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 assisting clients in developing brand strategies. The Company executes and/or oversees the research, planning, pricing, creative
development, tracking and deployment of all digital 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 first quarter of 2020.
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 September 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 nine months ended September 30, 2018, stock-based compensation – salaries and
stock-based compensation - services previously reported separately were combined and
reported as general and administration expense.
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 nine months ended September 30, 2019, the
Company incurred a net loss of $3,808,716 and used cash in operating activities of $403,718, and at September 30, 2019, had a stockholders’
deficit of $1,282,492 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 three 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 nine months ended September 30,
2019 and 2018, the Company had revenue of $0 and $352,788, 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 nine months ended September 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 September 30, 2019 and 2018, we
excluded the common stock issuable upon conversion of non-redeemable convertible notes, convertible notes, stock payable and warrants
of 7,215,955,081 shares and 4,681,502,947 shares, respectively, as their effect would have been anti-dilutive. At September 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 September 30, 2019 on a recurring basis:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Description
|
|
$
|
|
$
|
|
$
|
Derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
271,229
|
|
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. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20%
on January 1, 2015. The outstanding face value of the Note shall increase by another 20% on January 1, 2016 and again on each one
year anniversary of the Note until the Note has been paid in full. During the nine months ended September 30, 2019, the Company
elected to convert $1,820 of principal and interest into 18,200,000 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 $1,092,580 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 $1,779 and $2,343 for the nine months ended September 30, 2019 and 2018, respectively and $599 and $789 for
the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount
of the Note is $11,851 (face value of $12,450 less $599 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”). 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. In addition,
on September 30, 2019, the Company and DC Design entered into an Agreement to change the original maturity date of the Note to
December 31, 2021. 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. If the Note is not paid on the maturity date, the outstanding face amount of the Note
shall increase by 20% on January 1, 2022. The outstanding face value of the Note shall increase by another 20% on January 1, 2023
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 $3,429 and $22,304 for the nine months ended September 30, 2019 and 2018, respectively and
$1,156 and $7,516 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31,
2018, the carrying amount of the Note is $26,352 (face value of $27,508 less $1,156 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. On September 30, 2019, the Company and The Cellular
Connection Ltd. entered into an Agreement to change the original maturity date of the Note to December 31, 2021. 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, 2022. The outstanding face value of the Note shall increase by another 20% on January 1, 2023 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 $2,680 and $2,219 for the nine months ended September 30, 2019 and 2018, respectively
and $903 and $767 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December
31, 2018, the carrying amount of the Note is $20,596 (face value of $21,499 less $903 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. On September 30, 2019, the Company and Stuart Turk entered into an Agreement to change the original
maturity date of the Note to December 31, 2021. 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, 2022. The outstanding face value of the Note shall increase by another 20%
on January 1, 2023 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 $43,811 and $36,269 for the nine months ended September 30, 2019 and 2018,
respectively and $14,764 and $12,544 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019
and December 31, 2018, the carrying amount of the Note is $336,690 (face value of $351,454 less $14,764 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. 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. During the nine months ended September
30, 2019, the Company elected to convert $600 of principal and interest into 6,000,000 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 $36,600 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 $8,078 and $5,851 for the nine months ended September 30, 2019 and 2018, respectively and $2,722 and
$3,149 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying
amount of the Note is $61,478 (face value of $64,200 less $2,722 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.
On September 30, 2019, the Company and Jordan Turk entered into an Agreement to change the original maturity date of the Note to
December 31, 2021. 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, 2022. The outstanding face value of the Note shall increase by another 20% on January 1, 2023
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 $2,117 and $4,259 for the nine months ended September 30, 2019 and 2018, respectively and
$6,283 and $2,741 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31,
2018, the carrying amount of the Note is $48,283 (face value of $50,400 less $2,117 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. On September 30, 2019, the Company and Jordan Turk entered
into an Agreement to change the original maturity date of the Note to December 31, 2021. 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, 2022.
