NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND BASIS
OF PRESENTATION
Two Hands Corporation (formerly Innovative
Product Opportunities Inc.) (the "Company") was incorporated on April 3, 2009 in the State of Delaware and established
a fiscal year end of December 31.
From inception (April 3, 2009) until June 30,
2014 our business was a product development firm creating products designed, prototyped and produced in numerous industries including
consumer and household goods, office products, furniture, and toys.
On March 1, 2012 the Company entered into a
license agreement with Szar International, Inc. (dba Cigar & Spirits Magazine) (“Cigar & Spirits”). The agreement
granted the Company the right to market the products of Cigar & Spirits including but not limited to the sales, promotion,
and advertising vehicles of the Magazine. On July 8, 2013, The Company received written notice that Cigar & Spirits will cancel
the license agreement on August 1, 2013.
Since July 1, 2014, our business is a research
and product development firm. Over the past few years we have specialized in computer vision and gesture recognition technologies.
We have leveraged our relationship with our product development team of programmers and designers to implement our vision for building
a state of the art co-parenting application.
The Two Hands Application launched
on July 25, 2018.
On February 20, 2019, the Company
announced the launch of its application, Two Hands Gone, a new encrypted messaging app.
The Company is also in the business of working
with other independent contractors to build brand awareness campaigns for clients and their products. The Company provides assistance
in building brand awareness for the products it sells through its internet website, out-of-home, mobile, online and other media
outlets as required. Additionally, the Company develops the creative media to support the client’s media buys. The Company
also assists Clients in developing and assisting in matters of developing brand strategies and discussions pertaining thereof.
The Company executes and/or oversee the research, planning, pricing, creative development, tracking and deployment of all online
and out-of-home advertising projects needed to promote client products and services.
On January 17, 2019, the Company entered into
an agreement to purchase a 100% interest in the Colombian License held by Plantro Inc S.A.S. The transaction is subject to the
Company’s satisfaction that it can acquire the License free and clear of all encumbrances, completion of due diligence, receipt
of any third-party consents and there being no material adverse change in the License. The Company has agreed to issue ten million
(10,000,000) restricted shares of its common stock and pay a royalty of 15% of net income, calculated in accordance with US GAAP,
earned from the License to Plantro Inc S.A.S. The transaction was originally expected to close on February 15, 2019. On February
27, 2019, the Company announced the closing of the transaction was extended to the week of April 4, 2019 to satisfy the conditions
placed on Plantro Inc S.A.S. We currently believe that the transaction will close by the end of the fourth quarter of 2019.
The operations of the business are carried
on by a 100% owned subsidiary, I8 Interactive Corporation, a company incorporated under the laws of Canada.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of Two
Hands Corporation have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission
requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete financial statements. The financial statements should
be read in conjunction with the annual financial statements for the year ended December 31, 2018 of Two Hands Corporation in our
Form 10-K filed on April 1, 2019.
The interim financial statements present the
balance sheets, statements of operations, stockholders’ deficit and cash flows of Two Hands Corporation. The financial statements
have been prepared in accordance with accounting principles generally accepted in the United States.
The interim financial information is unaudited.
In the opinion of management, all adjustments necessary to present fairly the financial position as of June 30, 2019 and the results
of operations and cash flows presented herein have been included in the financial statements. All such adjustments are of a normal
and recurring nature. Interim results are not necessarily indicative of results of operations for the full year.
Reclassification
On the condensed consolidated statements of
operations for the six months ended June 30, 2018, stock-based compensation – salaries of $463,000 and general and administration
expense of $392,669 previously reported separately were combined and reported as general and administration expense of $855,669.
GOING CONCERN
The Company's financial statements are prepared
in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of
assets and the liquidation of liabilities in the normal course of business. During the six months ended June 30, 2019, the Company
incurred a net loss of $2,656,841 and used cash in operating activities of $240,896, and at June 30, 2019, had a stockholders’
deficit of $1,375,937. These factors, among others, raise substantial doubt about the Company’s ability to continue as a
going concern within one year of the date that the financial statements are issued. The Company will be dependent upon the raising
of additional capital through placement of its common stock in order to implement its business plan. There can be no assurance
that the Company will be successful in this situation. These financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might result from
this uncertainty. We are currently funding our operations by way of cash advances from our Chief Executive Officer, note holders,
shareholders and others; however, we do not have any oral or written agreements with them or others to loan or advance funds to
us. There can be no assurances that we will be able to receive loans or advances from them or other persons in the future.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary, I8 Interactive Corporation. All intercompany transactions
and balances have been eliminated in consolidation.
