The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION
AND GOING CONCERN
Unless otherwise indicated, any reference to “the
Company”, “our company”, “we”, “us”, or “our” refers to IIOT-OXYS, Inc., a Nevada
corporation, and as applicable to its wholly-owned subsidiaries, OXYS Corporation, a Nevada corporation, and HereLab, Inc., a Delaware
corporation.
IIOT-OXYS, Inc., a Nevada corporation (the “Company”)
was established for the purpose of designing, building, testing, and selling Edge Computing Systems for the Industrial Internet. The Company
is currently devoting substantially all its efforts in identifying, developing and marketing engineered products, software and services
for applications in the Industrial Internet which involves collecting and processing data collected from a wide variety of industrial
systems and machines.
We were incorporated in the state of New Jersey
on October 1, 2003 under the name of Creative Beauty Supply Corporation and commenced operations as of January 1, 2004. On November 30,
2007, our Board of Directors approved a plan to dispose of our wholesale and retail beauty supply business. On May 18, 2015, we changed
our name to Gotham Capital Holdings. From January 1, 2009 until July 28, 2017, we had no operations. On March 16, 2017, our Board of Directors
approved a name change to “IIOT-OXYS, Inc.” and authorized a change of domicile from New Jersey to Nevada.
Impact of COVID-19
During the period ended March 31, 2021, the effects
of a new coronavirus (“COVID-19”) and related actions to attempt to control its spread began to impact our business.
The impact of COVID-19 on our operating results for the quarter ended March 31, 2021 was limited, in all material respects, due to the
government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition
of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.
On March 11, 2020, the World Health Organization
designated COVID-19 as a global pandemic. Governments around the world have mandated, and continue to introduce, orders to slow the transmission
of the virus, including but not limited to shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions
that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has introduced significant
volatility in the financial markets.
Basis of Presentation
The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include
the accounts of the Company. The financial statements and accompanying notes are the representations of the Company’s management,
who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the financial statements reflect
all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Going Concern
The accompanying condensed consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements,
the Company has suffered continuing operating losses, used cash flows in operating activities of $125,541 and has an accumulated deficit
of $7,675,689 as of March 31, 2021. These factors, among others, raise a substantial doubt about the Company’s ability to continue
as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying financial
statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management believes that the Company will be able
to achieve a satisfactory level of liquidity to meet the Company’s obligations for the next 12 months by generating cash through
additional borrowings and/or sale of equity securities, as needed. However, there can be no assurance that the Company will be able to
generate sufficient liquidity to maintain its operations. The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The following summary of significant accounting
policies of the Company is presented to assist in the understanding of the Company’s financial statements. These accounting policies
conform to GAAP in all material respects and have been consistently applied in preparing the accompanying condensed consolidated financial
statements.
Interim Financial Statements
The accompanying unaudited condensed interim financial
statements and related notes have been prepared in accordance with GAAP for interim financial information, and in accordance with the
rules and regulations of the United States Securities and Exchange Commission with respect to Form 10-Q and Article 8 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited
interim financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative
of the results for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with
the audited financial statements of the Company for the year ended December 31, 2020.
Principles of Consolidation
The condensed consolidated financial statements
for the three months ended March 31, 2021 and 2020, respectively, include the accounts of Company, and its wholly-owned subsidiaries OXYS
Corporation and HereLab, Inc. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of accounts payable, accrued
liabilities and payable to related party. The Company bases its estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments
with maturity of three months or less at the time of issuance to be cash equivalents. The Company reported a cash balance of $218,613
and $103,074 as of March 31, 2021 and December 31, 2020, respectively.
Accounts Receivable and Allowance for Doubtful
Accounts
Trade accounts receivable are carried at original
invoice amount less an estimate made for doubtful accounts. The Company determines the allowance for doubtful accounts by identifying
potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts
receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income
when received. There was no allowance for doubtful accounts as of March 31, 2021 and December 31, 2020, respectively.
Long-Lived Assets
The Company regularly reviews the carrying value
and estimated lives of its long-lived assets to determine whether indicators of impairment may exist that warrant adjustments to the carrying
value or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability
to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets
to the Company’s business objectives.
Definite-lived intangible assets are amortized
on a straight-line basis over the estimated periods benefited and are reviewed when appropriate for possible impairment.
Basic and Diluted Earnings (Loss) Per Common Share
The Company computes earnings (loss) per share
in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”), ASC 260, “Earnings
per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face
of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted
average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period using the treasury stock method and convertible note and preferred stock using the if-converted method.
In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Revenue Recognition
The Company’s revenue is derived primarily
from providing services under contractual agreements. The Company recognizes revenue in accordance with ASC Topic No. 606, Revenue
from Contracts with Customers (“ASC 606”) which was adopted on January 1, 2018.
According to ASC 606, the Company recognizes revenue
based on the following criteria:
|
·
|
Identification of a contract or contracts, with a customer.
|
|
·
|
Identification of the performance obligations in the contract.
|
|
·
|
Determination of contract price.
|
|
·
|
Allocation of transaction price to the performance obligation.
|
|
·
|
Recognition of revenue when, or as, performance obligation is satisfied.
|
The Company used a practical expedient available
under ASC 606-10-65-1(f)4 that permits it to consider the aggregate effect of all contract modifications that occurred before the beginning
of the earliest period presented when identifying satisfied and unsatisfied performance obligations, transaction price, and allocating
the transaction price to the satisfied and unsatisfied performance obligations.
The Company has elected to treat shipping and
handling activities as cost of sales. Additionally, the Company has elected to record revenue net of sales and other similar taxes.
Concentration of Credit Risk
Financial instruments that potentially expose
the Company to concentrations of risk consist primarily of cash and cash equivalents which are generally not collateralized. The Company’s
policy is to place its cash and cash equivalents with high quality financial institutions, in order to limit the amount of credit exposure.
Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”), up to $250,000. At
March 31, 2021 and December 31, 2020, the Company had no amounts in excess of the FDIC insurance limit.
Fair Value of Financial Instruments and Fair
Value Measurements
ASC 820, “Fair Value Measurements and
Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used
to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure
fair value:
Level 1 applies to assets or liabilities for which
there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which
there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities
in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less
active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated
by, observable market data. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially
the full term of the asset or liability.
Level 3 applies to assets or liabilities for which
there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or
liabilities.
The Company’s consolidated financial instruments
consist principally of cash and cash equivalents, prepaid expenses, accounts payable, accrued liabilities, notes payable and related parties
payable. The Company believes that the recorded values of all the financial instruments approximate their current fair values because
of their nature and respective maturity dates or durations.
Income Taxes
The Company accounts for income taxes using the
asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provide that
deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial
reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities
are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to
the amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10,
“Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions
taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position
taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of
a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes,
if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition
threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with
the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described
above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any
associated interest and penalties that would be payable to the taxing authorities upon examination.
Convertible Debt and Convertible Preferred
Stock
When the Company issues convertible debt or convertible
preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether
the instrument should be classified as a liability under ASC 480, Distinguishing Liabilities from Equity, and second whether the
conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument
or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if
the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815, Derivatives
and Hedging. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not
indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is
readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the
host instrument and classified as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in
its fair value recognized currently in the consolidated statements of operations.
If a conversion feature does not meet the conditions
to be separated and accounted for as an embedded derivative liability, the Company then determines whether the conversion feature is “beneficial”.
A conversion feature would be considered beneficial if the conversion feature is “in the money” when the host instrument is
issued or, under certain circumstances, later. If convertible debt contains a beneficial conversion feature (“BCF”),
the amount of the amount of the proceeds allocated to the BCF reduces the balance of the convertible debt, creating a discount which is
amortized over the debt’s term to interest expense in the consolidated statements of operations.
When a convertible preferred stock contains a
BCF, after allocating the proceeds to the BCF, the resulting discount is either amortized over the period beginning when the convertible
preferred stock is issued up to the earliest date the conversion feature may be exercised, or if the convertible preferred stock is immediately
exercisable, the discount is fully amortized at the date of issuance. The amortization is recorded similar to a dividend.
Convertible debt is accounted for under the ASC
470-20, Debt – Debt with Conversion and Other Options.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards
Board issued Accounting Standards Update (“ASU”) ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the
Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes
certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.
This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, and interim
periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the
impact of this guidance on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible
instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are
required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation
in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although
early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its financial statements.
Other accounting standards that have been issued
or proposed by FASB and do not require adoption until a future date are not expected to have a material impact on the consolidated financial
statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated
to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 - INTANGIBLE ASSETS
The Company’s intangible assets comprise
of intellectual property revolving around their field tests, sensor integrations, and board designs. Intangible assets, net of amortization
at March 31, 2021 and December 31, 2020 amounted to $335,379 and $347,856, respectively.
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Intangible Assets
|
|
$
|
495,000
|
|
|
$
|
495,000
|
|
Accumulated amortization
|
|
|
(159,621
|
)
|
|
|
(147,144
|
)
|
Intangible Assets, net
|
|
$
|
335,379
|
|
|
$
|
347,856
|
|
At March 31, 2021 and December 31, 2020, respectively,
the Company determined that none of its intangible assets were impaired. Amortizable intangible assets are amortized using the straight-line
method over their estimated useful lives of ten years. Amortization expense of finite-lived intangibles was $12,477 and $12,341 for the
three months ended March 31, 2021 and 2020, respectively.
The following table summarizes the Company’s
estimated future amortization expense of intangible assets with finite lives as of December 31, 2020:
|
|
Amortization expense
|
|
2021
|
|
$
|
37,295
|
|
2022
|
|
|
49,500
|
|
2023
|
|
|
49,500
|
|
2024
|
|
|
49,500
|
|
2025
|
|
|
49,500
|
|
Thereafter
|
|
|
100,084
|
|
Total
|
|
$
|
335,379
|
|
NOTE 4 - COMMITMENTS AND CONTINGENCIES
In prior years, the Company entered into consulting
agreements with one director, three executive officers, and one engineer of the Company, which include commitments to issue shares of
the Company’s common stock from the Company’s Stock Incentive Plans. Two agreements have been terminated and shares have been
issued in conjunction with the related separation agreements, but the vested shares related to the remaining consulting agreements with
the three executive officers have not yet been issued in full, and therefore, remain a liability. According to the remaining three agreements,
1,319,000 shares vested in 2019, 2,400,000 shares vested in 2020, and 3,600,000 shares of common stock shall vest in 2021. The shares
vest annually on the anniversary date of the agreements.
In the event that the agreement is terminated
by either party pursuant to the terms of the agreement, all unvested shares which have been earned shall vest on a pro-rata basis as of
the effective date of the termination of the agreement and all unearned, unvested shares shall be terminated.
The value of the shares was assigned at fair market
value on the effective date of the agreement and the pro-rata number of shares earned was calculated and amortized at the end of each
reporting period. The Company has accrued $910,072 and $730,836 in shares payable in conjunction with these agreements as of March 31,
2021 and December 31, 2020, respectively. A summary of these agreements is as follows.
