Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par value per share
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x.
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the price at which the Company’s common stock was sold as reported on the OTC Markets, LLC on June 30, 2019 was $201,600.
The number of shares of registrant’s common stock outstanding, as of April 14, 2020 was 12,475,019.
Notes to Consolidated Financial Statements
Years Ended December 31, 2019 and 2018
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Digital Locations, Inc. (the “Company”) was incorporated in the State of Nevada on August 25, 2006 as Zingerang, Inc. On April 2, 2007, the Company changed its name to Carbon Sciences, Inc. and on September 14, 2017, the Company changed its name to Digital Locations, Inc.
On November 30, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which EllisLab, Inc., an S Corporation owned 100% by Rick Ellis, merged with and into EllisLab Corp., a newly formed subsidiary of the Company (the “Merger”). EllisLab, Inc. builds software for web professionals and provides related support services.
On September 30, 2019, the Company, entered into an Agreement for the Purchase and Sale of Capital Stock of EllisLab Corp. (the “EllisLab Corp. Sale Agreement”) with Rick Ellis to sell to Rick Ellis all of the issued and outstanding shares of EllisLab Corp. for $10,000 and the 36,000 shares of the Company’s Series C preferred stock acquired by Rick Ellis in the Merger, which represents all of the issued and outstanding shares of the Series C preferred stock. In connection with the EllisLab Corp. Sale Agreement, the covenant not to compete and the lockup of stock consideration entered into in connection with the Merger were terminated and the parties’ obligations thereunder were released. Pursuant to the Ellis Lab Corp. Sale Agreement, the Company effectively divested itself of the Ellis Lab business and discontinued it. A gain on disposition of subsidiary of $316,985 was recorded.
Consequently, the revenues and expenses for EllisLab Corp. are reported as “Loss from discontinued operations, net of income taxes” in our condensed statements of operations for all periods presented. The EllisLab Corp. assets and liabilities have been retroactively reclassified as assets and liabilities of discontinued operations. See Note 3. All significant intercompany accounts and transactions have been eliminated.
Effective February 14, 2020, the Company effected a reverse split of its common stock at a ratio of one for two hundred twenty-five shares (1:225) (the “Stock Split”) with the filing of a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada. The Company has given retroactive effect for the Stock Split in its financial statements and notes thereto for all periods presented.
Going Concern
The accompanying financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. As of December 31, 2019, our current liabilities exceeded our current assets by $9,335,445 and we had a total stockholders’ deficit of $9,327,142. In addition, subsequent to the EllisLab Corp. Sale Agreement which closed on September 30, 2019, the Company does not have any sources of revenues, and has reported negative cash flows from operations since inception. The Company currently does not have the cash resources to meet its operating commitments for the next twelve months and expects to have ongoing requirements for capital investment to implement its business plan. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern for a reasonable period of time.
The ability of the Company to continue as a going concern is dependent upon, among other things, raising additional capital. The Company has obtained operating funds primarily from the issuance of convertible debt. Management believes this funding will continue and will provide the additional cash needed to meet the Company’s obligations as they become due. There can be no assurance, however, that the Company will be successful in accomplishing its objectives. Without such additional capital we may be required to cease operations. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment and intangible assets, operating lease obligations, impairment of assets, the deferred tax valuation allowance, the fair value of stock options and derivative liabilities. Actual results could differ from those estimates.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and, effective December 1, 2018 through September 30, 2019, the accounts of EllisLab Corp., its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents. The Company places its cash and cash equivalents with large commercial banks. The Federal Deposit Insurance Corporation (“FDIC”) insures these balances, up to $250,000. All of the Company’s cash balances at December 31, 2019 and 2018 were insured. At December 31, 2019 and 2018, there were no cash equivalents.
Prepaid Expenses
Insurance premiums paid in advance of the policy coverage period are recorded as prepaid expenses and expensed over the policy coverage period.
Property and Equipment
The Company’s property and equipment is stated at cost, and is depreciated using the straight-line method over the estimated useful life of the related asset as follows:
Computer equipment
|
3-5 years
|
Office furniture and equipment
|
7 years
|
Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments will be capitalized. At the time of retirement or other disposition of equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
The Company assesses the recoverability of property and equipment by determining whether the depreciation and amortization of these assets over their remaining life can be recovered through projected undiscounted future cash flows. The amount of equipment impairment, if any, will be measured based on fair value and is charged to operations in the period in which such impairment is determined by management.