USE OF ESTIMATES AND ASSUMPTIONS
Preparation of the financial statements in
conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows,
the Company considers highly liquid financial instruments purchased with a maturity of six months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less
accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense when incurred, while
renewals and betterments that materially extend the life of an asset are capitalized.
The costs of assets sold, retired, or otherwise
disposed of, and the related allowance for depreciation, are eliminated from the accounts, and any resulting gain or loss is recognized
in the results from operations. Depreciation is provided over the estimated useful lives of the assets, which are as follows:
Computer equipment 50%
declining balance over a three year useful life
In the year of acquisition, one half the normal
rate of depreciation is provided.
REVENUE RECOGNITION
In accordance with ASC 606, revenue is recognized
when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to
which we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step
process by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting
the payment to which we expect to be entitled in exchange for those goods or services.
ASC 606 requires us to apply the following
steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue
when, or as, we satisfy the performance obligation.
During the six months ended June 30, 2019 and
2018, the Company had revenue of $0 and $275,157, respectively. During 2018 100% of revenue was earned from one customer. The contract
with this customer ended in November 2018. The Company recognized revenue from services provided for brand awareness campaigns
for the client and their products. Revenue is recognized based on time spent on the project at an agreed upon hourly rate and as
recoverable disbursements are incurred.
RESEARCH AND DEVELOPMENT COSTS
We incurred research and development costs
primarily to the development of Two Hands gone application. Research and development costs are comprised primarily of contract
labor and services.
Software development costs are included in
research and development and are expensed as incurred. FASB ASC Topic 350
Intangibles—Goodwill and Other
requires
that software development costs incurred subsequent to reaching technological feasibility be capitalized, if material. If the process
of developing a new product or major enhancement does not include a detailed program design, technological feasibility is determined
only after completion of a working model. To date, the period between achieving technological feasibility and the general availability
of such software has been short, and the software development costs qualifying for capitalization have been insignificant. The
Company recorded research and development expense of $0 and $0 for the six months ended June 30, 2019 and 2018, respectively.
DEBT DISCOUNT AND DEBT ISSUANCE COSTS
Debt discounts and debt issuance costs incurred
in connection with the issuance of convertible notes are capitalized and amortized to interest expense based on the related debt
agreements using the effective interest rate method. Unamortized discounts are netted against convertible notes.
DERIVATIVE LIABILITY
In accordance with Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Paragraph 815-15-25-1 the conversion feature and
certain other features are considered embedded derivative instruments, such as a conversion reset provision, a penalty provision
and redemption option, which are to be recorded at their fair value as its fair value can be separated from the convertible note
and its conversion is independent of the underlying note value. The Company records the resulting discount on debt related to the
conversion features at initial transaction and amortizes the discount using the effective interest rate method over the life of
the debt instruments. The conversion liability is then marked to market each reporting period with the resulting gains or losses
shown in the statements of operations.
In circumstances where the embedded conversion
option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the
convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single,
compound derivative instrument.
The Company follows ASC Section 815-40-15 (“Section
815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section
815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.
The Company evaluates its convertible debt,
options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts qualify
as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 and Section 815-40-25 of the FASB Accounting
Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market
each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability,
the change in fair value is recorded in the consolidated statement of operations as other income or expense. Upon conversion, exercise
or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation
and then that the related fair value is reclassified to equity.
The Company utilizes the binomial option pricing
model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet
date. The binomial option pricing model includes subjective input assumptions that can materially affect the fair value estimates.
The expected volatility is estimated based on the most recent historical period of time equal to the remaining contractual term
of the instrument granted.
INCOME TAXES
The Company accounts for income taxes in accordance
with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("FASB ASC") 740, Income
Taxes. Under the assets and liability method of FASB ASC 740, deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year
in which those temporary differences are expected to be recovered or settled. The Company provides a valuation allowance, if necessary,
to reduce deferred tax assets to their estimated realizable value.