On March 11, 2019, the Company’s Board of
Directors approved the Consulting Agreement dated effective June 4, 2018 with its CEO. The term of the agreement is for three years beginning
as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms upon the
consent of the parties. The services to be provided by the CEO pursuant to the agreement are those customary for the position in which
the CEO is serving. As of the effective date, the Company shall issue to the CEO an aggregate of 3,060,000 shares of the Company’s
common stock which vest as follows:
|
1.
|
560,000 shares on the first-year anniversary of the effective date;
|
|
|
|
|
2.
|
1,000,000 shares on the second-year anniversary of the effective date; and
|
|
|
|
|
3.
|
1,500,000 shares on the third-year anniversary of the effective date.
|
The shares are issued under the 2019 Stock Incentive
Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as
defined in the agreement) or the listing of the Company’s common stock on a senior exchange. As of March 31, 2021 and December
31, 2020, 1,560,000 shares and 1,560,000 shares had vested, respectively.
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the CEO, pursuant to which the CEO forgave $185,000 of accrued and unpaid consulting fees owed to him pursuant
to his consulting agreement with the Company. On June 12, 2020, the Company entered into an amendment effective January 1, 2020 to the
Consulting Agreement with the CEO. The amendment stated that from January 1, 2020 until April 23, 2020, the Consultant shall be paid an
hourly wage of $12.75 per hour for services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08
an hour for services performed. Fees may accrue at the discretion of management. At any time, the Consultant shall have the right to convert
any accrued and unpaid fees into shares of Common Stock of the Company. The conversion price shall equal 90% multiplied by the market
price (representing a discount rate of 10%). As of March 31, 2021 and December 31, 2020, the Company recorded $138,130 and $138,602 in
salaries payable to the CEO.
On March 11, 2019, the Company’s Board of
Directors approved the Consulting Agreement dated effective October 1, 2018 with its COO. The term of the agreement is for three years
beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable for one-year terms
upon the consent of the parties. The services to be provided by the COO pursuant to the agreement are those customary for the position
in which the COO is serving. As of the effective date, the Company shall issue to the COO an aggregate of 2,409,000 shares of the Company’s
common stock which vest as follows:
|
1.
|
409,000 shares on the first-year anniversary of the effective date;
|
|
2.
|
800,000 shares on the second-year anniversary of the effective date; and
|
|
3.
|
1,200,000 shares on the third-year anniversary of the effective date.
|
The shares are issued under the 2017 Stock Incentive
Plan. Vesting of the shares is subject to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as
defined in the agreement) or the listing of the Company’s common stock on a senior exchange. As of March 31, 2021 and December 31,
2020, 1,209,000 shares and 1,209,000 shares had vested respectively.
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the COO, pursuant to which the COO forgave $103,250 of accrued and unpaid consulting fees owed to her pursuant
to her consulting agreement with the Company. On June 12, 2020, the Company entered into an amendment effective January 1, 2020 to
the Consulting Agreement with the COO. The amendment stated that from January 1, 2020 until April 23, 2020, the Consultant shall be paid
an hourly wage of $12.75 per hour for services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08
an hour for services performed. Fees may accrue at the discretion of management. At any time, the Consultant shall have the right to convert
any accrued and unpaid fees into shares of Common Stock of the Company. The conversion price shall equal 90% multiplied by the market
price (representing a discount rate of 10%). As of March 31, 2021 and December 31, 2020, the Company recorded $143,492 and $139,078 in
salaries payable to the COO.
On March 11, 2019, the Company’s Board of
Directors approved the Amended and Restated Consulting Agreement dated effective April 23, 2018 with its CTO. The term of the agreement
is for three years beginning as of the effective date, unless terminated earlier pursuant to the agreement and is automatically renewable
for one-year terms upon the consent of the parties. The services to be provided by the CTO pursuant to the agreement are those customary
for the position in which the CTO is serving. As of the effective date, the Company shall issue to the CTO an aggregate of 1,800,000 shares
of the Company’s common stock which vest as follows:
|
1.
|
300,000 shares on the first-year anniversary of the effective date;
|
|
2.
|
600,000 shares on the second-year anniversary of the effective date; and
|
|
3.
|
900,000 shares on the third-year anniversary of the effective date.
|
As of March 31, 2021 and December 31, 2020, 900,000
shares and 900,000 shares had vested, respectively.
On June 11, 2020, the Company entered into a Debt
Forgiveness Agreement with the CTO pursuant to which the CTO forgave $82,475 of accrued and unpaid consulting fees owed to him pursuant
to his consulting agreement with the Company. On June 12, 2020, the Company entered into an amendment effective January 1, 2020 to
the Consulting Agreement with the CTO. The amendment stated that from January 1, 2020 until April 23, 2020, the Consultant shall be paid
an hourly wage of $12.75 per hour for services performed. From April 24, 2020 onward, the Consultant shall be paid an hourly wage of $48.08
an hour for services performed. Fees may accrue at the discretion of management. At any time, the Consultant shall have the right to convert
any accrued and unpaid fees into shares of Common Stock of the Company. The conversion price shall equal 90% multiplied by the market
price (representing a discount rate of 10%). As of March 31, 2021 and December 31, 2020, the Company recorded $141,596 and $129,590 in
salaries payable to the CTO.
NOTE 5 - CONVERTIBLE NOTES PAYABLE
The following table summarizes the outstanding
balance of convertible notes payable, interest and conversion rates as of March 31, 2021 and December 31, 2020, respectively.
|
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
A.
|
Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at $0.01 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2022. The note is secured by substantially all the assets of the Company.
|
|
$
|
450,000
|
|
|
$
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
B.
|
Convertible note payable to an investor with interest at 5% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable annually with the balance of principal and interest due on maturity on March 1, 2022. The note is secured by substantially all the assets of the Company.
|
|
|
55,000
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
C.
|
Convertible note payable to an investor with interest at 12% per annum. On February
3, 2021, the investor settled the note and accrued interest, in exchange of common stock of the Company.
|
|
|
–
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
D.
|
Convertible note payable to an investor with interest at 12% per annum. $10,000 of the principal is currently convertible into shares of common stock at $0.01 per share, with remaining principal and interest convertible into shares of common stock at $0.01 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2022. The note is secured by substantially all the assets of the Company.
|
|
|
50,000
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
E.
|
Convertible note payable to a related party with interest at 12% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on August 2, 2021. The note is secured by substantially all the assets of the Company.