The outstanding face value of the Note shall increase by another 20% on January 1, 2023 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 $7,180 and $1,248 for the nine months ended September 30, 2019 and 2018, respectively and $2,420 and
$1,248 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the
carrying amount of the Note is $55,180 (face value of $57,600 less $2,420 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. On September 30, 2019, the Company and Stuart Turk entered into an Agreement to change
the original maturity date of the Note to December 31, 2021. 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, 2022. The outstanding face value of the Note shall
increase by another 20% on January 1, 2023 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 $15,501 and $0 for the nine months ended September
30, 2019 and 2018, respectively and $5,893 and $0 for the three months ended September 30, 2019 and 2018, respectively. At September
30, 2019 and December 31, 2018, the carrying amount of the Note is $122,469 (face value of $128,362 less $5,893 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. On September 30, 2019, the Company and The Cellular Connection Ltd. entered into
an Agreement to change the original maturity date of the Note to December 31, 2021. 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, 2022. The outstanding face value of
the Note shall increase by another 20% on January 1, 2023 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 $3,036 and $0 for the nine months
ended September 30, 2019 and 2018, respectively and $1,154 and $0 for the three months ended September 30, 2019 and 2018, respectively.
At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $23,921 (face value of $25,062 less $1,141 unamortized
discount) and $0, respectively.
NOTE 4 – NOTES PAYABLE
As of September 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
$0 and $127,853, respectively, were outstanding. The balances are non-interest bearing, unsecured and have no specified terms of
repayment. On September 30, 2019, the Company issued promissory notes to settle notes payable of $76,263 (See Note 5).
NOTE 5 – PROMISSORY NOTES
As of September 30, 2019 and December 31, 2018,
promissory notes with principal and interest totaling $249,137 and $0, respectively, were outstanding. Promissory notes bear interest
of 10% per annum, are unsecured and mature on December 31, 2021. Included in promissory notes is principal and interest of $172,874
due to Nadav Elituv, the Company's Chief Executive Officer.
NOTE 6 – 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. During the three and nine months ended September 30, 2019, the Holder converted 8,600,000 shares of common stock
of the Company with a fair value of $63,160 to settle principal of $40,314. The conversions resulted in the settlement of
derivative liabilities of $63,432 and a gain on settlement of debt of $921. At September 30, 2019, the Note was recorded at
amortized cost of $14,578 comprised of principal of $159,686 plus accrued interest of $7,938 less debt discount of
$153,046.
NOTE 7 - 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 predominantly 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, June 30, 2019 and September 30, 2019 using the binomial model.
The inputs into the binomial models are as
follows:
|
|
March 1,
2019
|
|
June 30,
2019
|
|
September 30,
2019
|
Closing share price
|
|
$
|
0.07
|
|
|
$
|
0.069
|
|
|
$
|
0.0031
|
|
Conversion price
|
|
$
|
0.0364
|
|
|
$
|
0.0284
|
|
|
$
|
0.0018
|
|
Risk free rate
|
|
|
2.55
|
%
|
|
|
2.00
|
%
|
|
|
2.00
|
%
|
Expected volatility
|
|
|
403
|
%
|
|
|
407
|
%
|
|
|
317
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life
|
|
|
1.51 years
|
|
|
|
1.18 years
|
|
|
|
0.92 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 $268,310 at March 1, 2019 and September 30, 2019, respectively. The decrease in the fair value of the conversion
option derivative liability of $112,609 is recorded as a gain in the unaudited condensed consolidated statements of operations
for the nine months ended September 30, 2019.
NOTE 8 – 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 September 30, 2019 using the binomial model.
The inputs into the binomial models are as
follows:
|
|
March 1,
2019
|
|
June 30,
2019
|
|
September 30,
2019
|
Closing share price
|
|
$
|
0.07
|
|
|
$
|
0.069
|
|
|
$
|
0.0031
|
|
Exercise price
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Risk free rate
|
|
|
2.27
|
%
|
|
|
2.00
|
%
|
|
|
2.00
|
%
|
Expected volatility
|
|
|
364
|
%
|
|
|
376
|
%
|
|
|
402
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life
|
|
|
2.0 years
|
|
|
|
1.68 years
|
|
|
|
1.42 years
|
|
The fair value of the warrant liability is
$68,798, which was recorded as initial derivative expense, and $2,919 at March 1, 2019 and September 30, 2019, respectively. The
decrease in the fair value of the warrant liability of $65,879 is recorded as a gain in the unaudited condensed consolidated statements
of operations for the nine months ended September 30, 2019.