NET LOSS PER SHARE
Basic net income (loss) per share includes
no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share is computed by dividing earnings available to common shareholders
by the weighted average number of common shares outstanding for the period increased to include the number of additional common
shares that would have been outstanding if potentially dilutive securities had been issued. At June 30, 2019 and 2018, we excluded
the common stock issuable upon conversion of non-redeemable convertible notes, convertible notes, stock payable and warrants of
7,137,647,280 shares and 8,459,006 shares, respectively, as their effect would have been anti-dilutive. At June 30, 2019, common
stock equivalents exceeds authorized shares of common stock of the Company.
FOREIGN CURRENCY TRANSLATION
The financial statements are presented in the
Company’s functional currency which is the United States dollars. In accordance with FASB ASC 830, Foreign Currency Matters,
foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange
rates which prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at exchange rates prevailing
at the transaction date. Revenue and expenses are translated at average rates of exchange during the periods presented. Related
translation adjustments are reported as a separate component of stockholders' deficit, whereas gains or losses resulting from foreign
currency transactions are included in results of operations.
STOCK-BASED COMPENSATION
The Company accounts for stock incentive awards
issued to employees and non-employees in accordance with FASB ASC 718, Stock Compensation. Accordingly, stock-based compensation
is measured at the grant date, based on the fair value of the award. Stock-based awards to employees are recognized as an expense
over the requisite service period, or upon the occurrence of certain vesting events. Additionally, stock-based awards to non-employees
are expensed over the period in which the related services are rendered.
In June 2018, the FASB issued ASU 2018-07—Compensation—Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based
payments to nonemployees by aligning it with the accounting for share-based payments to employees subject to certain exceptions.
The Company early adopted ASU 2018-07 with respect to grants of shares of common stock
of the Company made in June 2018. The early adoption of ASU 2018-07 did not have a material impact on the consolidated
financial statements.
Prior to the early adoption of ASU 2018-07
in June 2018, stock-based awards granted to non-employees were accounted for in accordance with ASU 505-50 – Equity-Based
Payments to Non-Employees (“ASU 505-50”). ASU 505-50 measures stock-based compensation at either the fair value of
the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair
value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the
earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or
(2) the date at which the counterparty's performance is completed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC Topic 820 defines fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value measurements.
Included in the ASC Topic 820 framework
is a three level valuation inputs hierarchy with Level 1 being inputs and transactions that can be effectively fully observed
by market participants spanning to Level 3 where estimates are unobservable by market participants outside of the Company and
must be estimated using assumptions developed by the Company. The Company discloses the lowest level input significant to
each category of asset or liability valued within the scope of ASC Topic 820 and the valuation method as exchange, income or
use. The Company uses inputs which are as observable as possible and the methods most applicable to the specific situation of
each company or valued item.
The Company’s financial instruments such
as cash, accounts payable and accrued liabilities, non-redeemable convertible notes, notes payable and due to related parties are
reported at cost, which approximates fair value due to the short-term nature of these financial instruments.
Derivative liabilities are measured at fair
value on a recurring basis using Level 3 inputs.
The following table presents assets and liabilities
that are measured and recognized at fair value as of June 30, 2019 on a recurring basis:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Description
|
|
$
|
|
$
|
|
$
|
Derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
555,055
|
|
RECENT ACCOUNTING PRONOUNCEMENTS
Other recent accounting pronouncements issued
by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future
consolidated financial statements.
NOTE 3 – NON-REDEEMABLE CONVERTIBLE
NOTES
On June 10, 2014, the Company agreed to amend
and add certain terms to unsecured, non-interest bearing, due on demand notes payable issued to The Cellular Connection Ltd. during
the period from February 22, 2013 to June 10, 2014 with a total carrying value $42,189. The issue price of the Note is $42,189
with a face value of $54,193 and the Note has an original maturity date of December 31, 2014 which is subject to automatic renewal.
At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.0001 per share of
the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face
value of the Note. The outstanding face value of the Note shall increase by another 20% on January 1, 2020 and again on each one
year anniversary of the Note until the Note has been paid in full. During the six months ended June 30, 2019, the Company elected
to convert $1,420 of principal and interest into 14,200,000 shares of common stock of the Company at a fixed conversion prices
of $0.0001 per share. This conversion resulted in a loss on debt settlement of $996,580 due to the requirement to record the share
issuance at fair value on the date the shares were issued. The condensed consolidated statement of operations includes interest
expense of $1,179 and $1,533 for the six months ended June 30, 2019 and 2018, respectively and $593 and $781 for the three months
ended June 30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, the carrying amount of the Note is $11,651
(face value of $12,850 less $1,199 unamortized discount) and $11,892 (face value of $11,892 less $0 unamortized discount), respectively.