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
F.
|
Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.01 per share. Principal and interest due on maturity on October 29, 2021.
|
|
|
33,167
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
G.
|
Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.0099 per share. Note was issued as payment for future fees to be incurred under the related Equity Financing Agreement. Principal and interest due on maturity on October 29, 2021.
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
788,167
|
|
|
|
1,065,000
|
|
|
Less unamortized discount
|
|
|
(375,060
|
)
|
|
|
(111,781
|
)
|
|
Net balance
|
|
|
413,107
|
|
|
|
953,219
|
|
|
Less current portion
|
|
|
(413,107
|
)
|
|
|
(953,219
|
)
|
|
|
|
$
|
–
|
|
|
$
|
–
|
|
A. January 18, 2018 Convertible Note and Warrants (“Note A”)
On January 28, 2021, the noteholder of Note A
agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022 in exchange for the reduction of
the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note) including penalties of $100,000 were
waived, and all future Events of Default (as defined in the Note) pertaining to the future payment of interest were waived through maturity.
The Company recorded $100,000 as extinguishment of debt in its statements of operations for the three months ended March 31, 2021. The
Company recorded $300,000 as the beneficial conversion feature discount on note payable of $500,000 on January 28, 2021. The Company amortized
the discount to interest expense of $48,828 and $2,999 for the three months ended March 31, 2021 and 2020, respectively. The unamortized
discount was $253,149 and $1,978 at March 31, 2021 and December 31, 2020, respectively. In addition, the Company recorded interest expense
of $15,041 and $16,455 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest payable on Note A was $100,865
and $85,824 as of March 31, 2021 and December 31, 2020, respectively.
On February 4, 2021, the noteholder A converted
the principal balance of $50,000 of its convertible promissory note into 5,000,000 shares of common stock of the Company (Note 9). The
principal balance payable on Note A amounted to $450,000 and $600,000 on March 31, 2021 and December 31, 2020, respectively.
B. January 2019 Convertible Note and Warrants (“Note B”)
The Company recorded interest expense of $678
and $686 on Note B for the three months ended March 31, 2021 and 2020, respectively. Accrued interest payable on Note B was $6,020 and
$5,342 as of March 31, 2021 and December 31, 2020, respectively. The principal balance payable on Note B amounted to $55,000 and $55,000
on March 31, 2021 and December 31, 2020, respectively. The Note B matures on March 1, 2022.
C. March 2019 Convertible Note and Warrants
(Note C”)
On January 28, 2021, the noteholder of Note C
agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022 in exchange for the reduction of
the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note) including penalties of $10,000 were
waived, and all future Events of Default (as defined in the Note) pertaining to the future payment of interest were waived through maturity.
The Company recorded $10,000 as extinguishment of debt in its statements of operations for the three months ended March 31, 2021. The
Company recorded $30,000 as debt discount on note payable and amortized it to interest expense since the Note was converted into common
stock of the Company immediately. The Company amortized the discount to interest expense of $30,000 and $704 for the three months ended
March 31, 2021 and 2020, respectively. The unamortized discount was $0 and $0 at March 31, 2021 and December 31, 2020, respectively.
In addition, the Company recorded interest expense of $460 and $1,645 for the three months ended March 31, 2021 and 2020, respectively.
Accrued interest payable on Note C was $0 and $6,050 at March 31, 2021 and December 31, 2020, respectively.
On January 28, 2021, the noteholder of Note C
converted the principal balance of $40,000 of its convertible promissory note and $6,510 of accrued interest, into 4,650,978 shares of
common stock of the Company (Note 9). The principal balance payable on Note C amounted to $0 and $50,000 on March 31, 2021 and December
31, 2020, respectively.
D. March 2019 Convertible Note and Warrants
(“Note D”)
On January 28, 2021, the noteholder of Note D
agreed to extend the maturity date of the Senior Secured Convertible Promissory Note to March 1, 2022 in exchange for the reduction of
the conversion price to $0.01 per share, and all prior Events of Default (as defined in the Note) including penalties of $10,000 were
waived, and all future Events of Default (as defined in the Note) pertaining to the future payment of interest were waived through maturity.
The Company recorded $10,000 as extinguishment of debt in its statements of operations for the three months ended March 31, 2021. The
Company recorded $30,000 as the beneficial conversion feature discount on note payable of $50,000 on January 28, 2021. The Company amortized
the discount to interest expense of $4,685 and $704 for the three months ended March 31, 2021 and 2020, respectively. The unamortized
discount was $25,315 at March 31, 2021 and December 31, 2020, respectively. In addition, the Company recorded interest expense of $1,595
and $1,645 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest payable on Note A was $10,177 and $8,582
as of March 31, 2021 and December 31, 2020, respectively. The principal balance payable on Note D amounted to $50,000 and $60,000 on March
31, 2021 and December 31, 2020, respectively.
E. August 2019 Convertible Note and Warrants (“Note E”)
The Company amortized the debt discount on Note
E to interest expense of $13,207 and $13,064 for the three months ended March 31, 2021 and 2020, respectively. The unamortized discount
was $20,896 and $34,104 at March 31, 2021 and December 31, 2020, respectively. The Company recorded interest expense of $3,699 and $3,740
on Note E for the three months ended March 31, 2021 and 2020, respectively. Accrued interest payable on Note E was $22,389 and $18,690
as of March 31, 2021 and December 31, 2020, respectively. The principal balance payable on Note E amounted to $125,000 and $125,000 on
March 31, 2021 and December 31, 2020, respectively. The maturity date of the Note E is August 2, 2021.
