Notes to Consolidated Financial
Statements
Three Months Ended March 31, 2019 and 2018 (Unaudited)
Note A – Organization and Business
Organization and Nature of Business
Advantego Corporation ("Advantego," formerly Golden Eagle
International, Inc., or "GEII")
was incorporated in Colorado
on July 21, 1988. Advantego Corporation, Inc. is a Colorado
corporation formed on July 29, 2016. On October 27, 2016, GEII
completed a reverse merger with Advantego Technologies, Inc., which
resulted in a change of control and the perpetuation of Advantego
Technologies, Inc.’s management and business
operations.
Effective February 1, 2018 and pursuant to Board authorization and
majority shareholder approval, the Company changed the name of GEII
to Advantego Corporation (amending GEII’s Articles of
Incorporation accordingly), cancelled its Series A, C, and D
preferred shares, and effected a 1-for-11 reverse stock split on
its issued and outstanding shares of common stock that became
effective on the OTCQB on February 21, 2018 under the symbol ADGO.
Unless otherwise noted, impacted amounts and share information
included in the financial statements and notes thereto have been
retroactively adjusted to reflect the stock split as if it had
occurred on the first day of the earliest period
presented.
The
Company leverages a proprietary Intelligent Solution Platform
combining leading third-party technologies with existing data and
systems to deliver a turnkey specialized Business Process as a
Services (BPaaS) that is both scalable and cost
effective.
The Company offers a variety of stand-alone products tailored
specifically to targeted industries as well as combining these with
multiple software applications for large enterprises, affiliate
networks and franchise operators delivering comprehensive,
all-inclusive, managed bundled solutions.
Additional services include Product Design, Engineering and
Manufacturing services; Custom Enterprise Software development, and
Licensing of Intellectual Property from its vast library of
strategic partners.
Basis of Presentation
The accompanying unaudited financial statements represent the
consolidated operations of Advantego and Advantego Technologies,
Inc., collectively "the Company," "we," "us," as the consolidated
entity, with all intercompany transactions eliminated.
These
financial statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission, or
the SEC, including the instructions to Form 10-Q and Regulation
S-X. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles in the United States of America (“U.S.
GAAP”) have been condensed or omitted from these statements
pursuant to such rules and regulations and, accordingly, they do
not include all the information and notes necessary for
comprehensive consolidated financial statements and should be read
in conjunction with our audited financial statements for the year
ended December 31, 2018, included in our Annual Report on Form 10-K
for the year ended December 31, 2018.
In the
opinion of management, the accompanying financial statements
contain all accruals and adjustments (each of which is of a normal
recurring nature) necessary for a fair presentation of the
Company’s financial position as of March 31, 2019 and the
results of its operations for the three months then ended. Results
for the interim period presented are not necessarily indicative of
the results that might be expected for the entire fiscal
year.
Going Concern
The consolidated financial statements in this report have been
prepared on the going concern basis which assumes that adequate
sources of financing will be obtained as required and that the
Company’s assets will be realized, and liabilities settled in
the ordinary course of business. Accordingly, the
financial statements do not include any adjustments related to the
recoverability of assets and classification of assets and
liabilities that might be necessary should the Company be unable to
continue as a going concern.
The Company has not yet
achieved profitable operations, has accumulated losses of
$2,633,016 since its inception through March 31, 2019 and expects
to incur further losses in the development of its business, all of
which raises substantial doubt about the Company's ability to
continue as a going concern. Though
the Company’s line of business involves
proven technologies, the Company can offer no assurances that it
will be able to obtain adequate financing to implement its business
plan and remain a going concern
Note B – Summary of Significant Accounting
Policies
Fair Value of Financial Instruments
The Company accounts for fair value measurements in accordance with
accounting standard ASC 820-10-50,
"Fair Value
Measurements."
This
guidance defines fair value, establishes a three-level valuation
hierarchy for disclosures of fair value measurement and enhances
disclosure requirements for fair value measures. The three
levels are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active
markets.
Level 2 inputs to the valuation methodology include quoted prices
for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the financial
instrument.
Level 3 inputs to valuation methodology are unobservable and
significant to the fair measurement.
The Company's financial instruments consist of cash, accounts
payable, and convertible notes payable. The carrying amount of cash
and accounts payable approximates fair value because of the
short-term nature of these items. The carrying amount of
convertible notes payable approximates fair value as the individual
borrowings bear interest at market interest rates and are also
short-term in nature.
Use of Estimates
Preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. Actual results may differ from those estimates,
and such differences may be material to the financial
statements.
Concentration of Credit Risk
From time to time our cash balances, held at major financial
institutions, exceed the federally insured limits of
$250,000. Our management believes that the financial
institutions are financially sound, and the risk of loss is
low. Our cash balances did exceed federally insured limits at
March 31, 2019 or December 31, 2018.
All of the Company’s revenues during the three months ended
March 31, 2019 and 2018 and 100% of the accounts receivable at
March 31, 2019 and 2018 were with one customer. This customer is a
certifier of automobile collision repair shops, which distributes
the Company’s products to the repair shops in its
network.
Cash and Cash Equivalents
For the statement of cash flows, any liquid investments with a
maturity of three months or less at the time of acquisition are
considered to be cash equivalents.
Inventory
The Company's inventory consists of finished good controller boxes
that the Company configures with digital signage software upon
customer order. Inventory is stated at lower of cost or net
realizable value, with cost being determined on the first-in,
first-out (“FIFO”) method. No reserve was considered
necessary for slow moving or obsolete inventory at March 31, 2019
or December 31, 2018.
Revenue Recognition
The Company recognizes revenue from the sale of products and
services in accordance with ASC 606,"
Revenue from Contracts with
Customers
" following the five
steps procedure:
Step
1: Identify the contract(s) with customers
Step
2: Identify the performance obligations in the
contract
Step
3: Determine the transaction price
Step
4: Allocate the transaction price to performance
obligations
Step
5: Recognize revenue when the entity satisfies a performance
obligation
The Company generates revenue from online directory and digital
signage components of its ongoing licensing services it provides to
third parties. Revenue from online directory services are
recognized over the life of the agreement ranging from one to
twelve months. Revenue from digital signage control boxes is
recognized at the time of sale and renewal fees are amortized over
the term of the renewal, ranging from one to twelve months. The
Company recognized $0 and $4,077 in online listing sales during the
three months ended March 31, 2019 and 2018, respectively. The
Company recognized $8,325 and $39,900 in digital signage sales
during the three months ended March 31, 2019 and 2018,
respectively.
As of March 31, 2019, and December 31, 2018, $18,975 and $0,
respectively, of sales were deferred to future periods. Management
determined no allowance for doubtful accounts was necessary at
March 31, 2019 or December 31, 2018.
Stock Based Compensation
We measure stock-based compensation cost relative to the estimated
fair value of the awards on the grant date. We recognize
the cost as the awards vest.
Income (Loss) Per Share
The computation of basic earnings (loss) per common share is based
on the net income (loss) divided by the weighted average number of
shares outstanding during each period.
The computation of diluted earnings (loss) per common share is
based on the weighted average number of shares outstanding during
the period plus the common stock equivalents as detailed in the
following chart. During the three months ended March 31,
2019 and 2018, the inclusion of these common stock equivalents on
the consolidated statement of operations would have resulted in a
weighted average shares fully diluted number that was
anti-dilutive, and as such they are excluded.
