Notes to Condensed Financial Statements
Three Months Ended March 31, 2018
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Digital Locations, Inc. (the “Company”) was incorporated in the State of Nevada on August 25, 2006 as Zingerang, Inc. On April 2, 2007, the Company changed its name to Carbon Sciences, Inc. and on September 14, 2017, the Company changed its name to Digital Locations, Inc.
Basis of Presentation
The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. For further information refer to the financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2017.
Going Concern
The accompanying unaudited condensed financial statements of the Company have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities, and commitments in the normal course of business. The accompanying condensed financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company does not generate any revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon, among other things, raising additional capital. Since its inception through March 31, 2018, the Company has obtained funds primarily from the issuance of common stock and debt. Management believes this funding will continue, and is continually seeking new investors. Management believes the existing shareholders and lenders and prospective new investors will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of its business plan. There can be no assurance that the Company will be successful in accomplishing its objectives. Without such additional capital the Company may be required to cease operations. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are disclosed in Note 2 to the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K. The following summary of significant accounting policies of the Company is presented to assist in understanding the Company’s interim financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Income (Loss) per Share Calculations
Basic net income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then outstanding. Potential dilutive common share equivalents consist of shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock using the treasury stock method and the average market price per share during the period, and shares issuable upon exercise of convertible notes payable and convertible preferred stock.
For the three months ended March 31, 2018, diluted weighted average number of common shares outstanding includes approximately 553,935,154 common shares issuable upon exercise of convertible notes payable and approximately 359,000,000 common shares issuable upon exercise of Series B convertible preferred stock (“Series B Preferred Stock”), but excludes 1,408,750 common shares for exercisable options and 6,000 common shares for exercisable common stock purchase warrants.
Since the Company had no dilutive effect of stock options, warrants, convertible notes payable and convertible preferred stock for the three months ended March 31, 2017, basic weighted average number of common shares outstanding is the same as diluted weighted average number of common shares outstanding. The Company has excluded 1,410,000 common shares for exercisable options, 46,000 common shares for exercisable common stock purchase warrants, approximately 119,292,206 common shares issuable upon exercise of convertible notes payable and approximately 359,000,000 common shares upon exercise of Series B Preferred Stock.
Fair Value of Financial Instruments
Disclosures about fair value of financial instruments, require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of March 31, 2018 and December 31, 2017, the Company believes the amounts reported for cash, prepaid expenses, accounts payable, accrued interest, accrued expenses and other current liabilities, and convertible notes payable approximate fair value because of their short maturities.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASC”) Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
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·
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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
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·
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Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
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·
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Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
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We measure certain financial instruments at fair value on a recurring basis. Liabilities measured at fair value on a recurring basis are as follows at March 31, 2018 and December 31, 2017:
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Total
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|
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Level 1
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Level 2
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|
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Level 3
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|
March 31, 2018:
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|
|
|
|
|
|
|
|
|
|
|
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Derivative liabilities
|
|
$
|
6,118,046
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|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,118,046
|
|
|
|
|
|
|
|
|
|
|
|
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Total liabilities measured at fair value
|
|
$
|
6,118,046
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|
|
$
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-
|
|
|
$
|
-
|
|
|
$
|
6,118,046
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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December 31, 2017:
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|
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|
|
|
|
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Derivative liabilities
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$
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8,072,904
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|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,072,904
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total liabilities measured at fair value
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$
|
8,072,904
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|
|
$
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-
|
|
|
$
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-
|
|
|
$
|
8,072,904
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|
During the three months ended March 31, 2018, the Company had the following activity in its derivative liabilities account:
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Convertible
Notes
Payable
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Series B
Preferred
Stock
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Total
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Derivative liabilities at December 31, 2017
|
|
$
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5,241,762
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|
|
$
|
2,831,142
|
|
|
$
|
8,072,904
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|
Addition to liabilities for new debt/shares issued
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|
|
191,500
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|
|
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-
|
|
|
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191,500
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Change in fair value
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(1,643,479
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)
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(502,879
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)
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(2,146,358
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)
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Derivative liabilities at March 31, 2018
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|
$
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3,789,783
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|
|
$
|
2,328,263
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|
|
$
|
6,118,046
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|
Derivative Liabilities
We have identified the conversion features of our convertible notes payable and our Series B Preferred Stock as derivatives. We estimate the fair value of the derivatives using a multinomial lattice model based on a probability weighted discounted cash flow model. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Recently Issued Accounting Pronouncements
There were no new accounting pronouncements issued by the FASB during the three months ended March 31, 2018 and through the date of filing of this report that the Company believes will have a material impact on its financial statements.