F. July
2020 Equity Financing Arrangement (“Note F”)
On February 1, 2021, the noteholder of Note F
converted the principal balance of $66,833 of its convertible promissory note and $5,177 of accrued interest into 7,200,000 shares of
common stock of the Company (Note 9). The Company recorded interest expense of $1,404 and $0 for the three months ended March 31, 2021
and 2020, respectively. Accrued interest payable on Note G was $0 and $2,986 as of March 31, 2021 and December 31, 2020, respectively.
The principal balance payable on Note F amounted to $33,167 and $100,000 on March 31, 2021 and December 31, 2020, respectively. The noteholder
of Note F agreed to extend the maturity date of the note from April 29, 2021 to October 29, 2021.
G . July
2020 Equity Financing Arrangement (“Note G”)
In connection with entering into the Equity Financing
Agreement, on July 29, 2020, the Company issued to the investor a Convertible Promissory Note in the principal amount of $75,000 (“Note
G”). No proceeds were received for this note as it was issued to offset future transaction costs related to any future issuances
of equity under the agreement. As a result, the amount has been capitalized as deferred offering costs in the accompanying balance sheet
and will be offset against any future proceeds received under the agreement.
The Company recorded interest expense of $1,849
and $0 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest amounted to $4,089 and $2,240 at March 31, 2021
and December 31, 2020, respectively. The principal balance payable of Note G amounted to $75,000 at March 31, 2021 and December 31, 2020,
respectively. The noteholder of Note G agreed to extend the maturity date of the note from April 29, 2021 to October 29, 2021.
NOTE 6 - EARNINGS (LOSS) PER SHARE
The following table sets forth the computation
of basic and diluted net loss per share of common stock for the three months ended March 31, 2021 and 2020:
|
|
Three Months ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net loss attributable to common stockholders (basic)
|
|
$
|
(195,011
|
)
|
|
$
|
(789,470
|
)
|
|
|
|
|
|
|
|
|
|
Shares used to compute net loss per common share, basic and diluted
|
|
|
160,406,294
|
|
|
|
45,245,415
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders, basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
Basic net loss per share is calculated by dividing
net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing
net loss by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents
are only included when their effect is dilutive. The Company’s potentially dilutive securities which include stock options, convertible
debt, convertible preferred stock and common stock warrants have been excluded from the computation of diluted net loss per share as they
would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares
outstanding due to the Company’s net loss position.
The following outstanding common stock equivalents
have been excluded from diluted net loss per common share for the three months ended March 31, 2021 and 2020, respectively, because their
inclusion would be anti-dilutive:
|
|
As of March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Warrants to purchase common stock
|
|
|
2,868,397
|
|
|
|
44,535,064
|
|
Potentially issuable shares related to convertible notes payable
|
|
|
323,988,444
|
|
|
|
43,338,312
|
|
Potentially issuable vested shares to directors and officers
|
|
|
3,300,000
|
|
|
|
1,869,000
|
|
Potentially issuable unvested shares to officers
|
|
|
2,700,000
|
|
|
|
5,400,000
|
|
Total anti-dilutive common stock equivalents
|
|
|
332,856,841
|
|
|
|
95,142,376
|
|
NOTE 7 - PAYCHECK PROTECTION PROGRAM LOAN
The Company applied for and received funding from
the Payroll Protection Program (the “PPP Loan”) in the amount of $36,700 under the Coronavirus Aid, Relief and Economic
Security Act (the “CARES Act”). The PPP Loan matures on April 23, 2022 and bears interest at a rate of 1.0% per
annum. Monthly amortized principal and interest payments are deferred for six months after the date of disbursement (subject
to further deferral pursuant to the terms of the Paycheck Protection Flexibility Act of 2020). The Promissory Note contains events of
default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the use of PPP Loan amount
shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth
in the CARES Act.
NOTE 8 - RELATED PARTIES
At March 31, 2021 and December 31, 2020, respectively,
the amount due to two stockholders was $1,000 relating to depositing funds for opening bank accounts for the Company.
The Company executed an operating lease to rent
its current office facility from a stockholder on a month-to-month basis at a monthly rent of $250 starting January 1, 2020. The Company
recorded rent expense of $750 for the three months ended March 31, 2021 and 2020, respectively. The Company has recorded $250 and $18,000
of rent payable to the stockholder in accounts payable as of March 31, 2021 and December 31, 2020, respectively.
The Company awarded shares payable to officers
and a director valued at $179,236 and $181,227 for the three months ended March 31, 2021 and 2020, respectively, pursuant to the terms
of an exchange agreement (Note 4). Shares payable as compensation to officers and a director amounted to $910,072 and $730,836 at March
31, 2021 and December 31, 2020, respectively. No shares payable compensation was converted into shares of common stock or preferred stock
during the quarter ended March 31, 2021.
NOTE 9 - STOCKHOLDERS' EQUITY
On January
4, 2021, pursuant to the authorization and approval previously provided by the stockholders, the Company filed a Certificate of Amendment
to its Articles of Incorporation with the Secretary of State of Nevada to increase its authorized shares of common stock, $0.001 par value
per share, from 190,000,000 shares to 1,000,000,000 shares, which filing became effective on January 18, 2021. The Company has authorized
10,000,000 shares of $0.001 par value preferred stock. The Company had 178,361,108 shares and 145,110,130 shares of common stock,
and 25,845 shares and 25,845 shares of preferred stock, issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.
Common Stock
Holders of shares of common stock are entitled
to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights.
Holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors
in its discretion from funds legally available, therefore. In the event of liquidation, dissolution, or winding up of the Company, the
holders of common stock are entitled to share pro rata in all assets remaining after payment in full of all liabilities. All of the outstanding
shares of common stock are fully paid and non-assessable. Holders of common stock have no preemptive rights to purchase the Company’s
common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock.
On January 28, 2021, the noteholder of Note C
converted the principal balance of $40,000 of its convertible promissory note and $6,510 of accrued interest, into 4,650,978 shares of
common stock of the Company (Note 5).