Fully diluted shares for the three months ended March 31, 2019 and
2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average shares outstanding
|
16,723,323
|
15,524,531
|
|
Convertible
debt
|
5,942,237
|
384,543
|
|
|
|
|
|
Series B preferred
stock
|
10,909
|
10,909
|
|
Warrants
|
181,818
|
363,637
|
|
Fully diluted
weighted average shares outstanding
|
22,858,287
|
16,283,260
|
Income
Taxes
Income taxes are accounted for under the liability method. Under
the liability method, future tax liabilities and assets are
recognized for the estimated future tax consequences attributable
to differences between the amounts reported in the financial
statements and their respective tax bases. Future tax assets and
liabilities are measured using enacted or substantially enacted
income tax rates expected to apply when the asset is realized, or
the liability settled.
Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carry-forwards, and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more-likely-than-not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax law
and rates on the date of enactment.
Effect of New Accounting Pronouncements
There are no recent accounting pronouncements that are expected to
have a material impact on our financial position, results of
operations or cash flows.
Note C – Convertible Notes Payable
Convertible Notes Payable
We have uncollateralized convertible debt obligations with
unaffiliated investors outstanding at March 31, 2019 and December
31, 2018 as follows:
|
|
|
|
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
$
75,000
|
$
(22,424
)
|
$
33,424
|
$
86,000
|
$
3,384
|
$
75,000
|
$
(33,599
)
|
$
56,250
|
$
97,651
|
$
1,134
|
|
(b)
|
50,000
|
-
|
-
|
50,000
|
1,111
|
50,000
|
-
|
-
|
50,000
|
2,713
|
|
(c)
|
125,000
|
(6,563
)
|
39,709
|
158,146
|
7,312
|
125,000
|
(11,250
)
|
68,072
|
181,822
|
4,500
|
|
(d)
|
-
|
-
|
-
|
-
|
-
|
63,000
|
(4,980
)
|
34,308
|
92,328
|
2,016
|
|
(e)
|
-
|
-
|
-
|
-
|
-
|
65,000
|
(5,214
)
|
35,561
|
95,347
|
2,582
|
|
(f)
|
-
|
-
|
-
|
-
|
-
|
125,000
|
(12,003
)
|
58,829
|
171,826
|
5,417
|
|
(g)
|
150,000
|
(4,728
)
|
23,684
|
168,957
|
11,200
|
150,000
|
(13,978
)
|
70,023
|
206,045
|
6,700
|
|
(h)
|
50,000
|
(3,660
)
|
23,147
|
69,487
|
2,111
|
50,000
|
(5,597
)
|
35,401
|
79,804
|
1,111
|
|
(i)
|
273,000
|
(27,067
)
|
104,112
|
350,045
|
8,251
|
273,000
|
(37,942
)
|
145,942
|
381,000
|
2,791
|
|
(j)
|
105,000
|
(10,387
)
|
207,750
|
302,362
|
2,421
|
-
|
-
|
-
|
-
|
-
|
|
(k)
|
75,000
|
(13,993
)
|
133,805
|
194,811
|
729
|
-
|
-
|
-
|
-
|
-
|
|
(l)
|
78,000
|
(2,994
)
|
127,714
|
202,719
|
1,352
|
-
|
-
|
-
|
-
|
-
|
|
(m)
|
65,000
|
(7,377
)
|
91,460
|
149,084
|
957
|
-
|
-
|
-
|
-
|
-
|
|
(n)
|
50,000
|
(13,591
)
|
72,099
|
108,508
|
-
|
-
|
-
|
-
|
-
|
-
|
|
(o)
|
100,000
|
(438
)
|
122,791
|
222,354
|
1,250
|
-
|
-
|
-
|
-
|
-
|
|
(p)
|
50,000
|
(6,082
)
|
67,083
|
111,001
|
528
|
-
|
-
|
-
|
-
|
-
|
|
(q)
|
68,000
|
(3,179
)
|
53,568
|
118,389
|
748
|
-
|
-
|
-
|
-
|
-
|
|
(r)
|
610,000
|
(50,165
)
|
1,242,318
|
1,802,153
|
2,440
|
-
|
-
|
-
|
-
|
-
|
|
Totals
|
$
1,924,000
|
$
(172,649
)
|
$
2,342,665
|
$
4,094,016
|
$
43,794
|
$
976,000
|
$
(124,563
)
|
$
504,386
|
$
1,355,823
|
$
28,964
|
(a)
On May 15, 2018,
the Company entered into an uncollateralized note payable with an
unaffiliated investor in the amount of $75,000. The note carries an
interest rate of 12% and matures on May 15, 2019. The note and
accrued interest, or any portion thereof, are convertible at the
option of the lender, into the Company's common stock at a rate of
60% of the lowest market trading price per share during the 20 days
preceding conversion. At the note’s inception, there was an
original issue discount of $3,750 a transaction fee of $2,000, and
a finder’s fee of $5,500, which in the aggregate resulted in
a total discount of $11,250 to be amortized to interest expense
over the life of the note, and net proceeds received by the Company
of $63,750. Additionally, the note’s variable conversion rate
component requires that the note be valued at its stock redemption
value (i.e., “if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from
Equity,
with the excess over the note’s undiscounted
face value being deemed a premium to be added to the principal
balance and amortized to additional paid-in capital over the life
of the note. As such, the Company recorded a premium on the note of
$150,000 as a reduction to additional paid-in capital based on a
discounted “if-converted” rate of $.51 per share (60%
of the $.85 lowest trading price during the 20 days preceding the
note’s issuance), which computed to 126,000 shares of
“if-converted” common stock with a redemption value of
$192,780 due to $1.53 per share fair market value of the
Company’s stock on the note’s date of issuance. Debt
discount amortization is recorded as interest expense, while debt
premium amortization is recorded as an increase to additional
paid-in capital. On November 15, 2018, the maturity date on the
note was extended until November 15, 2019 in exchange for a $38,114
cash payment. Debt discount and premium amortizations for the three
months ended March 31, 2019 totaled $11,175 and $22,826,
respectively, while interest expense was $2,250.
(b)
On June 11, 2018,
we issued a fixed price convertible note payable in the amount of
$50,000 as a commitment fee to Tangiers in order to provide a
long-term funding facility for our operations. The note bears
interest at 10% per year, is due and payable on January 11, 2019,
and is convertible into shares of our common stock at a fixed rate
of $1.44 per share. Under the investment agreement, Tangiers has
agreed to provide us with up to $5,000,000 of funding during a
three-year period. This investment agreement is pending approval of
our S-1 filing. This commitment fee is deemed an offering cost,
along with an associated beneficial conversion feature of $14,236,
for total offering costs of $64,236 being reported as a non-current
asset to be amortized to additional paid-in capital pro-rata in
conjunction with each future long-term funding tranche received
from Tangiers. Accrued interest as of March 31, 2019 was $1,111.
Interest expense as of and for the three months ended March 31,
2019 totaled $13,398, of which $12,286 was incurred to extend the
conversion date of the note to June 11,
2019.