On September 1, 2016, Doug Clark, former Chief
Executive Officer and related party, assigned the Side Letter Agreement (“Note”) dated June 10, 2014 with a total carrying
value $382,016 to DC Design Inc. (“DC Design”). In addition, on September 1, 2016, the Company entered into an amended
Side Letter Agreement with DC Design to amend and add certain terms to the Side Letter Agreement and advances from the period from
June 25, 2014 to December 24, 2014. Under the terms of the amended Side Letter Agreement, the issue price of the Note is $174,252
with an interest rate 20% per annum and an original maturity date of December 31, 2017 which is subject to automatic renewal. At
the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.003 per share of the
Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value
of the note. The outstanding face value of the Note shall increase by another 20% on January 1, 2020 and again on each one year
anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations includes interest
expense of $2,274 and $14,788 for the six months ended June 30, 2019 and 2018, respectively and $1,143 and $7,435 for the three
months ended June 30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, the carrying amount of the Note is $25,197
(face value of $27,508 less $2,311 unamortized discount) and $22,923 (face value of $22,923 less $0 unamortized discount), respectively.
On January 8, 2018, the Company entered
into a Side Letter Agreement (“Note”) with The Cellular Connection Ltd., to amend and add certain terms to
unsecured, non-interest bearing, due on demand notes payable totaling $14,930 issued by the Company during the period of June
2014 and December 2017. The issue price of the Note is $14,930 with a face value of $17,916 and the Note has an original
maturity date of December 31, 2018 which is subject to automatic renewal. At the option of the Company, the Company may
convert principal and interest at a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note
allows for the lender to secure a portion of the Company assets up to 200% of the face value of the Note. The outstanding
face value of the Note shall increase by another 20% on January 1, 2020 and again on each one year anniversary of the Note
until the Note has been paid in full. The condensed consolidated statement of operations includes interest expense of $1,777
and $1,451 for the six months ended June 30, 2019 and 2018, respectively and $903 and $759 for the three months ended June
30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, the carrying amount of the Note is $19,693 (face
value of $21,499 less $1,806 unamortized discount) and $17,916 (face value of $17,916 less $0 unamortized discount),
respectively.
On January 8, 2018, the Company entered into
a Side Letter Agreement (“Note”) with Stuart Turk, to amend and add certain terms to unsecured, non-interest bearing,
due on demand notes payable totaling $244,065 issued by the Company during the period of July 2014 and December 2017. The issue
price of the Note is $244,065 with a face value of $292,878 and the Note has an original maturity date of December 31, 2018 which
is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at a fixed conversion
price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company
assets up to 200% of the face value of the Note. The outstanding face value of the Note shall increase by another 20% on January
1, 2020 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement
of operations includes interest expense of $29,047 and $23,725 for the six months ended June 30, 2019 and 2018, respectively and
$14,604 and $12,408 for the three months ended June 30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, the
carrying amount of the Note is $321,925 (face value of $351,454 less $29,529 unamortized discount) and $292,879 (face value of
$292,879 less $0 unamortized discount), respectively.
On April 12, 2018, the Company entered into
a Side Letter Agreement (“Note”) with Jordan Turk to amend and add certain terms to unsecured, non-interest bearing,
due on demand notes payable totaling $45,000 issued by the Company during the period of March 19, 2018 to April 12, 2018. The issue
price of the Note is $45,000 with a face value of $54,000 and the Note has an original maturity date of December 31, 2018 which
is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at a fixed conversion
price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company
assets up to 200% of the face value of the Note. The outstanding face value of the Note shall increase by another 20% on January
1, 2020 and again on each one year anniversary of the Note until the Note has been paid in full. T The condensed consolidated statement
of operations includes interest expense of $5,356 and $2,703 for the six months ended June 30, 2019 and 2018, respectively and
$2,693 and $2,703 for the three months ended June 30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, the
carrying amount of the Note is $59,356 (face value of $64,800 less $5,444 unamortized discount) and $54,000 (face value of $54,000
less $0 unamortized discount), respectively.