On February 1, 2021, the noteholder of Note F
converted the principal balance of $66,833 of its convertible promissory note and $5,177 of accrued interest into 7,200,000 shares of
common stock of the Company (Note 5).
On February 4, 2021, the noteholder of Note A
converted the principal balance of $50,000 of its convertible promissory note into 5,000,000 shares of common stock of the Company (Note
5).
On February 24, 2021, the Company entered into
a Common Stock Purchase Agreement with an investor pursuant to which the investor agreed to purchase up to $5,000,000 of the Company’s
registered common stock at $0.015 per share. Pursuant to the Agreement, purchases may be made by the Company during the Commitment Period
(as defined in the Agreement) through the submission of a purchase notice to the investor no sooner than ten business days after the preceding
closing. No purchase notice can be made in an amount less than $10,000 or greater than $500,000 or greater than two times the average
of the daily trading dollar volume for the Company’s common stock during the ten business days preceding the purchase date. Each
purchase notice is limited to the investor beneficially owning no more than 4.99% of the total outstanding common stock of the Company
at any given time. There are certain conditions precedent to each purchase including, among others, an effective registration statement
in place and the VWAP of the closing price of the Company’s common stock greater than $0.0175 for the Company's common stock during
the five business days prior to the closing. On February 26, 2021 and March 16, 2021, the investor purchased 8,000,000 shares and 8,400,000
shares of common stock for a cash consideration of $120,000 and $126,000, respectively.
Stock Incentive Plans
On December 14, 2017, the Board of Directors of
the Company approved the 2017 Stock Incentive Plan (the “2017 Plan”). Awards may be made under the 2017 Plan for up
to 4,500,000 shares of common stock of the Company. All of the Company’s employees, officers and directors, as well as consultants
and advisors to the Company are eligible to be granted awards under the 2017 Plan. No awards can be granted under the 2017 Plan after
the expiration of 10 years from the plan approval but awards previously granted may extend beyond that date. Awards may consist of both
incentive and non-statutory options, restricted stock units, stock appreciation rights, and restricted stock awards.
On March 11, 2019, the Board of Directors of the
Company approved the 2019 Stock Incentive Plan (the “Plan”). Awards may be made under the Plan for up to 5,000,000
shares of common stock of the Company. All of the Company’s employees, officers and directors, as well as consultants and advisors
to the Company are eligible to be granted awards under the Plan. No awards can be granted under the Plan after the expiration of 10 years
from the plan approval but awards previously granted may extend beyond that date. Awards may consist of both incentive and non-statutory
options, restricted stock units, stock appreciation rights, and restricted stock awards.
Shares earned and issued related to the consulting
agreements are issued under the 2017 Stock Incentive Plan and the 2019 Stock Incentive Plan (Note 4). Vesting of the shares is subject
to acceleration of vesting upon the occurrence of certain events such as a Change of Control (as defined in the agreement) or the listing
of the Company’s common stock on a senior exchange.
A summary of the status of the Company’s
non-vested shares as of March 31, 2021 and 2020, and changes during the three months period then ended, is presented below:
|
|
Non-vested Shares of Common Stock
|
|
|
Weighted Average Fair Value
|
|
Balance at December 31, 2019
|
|
|
6,000,000
|
|
|
$
|
0.30
|
|
Awarded
|
|
|
–
|
|
|
|
–
|
|
Vested
|
|
|
(600,000
|
)
|
|
$
|
0.30
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
Balance at March 31, 2020
|
|
|
5,400,0000
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
|
3,600,000
|
|
|
$
|
0.30
|
|
Awarded
|
|
|
–
|
|
|
|
–
|
|
Vested
|
|
|
(900,000
|
)
|
|
$
|
0.30
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
Balance at March 31, 2021
|
|
|
2,700,000
|
|
|
$
|
0.30
|
|
Preferred Stock
Series A Supervoting Convertible Preferred
Stock
On July 2, 2020, the Board of Directors of the
Company authorized the issuance of 15,600 shares of preferred stock, $0.001 par value per share, designated as Series A Supervoting Convertible
Preferred Stock.
Dividends: Initially, there will be no
dividends due or payable on the Series A Supervoting Preferred Stock. Any future terms with respect to dividends shall be determined by
the Board consistent with the Company’s Articles of Incorporation.
Liquidation and Redemption Rights: Upon
the occurrence of a Liquidation Event (as defined on the Certificate of Designation), the holders of Series A Supervoting Preferred Stock
are entitled to receive net assets on a pro-rata basis. Each holder of Series A Supervoting Preferred Stock is entitled to receive ratably
any dividends declared by the Board, if any, out of funds legally available for the payment of dividends. Liquidation Event means (i)
the liquidation, dissolution or winding-up, whether voluntary or involuntary, of the corporation, (ii) the purchase or redemption by the
corporation of the shares of any class of stock or the merger or consolidation of the corporation with or into any other corporation or
corporations, or (iii) the sale, license or lease of all or substantially all, or any material part of, the Company’s assets.
Conversion: Each holder of Series A Supervoting
Preferred Stock may voluntarily convert its shares into shares of common stock of the Corporation at a rate of 1:100 (as may be adjusted
for any combinations or splits with respect to such shares).
Rank: All shares of the Series A Supervoting
Preferred Stock shall rank senior to the Company’s (A) common stock, par value $0.001 per share, and any other class or series of
capital stock of the Company hereafter created.