(c)
On
August 2, 2018 the Company issued a convertible promissory note
with a face value of $125,000, maturing on August 2, 2019, and a
stated interest of 9% to a third-party investor. The note is
convertible at any time after 6 months of the funding of the note
into a variable number of the Company's common stock, based on a
conversion rate of 60% of the lowest trading price for the 20 days
prior to conversion. The note was funded on August 6, 2018, when
the Company received proceeds of $106,250, after disbursements for
the lender's transaction costs, fees and expenses which in
aggregate resulted in a total discount of $18,750 to be amortized
to interest expense over the life of the note. Additionally, the
note’s variable conversion rate component requires that the
note be valued at its stock redemption value (i.e.,
“if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $113,454 as a reduction to additional
paid-in capital based on a discounted “if-converted”
rate of $0.42 per share (60% of the lowest trading price during the
20 days preceding the note's issuance), which computed to 502,008
shares of “if-converted” common stock with a redemption
value of $238,454 due to $0.475 per share fair market value of the
Company's stock on the note's date of issuance. Debt discount
amortization is recorded as interest expense, while debt premium
amortization is recorded as an increase to additional paid-in
capital. Debt discount and premium amortizations for the three
months ended March 31, 2019, totaled $4,687 and $28,363,
respectively, while interest expense was $9,062 which included a
$6,250 cash payment to extend the conversion date of the note to
April 2, 2019.
(d)
On
August 2, 2018 the Company issued a convertible promissory note
with a face value of $63,000, maturing on August 2, 2019, and a
stated interest of 8% to a third-party investor. The note is
convertible at any time after 6 months of the funding of the note
into a variable number of the Company's common stock, based on a
conversion rate of 60% of the lowest trading price for the 20 days
prior to conversion. The note was funded on August 6, 2018, when
the company received proceeds of $54,700, after disbursements for
the lender's transaction costs, fees and expenses which in
aggregate resulted in a total discount of $8,300 to be amortized to
interest expense over the life of the note. Additionally, the
note’s variable conversion rate component requires that the
note be valued at its stock redemption value (i.e.,
“if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $57,181 as a reduction to additional paid-in
capital based on a discounted “if-converted” rate of
$0.42 per share (60% of the lowest trading price during the 20 days
preceding the note's issuance), which computed to 253,012 shares of
“if-converted” common stock with a redemption value of
$120,181 due to $0.475 per share fair market value of the Company's
stock on the note's date of issuance. Debt discount amortization is
recorded as interest expense, while debt premium amortization is
recorded as an increase to additional paid-in capital. This note
(including accrued interest) was paid in full on March 25, 2019.
The remaining debt discount and debt premium was fully amortized at
the time of the payoff in the amount of $4,980 and $34,308,
respectively, while interest expense was $33,865 of which $32,636
was for extension fees and pre-payment penalties.
(e)
On August 2, 2018
the Company issued a convertible promissory note with a face value
of $65,000, maturing on August 2, 2019, and a stated interest of
10% to a third-party investor. The note is convertible at any time
after 6 months of the funding of the note into a variable number of
the Company's common stock, based on a conversion rate of 60% of
the lowest trading price for the 20 days prior to conversion. The
note was funded on August 7, 2018, when the Company received
proceeds of $56,350, after disbursements for the lender's
transaction costs, fees and expenses which in aggregate resulted in
a total discount of $8,650 to be amortized to interest expense over
the life of the note. Additionally, the note’s variable
conversion rate component requires that the note be valued at its
stock redemption value (i.e., “if-converted” value)
pursuant to ASC 480, Distinguishing Liabilities from Equity, with
the excess over the note’s undiscounted face value being
deemed a premium to be added to the principal balance and amortized
to additional paid-in capital over the life of the note. As such,
the Company recorded a premium on the note of $58,996 as a
reduction to additional paid-in capital based on a discounted
“if-converted” rate of $0.42 per share (60% of the
lowest trading price during the 20 days preceding the note's
issuance), which computed to 261,044 shares of
“if-converted” common stock with a redemption value of
$123,996 due to $0.475 per share fair market value of the Company's
stock on the note's date of issuance. Debt discount amortization is
recorded as interest expense, while debt premium amortization is
recorded as an increase to additional paid-in capital. This note
(including accrued interest) was paid in full on February 1, 2019.
The remaining debt discount and debt premium was fully amortized at
the time of the payoff in the amount of $5,214 and $35,561,
respectively, while interest expense was $27,931 of which $27,389
was for extension fees and pre-payment penalties.
(f)
On August 2, 2018
the Company issued a convertible promissory note with a face value
of $125,000, maturing on May 2, 2019, and a stated interest of 12%
to a third-party investor. The note is convertible at any time
after 6 months of the funding of the note into a variable number of
the Company's common stock, based on a conversion rate of 60% of
the lowest trading price for the 20 days prior to conversion. The
note was funded on August 20, 2018, when the Company received
proceeds of $101,850, after disbursements for the lender's
transaction costs, fees and expenses which in aggregate resulted in
a total discount of $23,150 to be amortized to interest expense
over the life of the note. Additionally, the note’s variable
conversion rate component requires that the note be valued at its
stock redemption value (i.e., “if-converted” value)
pursuant to ASC 480, Distinguishing Liabilities from Equity, with
the excess over the note’s undiscounted face value being
deemed a premium to be added to the principal balance and amortized
to additional paid-in capital over the life of the note. As such,
the Company recorded a premium on the note of $113,454 as a
reduction to additional paid-in capital based on a discounted
“if-converted” rate of $0.42 per share (60% of the
lowest trading price during the 20 days preceding the note's
issuance), which computed to 502,008 shares of
“if-converted” common stock with a redemption value of
$238,454 due to $0.475 per share fair market value of the Company's
stock on the note's date of issuance. Debt discount amortization is
recorded as interest expense, while debt premium amortization is
recorded as an increase to additional paid-in capital. This note
(including accrued interest) was paid in full on February 22, 2019.
The remaining debt discount and debt premium was fully amortized at
the time of the payoff in the amount of $12,004 and $58,828,
respectively, while interest expense was $61,798 of which $59,566
was for extension fees and pre-payment penalties.
(g)
On August 9, 2018
the Company issued a convertible promissory note with a face value
of $150,000, maturing on May 9, 2019, and a stated interest of 12%
to a third-party investor. The note is convertible at any time
after 6 months of the funding of the note into a variable number of
the Company's common stock, based on a conversion rate of 60% of
the average of 2 lowest trading prices for the 20 days prior to
conversion. The note was funded on August 16, 2018, when the
Company received proceeds of $122,250, after disbursements for the
lender's transaction costs, fees and expenses which in aggregate
resulted in a total discount of $27,750 to be amortized to interest
expense over the life of the note. Additionally, the note’s
variable conversion rate component requires that the note be valued
at its stock redemption value (i.e., “if-converted”
value) pursuant to ASC 480, Distinguishing Liabilities from Equity,
with the excess over the note’s undiscounted face value being
deemed a premium to be added to the principal balance and amortized
to additional paid-in capital over the life of the note. As such,
the Company recorded a premium on the note of $139,017 as a
reduction to additional paid-in capital based on a discounted
“if-converted” rate of $0.43 per share (60% of the
average of 2 lowest trading day prices during the 20 days preceding
the note's issuance), which computed to 578,034 shares of
“if-converted” common stock with a redemption value of
$289,017 due to $0.50 per share fair market value of the Company's
stock on the note's date of issuance. Debt discount amortization is
recorded as interest expense, while debt premium amortization is
recorded as an increase to additional paid-in capital. Debt
discount and premium amortizations for the three months ended March
31, 2019, totaled $9,250 and $46,339, respectively, while interest
expense was $12,000 of which $7,500 was for extension fees applied
to interest.