On May 10, 2018, the Company entered into a
Side Letter Agreement (“Note”) with Jordan Turk to amend and add certain terms to unsecured, non-interest bearing,
due on demand notes payable totaling $35,000 issued by the Company on May 9, 2018. The issue price of the Note is $35,000 with
a face value of $42,000 and the Note has an original maturity date of December 31, 2018 which is subject to automatic renewal.
At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.0001 per share of
the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face
value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20%
on January 1, 2019. The outstanding face value of the Note shall increase by another 20% on January 1, 2020 and again on each one
year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations includes
interest expense of $4,165 and $1,519 for the six months ended June 30, 2019 and 2018, respectively and $2,094 and $1,519 for the
three months ended June 30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, the carrying amount of the Note
is $46,165 (face value of $50,400 less $4,235 unamortized discount) and $42,000 (face value of $42,000 less $0 unamortized discount),
respectively.
On September 13, 2018, the Company entered
into a Side Letter Agreement (“Note”) with Jordan Turk to amend and add certain terms to unsecured, non-interest bearing,
due on demand notes payable totaling $40,000 issued by the Company during the period of July 10 to September 13, 2018. The issue
price of the Note is $40,000 with a face value of $48,000 and the Note has an original maturity date of December 31, 2018 which
is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at a fixed conversion
price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company
assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the
Note shall increase by 20% on January 1, 2019. The outstanding face value of the Note shall increase by another 20% on January
1, 2020 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement
of operations includes interest expense of $4,761 and $0 for the six months ended June 30, 2019 and 2018, respectively and $2,393
and $0 for the three months ended June 30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, the carrying amount
of the Note is $52,761 (face value of $57,600 less $4,839 unamortized discount) and $48,000 (face value of $48,000 less $0 unamortized
discount), respectively.
On January 31, 2019, the Company entered
into a Side Letter Agreement (“Note”) with Stuart Turk to amend and add certain terms to unsecured, non-interest
bearing, due on demand notes payable totaling $106,968 issued by the Company during the period of January 3, 2018 to December
28, 2018. The issue price of the Note is $106,968 with a face value of $128,362 and the Note has an original maturity date of
December 31, 2019 which is subject to automatic renewal. At the option of the Company, the Company may convert principal and
interest at a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender
to secure a portion of the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity
date, the outstanding face amount of the Note shall increase by 20% on January 1, 2020. The outstanding face value of the
Note shall increase by another 20% on January 1, 2021 and again on each one year anniversary of the Note until the Note has
been paid in full. The condensed consolidated statement of operations includes interest expense of $9,608 and $0 for the six
months ended June 30, 2019 and 2018, respectively and $5,829 and $0 for the three months ended June 30, 2019 and 2018,
respectively. At June 30, 2019 and December 31, 2018, the carrying amount of the Note is $116,576 (face value of $128,362
less $11,786 unamortized discount) and $0, respectively.
On January 31, 2019, the Company entered into
a Side Letter Agreement (“Note”) with The Cellular Connection Ltd. to amend and add certain terms to unsecured, non-interest
bearing, due on demand notes payable totaling $20,885 issued by the Company during the period of January 23, 2018 to October 16,
2018. The issue price of the Note is $20,885 with a face value of $25,062 and the Note has an original maturity date of December
31, 2019 which is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at
a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion
of the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face
amount of the Note shall increase by 20% on January 1, 2020. The outstanding face value of the Note shall increase by another 20%
on January 1, 2021 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated
statement of operations includes interest expense of $1,882 and $0 for the six months ended June 30, 2019 and 2018, respectively
and $1,141 and $0 for the three months ended June 30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, the
carrying amount of the Note is $22,767 (face value of $25,062 less $2,295 unamortized discount) and $0, respectively.
NOTE 4 – NOTES PAYABLE
As of June 30, 2019 and December 31, 2018,
notes payable due to Stuart Turk, Jordan Turk and The Cellular Connection Limited, a corporation controlled by Stuart Turk, totaling
$22,236 and $127,853, respectively, were outstanding. The balances are non-interest bearing, unsecured and have no specified terms
of repayment.