Voting Rights:
A.
|
If at least one share of Series A Super Voting Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series A Super Voting Preferred Stock at any given time, regardless of their number, shall have voting rights equal to 20 times the sum of: i) the total number of shares of Common stock which are issued and outstanding at the time of voting, plus ii) the total number of shares of all Series of Preferred stocks which are issued and outstanding at the time of voting.
|
B.
|
Each individual share of Series A Super Voting Preferred Stock shall have the voting rights equal to:
|
|
|
|
twenty times the sum of: {all shares
of Common stock issued and outstanding at the time of voting + all shares of Series A and any newly designated Preferred stock issued
and outstanding at the time of voting}
|
|
|
|
Divided by:
|
|
|
|
the number of shares of Series
A Super Voting Preferred Stock issued and outstanding at the time of voting
|
With respect to all
matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent,
the holders of the outstanding shares of Series A Super Voting Preferred Stock shall vote together with the holders of Common Stock
without regard to class, except as to those matters on which separate class voting is required by applicable law or the Articles of Incorporation
or Bylaws.
The Company did not issue any Series A Supervoting
Convertible Preferred Stock during the three months ended March 31, 2021. The Company had 25,845 shares of Series A Supervoting Convertible
Preferred Stock issued and outstanding at March 31, 2021 and December 31, 2020, respectively.
Series B Convertible Preferred Stock Equity
Financing
On November 16, 2020, the Board of Directors of
the Company authorized the issuance of up to 600 shares of preferred stock, $0.001 par value per share, designated as Series B Convertible
Preferred Stock. Each share of Preferred Stock shall have a par value of $0.001 per share and a stated value of $1,200, subject to increase
set forth in the Certificate of Designation.
Dividends: Each share of Series B Convertible
Preferred Stock shall be entitled to receive, and the Company shall pay, cumulative dividends of 12% per annum, payable quarterly, beginning
on the Original Issuance Date (as defined in the Certificate of Designation) and ending on the date that such share of Series B Convertible
Preferred Share has been converted or redeemed (the “Dividend End Date”). Dividends may be paid in cash or in shares
of Series B Convertible Preferred Stock. From and after the initial Closing Date (as defined in the Certificate of Designation), in addition
to the payment of dividends pursuant to Section 2(a), each Holder shall be entitled to receive, and the Company shall pay, dividends on
shares of Series B Convertible Preferred Stock equal to (on an as-if-converted-to-Common-Stock basis) and in the same form as dividends
actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. The Company shall pay
no dividends on shares of the common stock unless it simultaneously complies with the previous sentence.
Voting Rights: The Series B Convertible
Preferred Stock will vote together with the common stock on an as converted basis subject to the Beneficial Ownership Limitations (as
defined in the Certificate of Designation and not in excess of 4.99% conversion limitation). However, as long as any shares of Series
B Convertible Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the Holders of a majority of the
then outstanding shares of the Series B Convertible Preferred Stock directly and/or indirectly (a) alter or change adversely the powers,
preferences or rights given to the Series B Convertible Preferred Stock or alter or amend this Certificate of Designation, (b) authorize
or create any class of stock ranking as to redemption or distribution of assets upon a Liquidation (as defined in of the Certificate of
Designation) senior to, or otherwise pari passu with, the Series B Convertible Preferred Stock or, authorize or create any class of stock
ranking as to dividends senior to, or otherwise pari passu with, the Series B Convertible Preferred Stock, (c) amend its Articles of Incorporation
or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares
of Series B Convertible Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.
Liquidation: Upon any liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled
to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value (as defined in the Certificate
of Designation), plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under
this Certificate of Designation, for each share of Series B Convertible Preferred Stock before any distribution or payment shall be made
to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then
the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in full.
Conversion: Each share of Series B Convertible
Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date (as defined in the Certificate
of Designation) at the option of the Holder thereof, into that number of shares of common stock (subject to the limitations) determined
by dividing the Stated Value of such share of Series B Convertible Preferred Stock by the Conversion Price. The Conversion Price for the
Series B Convertible Preferred Stock shall be the amount equal to the lowest traded price for the Company’s common stock for the
fifteen (15) Trading Days immediately preceding the date of such conversion. All such foregoing determinations will be 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. Following an event of default, the Conversion price shall equal the lower of : (a) the
then applicable Conversion Price; or (b) a price per share equaling 80% of the lowest traded price for the Company’s common stock
during the ten (10) trading days preceding the relevant Conversion.
Redemption: The Series B Convertible Preferred
Stock may be redeemed by payment of the stated value thereof, with the following premiums based on the time of the redemption.
|
·
|
115% of the stated value if the redemption takes place within 90 days of issuance;
|
|
·
|
120% of the stated value if the redemption takes place after 90 days and within 120 days of issuance
|
|
·
|
125% of the stated value if the redemption takes place after 120 days and within 180 days of issuance; and
|
|
·
|
each share of Preferred Stock is redeemed one year from the day of issuance
|
On November 19, 2020, pursuant to the terms of
a Securities Purchase Agreement dated November 16, 2020 (the “SPA”), the Company entered into a new preferred equity
financing agreement with GHS Investments, LLC (“GHS”) in the amount of up to $600,000. The SPA provides for GHS’s
purchase, from time to time, of up to 600 shares of the newly-designated Series B Convertible Preferred Stock. The initial closing under
the SPA consisted of 45 shares of Series B Convertible Preferred Stock, stated value $1,200 per share, issued to GHS for an initial purchase
price of $45,000, or $1,000 per share. At the Company’s option, and subject to the terms of the SPA and the Certificate of Designation
for the Series B Convertible Preferred Stock (the “COD”), additional closings in the amount of 40 shares of Series
B Convertible Preferred Stock for a total purchase price of $40,000 may take place at a rate of up to once every 30 days. In connection
with the initial closing in the amount of 45 shares of Series B Convertible Preferred Stock, the Company issued an additional 25 shares
of Series B Convertible Preferred Stock to GHS as a service fee.