(h)
On September 17,
2018 the Company issued a convertible promissory note with a face
value of $50,000, maturing on September 17, 2019, and a stated
interest of 8% to a third-party investor. The note is convertible
at any time after 6 months of the funding of the note into a
variable number of the Company's common stock, based on a
conversion rate of 61% of the lowest trading price for the 20 days
prior to conversion. The note was funded on September 20, 2018,
when the Company received proceeds of $42,250, after disbursements
for the lender's transaction costs, fees and expenses which in
aggregate resulted in a total discount of $7,750 to be amortized to
interest expense over the life of the note. Additionally, the
note’s variable conversion rate component requires that the
note be valued at its stock redemption value (i.e.,
“if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $49,016 as a reduction to additional paid-in
capital based on a discounted “if-converted” rate of
$0.50 per share (61% of the lowest trading price during the 20 days
preceding the note's issuance), which computed to 163,934 shares of
“if-converted” common stock with a redemption value of
$99,016 due to $0.604 per share fair market value of the Company's
stock on the note's date of issuance. Debt discount amortization is
recorded as interest expense, while debt premium amortization is
recorded as an increase to additional paid-in capital. Debt
discount and premium amortizations for the three months ended March
31, 2019, totaled $1,937 and $12,254, respectively, while interest
expense was $3,500 of which $2,500 was for extension fees applied
to interest.
(i)
On November 14,
2018 the Company issued a convertible promissory note with a face
value of $273,000, maturing on November 14, 2019, and a stated
interest of 8% to a third-party investor. The note is convertible
at any time after 6 months of the funding of the note into a
variable number of the Company's common stock, based on a
conversion rate of 62% of the lowest trading price for the 20 days
prior to conversion. The note was funded on November 14, 2018, when
the Company received proceeds of $250,000, after disbursements for
the lender's transaction costs, fees and expenses which in
aggregate resulted in a total discount of $43,000 to be amortized
to interest expense over the life of the note. Additionally, the
note’s variable conversion rate component requires that the
note be valued at its stock redemption value (i.e.,
“if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $167,323 as a reduction to additional
paid-in capital based on a discounted “if-converted”
rate of $0.40 per share (62% of the lowest trading price during the
20 days preceding the note's issuance), which computed to 668,004
shares of “if-converted” common stock with a redemption
value of $440,323 due to $0.64 per share fair market value of the
Company's stock on the note's date of issuance. Debt discount
amortization is recorded as interest expense, while debt premium
amortization is recorded as an increase to additional paid-in
capital. Debt discount and premium amortizations for the three
months ended March 31, 2019, totaled $10,875 and $41,831,
respectively, while interest expense was $5,460.
(j)
On January 3, 2019
the Company issued a convertible promissory note with a face value
of $105,000, maturing on January 3, 2020, and a stated interest of
10% to a third-party investor. The note is convertible at any time
after 6 months of the funding of the note into a variable number of
the Company's common stock, based on a conversion rate of 60% of
the lowest trading price for the 20 days prior to conversion. The
note was funded on January 7, 2019, when the Company received
proceeds of $91,500, after disbursements for the lender's
transaction costs, fees and expenses which in aggregate resulted in
a total discount of $13,500 to be amortized to interest expense
over the life of the note. Additionally, the note’s variable
conversion rate component requires that the note be valued at its
stock redemption value (i.e., “if-converted” value)
pursuant to ASC 480, Distinguishing Liabilities from Equity, with
the excess over the note’s undiscounted face value being
deemed a premium to be added to the principal balance and amortized
to additional paid-in capital over the life of the note. As such,
the Company recorded a premium on the note of $270,000 as a
reduction to additional paid-in capital based on a discounted
“if-converted” rate of $0.14 per share (60 % of the
lowest trading price during the 20 days preceding the note's
issuance), which computed to 1,250,000 shares of 'if-converted'
common stock with a redemption value of $375,000 due to $0.30 per
share fair market value of the Company's stock on the note's date
of issuance. Debt discount amortization is recorded as interest
expense, while debt premium amortization is recorded as an increase
to additional paid-in capital. Debt discount and premium
amortizations for the three months ended March 31, 2019, totaled
$3,112 and $62,250, respectively, while interest expense was
$2,421.
(k)
On January 17, 2019
the Company issued a convertible promissory note with a face value
of $75,000, maturing on January 17, 2020, and a stated interest of
10% to a third-party investor. The note is convertible at any time
after 6 months of the funding of the note into a variable number of
the Company's common stock, based on a conversion rate of 60% of
the lowest trading price for the 25 days prior to conversion. The
note was funded on January 25, 2019, when the Company received
proceeds of $59,500, after disbursements for the lender's
transaction costs, fees and expenses which in aggregate resulted in
a total discount of $15,500 to be amortized to interest expense
over the life of the note. Additionally, the note’s variable
conversion rate component requires that the note be valued at its
stock redemption value (i.e., “if-converted” value)
pursuant to ASC 480, Distinguishing Liabilities from Equity, with
the excess over the note’s undiscounted face value being
deemed a premium to be added to the principal balance and amortized
to additional paid-in capital over the life of the note. As such,
the Company recorded a premium on the note of $148,214 as a
reduction to additional paid-in capital based on a discounted
“if-converted” rate of $0.14 per share (60% of the
lowest trading price during the 25 days preceding the note's
issuance), which computed to 892,857 shares of 'if-converted'
common stock with a redemption value of $223,214 due to $0.25 per
share fair market value of the Company's stock on the note's date
of issuance. Debt discount amortization is recorded as interest
expense, while debt premium amortization is recorded as an increase
to additional paid-in capital. Debt discount and premium
amortizations for the three months ended March 31, 2019, totaled
$1,507 and $14,410, respectively, while interest expense was
$729.
(l)
On February 5, 2019
the Company issued a convertible promissory note with a face value
of $78,000, maturing on February 5, 2020, and a stated interest of
12 % to a third-party investor. The note is convertible at any time
after 6 months of the funding of the note into a variable number of
the Company's common stock, based on a conversion rate of 58% of
the average of 2 lowest trading prices for the 15 days prior to
conversion. The note was funded on February 8, 2019, when the
Company received proceeds of $74,500, after disbursements for the
lender's transaction costs, fees and expenses which in aggregate
resulted in a total discount of $3,500 to be amortized to interest
expense over the life of the note. Additionally, the note’s
variable conversion rate component requires that the note be valued
at its stock redemption value (i.e., “if-converted”
value) pursuant to ASC 480, Distinguishing Liabilities from Equity,
with the excess over the note’s undiscounted face value being
deemed a premium to be added to the principal balance and amortized
to additional paid-in capital over the life of the note. As such,
the Company recorded a premium on the note of $149,276 as a
reduction to additional paid-in capital based on a discounted
“if-converted” rate of $0.15 per share (58% of $0.25 -
the average of 2 lowest trading day prices during the 15 days
preceding the note's issuance), which computed to 537,931 shares of
'if-converted' common stock with a redemption value of $227,276 due
to $0.42 per share fair market value of the Company's stock on the
note's date of issuance. Debt discount amortization is recorded as
interest expense, while debt premium amortization is recorded as an
increase to additional paid-in capital. Debt discount and premium
amortizations for the three months ended March 31, 2019, totaled
$506 and $21,562, respectively, while interest expense was
$1,352.
