
settlement
|
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
Opening
as of January 1, 2016
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
189,921
|
|
|
Conversion
on opening balance
|
|
(i)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(189,921
|
)
|
|
Issued: March 9, 2016
|
|
(ii)
|
|
|
250,000
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
260,000
|
|
|
|
260,000
|
|
|
Issued: March 9, 2016
|
|
(iii)
|
|
|
296,153
|
|
|
|
-
|
|
|
|
14,808
|
|
|
|
(180,908
|
)
|
|
|
130,053
|
|
|
|
130,053
|
|
|
Issued: June 9, 2016
|
|
(iv)
|
|
|
87,912
|
|
|
|
-
|
|
|
|
4,396
|
|
|
|
-
|
|
|
|
92,308
|
|
|
|
92,308
|
|
|
Issued: June 30, 2016
|
|
(v)
|
|
|
550,000
|
|
|
|
(8,956
|
)
|
|
|
22,000
|
|
|
|
(99,713
|
)
|
|
|
463,331
|
|
|
|
471,040
|
|
|
Issued: April 11, 2017
|
|
(vi)
|
|
|
19,167
|
|
|
|
-
|
|
|
|
958
|
|
|
|
-
|
|
|
|
20,125
|
|
|
|
15,983
|
|
|
Issued: April 11, 2017
|
|
(vii)
|
|
|
19,167
|
|
|
|
-
|
|
|
|
958
|
|
|
|
-
|
|
|
|
20,125
|
|
|
|
15,983
|
|
|
Issued: May 2, 2017
|
|
(vi)
|
|
|
14,444
|
|
|
|
-
|
|
|
|
722
|
|
|
|
-
|
|
|
|
15,166
|
|
|
|
12,275
|
|
|
Issued: May 2, 2017
|
|
(vii)
|
|
|
14,444
|
|
|
|
-
|
|
|
|
722
|
|
|
|
-
|
|
|
|
15,166
|
|
|
|
12,277
|
|
|
Issued: June 1, 2017
|
|
(vi)
|
|
|
15,000
|
|
|
|
-
|
|
|
|
750
|
|
|
|
-
|
|
|
|
15,750
|
|
|
|
12,432
|
|
|
Issued: June 1, 2017
|
|
(vii)
|
|
|
15,000
|
|
|
|
-
|
|
|
|
750
|
|
|
|
-
|
|
|
|
15,750
|
|
|
|
12,432
|
|
|
Issued: August 8, 2017
|
|
(vi)
|
|
|
12,778
|
|
|
|
(566
|
)
|
|
|
639
|
|
|
|
-
|
|
|
|
12,851
|
|
|
|
10,516
|
|
|
Issued: August 8, 2017
|
|
(vii)
|
|
|
12,778
|
|
|
|
(567
|
)
|
|
|
639
|
|
|
|
-
|
|
|
|
12,850
|
|
|
|
10,515
|
|
|
Issued: September 1, 2017
|
|
(vi)
|
|
|
11,667
|
|
|
|
(725
|
)
|
|
|
584
|
|
|
|
-
|
|
|
|
11,526
|
|
|
|
9,673
|
|
|
Issued: November 15, 2017
|
|
(vi)
|
|
|
10,278
|
|
|
|
(498
|
)
|
|
|
514
|
|
|
|
-
|
|
|
|
10,294
|
|
|
|
7,773
|
|
|
Issued: November 15, 2017
|
|
(vii)
|
|
|
10,278
|
|
|
|
(497
|
)
|
|
|
514
|
|
|
|
-
|
|
|
|
10,295
|
|
|
|
7,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
as of December 31, 2018
|
|
|
|
$
|
1,339,066
|
|
|
$
|
(11,809
|
)
|
|
$
|
58,954
|
|
|
$
|
(280,621
|
)
|
|
|
1,105,590
|
|
|
|
|
|
|
Ending
as of December 31, 2017
|
|
|
|
$
|
1,339,066
|
|
|
$
|
(44,074
|
)
|
|
$
|
58,954
|
|
|
$
|
(272,912
|
)
|
|
$
|
-
|
|
|
$
|
1,081,034
|
|
(i)
Old Main Capital, LLC – September 2015:
On
September 14, 2015 (the “Issuance Date”), the Company closed on the transactions contemplated by the securities purchase
agreement (the “SPA”) with Old Main Capital, LLC (“Old Main”), whereby Old Main agreed to invest $450,000
(the “Purchase Price”) in the Company’s -share capital in exchange for the Note (as defined below) and Warrants
(as defined below). Pursuant to the SPA, the Company issued a promissory note to Old Main, in the original principal amount of
$473,684, which bears interest at 10% per annum (the “September 2015 Note”). The Purchase Price will be paid as follows:
(1) $250,000 funded in cash to the Company on the Issuance Date, (2) the remaining $200,000 within 30 days after the Issuance
Date. The principal from each funding date, coupled with the accrued and unpaid interest relating to that principal amount, is
due and payable on September 8, 2016 (the “Maturity Date”). Any amount of principal or interest that is due under
the September 2015 Note, which is not paid by the Maturity Date, will bear interest at the rate of 24% per annum until it is paid.
Beginning
6 months after the Issuance Date, the Company is required to make bi-weekly amortization payments (one payment every 2 weeks),
consisting of 1/12
th
of the outstanding principal and interest, until the September 2015 Note is on longer outstanding
(each a “Bi-Weekly Payment”). Such Bi-Weekly Payments may be made in cash, or in the Company’s common stock
(“Common Stock”) if certain equity conditions are satisfied. Such equity conditions include but are not limited to
an average daily dollar volume of the Common Stock greater than $25,000 for the 20 trading days prior to a Bi-Weekly Payment.
If the equity conditions are satisfied, and the Company decide to make a Bi-Weekly payment in Common Stock, then the shares of
Common Stock to be delivered shall be calculated as follows: the amount of the Bi-Weekly Payment divided by the Base Conversion
Price (as defined below). The Base Conversion Price shall equal the lower of (i) the closing price of the Common Stock on September
8, 2015, or (ii) 70% of the average of the lowest VWAP of the Common Stock for the 15 trading days immediately prior to the date
of the Bi-Weekly Payment. Additionally, Old Main has the right at any time to convert amounts owed under the September 2015 Note
into Common Stock at the closing price of the Common Stock on September 8, 2015. If an event of default under the September 2015
Note occurs, Old Main has the right to convert amounts owed under the September 2015 Note into Common Stock at 52% multiplied
by the lowest VWAP of the Common Stock for the 15 trading days immediately prior to the applicable conversion date.