NOTE 9 – RELATED PARTY TRANSACTIONS
As of September 30, 2019 and 2018, advances
and accrued salary of $0 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. On September 30, 2019, the Company issued promissory
notes to settle advances and accrued salary of $172,874 (See Note 5).
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.
On September 10, 2019, the Company executed
an employment agreement for the period from July 1, 2019 to June 30, 2020 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 nine months ended September 30, 2019 and 2018 is $1,474,026 and
$1,126,638, respectively. Stock-based compensation – salaries expense was recognized ratably over the requisite service
period.
NOTE 10 - 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 (“Series A Stock”). Each share of Series A Stock is (i) convertible into one thousand (1,000) shares
of common stock of the Company and (ii) entitled to the number of votes equal to the aggregate number of shares of common stock
into which the Holder’s share of Series A Stock is convertible, multiplied by one hundred (100).
During the nine months ended September 30,
2019, the Company elected to convert $2,420 of principal and interest of non-redeemable convertible notes into 24,200,000 shares
of common stock of the Company valued at $1,131,600. The conversions resulted in a loss on settlement of debt of $1,129,180.
During the nine months ended September 30,
2019, the Holder of the Convertible Note elected to convert $40,314 of principal and debt discount of $38,665 into 8,600,000 shares
of common stock of the Company with a fair value of $63,160. The conversions resulted in the settlement of derivative liabilities
of $62,432 and a gain on settlement of debt of $921.
During the nine months ended September 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 nine months ended September 30,
2019, the Company issued 100,000 shares of common stock valued at $7,000 ($0.0700 per share) for the services.
During the nine months ended September 30,
2019, the Company issued 5,909,719 shares of common stock valued at $31,912 ($0.0054 per share), to settle accounts payable.
During the nine months ended September 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 ratably over the contract period of July 1, 2018 to June 30, 2019, for stock based compensation
due to Nadav Elituv, the Chief Executive Officer of the Company.
During the nine months ended September 30,
2019, the Company issued 24,387,097 shares of common stock valued at $151,200 ($0.0062 per share), to fully settle salary payable,
for the period July 1, 2019 to June 30, 2020, due to Nadav Elituv, the Chief Executive Officer of the Company.
During the nine months ended September 30,
2019, the Company issued 50,000,000 shares of common stock valued at $765,000 ($0.0153 per share) for stock based compensation
due to Nadav Elituv, the Chief Executive Officer of the Company.
During the nine months ended September 30,
2019, the Company issued 1,523,824 shares of common stock valued at $9,448 ($0.0062 per share), to settle advances payable due
to Nadav Elituv, the Chief Executive Officer of the Company.
During the nine months ended September 30,
2019, the Company issued 2,230,000 shares of common stock for $111,500 in cash.
Shares to be issued
As at September 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 9).
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 September 30, 2019 a total of 567 shares of common
stock available for grant. At September 30, 2019, there were no outstanding stock awards.
NOTE 11 - SUBSEQUENT EVENTS
From October 1, 2019 to November 8, 2019, the
Company elected to convert $10,550 of principal and interest of non-redeemable convertible notes into 105,500,000 shares of common
stock of the Company with a fair value of $170,150.
From October 1, 2019 to November 8, 2019, the
Holder of the Convertible note elected to convert $41,130 of principal into 62,000,000 shares of common stock of the Company with
a fair value of $80,800.
On November 1, 2019, the Company issued 30,000
shares of Series A Convertible Preferred Stock for stock based compensation due to Nadav Elituv, the Chief Executive Officer of
the Company.