(m)
On February 6, 2019
the Company issued a convertible promissory note with a face value
of $65,000, maturing on February 6, 2020, and a stated interest of
10% to a third-party investor. The note is convertible at any time
after 6 months of the funding of the note into a variable number of
the Company's common stock, based on a conversion rate of 60% of
the lowest trading price for the 20 days prior to conversion. The
note was funded on February 7, 2019, when the Company received
proceeds of $56,350, after disbursements for the lender's
transaction costs, fees and expenses which in aggregate resulted in
a total discount of $8,650 to be amortized to interest expense over
the life of the note. Additionally, the note’s variable
conversion rate component requires that the note be valued at its
stock redemption value (i.e., “if-converted” value)
pursuant to ASC 480, Distinguishing Liabilities from Equity, with
the excess over the note’s undiscounted face value being
deemed a premium to be added to the principal balance and amortized
to additional paid-in capital over the life of the note. As such,
the Company recorded a premium on the note of $107,250 as a
reduction to additional paid-in capital based on a discounted
“if-converted” rate of $0.25 per share (60% of the
lowest trading price during the 20 days preceding the note's
issuance), which computed to 433,333 shares of 'if-converted'
common stock with a redemption value of $172,250 due to $0.398 per
share fair market value of the Company's stock on the note's date
of issuance. Debt discount amortization is recorded as interest
expense, while debt premium amortization is recorded as an increase
to additional paid-in capital. Debt discount and premium
amortizations for the three months ended March 31, 2019, totaled
$1,273 and $15,790, respectively, while interest expense was
$957.
(n)
On February 13, 2019 the Company issued a
convertible promissory note with a face value of $50,000, maturing
on February 13, 2022, and a stated interest of 0% to a third-party
investor. The note is convertible at any time after 6 months of the
funding of the note into a variable number of the Company's common
stock, based on a conversion rate of 60% of the lowest trading
price for the 20 days prior to conversion. The note was funded on
February 21, 2019, when the Company received proceeds of $35,900,
after disbursements for the lender's transaction costs, fees and
expenses which in aggregate resulted in a total discount of $14,100
to be amortized to interest expense over the life of the note.
Additionally, the note’s variable conversion rate component
requires that the note be valued at its stock redemption value
(i.e., “if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $74,800 as a reduction to additional paid-in
capital based on a discounted “if-converted” rate of
$0.25 per share (60% of the lowest trading price during the 20 days
preceding the note's issuance), which computed to 333,333 shares of
'if-converted' common stock with a redemption value of $124,800 due
to $0.374 per share fair market value of the Company's stock on the
note's date of issuance. Debt discount amortization is recorded as
interest expense, while debt premium amortization is recorded as an
increase to additional paid-in capital.
Debt discount and
premium amortizations for the three months ended March 31, 2019,
totaled $509 and $2,701, respectively, while interest expense was
$0.
(o)
On February 14, 2019 the Company issued a
convertible promissory note with a face value of $100,000, maturing
on February 14, 2020, and a stated interest of 10% to a third-party
investor. The note is convertible at any time after 6 months of the
funding of the note into a variable number of the Company's common
stock, based on a conversion rate of 60% of the lowest trading
price for the 20 days prior to conversion. The note was funded on
February 15, 2019, when the Company received proceeds of $99,500,
after disbursements for the lender's transaction costs, fees and
expenses which in aggregate resulted in a total discount of $500 to
be amortized to interest expense over the life of the note.
Additionally, the note’s variable conversion rate component
requires that the note be valued at its stock redemption value
(i.e., “if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $140,333 as a reduction to additional
paid-in capital based on a discounted “if-converted”
rate of $0.25 per share (60% of the lowest trading price during the
20 days preceding the note's issuance), which computed to 666,666
shares of 'if-converted' common stock with a redemption value of
$240,333 due to $0.361 per share fair market value of the Company's
stock on the note's date of issuance. Debt discount amortization is
recorded as interest expense, while debt premium amortization is
recorded as an increase to additional paid-in capital.
Debt
discount and premium amortizations for the three months ended March
31, 2019, totaled $62 and $17,542, respectively, while interest
expense was $1,250.
(p)
On February 19, 2019 the Company issued a
convertible promissory note with a face value of $50,000, maturing
on February 19, 2020, and a stated interest of 10% to a third-party
investor. The note is convertible at any time after 6 months of the
funding of the note into a variable number of the Company's common
stock, based on a conversion rate of 60% of the lowest trading
price for the 20 days prior to conversion. The note was funded on
February 22, 2019, when the Company received proceeds of $43,200,
after disbursements for the lender's transaction costs, fees and
expenses which in aggregate resulted in a total discount of $6,800
to be amortized to interest expense over the life of the note.
Additionally, the note’s variable conversion rate component
requires that the note be valued at its stock redemption value
(i.e., “if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $75,000 as a reduction to additional paid-in
capital based on a discounted “if-converted” rate of
$0.30 per share (60% of the lowest trading price during the 20 days
preceding the note's issuance), which computed to 277,777 shares of
'if-converted' common stock with a redemption value of $125,000 due
to $0.450 per share fair market value of the Company's stock on the
note's date of issuance. Debt discount amortization is recorded as
interest expense, while debt premium amortization is recorded as an
increase to additional paid-in capital.
Debt discount and premium amortizations for the
three months ended March 31, 2019, totaled $718 and $7,917,
respectively, while interest expense was $528.
(q)
On
February 25, 2019, the Company issued a convertible promissory note
with a face value of $68,000, maturing on February 25, 2020, and a
stated interest of 12% to a third-party investor. The note is
convertible at any time after 6 months of the funding of the note
into a variable number of the Company's common stock, based on a
conversion rate of 60% of the average of 2 lowest trading prices
for the 15 days prior to conversion. The note was funded on
February 27, 2019, when the Company received proceeds of $64,500,
after disbursements for the lender's transaction costs, fees and
expenses which in aggregate resulted in a total discount of $3,500
to be amortized to interest expense over the life of the note.
Additionally, the note’s variable conversion rate component
requires that the note be valued at its stock redemption value
(i.e., “if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $58,974 as a reduction to additional paid-in
capital based on a discounted “if-converted” rate of
$0.33 per share (60% of the average of 2 lowest trading day prices
during the 15 days preceding the note's issuance), which computed
to 343,174 shares of 'if-converted' common stock with a redemption
value of $126,974 due to $0.370 per share fair market value of the
Company's stock on the note's date of issuance. Debt discount
amortization is recorded as interest expense, while debt premium
amortization is recorded as an increase to additional paid-in
capital. Debt discount and premium amortizations for the three
months ended March 31, 2019, totaled $321 and $5,406, respectively,
while interest expense was $748.