The
September 2015 Note can be prepaid by the Company at any time while the September 2015 Note is outstanding, at a prepayment price
of 125% multiplied by the outstanding principal and interest of the September 2015 Note, subject to Old Main’s discretionary
acceptance. If an event of default occurs under the September 2015 Note, which is not cured within 10 business days, Old Main
has the option to require the Company’s redemption of the September 2015 Note in cash at a redemption price of 130% multiplied
by the outstanding principal and interest of the September 2015 Note. The September 2015 Note contains representations, warranties,
events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments.
Effective
on March 9, 2016, the September 2015 Note was amended whereby the conversion price in effect on any Conversion Date shall be equal
to the lesser of the (i) closing price of the Common Stock on September 8, 2015 (“Fixed Conversion Price”), or (ii)
60% of the lowest traded price of the Common Stock for the 15 consecutive trading days ending on the trading day that is immediately
prior to the applicable Conversion Date. All such determinations were appropriately adjusted for any stock dividend, stock split,
stock combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock during
such measuring period. This amendment triggered an extinguishment of the debt since the change in the fair value of the embedded
derivative exceeded 10% of the carrying value of the debt. The Company booked a $144,205 loss on extinguishment based on the amendment
during the year ended December 31, 2016.
Old
Main has converted $473,684 of principal and $28,033 of interest for 283,645 shares ranging in price per share of $1.17 to $2.55.
This was completely settled by July 2016.
(ii)
Equity Line of Credit
On
March 9, 2016, the Company issued an 8% convertible promissory note in the principal amount of $250,000 to Old Main as a commitment
fee for entering into a term sheet whereby Old Main agreed to provide the Company with up to $5,000,000 in financing over a 24
month period through the purchase of the Company’s common stock. The proposed equity line will be subject to certain conditions,
including, but not limited to, the Company’s filing of a Registration Statement covering the resale of the securities issued
to Old Main and the Company’s continued compliance with the disclosure requirements under the Securities Exchange Act of
1934, as amended. Old Main’s commitment to provide funding under the equity line of credit is subject to the Company entering
into a definitive and binding agreement related to the proposed equity line of credit and as of September 30, 2016 the Company
have not entered into any such agreement.
The
terms and conditions of the $250,000 note are substantially identical to the March 2016 Note below except the interest rate which
is 8% per annum, half of which is guaranteed and the total amount of interest due on the Note for a period of six months is deemed
earned as of the date the note was issued. All interest payments will be payable in cash, or subject to certain equity conditions
in cash or common stock in the Company’s discretion. Accrued and unpaid interest shall be due on payable on each conversion
date and on the date the note matures, or as otherwise provided for in the note.
Beginning
six months after the date of the note, the Company is required to begin to make bi-weekly amortization payments (for the avoidance
of doubt, bi-weekly shall mean every two weeks), in cash to Old Main until the note is repaid in full. Each bi-weekly payment
shall consist of at least 1/12
th
of the total outstanding amount under the note as of the amortization payment date,
including the principal, accrued and unpaid interest (prorated through the entire pay-off period pursuant to this paragraph),
and any applicable penalties. The Company may make a bi-weekly payment to Old Main in the Company’s common stock, in the
event that the equity conditions provided for in the note are satisfied. The maturity date of the note was March 9, 2017 and the
holder of the Note have agreed to extend the maturity until September 30, 2017. The Note was in default as of October 1, 2017
and was subject to interest at 24% per annum as well as a default penalty of 25% calculated annually. Management is in the process
of negotiating terms of the Note.
The
Company amended this convertible note on June 9, 2016 to remove the equity condition limitations, removed the amortization payment
requirements, to permit voluntary conversions in common stock and revised the conversion price to mean the lesser of (a) the closing
price of the Company’s common stock on March 9, 2016 or (b) 60% of the lowest VWAP price of the Company’s common stock
for the 15 consecutive trading days ending on the trading day that is immediately prior to any applicable conversion date. This
amendment was treated as an extinguishment of debt and a resultant loss on extinguishment of debt of $94,030 was realized, and
recorded in other expenses during the year ended December 31, 2016.
As
at December 31, 2018 the Company owed $250,000 (December 31, 2017 - $250,000) in principal and the accrued interest is $338,959
(December 31, 2017 - $123,208), which consists of the guaranteed interest accrued of $10,000 (December 31, 2017 - $10,000) included
in the convertible notes balance and the remainder of $328,959 (December 31, 2017 - $113,208) is recorded in accrued expenses
on convertible notes payable, which includes the interest accrued and penalty charges.
(iii)
Securities Purchase Agreement and Convertible Notes Issued to Old Main Capital, LLC
On
March 9, 2016 (the “Issuance Date”) the Company closed on the transaction contemplated by the securities purchase
agreement (the “SPA”) the Company entered into with Old Main Capital, LLC (“Old Main”), whereby Old Main
agreed to purchase from the Company a convertible promissory note (the “March 2016 Note”) in the original principal
amount of $296,153 for $269,500, net of an original issuance discount of $26,653 (the “Purchase Price”), included
in interest expenses. The March 2016 1bears interest at the rate of 10% per annum, of which there is a guaranteed interest for
a period of six (6) months as of the Issuance date. The Purchase Price paid were as follows: (i) $84,500 was paid in cash to the
Company on March 12, 2016 (ii) $100,000 was paid in cash to the Company on April 6, 2016 (iii) $85,000 May 6, 2016. The principal
from each funding date and the accrued and unpaid interest relating to that principal amount is due and payable on March 9, 2017
(the “Maturity Date”). Any amount of principal or interest that is due under the March 2016 Note which is not paid
by the Maturity Date will bear interest at the rate of 24% per annum until it is paid and subject to further increase as discussed
below.
Beginning
6 months after the Issuance Date, the Company are required to make bi-weekly amortization payments (one payment every 2 weeks),
consisting of 1/12
th
of the outstanding principal and interest, until the March 2016 Note is no longer outstanding
(each a “Bi-Weekly Payment”). Such Bi-Weekly Payments may be made in cash, or in the Company’s common stock
(“Common Stock”) if certain equity conditions are satisfied. Such equity conditions include but are not limited to
an average daily dollar volume of the Common Stock greater than $30,000 for the 20 trading days prior to a Bi-Weekly Payment.
If the equity conditions are satisfied, and the Company decide to make a Bi-Weekly payment in Common Stock, then the shares of
Common Stock to be delivered shall be calculated as follows: the amount of the Bi-Weekly Payment divided by the Base Conversion
Price (as defined below). The Base Conversion Price shall equal the lower of (i) the closing price of the Common Stock on March
9, 2016, or (ii) 70% of the lowest VWAP of the Common Stock for the 15 trading days immediately prior to the date of the Bi-Weekly
Payment.