The Company’s ability to conduct additional
closings under the SPA is subject to certain conditions, including the following:
|
·
|
The Company’s continued compliance with all covenants and agreements under the SPA and the COD, with no uncured defaults under the Company’s agreements with GHS;
|
|
·
|
The continued quotation of the Company’s common stock on the over-the-counter market or another trading market or exchange;
|
|
·
|
The average daily dollar trading volume for the Company’s common stock for the 30 trading days preceding each additional closing must be at least $10,000 per day; and
|
|
·
|
The closing market price for the Company’s common stock must be at least $0.01 for each of the 30 trading days preceding each additional closing.
|
No additional closings may take place after the
two-year anniversary of the SPA, or once the entire $600,000 amount has been funded. If the average daily dollar trading volume for the
Company’s common stock for the 30 trading days preceding a particular additional closing is at least $50,000 per day, the Company
may, at its option, increase the amount of that additional closing to 75 shares of Series B Convertible Preferred Stock ($75,000).
The Series B Convertible Preferred Stock is classified as temporary
equity, as it is convertible upon issuance at an amount equal to the lowest traded price for the Company’s common stock for the
fifteen trading days immediately preceding the date of conversion.
Based on the requirements of ASC 815, Derivatives
and Hedging, the conversion feature represents an embedded derivative that is required to be bifurcated and accounted for as a separate
derivative liability. The derivative liability is originally recorded at its estimated fair value and is required to be revalued at each
conversion event and reporting period. Changes in the derivative liability fair value are reported in operating results each reporting
period.
On November 19, 2020 (the date of receipt of cash
proceeds of $45,000 issuance), the Company valued the conversion feature of the derivative and recorded an initial derivative liability
of $103,267, $58,267 as day one loss on the derivative, $39,000 as interest expense, and $39,000 as Series B Convertible Preferred Stock
mezzanine liability, and $84,000 as amortization. At March 31, 2021, the Company recalculated the value of the derivative liability associated
with the convertible note recording a gain of $39,465 in connection with the change in fair market value of the derivative liability.
In addition, the Company recorded $2,495 as preferred stock dividend for the three months ended March 31, 2021.
On November 19, 2020, at December 31, 2020 and
March 31, 2021, the Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions:
conversion exercise prices ranging from $0.0051 to $0.014, the closing stock price of the Company's common stock on the date of valuation
ranging from $0.0083 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 337.26% to 440.99%, risk-free interest
rates ranging from 0.38% to 0.39%, and an expected term of 1.13 years to 1.38 years.
On December 16, 2020, pursuant to the terms of
the SPA, GHS purchased an additional 85 shares of Series B Convertible Preferred Stock for gross proceeds of $85,000. The Company paid
$1,700 in selling commissions to complete this financing.
On December 16, 2020 (the date of receipt of cash
proceeds of $85,000 issuance), the Company valued the conversion feature of the derivative and recorded an initial derivative liability
of $106,241, $1,700 as interest expense, $102,000 as Series B Convertible Preferred Stock a mezzanine liability, and $102,000 as amortization.
At March 31, 2021, the Company recalculated the value of the derivative liability associated with the convertible note recording a gain
of $45,235 in connection with the change in fair market value of the derivative liability. In addition, the Company recorded $3,018 as
preferred stock dividend for the three months ended March 31, 2021 payable to GHS.
On December 16, 2020, December 31, 2020 and March
31, 2021, the Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion
exercise prices ranging from $0.0060 to $0.014, the closing stock price of the Company's common stock on the date of valuation ranging
from $0.0063 to $0.0184, an expected dividend yield of 0%, expected volatility ranging from 359.57% to 437.59%, risk-free interest rates
ranging from 0.38% to 0.39% , and an expected term of 1.21 years to 1.50 years.
As a result of receipt of cash proceeds relating
to Series B Convertible Preferred Stock, the Company recorded derivative liability of $231,082 and $315,782 at March 31, 2021 and December
31, 2020, respectively. In addition, preferred stock dividend payable was $7,166 and $1,653 at March 31, 2021 and December 31, 2020, respectively.
Warrants
A summary of the status of the Company’s
warrants as of March 31, 2021 and December 31, 2020, and changes during the three months then ended, is presented below:
|
|
Shares Under Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life
|
Outstanding at December 31, 2019
|
|
|
1,627,532
|
|
|
$
|
0.21
|
|
|
4.5 Years
|
Issued
|
|
|
42,907,532
|
|
|
$
|
0.01
|
|
|
4.4 Years
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
Expired/Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
|
Outstanding at March 31, 2020
|
|
|
44,535,064
|
|
|
$
|
0.21
|
|
|
4.4 Years
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
2,868,397
|
|
|
$
|
0.00
|
|
|
3.4 Years
|
Exercised
|
|
|
–
|
|
|
$
|
0.00
|
|
|
|
Expired/Forfeited
|
|
|
–
|
|
|
$
|
0.20
|
|
|
|
Outstanding at March 31, 2021
|
|
|
2,868,397
|
|
|
$
|
0.00
|
|
|
3.2 Years
|
NOTE 10 - SUBSEQUENT EVENTS
On April 1, 2021, the Company’s Chief Technology
Officer resigned from his employment with the Company. In settlement of the Company’s total obligations with the officer upon separation,
the Company issued 843,288 shares of its common stock valued at $252,986 as award shares payable pursuant to the Stock Incentive Plans
for services performed. In addition, the Company paid $11,142 in reimbursable expenses ; $121,365 in accrued and unpaid consulting fees
in cash, and $9,086 in gross wages less payroll tax deductions and withholdings required by law.
On April 14, 2021, an investor purchased 8,900,000
shares of the Company’s common stock pursuant to the Common Stock Purchase Agreement entered on February 24, 2021. Pursuant to the
terms of the agreement, the investor agreed to purchase up to $5,000,000 of the Company’s registered Common Stock at $0.015 per
share, subject to certain conditions. The Company received $133,500 of cash consideration upon the sale of common stock.
On April 15, 2021, the noteholder of Note A converted
the principal balance of $75,000 of its convertible promissory note into 7,500,000 shares of common stock of the Company.