(r)
On
March 14, 2019 the Company issued a convertible promissory note
with a face value of $610,000, maturing on March 14, 2020, and a
stated interest of 9% to a third-party investor. The note is
convertible at any time after 6 months of the funding of the note
into a variable number of shares the Company's common stock, based
on a conversion rate of 60% of the lowest trading price for the 20
days prior to conversion. The note was funded on March 14, 2019,
when the Company received proceeds of $557,500, after disbursements
for the lender's transaction costs, fees and expenses which in
aggregate resulted in a total discount of $52,500 to be amortized
to interest expense over the life of the note. Additionally, the
note’s variable conversion rate component requires that the
note be valued at its stock redemption value (i.e.,
“if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $1,300,101 as a reduction to additional
paid-in capital based on a discounted “if-converted”
rate of $0.20 per share (60% of $0.33 - the lowest trading price
during the 20 days preceding the note's issuance), which computed
to 3,080,808 shares of 'if-converted' common stock with a
redemption value of $1,910,101 due to $0.620 per share fair market
value of the Company's stock on the note's date of issuance. Debt
discount amortization is recorded as interest expense, while debt
premium amortization is recorded as an increase to additional
paid-in capital. Debt discount and premium amortizations for the
three months ended March 31, 2019, totaled $2,335 and $57,782,
respectively, while interest expense was $2,440.
Note D – Stockholders' Equity
Common Stock
We are authorized to issue 2,000,000,000 shares of our $.0001 par
value common stock, of which 16,712,819 shares were issued and
outstanding at March 31, 2019 and December 31, 2018.
During August and September 2016, we sold 33,058 shares of our
common stock, with warrants to purchase an additional 545,454
shares of our common stock, to a group of private investors for
$100,000. The warrants were issued prior to the reverse
merger (Note A) and were subsequently still deemed issued and
outstanding. The Series A and B warrants have expired, while the
Series C warrants expire on June 30, 2019. The warrants were
originally exercisable at prices between $0.55 and $2.20 share at
any time between June 30, 2017 and June 30, 2019. Each series
of warrants was valued using the Black-Scholes Options Pricing
Model resulting in total warrant value of $85,833. The remaining
proceeds of $14,167 were allocated to the common stock.
Black-Scholes data inputs used to value the warrants are as
follows:
|
Warrants
|
|
|
|
|
|
|
|
|
Series A
(expired)
|
$
.275
|
$
.55
|
.75
|
.54
%
|
$
.1168
|
181,818
|
$
21,249
|
|
Series B
(expired)
|
$
.275
|
$
.1.10
|
1.75
|
.69
%
|
$
.1639
|
181,818
|
$
29,817
|
|
Series
C
|
$
.275
|
$
2.20
|
1.75
|
.85
%
|
$
.1912
|
181,818
|
$
34,767
|
|
Total
|
|
|
|
|
|
|
$
85,833
|
During May and June 2018, various Series B warrant holders elected
to exercise their warrants prior to their June 30, 2018 expiration.
As such, the Company issued 19,636 shares of common stock at $1.10
per share for $21,600.
The
following table represents the warrant activity for the periods
presented;
|
|
|
|
|
|
|
Balance, December
31, 2017
|
545,454
|
|
Granted
|
(19,636
)
|
|
(Exercised)
|
(162,182
)
|
|
(Forfeited/expired)
|
(181,818
)
|
|
Balance, December
31, 2018
|
181,818
|
|
Granted
|
-
|
|
(Exercised)
|
-
|
|
(Forfeited/expired)
|
-
|
|
Balance, March 31,
2019
|
181,818
|
Debt Conversion
As summarized below, various noteholders elected to convert their
notes payable into shares of our common stock in accordance with
terms of their promissory notes(Note C). Our former officer,
Philip Grey, converted his accrued wages as well.
|
|
|
|
|
Conversion Rate Per
Share
|
Post-Split Shares
Issued Upon Conversion
|
|
Gulf Coast
Capital
|
January 8,
2018
|
$
24,090
|
$
21,376
|
$
45,466
|
$
.275
|
165,331
|
|
Mark
Bogani
|
January 8,
2018
|
12,500
|
188
|
12,688
|
.275
|
46,138
|
|
Stephen
Calandrella
|
January 8,
2018
|
25,000
|
375
|
25,375
|
.275
|
92,273
|
|
Clifford
Thygesen
|
January 8,
2018
|
100,000
|
6,313
|
106,313
|
.275
|
386,593
|
|
Kevin
Curtis
|
January 8,
2018
|
25,000
|
125
|
25,125
|
.275
|
91,364
|
|
Phillip
Grey
|
January 8,
2018
|
12,500
|
375
|
12,875
|
.275
|
46,818
|
|
Phillip
Grey*
|
January 8,
2018
|
38,500
|
-
|
38,500
|
.402
|
95,890
|
|
Total
|
|
$
237,590
|
$
28,752
|
$
266,342
|
-
|
924,407
|
* Represents accrued wages converted at a rate agreed upon by
management.
Preferred Stock
Our Articles of Incorporation provide that we may issue up to
10,000,000 shares of various series of preferred
stock. Subject to the requirements of the Colorado
Business Corporation Act, the Board of Directors may issue the
preferred stock in series with rights and preferences as the Board
of Directors may determine appropriate, without shareholder
approval. As of March 31, 2019, and December 31, 2018,
4,500,000 Series B Preferred shares had been authorized for
issuance, and 240,000 Series B preferred shares were issued and
outstanding. These 240,000 Series B shares are
convertible into 10,909 common shares.
Note E – Related Party Transactions
We incur various consulting, management, and software licensing
expenses with our officers, directors, and companies owned by our
officers and directors. During the three months ended March
31, 2019 and 2018, we incurred $117,378 and $112,000, respectively,
with these individuals and companies, and we had payable balances
of $218,866 and $255,250 at March 31, 2019 and December 31, 2018,
respectively.
Note F – Prepaid Expenses
The Company's prepaid expenses as of March 31, 2019 consist of
$8,376 in prepaid insurance, $2,025 in prepaid expenses, $2,490 in
deposits for offices and $20,000 for engineering deposits related
to the engineering of new products. Total prepaid expenses
were $32,891 and $7,607 at March 31, 2019 and December 31, 2018,
respectively.
Note G – Material Agreements
On
January 14, 2019, the Company entered into an agreement with ASKA
Electronics Co., Ltd. (“ASKA”) of China. ASKA is a
manufacturer of Bluetooth headphones, sport earbuds and associated
listening devices, and provides its products as an OEM and as an
ODM for projects worldwide.
Under
the Agreement:
●
ASKA will provide
its design and manufacturing services in the capacity of a
sub-contractor for the Company’s customers.
●
the Company will
provide branding, sales and distribution services for existing and
newly developed products that ASKA manufactures for sale in the
North American market;
●
the Company will
receive 2% of ASKA’s gross revenues resulting from the sales
of ASKA’s products in North America, and
●
ASKA will receive
up to 700,000 shares of the Company’s preferred shares, based
on ASKA’s North American sales revenue for 2018 of
approximately $14,000,000.