The
March 2016 Note can be prepaid by the Company at any time while the March 2016 Note is outstanding, at a prepayment price of 125%
multiplied by the outstanding principal and interest of the March 2016 Note, subject to Old Main’s discretionary acceptance.
If an event of default occurs under the March 2016 Note, which is not cured within three business days, then upon Old Main’s
provision of notice to the Company of the occurrence of such event of default, the Company shall within three business days of
such default notice, pay the total amount outstanding under the March 2016 Note in cash (including principal, accrued and unpaid
interest, applicable penalties (including default multipliers). In the event that the Company does not pay the total amount outstanding
within three (3) business days of such default notice, then the total amount outstanding under the March 2016 Note (post-default
amount) at that time shall increase by 50%, and on the fourth business day after such default notice (the “Second Amortization
Payment Date”), the Company shall begin to make weekly amortization payments (for the avoidance of doubt, weekly shall mean
every week) (each a “Weekly Payment”), in (1) cash to Old Main or (2) Common Stock at a price per share equal to the
lesser of (i) the closing price of the Company’s common stock on March 9, 2016 or (ii) 52% of the lowest VWAP of the Common
Stock for the 15 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable conversion date.
Each Weekly Payment shall consist of the greater of (i) $10,000 of value under the March 2016 Note or (ii) 1/24
th
of the total outstanding amount under this March 2016 Note as of the Second Amortization Payment Date, including the principal,
accrued and unpaid interest (prorated through the entire pay-off period), and any applicable penalties. As at December 31, 2017,
there were no prepayments made on the Note. During the year ended December 31, 2017 $180,908 (year ended December 31, 2016 - $92,180)
of the principal balance had been converted into equity shares. Refer to Note 11 for further details.
On
June 9, 2016 the Company amended the March 2016 Note whereby the Company revised the note to remove the equity condition limitations,
removed the amortization payment requirements and to permit voluntary conversions in common stock. The Company also revised the
conversion price to mean the lesser of (a) the closing price of the Company’s common stock on March 9, 2016 or (b) 60% of
the lowest VWAP price of the Company’s common stock for the 15 consecutive trading days ending on the trading day that is
immediately prior to any applicable conversion date. The amendment was accounted for using the extinguishment of debt method.
The Company recorded nil (December 31, 2016 - $88,956) loss on extinguishment of debt, which is included in other expenses. This
loan was in default as of October 1, 2017 and was subject to interest at 24% per annum as well as a default penalty of 25% calculated
annually. Management is in the process of negotiating terms of the Note.
As
at December 31, 2018 the Company owes $115,245 (December 31, 2017 - $115,245) in principal and the accrued interest is $197,149
(December 31, 2017 - $82,711), which consists of the guaranteed interest accrued of $14,808 (December 31, 2017 - $14,808) included
in the convertible notes balance and the remainder of $182,341 (December 31, 2017 - $62,903) is recorded in accrued expenses on
convertible notes payable, which includes the accrued interest and penalty charges.
(iv)
Securities Purchase Agreement and Convertible Notes Issued to Old Main Capital, LLC
On
June 9, 2016 (the “Issuance Date”), the Company closed on the transaction contemplated by the securities purchase
agreement (the “SPA”) the Company entered into with Old Main Capital, LLC (“Old Main”), whereby Old Main
agreed to purchase from the Company a convertible promissory note (the “Note”) in the original principal amount of
$87,912 for $80,000, net of an original issuance discount of $7,912 (the “Purchase Price”). The Note bears interest
at the rate of 10% per annum, of which there is a guaranteed interest for a period of six (6) months as of the Issuance date.
The Purchase Price was paid on June 9, 2016 in cash. The principal from the funding date and the accrued and unpaid interest relating
to that principal amount was due and payable on June 9, 2017 (the “Maturity Date”). Any amount of principal or interest
that is due under the Note which is not paid by the Maturity Date will bear interest at the rate of 24% per annum until it is
paid and subject to further increase as discussed below. The conversion price is the lesser of (a) the closing price of our common
stock on June 9, 2016 or (b) 60% of the lowest VWAP price of the Company’s common stock for the 15 consecutive trading days
ending on the trading day that is immediately prior to any applicable conversion date. This loan was in default as of October
1, 2017 and was subject to interest at 24% per annum as well as a default penalty of 25% calculated annually. Management is in
the process of negotiating terms of the Note.
As
at December 31, 2018 the Company owes $87,912 (December 31, 2017 - $87,912) in principal and the accrued interest is 120,317 (December
31, 2017 - $44,038), which consists of the guaranteed interest accrued of $4,396 (December 31, 2017 - $4,396) included in the
convertible notes balance and the remainder of $115,921 (December 31, 2017 - $39,642) is recorded in accrued expenses on convertible
notes payable, which includes the accrued interest and penalty chares.
(v)
Securities Purchase Agreement and Convertible Note Issued to SBI Investments LLC, 2014-1
On
June 30, 2016 (the “Issuance Date”) the Company closed on the transaction contemplated by the securities purchase
agreement (the “SPA”) the Company entered into with SBI Investments LLC, 2014-1 (“SBI”), whereby SBI agreed
to purchase from the Company a convertible promissory note (the “Note”) in the original principal amount of $550,000
for $500,000 net of an original issuance discount of $50,000 (the “Purchase Price”). The Note bears interest at the
rate of 8% per annum, half of which is guaranteed and the total amount of interest due on the Note for a period of six months
is deemed earned as of the date the note was issued. The Purchase Price was paid on June 30, 2016 in cash. The principal from
the funding date and the accrued and unpaid interest relating to that principal amount was due and payable on June 30, 2017 (the
“Maturity Date”). Any amount of principal or interest that is due under the Note which is not paid by the Maturity
Date will bear interest at the rate of 24% per annum until it is paid and subject to further increase as discussed below. The
conversion price is the lesser of (a) the closing price of the Company’s common stock on June 30, 2016 ($2.40 per share)
or (b) 60% of the lowest VWAP price of the Company’s common stock for the 20 consecutive trading days ending on the trading
day that is immediately prior to any applicable conversion date. This convertible debt has been accounted for as a derivative
liability and is included in the Note 6 derivative liability calculations below. This loan was in default as of October 1, 2017
and was subject to interest at 24% per annum as well as a default penalty of 25% calculated annually. Management is in the process
of negotiating terms of the Note.