NOTE 5 – CONVERTIBLE NOTE
On March 1, 2019,
the Company entered into a Securities Purchase Agreement with Firstfire Global Opportunities Fund, LLC, (“Holder”)
relating to the issuance and sale of a Senior Convertible Note (the “Note”) with an original principal amount of $200,000
less an original issue discount of $20,000 and transaction costs of $5,000 bearing a 7% annual interest rate and maturing September
1, 2020 for $175,000 in cash. The Note and accrued interest, at the option of the Holder, is convertible into common shares of
the Company at $0.10 per share. After 180 days after the issue date, the Note together with any unpaid accrued interest is convertible
into shares of common stock of the Company at the Holder’s option at the lessor of (i) $0.10 per share or (ii) a variable
conversion price calculated at 65% of the market price defined as the lowest trading price during the ten trading day period ending
on the latest trading day prior to the conversion date. The Company may prepay the Note in cash, if repaid within 90 days of date
of issue, at 115% of the original principal amount plus interest, between 90 days and 120 days at 120% of the original principal
amount plus interest and between 120 days and 180 days at 130% of the original principal amount plus interest. Thereafter, the
Company does not have the right of prepayment. At June 30, 2019, the Note was recorded at amortized cost of $6,539 comprised of
principal of $200,000 plus accrued interest of $4,641 less debt discount of $198,102.
NOTE 6 - CONVERTIBLE PROMISSORY NOTE DERIVATIVE
LIABILITY
The Senior Convertible Note with Firstfire
Global Opportunities Fund, LLC with an issue date of March 1, 2019 was accounted for under ASC 815. The variable conversion
price is not considered predominately based on a fixed monetary amount settleable with a variable number of shares due to the volatility
and trading volume of the Company’s common stock. The Company’s convertible promissory note derivative liabilities
have been measured at fair value at March 1, 2019 and June 30, 2019 using the binomial model.
The inputs into the binomial models are as
follows:
|
|
March 1, 2019
|
|
March 31, 2019
|
|
June 30, 2019
|
Closing share price
|
|
$
|
0.07
|
|
|
$
|
0.08
|
|
|
$
|
0.069
|
|
Conversion price
|
|
$
|
0.0364
|
|
|
$
|
0.0423
|
|
|
$
|
0.0284
|
|
Risk free rate
|
|
|
2.55
|
%
|
|
|
2.40
|
%
|
|
|
2.00
|
%
|
Expected volatility
|
|
|
403
|
%
|
|
|
405
|
%
|
|
|
407
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life
|
|
|
1.51 years
|
|
|
|
1.42 years
|
|
|
|
1.18 years
|
|
The fair value of the conversion option derivative
liability was $380,919, of which $175,000 was recorded as a debt discount and the remainder of $205,919 was recorded as initial
derivative expense, and $487,912 at March 1, 2019 and June 30, 2019, respectively. The increase in the fair value of the conversion
option derivative liability of $106,993 is recorded as a loss in the unaudited condensed consolidated statements of operations
for the six months ended June 30, 2019.
NOTE 7 – WARRANT LIABILITY
In conjunction with the issuance of the Senior
Convertible Note with Firstfire Global Opportunities Fund, LLC (the “Note”) on March 1, 2019, the Company issued 1,000,000
warrants with an exercise price of $0.20 and a term of two years. The warrants are subject to down round and other anti-dilution
protections. The warrant is tainted and classified as a liability as a result of the issuance of the Note since there is a possibility
during the life of the warrant the Company would not have enough authorized shares available if the warrant is exercised. The Company’s
warrant liability has been measured at fair value at March 1, 2019 and June 30, 2019 using the binomial model.
The inputs into the binomial models are as
follows:
|
|
March 1, 2019
|
|
March 31, 2019
|
|
June 30, 2019
|
Closing share price
|
|
$
|
0.07
|
|
|
$
|
0.08
|
|
|
$
|
0.069
|
|
Exercise price
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Risk free rate
|
|
|
2.27
|
%
|
|
|
1.93
|
%
|
|
|
2.00
|
%
|
Expected volatility
|
|
|
364
|
%
|
|
|
370
|
%
|
|
|
376
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life
|
|
|
2.0 years
|
|
|
|
1.93 years
|
|
|
|
1.68 years
|
|
The fair value of the warrant liability is
$68,798, which was recorded as initial derivative expense, and $67,143 at March 1, 2019 and June 30, 2019, respectively. The decrease
in the fair value of the warrant liability of $1,655 is recorded as a gain in the unaudited condensed consolidated statements of
operations for the six months ended June 30, 2019.