Reclassifications
Certain amounts in the condensed financial statements for the three months ended March 31, 2017 have been reclassified to conform to the presentation for the three months ended March 31, 2018.
3. CAPITAL STOCK
At March 31, 2018, the Company’s authorized stock included 2,000,000,000 shares of common stock, with a par value of $0.001 per share. The Company is also authorized to issue 20,000,000 shares of preferred stock, with a par value of $0.001 per share. The rights, preferences and privileges of the holders of the preferred stock will be determined by the Board of Directors prior to issuance of such shares.
Common Stock
On April 20, 2016, the Company amended its articles of incorporation to reduce the number of authorized shares of common stock from 1,000,000,000 to 100,000,000 and to affect a one-for-ten reverse stock split of its authorized, issued and outstanding shares of common stock. The Company has given retroactive affect for the reverse stock split in all periods presented in the accompanying financial statements.
On April 29, 2016, our Board of Directors and the holder of a majority of the total issued and outstanding voting stock of the Company authorized and approved an amendment to the Company's articles of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 2,000,000,000.
As of March 31, 2018, the Company had 38,776,436 shares of common stock issued and outstanding. During the three months ended March 31, 2018, the Company did not issue any shares of common stock.
During the three months ended March 31, 2017, the Company issued a total of 1,496,499 shares of common stock at fair value in consideration for the conversion of a convertible promissory note of $5,000, accrued interest payable of $1,734 and derivative liabilities of $47,306. We recognized a gain of $17 on conversion of the note.
Series A Preferred Stock
On August 31, 2017, the Company filed a Withdrawal of Certificate of Designation for its original Series A Preferred Stock with the Secretary of State of Nevada. On September 4, 2017, the Board of Directors of the Company authorized (a) the execution and recording with the Nevada Secretary of State of a new Certificate of Designation (the “Series A Certificate”) for its new Series A preferred stock (“Series A Preferred Stock”), authorizing up to 1,000 shares of Series A Preferred Stock, and (b) the issuance of 1,000 shares of Series A Preferred Stock to the Company’s President and Director, William E. Beifuss, Jr.
The shares of Series A Preferred Stock have a par value of $0.001 per share. The shares of Series A Preferred Stock do not have a dividend right or rate, or liquidation preference, and are not convertible into shares of common stock.
The shares of the Series A Preferred Stock were automatically redeemed by the Company at their par value in January 2018, 120 days after the effective date of the Series A Certificate.
Series B Preferred Stock
On March 2, 2016, the Company filed a Certificate of Designation for its Series B Preferred Stock (the “Series B Certificate”) with the Secretary of State of Nevada designating 30,000 shares of its authorized preferred stock as Series B Preferred Stock. The shares of Series B Preferred Stock have a par value of $0.001 per share.
The total face value of this entire series is three million dollars ($3,000,000). Each share of Series B Preferred Stock has a stated face value of One Hundred Dollars ($100) (“Share Value”), and is convertible into shares of fully paid and non-assessable shares of common stock of the Company.
As of March 31, 2018 and December 31, 2017, the Company had 16,155 shares of Series B Preferred Stock outstanding, with a face value of $1,615,500. These shares were issued in March 2016 for the redemption and cancellation of $1,615,362 of convertible promissory notes and $264,530 of accrued interest payable.
The holders of outstanding shares of the Series B Preferred Stock (the “Holders”) are entitled to receive dividends pari passu with the holders of common stock, except upon a liquidation, dissolution and winding up of the Company, in which case the Series B Preferred Stock has a preference. Such dividends will be paid equally to all outstanding shares of Series B Preferred Stock and common stock, on an as-if-converted basis with respect to the Series B Preferred Stock. The Holders may elect to use the most favorable conversion price for the purpose of determining the as-if-converted number of shares.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Holder of each outstanding share of the Series B Preferred Stock shall be entitled to receive, out of the assets of the Company available for distribution to its shareholders upon such liquidation, whether such assets are capital or surplus of any nature, an amount equal to one hundred dollars ($100) for each such share of the Series B Preferred Stock (as adjusted for any combinations, consolidations, stock distributions, stock splits or stock dividends with respect to such shares), plus all dividends, if any, declared and unpaid thereon as of the date of such distribution, before any payment is made or any assets distributed to the holders of the common stock. After such payment, the remaining assets of the Company will be distributed to the holders of common stock.