Beginning
6 months after the Issuance Date, the Company are required to make bi-weekly amortization payments (one payment every 2 weeks),
consisting of 1/12
th
of the outstanding principal and interest, until the Note is no longer outstanding (each a “Bi-Weekly
Payment”). Such Bi-Weekly Payments may be made in cash, or in the Company’s common stock (“Common Stock”)
if certain equity conditions are satisfied. Such equity conditions include but are not limited to an average daily dollar volume
of the Common Stock greater than $25,000 for the 20 trading days prior to a Bi-Weekly Payment. If the equity conditions are satisfied,
and the Company decide to make a Bi-Weekly payment in Common Stock, then the shares of Common Stock to be delivered shall be calculated
as follows: the amount of the Bi-Weekly Payment divided by the Base Conversion Price (as defined below). The Base Conversion Price
shall equal the lower of (i) the closing price of the Common Stock on June 30, 2016, $2.40 per share, or (ii) 60% of the lowest
VWAP of the Common Stock for the 20 trading days immediately prior to the date of the Bi-Weekly Payment.
The
Note can be prepaid by the Company at any time while the Note is outstanding, at a prepayment price of 125% multiplied by the
outstanding principal and interest of the Note, subject to SBI’s discretionary acceptance. If an event of default occurs
under the Note, which is not cured within three business days, then upon SBI’s provision of notice to the Company of the
occurrence of such event of default, the Company shall within three business days of such default notice, pay the total amount
outstanding under the Note in cash (including principal, accrued and unpaid interest, applicable penalties (including default
multipliers). In the event that the Company does not pay the total amount outstanding within three (3) business days of such default
notice, the company will pay interest at 24%. As at December 31, 2018, there were no prepayments made on the Note. During the
year ended December 31, 2018, $7,709 (December 31, 2017 – $92,004) of the principal balance had been converted into equity
shares. Refer to Note 11 for further details.
As
at December 31, 2018 the Company owes $450,287 (December 31, 2017 - $457,996) in principal and the accrued interest is $498,424
(December 31, 2017 - $217,448), which consists of the guaranteed interest accrued of $22,000 (December 31, 2017 - $22,000) included
in the convertible notes balance and $476,424 (December 31, 201 – 195,448) is recorded in accrued expenses on convertible
notes payable, which includes the accrued interest and penalty chares.
(vi)
Securities Purchase Agreement and Convertible Note Issued to Old Main Capital
On
April 7, 2017, the Company entered into a Securities Purchase Agreement with Old Main whereby it agreed to and issued a 10% Convertible
Promissory Note in the principal amount of up to $75,000 (the “April 2017 Old Main Note”) payable in tranches as follows:
Tranche 1 paid on April 11, 2017: $19,167 consisting of $17,250 (less $1,250 for Old Main’s legal fees) paid to the Company
in cash, and less original issue discount of $1,917. Tranche 2 paid on May 2, 2017: $14,444 consisting of $13,000 paid to the
Company in cash, and less original issue discount of $1,444. Tranche 3 paid on June 1, 2017: $15,000 consisting of $13,500 paid
to the Company in cash, and less original issue discount of $1,500. Tranche 4 paid on August 8, 2017: $12,778 consisting of $11,500
paid to the Company in cash, and less original issue discount of $1,278. Tranche 5 paid on September 1, 2017: $11,667 consisting
of $10,500 paid to the Company in cash, and less original issue discount of $1,167. Tranche 6 paid on November 15, 2017: $10,278
consisting of $9,250 paid to the Company in cash, and less original issue discount of $1,028.
Old
Main may pay such additional amounts of the Consideration and at such dates as mutually agreed upon by the Borrower and Old Main.
The maturity date for each tranche funded shall be twelve (12) months from the effective date of each payment (each a “Maturity
Date”) (or such earlier date as the April 2017 Old Main Note is required or permitted to be repaid as provided hereunder,
and is the date upon which the principal sum of each respective tranche, as well as any accrued and unpaid interest and other
fees relating to that respective tranche, shall be due and payable. The Old Main has the right to convert all or any part of the
outstanding and unpaid principal and interest into shares of the Company’s common stock. The terms of the Convertible Note
are as follows:
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1.
|
Old
Main has the right from and after a 180 day delay from the Date of Issuance, and until any time until the Note is fully paid,
to convert any outstanding and unpaid principal portion of the Note, and accrued interest, into fully paid and non–assessable
shares of Common (par value $.001 per share). Bi–weekly amortization payments are due after 6 months.
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2.
|
The
Convertible Notes are convertible at a fixed rate of $0.07 with no reset provisions.
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3.
|
Beneficial
ownership is limited to 9.99%.
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4.
|
The
Company may redeem the Notes for 150% of the redemption amount and accrued interest at any time upon ten days written notice
to the Old Main.
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5.
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In
the event of default the Note bears interest at 24% per annum.
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Participation
in Future Financing. Subject to any existing obligations of the Company, from the date hereof until the date that is the 12-month
anniversary of the date of the April 2017 Old Main Note, upon any issuance by the Company or any of its subsidiaries of its Common
Stock or other securities convertible into Common Stock, other than any issuance that is through a public underwritten offering
or to an investor or a group of investors that already own Common Stock or securities of the Company, Old Main shall have the
right to participate in the subsequent Financing in an amount up to 100% of such Old Main’s pro rata portion as defined
below in the April 2017 Old Main Note on the same terms, conditions and price provided for in the Subsequent Financing, subject
to any existing obligations of the Company with respect to participation rights. This loan was in default as of October 1, 2017
and was subject to interest at 24% per annum as well as a default penalty of 25% calculated annually. Management is in the process
of negotiating terms of the Note.
As
at December 31, 2018 the Company owes $83,333 (December 31, 2017 - $83,333) in principal and the accrued interest is $98,553 (December
31, 2017 - $31,923), which consists of the guaranteed interest accrued of $4,167 (December 31, 2017 - $4,167) included in the
convertible notes balance and $94,386 (December 31, 2017 – $27,757) is recorded in accrued expenses on convertible notes
payable, which includes the accrued interest and penalty chares.