The
Agreement contemplates the Company receiving a guaranteed minimum
of $280,000 in gross profit for calendar year 2019.
Each
Preferred Share is convertible into one share of the
Company’s common stock. The Company, upon no less than thirty
days written notice, may redeem the Preferred Shares at a price of
$2.00 per share. The Preferred shares will automatically convert
into shares of the Company’s common stock if the
Company’s common stock closes at a price of $2.20 or more
during any 30 consecutive trading days and if the average trading
volume of the Company’s common stock during such 30
consecutive trading days is at least 10,000 shares per day. A
“leak out provision” will be established such that ASKA
may not sell more than 100,000 shares per month with sales per
trading day limited to no more than 15% of the total trading volume
that day. The closing of the transaction is subject to final
Company board approval.
We signed an agreement with manufacturer and exporter Shenzhen
Ferex Electrical Co., Ltd of China to manufacture and supply
electrical components and systems at the end of last year. We began
offering design, engineering and manufacturing services to our
customers in the beginning of 2019. Currently, we have a
manufacturing contract to provide these services with AfterMaster
Audio Labs regarding two new products. Subject to certain financing
requirements, it is anticipated that firm purchase orders,
manufacturing and delivery will begin late in the second quarter or
early third quarter 2019.
There
were no other material changes to our contracts not previously
reported.
Note H – Subsequent Events
On April 4, 2019, we repaid Convertible Note (g) in the principal
amount of $150,000 plus added principal of $15,000, plus $11,732 in
accrued interest and $79,529 in prepayment penalties.
On
April 24, 2019, in exchange for $38,188 in cash we extended the
maturity date of Convertible Note (a) to May 15, 2020 and the
conversion date to November 15, 2019.
On
April 24, 2019 the Company issued a convertible promissory note
with a face value of $88,000, maturing on April 24, 2020, and a
stated interest of 10% to a third-party investor. The note is
convertible at any time after 6 months of the funding of the note
into a variable number of the Company's common stock, based on a
conversion rate of 60% of the lowest trading price for the 20 days
prior to conversion. The note was funded on April 25, 2019, when
the Company received proceeds of $79,500, after disbursements for
the lender's transaction costs, fees and expenses which in
aggregate resulted in a total discount of $8,500 to be amortized to
interest expense over the life of the note. Additionally, the
note’s variable conversion rate component requires that the
note be valued at its stock redemption value (i.e.,
“if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $58,666 as a reduction to additional paid-in
capital based on a discounted “if-converted” rate of
$0.40 per share (60% of the lowest trading price during the 20 days
preceding the note's issuance), which computed to 366,666 shares of
'if-converted' common stock with a redemption value of $146,666 due
to $0.40 per share fair market value of the Company's stock on the
note's date of issuance. Debt discount amortization is recorded as
interest expense, while debt premium amortization is recorded as an
increase to additional paid-in capital.
On
April 26, 2019 the Company issued a convertible promissory note
with a face value of $63,000, maturing on April 26, 2020, and a
stated interest of 12% to a third-party investor. The note is
convertible at any time after 6 months of the funding of the note
into a variable number of the Company's common stock, based on a
conversion rate of 60% of the average of 2 lowest trading prices
for the 15 days prior to conversion. The note was funded on April
29, 2019, when the Company received proceeds of $59,500, after
disbursements for the lender's transaction costs, fees and expenses
which in aggregate resulted in a total discount of $3,500 to be
amortized to interest expense over the life of the note.
Additionally, the note’s variable conversion rate component
requires that the note be valued at its stock redemption value
(i.e., “if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $58,227 as a reduction to additional paid-in
capital based on a discounted “if-converted” rate of
$0.39 per share (60% of the average of 2 lowest trading day prices
during the 15 days preceding the note's issuance), which computed
to 272,727 shares of 'if-converted' common stock with a redemption
value of $121,227 due to $0.445 per share fair market value of the
Company's stock on the note's date of issuance. Debt discount
amortization is recorded as interest expense, while debt premium
amortization is recorded as an increase to additional paid-in
capital.
On May 1, 2019 the Company issued a convertible promissory note
with a face value of $282,000, maturing on November 1, 2019, and a
stated interest of 9% to a third-party investor. The note is
convertible at any time after 6 months of the funding of the note
into a variable number of the Company's common stock, based on a
conversion rate of 60% of the average of 2 lowest trading prices
for the 20 days prior to conversion. The note was funded on May 1,
2019, when the Company received proceeds of $253,300, after
disbursements for the lender's transaction costs, fees and expenses
which in aggregate resulted in a total discount of $28,700 to be
amortized to interest expense over the life of the note.
Additionally, the note’s variable conversion rate component
requires that the note be valued at its stock redemption value
(i.e., “if-converted” value) pursuant to ASC 480,
Distinguishing Liabilities from Equity, with the excess over the
note’s undiscounted face value being deemed a premium to be
added to the principal balance and amortized to additional paid-in
capital over the life of the note. As such, the Company recorded a
premium on the note of $188,000 as a reduction to additional
paid-in capital based on a discounted “if-converted”
rate of $0.37 per share (60% of the average of 2 lowest trading day
prices during the 20 days preceding the note's issuance), which
computed to 1,277,173 shares of 'if-converted' common stock with a
redemption value of $470,000 due to $0.368 per share fair market
value of the Company's stock on the note's date of issuance. Debt
discount amortization is recorded as interest expense, while debt
premium amortization is recorded as an increase to additional
paid-in capital.
On May
8, 2019, in exchange for $120,181 in cash we extended the maturity
date of Convertible Note (i) to March 14, 2019, the prepayment date
until November 14, 2019 and the conversion date to November 15,
2019.
Subsequent Stock Issuances
On
April 3, 2019, the holder of note (c) converted $25,000 in
principal and $1,479 in accrued interest into 126,092 shares of our
common stock at a price of $.21 per share.
As a condition of the $282,000 convertible promissory note issued
on May 1, 2019, the Company issued 364,538 returnable shares to the
lender as a commitment fee.
The Company has evaluated subsequent events through the date the
financial statements were issued and filed with the Securities and
Exchange Commission. The Company has determined that there are no
such events that warrant disclosure or recognition in the financial
statements, other than those disclosed above.
I
tem
2. Management's Discussion and
Analysis of Financial Condition and Results of
Operations.
Throughout this
Annual Report on Form 10-K Advantego Corporation is referred to as
“we,” “our,” “us,” the
“Company,” or “Advantego.”
Advantego
Corporation (“Advantego,” formerly Golden Eagle
International, Inc., or “GEII”) was incorporated in
Colorado on July 21, 1988. GEII had previously engaged in contract
gold milling operations primarily in the state of Nevada in the
United States. Advantego Technologies, Inc. is a California
corporation formed on July 29, 2016. On October 27, 2016, the
Company acquired 100% stock ownership of Advantego Technologies,
Inc. in exchange for 11,628,636 (post-split) shares of the
Company’s common stock.
The stock exchange was deemed a reverse
merger, as the management and operations of Advantego have
continued, and Advantego's management received in the aggregate a
majority ownership in GEII as a result of the stock
exchange.