If the assets to be distributed to the Holders of the Series B Preferred Stock are insufficient to permit the receipt by such Holders of the full preferential amounts, then all of such assets will be distributed among such Holders ratably in accordance with the number of such shares then held by each such Holder.
The sale of all or substantially all of the Company’s assets, any consolidation or merger of the Company with or into any other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the Company’s voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company, is deemed to be a liquidation, dissolution or winding up.
The Holder has the right, at any time, at its election, to convert all or part of the Share Value into shares of common stock. The conversion price is the lesser of (1) Fifty Percent (50%) of the lowest trade price of common stock recorded on any trade day after December 12, 2012 or (2) the lowest effective price per share granted to any person or entity, including the Holder but excluding officers and directors of the Company, to acquire common stock, or adjusted, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire common stock or outstanding common stock equivalents (the “Conversion Price”).
The Conversion Price is subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events. No fractional shares of the common stock shall be issuable upon the conversion of shares of the Series B Preferred Stock and the Company shall pay the cash equivalent of any fractional share upon such conversion.
If the Company fails to deliver shares in accordance with the required time frame, then for each conversion, a penalty of $1,500 per day will be assessed for each day after the third business day (inclusive of the day of the conversion) until share delivery is made. Such penalty may be converted into common stock at the Conversion Price or payable in cash, at the sole option of the Holder (under the Holder’s and the Company’s expectations that any penalty amounts shall tack back to the original date of the issuance of Series B Preferred Stock, consistent with applicable securities laws).
In no event will the Holder be entitled to convert any Series B Preferred Stock, such that upon conversion the sum of (1) the number of shares of common stock beneficially owned by the Holder and its affiliates (other than shares of common stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Series B Preferred Stock or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to these limitations), and (2) the number of shares of common stock issuable upon the conversion of Series B Preferred Stock, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of common stock. The limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days prior notice to the Company, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).
Except as required by law, the Holders of Series B Preferred Stock are not entitled to vote, as a separate class or otherwise, on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting). Each Holder of outstanding shares of Series B Preferred Stock will be entitled, on the same basis as holders of common stock, to receive notice of such action or meeting.
So long as any shares of the Series B Preferred Stock remain outstanding, the Company will not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock voting together as one class: (a) alter or change the rights, preferences or privileges of the shares of the Series B Preferred Stock so as to affect materially and adversely such shares; or (b) create any new class of shares having preference over the Series B Preferred Stock.
The Holder has the right, at its sole discretion, to elect a fixed conversion price for the Series B Preferred Stock. The Fixed Conversion Price may not be lower than the Conversion Price. The Company will not, by amendment of its Certificate of Incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Series B Certificate, and will at all times carry out all the provisions of the Series B Certificate.
4. STOCK OPTIONS AND WARRANTS
Stock Options
As of March 31, 2018, the Board of Directors of the Company had granted non-qualified stock options exercisable for a total of 1,408,750 shares of common stock to its employees, officers, and consultants. Stock-based compensation cost is measured at the grant date based on the value of the award granted using the Black-Scholes option pricing model, and recognized over the period in which the award vests, which is generally 25 months. We recognized no stock-based compensation expense for the three months ended March 31, 2018. As of March 31, 2018, we had no unrecognized stock-based compensation expense.
A summary of the Company’s stock option awards as of March 31, 2018, and changes during the three months then ended is as follows:
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Shares
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|
Weighted
Average
Exercise Price
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Weighted Average
Remaining
Contract Term
(Years)
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Aggregate
Intrinsic
Value
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Outstanding at December 31, 2017
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1,408,750
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|
|
$
|
0.17
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|
|
|
2.72
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|
|
$
|
-
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|
Granted
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|
-
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|
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$
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-
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Exercised
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|
-
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$
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-
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Forfeited or expired
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|
|
-
|
|
|
$
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-
|
|
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|
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Outstanding and exercisable at March 31, 2018
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1,408,750
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|
|
$
|
0.17
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|
|
|
2.48
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|
|
$
|
-
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|
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of our common stock of $0.0068 as of March 31, 2018, which would have been received by the holders of in-the-money options had the option holders exercised their options as of that date.