Derivative Liabilities
We have identified the conversion features of our convertible notes payable and Series B preferred stock and certain stock options and warrants as derivatives. Where the number of common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional options, warrants and convertible debt and equity are included in the value of the derivatives. We estimate the fair value of the derivatives using the Black-Scholes pricing model and a multinomial lattice model based on projections of various potential future outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Fair Value of Financial Instruments
Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2019 and 2018, we believe the amounts reported for cash, prepaid expenses, accounts payable, accrued expenses and other current liabilities, accrued interest, notes payable and convertible note payable approximate fair value because of their short maturities.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
|
·
|
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
|
|
|
|
|
·
|
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
|
|
|
|
|
·
|
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
We measure certain financial instruments at fair value on a recurring basis. Liabilities measured at fair value on a recurring basis are as follows at December 31, 2019 and 2018:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
6,160,895
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,160,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
6,160,895
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,160,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
10,363,105
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,363,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
10,363,105
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,363,105
|
|
During the years ended December 31, 2019 and 2018, the Company had the following activity in its derivative liabilities account:
|
|
Convertible
|
|
|
Series B
|
|
|
Stock
|
|
|
|
|
|
|
Notes Payable
|
|
|
Preferred Stock
|
|
|
Options
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities at December 31, 2017
|
|
$
|
5,241,762
|
|
|
$
|
2,831,142
|
|
|
$
|
-
|
|
|
$
|
8,072,904
|
|
Addition to liability for new issuances
|
|
|
692,500
|
|
|
|
-
|
|
|
|
188,127
|
|
|
|
880,627
|
|
Elimination of liability on conversion to common shares
|
|
|
(8,209
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,209
|
)
|
Change in fair value
|
|
|
1,883,001
|
|
|
|
(491,244
|
)
|
|
|
26,026
|
|
|
|
1,417,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities at December 31, 2018
|
|
|
7,809,054
|
|
|
|
2,339,898
|
|
|
|
214,153
|
|
|
|
10,363,105
|
|
Addition to liability for new issuances
|
|
|
617,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
617,000
|
|
Elimination of liability on conversion to common shares
|
|
|
(195,042
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(195,042
|
)
|
Change in fair value
|
|
|
(4,624,818
|
)
|
|
|
195,461
|
|
|
|
(194,811
|
)
|
|
|
(4,624,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities at December 31, 2019
|
|
$
|
3,606,194
|
|
|
$
|
2,535,359
|
|
|
$
|
19,342
|
|
|
$
|
6,160,895
|
|
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, “Revenue Recognition” (Topic 605). The Company had no operating revenues prior to the Merger. Effective December 1, 2018, the Company’s revenues, included in loss from discontinued operations, were derived primarily from the sale of monthly and annual tech support subscriptions and partnership fees, and from software applications that customers purchase via the Company’s online store. Sales were processed using a real-time payment processing company. Revenue from product sales is recorded net of processing costs.
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
|
·
|
identification of the contract, or contracts, with a customer;
|
|
·
|
identification of the performance obligations in the contract;
|
|
·
|
determination of the transaction price;
|
|
·
|
allocation of the transaction price to the performance obligations in the contract; and
|
|
·
|
recognition of revenue when, or as, we satisfy a performance obligation.
|
Amounts collected from customers for support subscriptions and partnership fees with a contract life of one month or greater are recorded as deferred revenue and recognized over the life of the contract.
Subsequent to the EllisLab Corp. Sale Agreement, which closed on September 30, 2019, the Company does not have any sources of revenues.
Concentrations of Credit Risk and Major Customers
EllisLab Corp. customers were the end-consumers that purchase its products from EllisLab Corp.’s online store. Therefore, the Company does not have any individual customers that represent any more than a fraction of its revenue.
Income (Loss) per Share
Basic net income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then outstanding. Potential dilutive common share equivalents consist of shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock, using the treasury stock method and the average market price per share during the period, and shares issuable upon exercise of convertible notes payable and convertible preferred stock.