On
February 1, 2018, we changed our name from GEII to Advantego
Corporation and our trading symbol from MYNG to ADGO. On
January 31, 2018, our shareholders approved a 1-for-11 reverse
stock split, which was effective February 22, 2018. Unless
otherwise indicated, all per-share information in this report has
been adjusted to reflect this reverse stock split. All
references to “the Company,” “we,”
“us,” or “our,” include the operations of
Advantego Technologies, Inc. consolidated with
Advantego.
The
Company empowers business innovation as a technical solutions
provider developing stand-alone digital and enterprise software
products to capitalize on niche opportunities within a specific
market. The Company leverages a proprietary Intelligent Solution
Platform combining leading third-party technologies with existing
data and systems to deliver a turnkey specialized Business Process
as a Services (BPaaS).
The Company’s products are tailored
specifically to targeted industries that can be integrated with
multiple software applications for large enterprises, affiliate
networks and franchise operators as comprehensive, managed bundled
solutions. The Company’s services include product design,
engineering and OEM manufacturing of hardware products and
licensing and distribution of third-party proprietary software and
hardware from a host of Strategic Partners
. T
his business model provides a
“one-stop-shop” for our customers.
We maintain a
small core group of employees and outsource most of our Product
Development, Product Maintenance, Sales & Marketing,
Accounting, Investor Relations, Legal, and Project Management
services. We feel this approach is more cost-effective, provides
greater flexibility, and resources can be applied quickly to
specific projects and tasks as needed.
We
launched our field testing of various products and services in May
2017 and commenced fulfillment of a revenue generating contract of
our digital signage product to a network of certified auto care
collision centers in March of 2018 throughout the United
States. The digital signage allows the auto care collision
centers to display, on a large television screen or counter
displays, information concerning the center, their certifications
and other informational and promotional content associated with the
automotive industry. As of December 31, 2018, we had
delivered approximately 930 digital signage controllers to
individual auto care collision centers in the Assured Performance
Network nationwide.
We
expanded the functionality of our digital signage product to
include SMS Messaging and have field tested it at both live events,
weddings and in audiological clinic lobby’s as a digital
delivery system in the same way the auto care collisions have used
it. These
additional features should help to attract potential advertisers as
networks are built out,
In
order to market to these niche markets, the Company is currently
undergoing a rebranding all its products; and anticipates
completion and marketing of these products in second quarter of
2019.
We also
provide subscription-based online directory listing services and we
are a reseller of software that allows potential customers to
better locate an auto collision center or any business, on the
internet.
We have
developed an enterprise software product (“Convertible Note
Disclosure Report”) that provides initial calculations for
investments made in public companies using convertible debt. The
product is currently being Beta tested. Having completed our first
phase, it is being expanded to include rolled up equity in addition
to basic and weighted averages of shares outstanding tables that
are necessary for financial disclosures. It is the intent of the
company to then include similar calculations as required for
Derivatives (Warrants and Options). When complete, this suite of
financial reporting tools is designed to streamline the process for
public and private companies, third parties and auditors to address
these calculations and values. We are unaware of any product that
is anywhere near the comprehensive nature of what is being
developed in the marketplace today.
Contractual Obligations
ASKA Electronics, Ltd. Contract
:
On
January 14, 2019, the Company entered into an agreement with ASKA
Electronics Co., Ltd. (“ASKA”) of China. ASKA is a
manufacturer of Bluetooth headphones, sport earbuds and associated
listening devices, and provides its products as an OEM and as an
ODM for projects worldwide.
Under
the Agreement:
●
ASKA will provide
its design and manufacturing services in the capacity of a
sub-contractor for the Company’s customers.
●
the Company will
provide branding, sales and distribution services for existing and
newly developed products that ASKA manufactures for sale in the
North American market;
●
the Company will
pay ASKA 98% of its sales to existing ASKA clients resulting from
the sales of ASKA’s products in North America,
and
●
ASKA will receive
up to 700,000 shares of the Company’s preferred shares, based
on ASKA’s North American sales revenue for 2018 of
approximately $14,000,000.
The
Agreement contemplates the Company receiving a guaranteed minimum
of $280,000 in gross profit for calendar year 2019.
Each
Preferred Share is convertible into one share of the
Company’s common stock.
The
Company, upon no less than thirty days written notice, may redeem
the Preferred Shares at a price of $2.00 per share.
The
Preferred shares will automatically convert into shares of the
Company’s common stock if the Company’s common stock
closes at a price of $2.20 or more during any 30 consecutive
trading days and if the average trading volume of the
Company’s common stock during such 30 consecutive trading
days is at least 10,000 shares per day.
A
“leak out provision” will be established such that ASKA
may not sell more than 100,000 shares per month with sales per
trading day limited to no more than 15% of the total trading volume
that day.
The
closing of the transaction is subject to final Company board
approval.
Shenzhen Ferex Electrical Co. Ltd
We
signed an agreement with manufacturer and exporter Shenzhen Ferex
Electrical Co., Ltd of China to manufacture and supply electrical
components and systems at the end of last year. We began offering
design, engineering and manufacturing services to our customers in
the beginning of 2019. Currently, we have a manufacturing contract
to provide these services with AfterMaster Audio Labs regarding two
new products. Subject to certain financing requirements, it is
anticipated that firm purchase orders, manufacturing and delivery
will begin late second quarter or early third quarter
2019.
There
were no other material changes to our contracts not previously
reported.
Results of Operations
During
the three months ended March 31, 2019 and 2018, we had revenues of
$8,325 and $43,977, respectively. The related cost of sales for the
three months ended March 31, 2019 and 2018 was $10,838 and $30,239,
respectively. The decrease in revenue was the result renewal fees
for our digital signage service which were lower than the initial
cost of the control boxes and service for our digital signage
product to a network of certified auto care collision centers in
the United States during 2018. Similarly, our cost of sales
decreased as the renewal costs were lower than the initial cost. As
a result, gross margin for the three months ended March 31, 2019
decreased to ($2,513) from $13,738 during the same period during
2018. Our general and administrative expenses totaled $347,749 and
$182,440 for the three months ended March 31, 2019 and 2018,
respectively, and consisted primarily of officer wages, outsourced
services, and professional fees. The increase in general and
administrative expenses was primarily the result of increased
marketing and investor relations expenses. Interest expense was
$250,152 and $75,134 during the three months ended March 31, 2019
and 2018, respectively. The increase during 2019 was due to
an increased number of convertible notes payable, the amortization
of debt discounts, pre-payment penalties and extension
fees.
Liquidity and Capital Resources
Our
primary sources and (uses) of cash for the three months ended March
31, 2019 and 2018 were:
|
|
|
|
|
|
|
|
|
Cash (used in)
operations
|
$
(557,454
)
|
$
(249,842
)
|
|
Proceeds from
convertible notes payable
|
$
1,142,250
|
$
250,000
|
|
Payments on
convertible notes payable
|
$
(253,000
)
|
$
-
|
|
Payments on
convertible notes payable - related party
|
$
-
|
$
(4,486
)
|
See
Note B to the March 31, 2019 financial statements included as part
of this report, for a description of our significant accounting
policies.
See
Note C to the March 31, 2019 financial statements, which are a part
of this report, for a discussion of our convertible notes
payable.
Off-Balance Sheet Arrangements
None.