(vii)
Securities Purchase Agreement and Convertible Note Issued to SBI Investments LLC, 2014-1
On
April 7, 2017, the Company entered into a Securities Purchase Agreement with SBI Investments LLC, 2014-1 (“SBI”) whereby
it agreed to and issued a 10% Convertible Promissory Note in the principal amount of up to $75,000 (the “April 2017 SBI
note”) in tranches as follows: Tranche 1 paid on April 11, 2017: $19,167 consisting of $17,250 (less $1,250 for SBI’s
legal fees) paid to the Company in cash, and less original issue discount of $1,917. Tranche 2 paid on May 2, 2017: $14,444 consisting
of $13,000 paid to the Company in cash, and less original issue discount of $1,444. Tranche 3 paid on June 1, 2017: $15,000 consisting
of $13,500 paid to the Company in cash, and less original issue discount of $1,500. Tranche 4 paid on August 8, 2017: $12,778
consisting of $11,500 paid to the Company in cash, and less original issue discount of $1,678. Tranche 5 paid on November 15,
2017: $10,278 consisting of $9,250 paid to the Company in cash, and less original issue discount of $1,028.
SBI
may pay such additional amounts of the Consideration and at such dates as mutually agreed upon by the Borrower and SBI. The maturity
date for each tranche funded shall be twelve (12) months from the effective date of each payment (each a “Maturity Date”)
(or such earlier date as the April 2017 SBI is required or permitted to be repaid as provided hereunder, and is the date upon
which the principal sum of each respective tranche, as well as any accrued and unpaid interest and other fees relating to that
respective tranche, shall be due and payable. The SBI has the right to convert all or any part of the outstanding and unpaid principal
and interest into shares of the Company’s common stock. The terms of the Convertible Note are as follows:
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1.
|
SBI
has the right from and after a 180 day delay from the Date of Issuance, and until any time until the Note is fully paid, to
convert any outstanding and unpaid principal portion of the Note, and accrued interest, into fully paid and non–assessable
shares of Common (par value $.001 per share). Bi–weekly amortization payments are due after 6 months.
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2.
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The
Convertible Notes are convertible at a fixed rate of $0.07 with no reset provisions.
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3.
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Beneficial
ownership is limited to 9.99%.
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4.
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The
Company may redeem the Notes for 150% of the redemption amount and accrued interest at any time upon ten days written notice
to the SBI.
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5.
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In
the event of default the Note bears interest at 24% per annum.
|
This
loan was in default as of October 1, 2017 and was subject to interest at 24% per annum as well as a default penalty of 25% calculated
annually. Management is in the process of negotiating terms of the Note.
As
at December 31, 2018 the Company owes $71,667 (December 31, 2017 - $71,667 ) in principal and the accrued interest is $84,605
(December 31, 2017 - $27,359), which consists of the guaranteed interest accrued of $3,583(December 31, 2017 - $3,583) included
in the convertible notes balance and $81,022 (December 31, 2017 – $23,775) is recorded in accrued expenses on convertible
notes payable, which includes the accrued interest and penalty chares.
Participation
in Future Financing. Subject to any existing obligations of the Company, from the date hereof until the date that is the 12-month
anniversary of the date of the April 2017 SBI, upon any issuance by the Company or any of its subsidiaries of its Common Stock
or other securities convertible into Common Stock, other than any issuance that is through a public underwritten offering or to
an investor or a group of investors that already own Common Stock or securities of the Company, SBI shall have the right to participate
in the subsequent Financing in an amount up to 100% of such SBI’s pro rata portion as defined below in the April 2017 SBI
on the same terms, conditions and price provided for in the Subsequent Financing, subject to any existing obligations of the Company
with respect to participation rights.
In
conjunction with the issuance of the September 2015 Note, the Company simultaneously issued 28,333 common stock purchase warrants
to Old Main (the “Warrants”). The Warrants may be exercised by Old Main at any time in the 5-year period following
the issuance. The exercise price for each share of the Common Stock is equal to the closing price of the Common Stock on September
8, 2015, $7.88 per share.
On
June 9, 2016 and June 30, 2016, the Company entered (either a new issuance or amendment to the March 9, 2016 issuance which requires
derivative treatment on June 9, 2016) into convertible derivative notes with Old Main Capital, LLC and SBI Investments LLC –
Sea Otter Global Ventures LLC (referred to as the “the Holders”), in the initial amount of $250,000 (Old Main Capital
Commitment Fee Note), $296,153 (Old Main Capital Bridge Note), $87,912 (Old Main Capital Note), and $550,000 (SBI Investments
LLC – Sea Otter Global Vent (with Original Issue Discounts and deferred financing costs). The notes bear an interest rate
of 8% or 10% per annum and matures in 1 year or less under the convertible note agreements, the lender has the right to convert
all or any part of the outstanding and unpaid principal and interest into shares of the Company’s common stock. In addition,
the Company issued the SBI–Sea Otter Holder a warrant to acquire 8,334 shares of the Company’s common stock. The terms
of the Convertible Note are as follows:
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1.
|
The
Holders have the right from and after a 180 day delay from the Date of Issuance, and until any time until the Note is fully
paid, to convert any outstanding and unpaid principal portion of the Note, and accrued interest, into fully paid and non–assessable
shares of Common (par value $.001 per share). Bi–weekly amortization payments are due after 6 months.
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2.
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The
Convertible Notes are convertible at a fixed rate of $2.34 or $2.25 with no reset provisions. The June 9, 2016 notes convert
at the lower of the fixed rate or this variable rate.
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3.
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Beneficial
ownership is limited to 9.99%.
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4.
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The
Company may redeem the Notes for 125% or 150% of the redemption amount and accrued interest. The Company may upon certain
equity conditions redeemed certain notes at the lessor of fixed conversion price and 60% of 15 Trading day low VWAP.
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5.
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In
the event of default the Note bears interest at 24% per annum and converts at 60% of 15 trading day low VWAP (default or fundamental
transaction) – a derivative feature.
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The
June 9
th
amendments triggered an extinguishment of the debt since the change in the fair value of the embedded derivative
exceeded 10% of the carrying value of the debt. The Company booked a $182,986 loss on extinguishment based on the amendments on
the quarter and six-month period ended June 30, 2016.
The
terms of the SBI Warrants are as follows:
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1.
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The
Warrants have a 3 year term.
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2.
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The
2 issuances of 4,167 Warrants each may be exercised at a conversion price of the lesser of: (i) $2.46 or $2.88, or (ii) any
lower price of equity linked instruments issued by the Company while the warrant is issued and outstanding (full ratchet reset).
This anti–dilution protections provides a full reset upon the issuance of lower price securities by the Company and
is available to SBI during the initial 180 days that the Warrant is outstanding.
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3.
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Beneficial
ownership is limited to 4.99% initially and upon Holder request to 9.99%.
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On
June 9, 2016, the amended Old Main notes (Bridge Note and Commitment Fee) provided the holder with a variable rate conversion
feature. This feature taints all warrants/notes and ongoing derivative treatment is required until the note is paid or converted
in full.
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1.