Basic weighted average number common shares outstanding are reconciled to diluted weighted average number of common shares outstanding as follows:
|
|
Years Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares
|
|
|
409,956
|
|
|
|
173,167
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
Series B preferred stock
|
|
|
23,933,334
|
|
|
|
-
|
|
Convertible notes payable
|
|
|
140,194,454
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares
|
|
|
164,537,744
|
|
|
|
176,167
|
|
Operating Lease
On September 5, 2017, we entered into an operating sublease for office space. The base rent for the sublease is $1,000 per month for a period of one year and month-to-month thereafter.
On January 1, 2019, we adopted Financial Accounting Standards Board (“FASB”) ASC 842, “Leases.” ASC 842 requires recognition of assets and liabilities for the rights and obligations created by leases and new disclosures about leases. We adopted ASC 842 using the optional modified retrospective transition method. Under this transition method, we did not recast the prior period financial statements presented.
The adoption of ASC 842 resulted in the measurement and recognition of an operating lease liability and corresponding right-of use asset (included in other assets) in the amount of $18,352 as of January 1, 2019. The operating lease liability was measured as the present value of assumed remaining lease payments using an estimated incremental borrowing rate. We amortize the right-of-use asset over the term of the lease.
Income Taxes
We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the 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 expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Research and Development
Research and development costs are expensed as incurred. We incurred no research and development costs for the years ended December 31, 2019 and 2018.
Advertising Costs
We expense the cost of advertising and promotional materials when incurred. We incurred no material advertising costs for the years ended December 31, 2019 and 2018.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the value of the award granted using either the Black-Scholes option pricing model or a multinomial lattice model based on projections of various potential future outcomes and recognized over the period in which the award vests. For stock awards no longer expected to vest, any previously recognized stock compensation expense is reversed in the period of termination. The stock-based compensation expense is included in general and administrative expenses.
Comprehensive Loss
Comprehensive loss is the same as net loss for all years presented.
Reclassifications
Certain amounts in the prior years have been reclassified to conform to the current year presentation.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update (ASU) No. 2019-12, “Simplifying the Accounting for Income Taxes” (Income Taxes Topic 740). The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general provision of Topic 740. The amendments also improve consistent application of and simplify General Accepted Accounting Principles for other areas of Topic 740 by clarifying and amending existing practice. For public entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted. The Company is currently unable to determine the impact on its financial statements of the implementation of this ASU.
Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.
NOTE 3 – MERGER AND SUBSEQUENT SALE
On November 30, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with the EllisLab, Inc., Rick Ellis (“Ellis”), and EllisLab Corp., a newly formed Nevada corporation and wholly owned subsidiary of the Company, pursuant to which EllisLab, Inc. merged with and into EllisLab Corp. (the “Merger”). Pursuant to the terms of the Merger Agreement, Ellis received 36,000 shares of the Company’s newly designated Series C Convertible Preferred Stock, with a stated value of $100 per share, in exchange for the cancellation of all common shares of EllisLab, Inc. owned by Ellis, which shares represented 100% of the issued and outstanding capital stock of EllisLab, Inc. The separate legal existence of EllisLab, Inc. ceased, and EllisLab Corp. became the surviving company.
Pursuant to the Merger Agreement, Ellis agreed to a covenant not to compete for a period of two years following the effective date of the Merger (the “Non-Competition Period”). Ellis further agreed that during the Non-Competition Period, he will not directly or indirectly solicit or agree to service for his benefit or the benefit of any third-party, any of the Company’s, Digital Locations’, or EllisLab Corp.’s customers.
Pursuant to the Merger Agreement, during the period beginning on the effective date and ending on the 24 month anniversary thereof, Ellis will not directly or indirectly (i) offer, sell, offer to sell, contract to sell, hedge, pledge, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or sell, or otherwise transfer or dispose of, any portion of the Series C Convertible Preferred Stock, or any shares of the Company’s common stock underlying the Series C Convertible Preferred Stock, beneficially owned, within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934.
Each of the parties to the Merger Agreement made customary representations and warranties in the Merger Agreement.