NOTE 8 – RELATED PARTY TRANSACTIONS
As of June 30, 2019 and 2018, advances and
accrued salary of $185,160 and $52,671, respectively, were due to Nadav Elituv, the Company's Chief Executive Officer. The balance
is non-interest bearing, unsecured and have no specified terms of repayment.
Employment Agreements
On July 1, 2017, the Company executed an employment
agreement for the period from July 1, 2017 to June 30, 2018 with Nadav Elituv, the Chief Executive Officer of the Company whereby
the Company shall pay 20,000 shares of Common Stock of the Company with a fair value of $926,000 ($46.30 per share).
On September 10, 2018, the Company executed
an employment agreement for the period from July 1, 2018 to June 30, 2019 with Nadav Elituv, the Chief Executive Officer of the
Company whereby the Company shall pay 50,000,000 shares of Common Stock of the Company and an annual salary of $151,200 payable
monthly on the first day of each month from available funds.
Stock-based compensation – salaries expense
related to these employment agreements for the six months ended June 30, 2019 and 2018 is $557,826 and $463,000, respectively.
Stock-based compensation – salaries expense is recognized ratably over the requisite service period.
NOTE 9 - STOCKHOLDERS’ DEFICIT
The Company is authorized to issue an aggregate
of 3,000,000,000 common shares with a par value of $0.0001 per share and 1,000,000 shares of preferred stock with a par value of
$0.0001 per share. On August 6, 2013, the Company filed a Certificate of Designation with the Delaware Secretary of State thereby
designating two hundred thousand (200,000) shares as Series A Convertible Preferred Stock. No preferred shares have been issued.
During the six months ended June 30, 2019,
the Company elected to convert $1,420 of principal and interest of non-redeemable convertible notes into 14,200,000 shares of common
stock of the Company valued at $998,000 ($0.070 per share). The conversions resulted in a loss on settlement of debt of $996,580.
During the six months ended June 30, 2019,
the Company issued 30,000,000 shares of common stock to settle shares to be issued (stock payable) valued at $903,000 ($0.0301
per share), which has been recorded over the contract period ended June 30, 2019, for stock based compensation due to the Nadav
Elituv, the Chief Executive Officer of the Company.
During the six months ended June 30, 2019,
the Company issued 100,000 shares of common stock to settle shares to be issued (stock payable) valued at $8,000 ($0.0800 per share).
During the six months ended June 30, 2019,
the Company issued 100,000 shares of common stock valued at $7,000 ($0.0700 per share) for the services.
During the six months ended June 30, 2019,
the Company issued 410,000 shares of common stock for $20,500 in cash.
Shares to be issued
As at June 30, 2019 and December 31, 2018,
the Company had an obligation to issue 0 shares of common stock and 11,467,577 shares of common stock, respectively, for stock-based
compensation –salaries (see Note 8).
2015 Stock Option Plan
On April 28, 2015, the Board of Directors of
the Company approved of the Company’s 2015 Stock Option Plan (the “2015 Plan”) to attract and retain the best
available personnel, to provide additional incentive to employees, directors and consultants, and to promote the success of the
Company's business. Under the plan, a total of 1,000 shares of authorized common stock have been reserved for issuance pursuant
to grants approved by the Board of Directors. The plan requires stock options to have a maximum term of ten years and may be subject
to certain vesting requirements. Stock option are to be priced at no less than 70% of the market value of the Company's common
stock on the option's grant date. If a grant to a person who own shares representing more than 10% of the voting power of all classes
of shares of the Company, stock option are to be priced at no less than 100% of the market value of the Company's common stock
on the option's grant date. No stock options have been granted since the inception of the 2015 Plan. During the years ended December
31, 2016 and 2015, awards for 433 shares of common stock were granted and on June 30, 2019 a total of 567 shares of common stock
available for grant. At June 30, 2019, there were no outstanding stock awards.
NOTE 10 - SUBSEQUENT EVENTS
From July 1, 2019 to July 24, 2019, the Company
issued 1,790,000 shares of common stock for $80,700 in cash.