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The
Company may redeem the Notes for 125% or 150% of the redemption amount and accrued interest. The Company may upon certain
equity conditions redeemed certain notes at the lessor of fixed conversion price and 60% of 15 Trading day low VWAP.
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2.
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In
the event of default the Note bears interest at 24% per annum and converts at 60% of 15 trading day low VWAP (default or fundamental
transaction) – a derivative feature.
|
This
note is a derivative because it contains an embedded conversion feature that resets the conversion price upon a fundamental transaction
event. The Company recorded a debt discount based on the original issue discount, the embedded derivative, and the derivative
warrant issued. The debt discount is being amortized over the term of the convertible debt.
Note
6 – Derivative Liability
In
connection with the sale of debt or equity instruments, the Company may sell options or warrants to purchase the Company’s
common stock. In certain circumstances, these options or warrants may be classified as derivative liabilities, rather than as
equity. Additionally, the debt or equity instruments may contain embedded derivative instruments, such as embedded derivative
features which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for
separately as a derivative instrument liability.
The
Company’s 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 options,
warrants and bifurcated embedded derivative features that are accounted for as derivative instrument liabilities, the Company
estimates fair value using either quoted market prices of financial instruments with similar characteristics or other valuation
techniques. The valuation techniques require assumptions related to the remaining term of the instruments and risk-free rates
of return, the Company’s current common stock price and expected dividend yield, and the expected volatility of the Company’s
common stock price over the life of the instrument.
The
following table summarizes the warrant derivative liabilities and convertible notes activity for the two years ended December
31, 2018:
|
Description
|
|
Derivative
Liabilities
|
|
|
Fair value at December 31, 2016
|
|
$
|
240,955
|
|
|
Change due to Issuances
|
|
|
55,316
|
|
|
Change due to Exercise/Conversion
|
|
|
(128,111
|
)
|
|
Change in Fair
Value of warrants and notes
|
|
|
179,540
|
|
|
Fair value at December 31, 2017
|
|
$
|
347,700
|
|
|
Change due to Exercise/Conversion
|
|
|
(596
|
)
|
|
Change in Fair
Value of warrants and notes
|
|
|
114,435
|
|
|
Fair value at December 31, 2018
|
|
$
|
461,539
|
|
The
lattice methodology was used to value the embedded derivatives within the convertible note and the warrants issued, with the following
assumptions.
|
Assumptions
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Risk-free rate for term
|
|
|
1.93-2.33
|
%
|
|
|
1.08-1.53
|
%
|
|
Volatility
|
|
|
347.0%-348.4
|
%
|
|
|
279%-446
|
%
|
|
Maturity dates
|
|
|
0.50-1.69
|
|
|
|
.50-2.69
years
|
|
|
Stock Price
|
|
|
0.0051
|
|
|
|
0.0135-0.0189
|
|
During
the period ended March 31, 2016, the Company amended the derivative notes on March 9, 2016. The amendment included revising the
“Alternate Conversion Price to mean 60% of the lowest traded price of the common stock for the 15 consecutive trading days
prior to the conversion date. The derivative liability increased by $91,070 due to the amendment which was booked as an additional
debt discount.
During
the quarter ended September 30, 2015, the Company issued 28,333 warrants to an investor as part of their Securities Purchase Agreement
in which the investor acquired a Convertible Note. The warrants have an exercise price of $7.88 and a five-year term. The warrants
are treated as derivative liabilities since the holder has anti-dilution protections that will re-price the warrant upon the issuance
of lower priced equity linked instruments by the Company for the period of 180 days after issuance. The fair value of the derivative
liability related to these warrants at issuance was valued at $169,270 and was booked as a debt discount to the Convertible Note
and booked as a derivative liability on the balance sheet. The embedded conversion feature of the Convertible Note is treated
as a derivative liability since the conversion price is reset upon a fundamental transaction event. The fair value of the derivative
liability related to the embedded conversion feature was valued at $92,659 and was booked as a debt discount, included in interest
expense (up to the amount of the note, with the excess expensed as interest expense).
Note
7 – Fair Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued expenses on convertible
notes payable, derivative liabilities and convertible debt. The estimated fair value of cash and cash equivalents, accounts payable
and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments.
The
Company utilizes various types of financing to fund its business needs, including convertible debt with warrants attached. The
Company reviews its warrants and conversion features of securities issued as to whether they are freestanding or contain an embedded
derivative and, if so, whether they are classified as a liability at each reporting period until the amount is settled and reclassified
into equity with changes in fair value recognized in current earnings. At December 31, 2018, the Company had convertible debt
and warrants to purchase common stock. The fair value of the warrants and the embedded conversion feature of the convertible debt
is classified as a liability. Some of these units have embedded conversion features that are treated as a discount on the notes.
Such financial instruments are initially recorded at fair value and amortized to interest expense over the life of the debt using
the effective interest method.
Inputs
used in the valuation to derive fair value are classified based on a fair value hierarchy which distinguishes between assumptions
based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of
three levels:
|
|
Level
one - Quoted market prices in active markets for identical assets or liabilities;
|
|
|
|
|
|
Level
two - Inputs other than level one inputs that are either directly or indirectly observable; and
|
|
|
|
|
|
Level
three - Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect
those assumptions that a market participant would use.
|
Determining
which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy
disclosures each quarter. The Company’s derivative liability is measured at fair value on a recurring basis. The Company
classifies the fair value of these convertible notes and warrants derivative liability under level three. The Company’s
settlement payable is measured at fair value on a recurring basis based on the most recent settlement offer. The Company classifies
the fair value of the settlement payable under level three. The Company’s rescission liability is measured at fair value
on a recurring basis based on the most recent stock price. The Company classifies the fair value of the rescission liability under
level one.
Based
on ASC Topic 815 and related guidance, the Company concluded the common stock purchase warrants are required to be accounted for
as derivatives as of the issue date due to a reset feature on the exercise price. At the date of issuance warrant derivative liabilities
were measured at fair value using either quoted market prices of financial instruments with similar characteristics or other valuation
techniques. The Company records the fair value of these derivatives on its balance sheet at fair value with changes in the values
of these derivatives reflected in the statements of operations as “Gain (loss) on derivative liabilities.” These derivative
instruments are not designated as hedging instruments under ASC 815-10 and are disclosed on the balance sheet under Derivative
Liabilities.