Warrants
As of March 31, 2018 and December 31, 2017, the Company had 6,000 common stock purchase warrants outstanding with an exercise price of $5.00 per share and expiring in August 2018.
Chief Executive Officer Option
On October 12, 2017, Unleashed Future Holdings, LLC, a limited liability company owned by a retirement account of which Mr. Gerard Hug, the chief executive officer and a director of the Company, is a beneficiary, purchased an option for $7,000 to buy up to 7,000 shares of Series B Preferred Stock from the current holder of the Series B Preferred Stock (the “Option”). The exercise price of the Option is $100 per share of Series B Preferred Stock for a total exercise price of $700,000. The Option may be exercised on a cash or a cashless basis. Each share of Series B Preferred Stock is convertible into shares of the Company’s common stock in accordance with the terms and conditions of the Series B Certificate. Unleashed Future Holdings, LLC is eligible to exercise all or part of the Option after the Company’s consolidated gross revenue, calculated in accordance with generally accepted accounting principles, consistently applied, equals or exceeds $2,000,000, on an annualized basis, as reported in the Company’s quarterly or annual financial statements.
5. CONVERTIBLE NOTES PAYABLE
Convertible Promissory Notes - Services of $58,600
On December 31, 2012, we issued 5% convertible promissory notes to two individuals in exchange for services rendered in the aggregate amount of $58,600. The notes are convertible into shares of our common stock at a conversion price equal to the lesser of $2.00 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. We recorded a total debt discount of $57,050 related to the conversion feature of the notes, which has been fully amortized to interest expense, along with a derivative liability at inception. One of the notes with a principal balance of $25,980 at March 31, 2018 matured on December 31, 2014 and is currently in default. The maturity date of a second note with a principal balance of $32,620 at March 31, 2018 has been extended to December 31, 2018.
Convertible Promissory Note – Accounts Payable of $29,500
On March 14, 2013, we issued a 5% convertible promissory note in the principal amount of $29,500, which is convertible into shares of our common stock at a conversion price equal to the lesser of $1.50 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note, with a principal balance of $29,500 at March 31, 2018, matured two years from its effective date, or March 14, 2015, and is currently in default.
March 2016 Convertible Promissory Note – $1,000,000
On March 4, 2016, we issued a convertible promissory note in the aggregate principal amount of up to $1,000,000 (the "March 2016 $1,000,000 CPN"). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note initially matured, with respect to each advance, one year from the effective date of each advance. Subsequently, the lender extended the maturity date, with the note payable upon demand, but in no event later than 60 months from March 4, 2016.
On March 4, 2016, we received proceeds of $25,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense. In September and December 2017, we issued the lender a total of 1,632,272 shares of our common stock in consideration for the conversion of principal of $25,000 and accrued interest of $3,956, extinguishing the note in full.
On March 14, 2016, we received proceeds of $27,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $27,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense as of March 31, 2018. In December 2017, we issued the lender 469,041 shares of our common stock in consideration for the conversion of principal of $5,000 and accrued interest of $863, resulting in a principal balance of $22,000 at March 31, 2018.
On March 17, 2016, we received proceeds of $33,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense as of March 31, 2018.
On April 11, 2016, we received proceeds of $90,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $90,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense as of March 31, 2018.
On May 20, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense as of March 31, 2018.
On June 22, 2016, we received proceeds of $50,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $50,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense as of March 31, 2018.
On July 6, 2016, we received proceeds of $87,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $87,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense as of March 31, 2018.
On August 8, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense as of March 31, 2018.
On September 13, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense as of March 31, 2018.
On October 17, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense as of March 31, 2018.
On November 8, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense as of March 31, 2018.
On December 6, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense as of March 31, 2018.
On January 10, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $1,644 and the debt discount was fully amortized to interest expense as of March 31, 2018.
On February 13, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $7,233 and the debt discount was fully amortized to interest expense as of March 31, 2018.
On March 9, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $11,178 and the debt discount was fully amortized to interest expense as of March 31, 2018.
On April 12, 2017, we received proceeds of $95,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $95,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $23,425, resulting in a remaining debt discount of $3,123 as of March 31, 2018.
On May 8, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $14,795, resulting in a remaining debt discount of $6,247 as of March 31, 2018.
June 2017 Convertible Promissory Note – $500,000
On June 2, 2017, we issued a convertible promissory note in the aggregate principal amount of up to $500,000 (the "June 2017 $500,000 CPN"). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note matures, with respect to each advance, one year from the effective date of each advance.