On November 30, 2018, in connection with and pursuant to the Merger Agreement, the Company entered into a Nonstatutory Stock Option Agreement (the “Option Agreement”) with Derek Jones (“Jones”), whereby the Company issued to Jones an option to purchase 444,445 shares of the Common stock of the Company, at an exercise price of $1.13 (the “Option”), in exchange for his surrender of an option to purchase 10% of the shares of outstanding common stock of EllisLab, Inc. The Option vested but may not be exercised for two years from the date of the Merger. The option contains a blocker that prevents Jones from exercising the Option if such exercise would result in beneficial ownership of more than 4.99% of the outstanding shares of the Company’s stock, without at least 61 days of prior notice. Under the Option, Jones is also subject to the Rule 144 restrictions of an affiliate.
The acquisition of EllisLab, Inc. in the Merger was accounted for as a purchase, and the accounts of EllisLab Corp. are consolidated with those of the Company as of December 1, 2018. The Company engaged an independent valuation firm to estimate the value of the consideration paid by the Company in the Merger, consisting of the issuance of 36,000 shares of the Company’s $0.001 par value Series C Convertible Preferred Stock to Ellis, valued at $4,345,866, and 444,445 stock options to purchase common shares of the Company to Jones, valued at $599,998.
Based on the report of the independent valuation firm, the total value of the consideration paid of $4,945,864 was allocated as follows:
Cash
|
|
$
|
35,822
|
|
Accounts receivable
|
|
|
22,235
|
|
Property and equipment, net
|
|
|
4,271
|
|
Accounts payable
|
|
|
(74,680
|
)
|
Accrued expenses
|
|
|
(14,176
|
)
|
Deferred revenue
|
|
|
(27,037
|
)
|
Loans payable
|
|
|
(60,000
|
)
|
Net liabilities
|
|
|
(113,565
|
)
|
Intangible assets:
|
|
|
|
|
Intellectual property
|
|
|
37,000
|
|
Customer base
|
|
|
79,000
|
|
Tradename/marks
|
|
|
8,000
|
|
Non-compete agreements
|
|
|
1,000
|
|
Goodwill
|
|
|
4,934,429
|
|
|
|
|
|
|
Total
|
|
$
|
4,945,864
|
|
At December 31, 2018, the Company reviewed the goodwill recorded in the Merger and determined that an impairment expense of $4,934,429 was required.
On September 30, 2019, the Company, entered into an Agreement for the Purchase and Sale of Capital Stock of EllisLab Corp. (the “EllisLab Corp. Sale Agreement”) with Ellis to sell to Ellis all of the issued and outstanding shares of EllisLab Corp. for $10,000 and the 36,000 shares of the Company’s Series C Convertible Preferred Stock owned by him, which represents all of the issued and outstanding shares of the Series C Convertible Preferred Stock. In connection with the Sale Agreement, the covenant not to compete and the lockup of stock consideration entered into in connection with the Merger were terminated and the parties’ obligations thereunder released. Also, on September 30, 2019, the Company and Jones entered into an Option Cancellation Agreement pursuant to which the Option was cancelled. Pursuant to the Ellis Lab Corp. Sale Agreement, the Company effectively divested itself of the Ellis Lab business and discontinued it.
The Company recognized a bad debt expense of $356,851 in its statement of operations for the year ended December 31, 2019 as a result of the agreement to forgive the loans made by the Company to EllisLab Corp. for operating funds. In addition, the Company recorded a gain on disposition of subsidiary of $316,985.
Assets and liabilities reclassified as assets and liabilities from discontinued operations at December 31, 2018 consisted of the following:
ASSETS
|
|
|
|
|
|
|
|
Current assets from discontinued operations:
|
|
|
|
Cash
|
|
$
|
37,182
|
|
Accounts receivable
|
|
|
3,434
|
|
Prepaid expenses
|
|
|
3,635
|
|
|
|
|
|
|
Total current assets from discontinued operations
|
|
$
|
44,251
|
|
|
|
|
|
|
Non-current assets from discontinued operations:
|
|
|
|
|
Property and equipment, net
|
|
$
|
4,076
|
|
Intangible assets, net
|
|
|
122,917
|
|
|
|
|
|
|
Total non-current assets from discontinued operations
|
|
$
|
126,993
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current liabilities from discontinued operations:
|
|
|
|
Accounts payable
|
|
$
|
77,876
|
|
Accrued expenses
|
|
|
16,941
|
|
Deferred revenue
|
|
|
25,178
|
|
|
|
|
|
|
Total current liabilities from discontinued operations
|
|
$
|
120,535
|
|
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
12,303
|
|
|
$
|
12,303
|
|
Office furniture and equipment
|
|
|
1,459
|
|
|
|
1,459
|
|
Total
|
|
|
13,762
|
|
|
|
13,762
|
|
Less accumulated depreciation
|
|
|
(13,167
|
)
|
|
|
(12,645
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
595
|
|
|
$
|
1,117
|
|
Depreciation expense was $522 and $1,347 for the years ended December 31, 2019 and 2018, respectively.