The
following table presents liabilities that are measured and recognized at fair value on a recurring and non-recurring basis:
|
Description
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Gains
(Losses)
|
|
|
Derivatives
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
461,539
|
|
|
$
|
(114,435
|
)
|
|
Fair Value at December 31, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
461,539
|
|
|
$
|
(114,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
347,700
|
|
|
$
|
(179,540
|
)
|
|
Fair Value at December 31, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
347,700
|
|
|
$
|
(179,540
|
)
|
Note
8 – Stock Options:
The
following is a summary of stock option activity:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
Outstanding, December 31, 2017
|
|
|
200,000
|
|
|
$
|
3.00
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2018
|
|
|
200,000
|
|
|
$
|
3.00
|
|
|
|
1.42
|
|
|
$
|
-
|
|
|
Exercisable, December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
The
exercise price for options outstanding and exercisable at December 31, 2018 is as follows:
|
Outstanding
|
|
|
Exercisable
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
|
200,000
|
|
|
$
|
3.00
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
200,000
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
For
options granted during 2015 where the exercise price was equal to the stock price at the date of the grant, the weighted-average
fair value of such options was $5.70 and the weighted-average exercise price of such options was $6.00. No options were granted
during 2015 where the exercise price was greater than the stock price at the date of grant or where the exercise price was less
than the stock price at the date of grant. During 2016 the company reduced the exercise price to $3.00.
The
fair value of the stock options is being amortized to stock option expense over the vesting period. The Company recorded stock
option expense of $106,370, included in operating expenses, during the year ended December 31, 2018, and $285,850 during the year
ended December 31, 2017. At December 31, 2018, the unamortized stock option expense was -nil (December 31, 2017 - $106,639).
The
assumptions used in calculating the fair value of options granted using the Black-Scholes option- pricing model for options granted
are as follows:
|
|
|
2018
|
|
|
2017
|
|
|
Risk-free interest rate
|
|
|
1.93%
to 2.33
|
%
|
|
|
1.53%
to 1.76
|
%
|
|
Expected life of the options
|
|
|
0.50
to 2.44 years
|
|
|
|
1.49
to 3.44 years
|
|
|
Expected volatility
|
|
|
316.6%
to 420.8
|
%
|
|
|
130.3%
to 374.5
|
%
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
As
at December 31, 2018, the Company had the following warrant securities outstanding:
|
|
|
Common
Stock
Warrants
|
|
|
December
31, 2017
|
|
|
36,667
|
|
|
Less: Exercised
|
|
|
-
|
|
|
Less: Expired
|
|
|
-
|
|
|
Add: Issued
|
|
|
-
|
|
|
December
31, 2018
|
|
|
36,667
|
|
|
|
|
|
|
|
|
Warrants (Note 6)
|
|
|
28,333
|
|
|
Exercise Price
|
|
$
|
7.88
|
|
|
Expiration Date
|
|
|
September
8, 2015 to
September
8, 2020
|
|
|
Warrants (Note 5)
|
|
|
8,334
|
|
|
Exercise Price
|
|
|
**
|
|
|
Expiration Date
|
|
|
June
30, 2016 to
June
30, 2019
|
|
**
Lessor of: $2.46 or $2.88 or any price of equity linked instruments issued by the Company while the warrant is issued and outstanding
During
the year ended December 31, 2018, nil warrants expired unexercised.
Note
9 – Income Tax Provision
Deferred
Tax Assets
At
December 31, 2018, the Company had net operating loss (“NOL”) carry–forwards for Federal income tax purposes
of $3,581,474 (2017: $2,681,541) that may be offset against future taxable income through 2036. No tax benefit has been reported
with respect to these net operating loss carry-forwards in the accompanying financial statements because the Company believes
that the realization of the Company’s net deferred tax assets of approximately $1,100,710 (2017: $911,724) was not considered
more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation
allowance.
Deferred
tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the
deferred tax assets because of the uncertainty regarding its realizability.
The
statutory rate and the effective tax rate for and as of December 31, 2018 was 21% (2017 – 34%).
Components
of deferred tax assets are as follows:
|
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
Net deferred tax assets – Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
income tax benefit from NOL carry-forwards
|
|
$
|
1,100,710
|
|
|
$
|
911,724
|
|
|
Less
valuation allowance
|
|
|
(1,100,710
|
)
|
|
|
(911,724
|
)
|
|
Deferred
tax assets, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
Income
Tax Provision in the Statements of Operations
A
reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income
taxes is as follows:
|
|
|
Year
ended
December
31, 2018
|
|
|
Year
ended
December
31, 2017
|
|
|
|
|
$
|
|
|
$
|
|
|
Net
loss for the year before income taxes
|
|
|
(1,144,696
|
)
|
|
|
(1,389,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax recovery from net
loss
|
|
|
(240,386
|
)
|
|
|
(472,590
|
)
|
|
Non-deductible expenses
|
|
|
51,400
|
|
|
|
190,331
|
|
|
Change in valuation
allowance
|
|
|
188,986
|
|
|
|
282,259
|
|
|
|
|
|
—
|
|
|
|
—
|
|
The
Company is neither under examination by any taxing authority, nor has it been notified of any impending examination. The Company’s
tax years for its Federal and State jurisdictions which are currently open for examination are the years of 2014 - 2018.
Note
10- Stockholders’ Deficiency
Shares
Authorized
The
Company’s authorized capital stock consists of 495,000,000 shares of common stock, par value $0.001 per share and 5,000,000
shares of preferred stock, par value $0.001 per share.
On
December 28, 2016, the Company filed a certificate of designation, preferences and rights of Series A Preferred Stock (the “Certificate
of Designation”) with the Secretary of State of the State of Nevada to designate 1,000 shares of its previously authorized
preferred stock as Series A Preferred Stock. The holders of shares of Series A Preferred Stock that are not entitled to dividends
or distributions have the following voting rights:
|
|
●
|
Each
share of Series A Preferred Stock entitles the holder to 50,000 votes on all matters submitted to a vote of the Company’s
stockholders. In the event that such votes do not total at least 51% of all votes, then the votes cast by the holders of the
Series A Preferred Stock shall be equal to 51% of all votes cast at any meeting of the Company’s stockholders or any
issue put to the stockholders for voting.
|
|
|
●
|
Except
as otherwise provided in the Certificate of Designation, the holders of Series A Preferred Stock, the holders of Company common
stock and the holders of shares of any other Company capital stock having general voting rights and shall vote together as
one class on all matters submitted to a vote of the Company’s stockholders.
|
|
|
|
|
|
|
●
|
The
holders of the Series A Preferred Stock do not have any conversion rights.
|
Effective
as of February 22, 2017, the Company amended its Articles of Incorporation to increase its authorized capital stock from 125,000,000
to 500,000,000 shares, of which 495,000,000 will be common stock and 5,000,000 will be preferred stock, of which, 1,000 shares
have been previously designated as Series A Preferred Stock (the “Series A Preferred Stock”) and effected a 1 for
30 reverse stock split of its issued and outstanding shares of common stock. The number of shares outstanding prior to the reverse
stock split was 68,976,690, and was converted into 2,299,223 number of shares. All per share amounts and number of shares in the
financial statements and related notes have been retroactively restated to reflect the reverse stock split.