On June 2, 2017, we received proceeds of $60,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $14,795, resulting in a remaining debt discount of $10,356 as of March 31, 2018.
On July 10, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $19,726, resulting in a remaining debt discount of $22,137 as of March 31, 2018.
On August 11, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $19,726, resulting in a remaining debt discount of $29,151 as of March 31, 2018.
On September 12, 2017, we received proceeds of $85,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $85,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $20,959, resulting in a remaining debt discount of $38,425 as of March 31, 2018.
On October 13, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $18,644, resulting in a remaining debt discount of $42,959 as of March 31, 2018.
On November 8, 2017, we received proceeds of $75,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $75,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $17,041, resulting in a remaining debt discount of $45,616 as of March 31, 2018.
December 2017 Convertible Promissory Note – $500,000
On December 14, 2017, we issued a convertible promissory note in the aggregate principal amount of up to $500,000 (the "December 2017 $500,000 CPN"). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note matures, with respect to each advance, one year from the effective date of each advance.
On December 14, 2017, we received proceeds of $60,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $13,630, resulting in a remaining debt discount of $42,411 as of March 31, 2018.
On January 11, 2018, we received proceeds of $70,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $70,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $15,151, resulting in a remaining debt discount of $54,849 as of March 31, 2018.
On February 7, 2018, we received proceeds of $60,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $8,548, resulting in a remaining debt discount of $51,452 as of March 31, 2018.
On March 8, 2018, we received proceeds of $55,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $3,466, resulting in a remaining debt discount of $51,534 as of March 31, 2018.
On March 14, 2018, we received proceeds of $6,500 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $6,500 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $303, resulting in a remaining debt discount of $6,197 as of March 31, 2018.
6. DERIVATIVE LIABILITIES
The fair value of the Company’s derivative liabilities is estimated at the issuance date and is revalued at each subsequent reporting date. We estimate the fair value of derivative liabilities associated with our convertible notes payable and our Series B Preferred Stock using a multinomial lattice model based on projections of various potential future outcomes.
The significant assumptions used in the valuation of the derivative liabilities at March 31, 2018 are as follows:
Conversion to stock
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Monthly
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Stock price on the valuation date
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$
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0.0068
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Conversion price
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$
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0.0045
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Years to maturity
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15.0
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Expected volatility
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195.8–220.0%
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The value of the derivative liabilities associated with our convertible notes payable was estimated at $3,789,783 and $5,241,762 at March 31, 2018 and December 31, 2017, respectively. The value of the derivative liabilities associated with our Series B Preferred Stock was estimated at $2,328,263 and $2,831,142 at March 31, 2018 and December 31, 2017, respectively.
The calculation input assumptions are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liability will fluctuate from period to period, and the fluctuation may be material.
7. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
During the three months ended March 31, 2018 and 2017, the Company paid no amounts for income taxes.
During the three months ended March 31, 2018 and 2017, the Company paid $0 and $797 for interest, respectively.
During the three months ended March 31, 2018, the Company had the following non-cash investing and financing activities:
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·
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The Company increased debt discount and derivative liabilities by $191,500 for the issuance of new convertible debt.
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·
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The Company decreased Series A Preferred Stock and increased additional paid-in capital by $1 for the redemption of 1,000 shares of Series A Preferred Stock.
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During the three months ended March 31, 2017, the Company had the following non-cash investing and financing activities:
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·
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The Company issued a total of 1,496,499 shares of common stock in consideration for the conversion of $5,000 in convertible notes payable, plus $1,734 of accrued interest payable, increasing common stock by $1,496, increasing additional paid-in capital by $52,527, decreasing derivative liabilities by $47,306 and recording a gain on settlement of debt of $17.
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·
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The Company increased debt discount and derivative liabilities by $180,000 for the issuance of new convertible debt.
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8. RELATED PARTY TRANSACTIONS
On January 2, 2018, 1,000 shares of Series A Preferred Stock issued to the Company's President and director, William E. Beifuss, Jr., for services rendered were automatically redeemed at par value of $1 (see Note 3).
See Note 5 for discussion of convertible notes payable to related parties, including multiple lenders who are also shareholders of the Company.
9. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:
We received advances under the December 2017 $500,000 CPN of $77,000 on April 9, 2018 and $60,000 on May 7, 2010.