Common
Stock
Common
Shares Issued for Cash
No
common shares were issued for cash during the year ended December 31, 2017.
No
common shares were issued for cash during the year ended December 31, 2018.
Common
Shares Issued for Non- Cash
During
the year ended December 31, 2018, a total of $7,709 of the June 2016 Note was converted to 868,181 shares of common stock at a
price of $0.00888 per share on January 25, 2018.
The
related derivative liability of $596, as disclosed in Note 6, was transferred to the additional paid-in capital during the year
ended December 31, 2017.
Preferred
Stock
On
February 21, 2017, the Company entered into an investment agreement (the “Investment Agreement”) with Stewart Garner,
the Company’s former Chief Executive Officer and the sole member of its
Board of Directors
.
Pursuant to the terms of the Investment Agreement, the Company sold to Mr. Garner 1,000 shares of the Company’s Series A
Preferred Stock, par value of $0.001 per share, at a purchase price of $0.10 per share, or an aggregate of $100.
NOTE
11 - Subsequent Events
On
January 9, 2019, Capital Park Opportunities Fund LP, which we refer to as “Capital Park Opportunities Fund,” acquired
(i) from SBI Investments LLC, 2014-1, a statutory series of Delaware limited liability corporation (“SBI”) and Old
Main Capital, LLC, a Florida series limited liability corporation (“Old Main,” together with SBI, the “Selling
Shareholders”) 335,183 shares of the Company’s common stock owned by the Selling Shareholders and (ii) from Stewart
Garner 1,000 shares of the Company’s Series A Preferred Stock, collectively representing 84.4% of the voting power of the
Company’s voting stock. Capital Park Opportunities Fund is managed by Eric Blue, our Chairman, Chief Executive Officer (“CEO”)
and Chief Investment Officer (“CIO”).
Also,
on January 9, 2019,
the Board of Directors of the Company
(the “Board”) and a stockholder holding a majority of our voting power took action by written consent to approve
the following actions:
|
|
●
|
Approve
an amendment to our amended and restated articles of incorporation (the “Restated Articles”) to decrease our authorized
capital stock from 500,000,000 shares to 30,000,000 shares, of which 25,000,000 shares will be Common Stock (the “Common
Stock”), 22,500,000 shares of the Common Stock will be designated Class A common stock (the “Class A Common Stock”),
2,500,000 shares of the Common Stock will be designated Class B common stock (the “Class B Common Stock”) and
5,000,000 shares will be designated preferred stock, of which, 1,000 shares have been previously designated by the Board as
Series A Preferred Stock and 96,428 shares have been designated by the Board
as Series B Preferred Stock.
|
|
|
●
|
Approve
an amendment to the Restated Articles to affect the re-classification of our Common Stock into two separate classes, consisting
of Class A Common Stock and Class B Common Stock.
|
|
|
●
|
Approve
an amendment to the Restated Articles to effect a reverse stock split of the outstanding shares of our Common Stock at the
ratio of 1-for-7.
|
|
|
●
|
Approve
an amendment to the Restated Articles to classify the Board into directors elected by holders of the Class A Common Stock
and of any other class or series of voting stock (including the Class B Common Stock and the preferred stock) and directors
elected by holders of the Class B Common Stock.
|
|
|
●
|
Approve
the reincorporation of the Company from the State of Nevada to the State of Delaware and changing the Company’s name
from Lifelogger Technologies Corp. to Capital Park Holdings Corp. (the “Conversion”).
|
Also,
on January 9, 2019, the Company entered into a Note Conversion Agreement (the “Conversion Agreement”) with SBI and
Old Main. Pursuant to the Conversion Agreement, SBI converted $916,666.67 of principal and accrued interest owed to SBI by
the Company pursuant to a promissory note into 54,000 shares (the “SBI Conversion Shares”) of the Company’s
Series B Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), in full satisfaction of such
obligation. Pursuant to the Conversion Agreement, Old Main converted $733,333.33 of principal and accrued interest owed to Old
Main by the Company pursuant to a promissory note into 42,429 shares (the “Old Main Conversion Shares”) of the Company’s
Series B Preferred Stock in full satisfaction of such obligation. The SBI Conversion Shares and the Old Main Conversion Shares
represent 100% of the Company’s outstanding shares of Series B Preferred Stock and until such time as a share of Series
B Preferred Stock is converted into a share of common stock shall represent a class of non-voting securities. The issuance of
the SBI Conversion Shares and the Old Main Conversion Shares will not result in a change of control of the Company.
The
issuance of the SBI Conversion Shares to SBI, who is an accredited investor, and the issuance of the Old Main Conversion Shares
to Old Main, who is an accredited investor, were each exempt from registration under the Securities Act of 1933, as amended, in
reliance on exemptions provided by Sections 3(a)(9) and 4(a)(2) of the Securities Act of 1933, as amended.
Concurrently
with the execution of the Conversion Agreement, SBI, Old Main and Capital Park Opportunities Fund entered into a Voting and First Refusal Agreement, dated as of January 9, 2019 (the “Voting
Agreement”), with the Company. Pursuant to the Voting Agreement, SBI and Old Main, as holders of shares of Series B Preferred
Stock, have each agreed, among other things, to (a) vote to ensure that the size of the Company’s Board be
set at, and remain at, five (5) directors and (b) vote in favor of certain director nominees, on the terms and subject to the
conditions set forth in the Voting Agreement. In addition, the Voting Agreement provides that the Company will have a right of
first refusal to acquire any shares of Series B Preferred Stock held by SBI and Old Main in connection with any transfer of such
shares, on the terms and subject to the conditions set forth in the Voting Agreement.
Concurrently
with the closing of the purchase of the Shares on January 9, 2019: (a) Eric Blue, 39, was appointed as a member of the Company’s
Board to hold office until the next annual meeting of shareholders and until his successor is duly elected and qualified or until
his resignation or removal, (b) Stewart Garner resigned as the Company’s Chief Executive Officer, Chief Financial Officer
and Director, and (c) Eric Blue was appointed as the Company’s Chairman of the Board, CEO and CIO.
On
March 13, 2019, the Board appointed Mike Kubic of The CFO Suite, LLC to be the Interim Chief Financial Officer of the Company.