5. CONVERTIBLE NOTES PAYABLE
Convertible Promissory Note of $29,500 in Default
On March 14, 2013, we entered into an agreement to issue a 5% convertible promissory note in the principal amount of $29,500, which is convertible into shares of our common stock at a conversion price equal to the lesser of $1.50 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note, with a principal balance of $29,500 at December 31, 2019 and 2018, matured on March 14, 2015, and is currently in default.
Convertible Promissory Notes – Related Parties of $58,600
On December 31, 2012, we issued 5% convertible promissory notes to two employees in exchange for services rendered in the aggregate amount of $58,600. The notes are convertible into shares of our common stock at a conversion price equal to the lesser of $2.00 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. We recorded a total debt discount of $57,050 related to the conversion feature of the notes, which has been fully amortized to interest expense, along with a derivative liability at inception. One of the notes with a principal balance of $25,980 at December 31, 2019, matured on December 31, 2014 and is currently in default. The maturity date of a second note with a principal balance of $32,620 at December 31, 2019 has been extended to December 31, 2020.
March 2016 Convertible Promissory Note – $1,000,000
On March 4, 2016, we entered into an agreement to issue a 10% convertible promissory note in the aggregate principal amount of up to $1,000,000 (the “March 2016 $1,000,000 CPN”). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note initially matured, with respect to each advance, one year from the effective date of each advance. Subsequently, the lender extended the maturity date, with the note payable upon demand, but in no event later than 60 months from March 4, 2016.
On March 14, 2016, we received proceeds of $27,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $27,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense. During the year ended December 31, 2018, we issued the lender a total of 8,772 shares of our common stock in consideration for the conversion of principal of $2,330 and accrued interest of $630. During the year ended December 31, 2019, we issued the lender a total of 94,313 shares of our common stock in consideration for the conversion of principal of $14,225 and accrued interest of $4,684, resulting in a principal balance of $5,445 at December 31, 2019.
On March 17, 2016, we received proceeds of $33,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense.
On April 11, 2016, we received proceeds of $90,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $90,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense.
On May 20, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense.
On June 22, 2016, we received proceeds of $50,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $50,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense.
On July 6, 2016, we received proceeds of $87,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $87,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense.
On August 8, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense.
On September 13, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense.
On October 17, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense.
On November 8, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense.
On December 6, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense.
On January 10, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $1,644 and the debt discount was fully amortized.
On February 13, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $7,233 and the debt discount was fully amortized.
On March 9, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $11,178 and the debt discount was fully amortized.
On April 12, 2017, we received proceeds of $95,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $95,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $26,548 and the debt discount was fully amortized.
On May 8, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $21,041 and the debt discount was fully amortized.
June 2017 Convertible Promissory Note – $500,000
On June 2, 2017, we entered into an agreement to issue a 10% convertible promissory note in the aggregate principal amount of up to $500,000 (the “June 2017 $500,000 CPN”). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note initially matured, with respect to each advance, one year from the effective date of each advance. Subsequently, the lender extended the maturity date, with the note payable upon demand, but in no event later than 60 months from June 2, 2017.
On June 2, 2017, we received proceeds of $60,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $25,151 and the debt discount was fully amortized.
On July 10, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $41,863 and the debt discount was fully amortized.
On August 11, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $48,877 and the debt discount was fully amortized.
On September 12, 2017, we received proceeds of $85,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $85,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $59,384 and the debt discount was fully amortized.
On October 13, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $61,603 and the debt discount was fully amortized.
On November 8, 2017, we received proceeds of $75,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $75,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $62,658 and the debt discount was fully amortized.
December 2017 Convertible Promissory Note – $500,000
On December 14, 2017, we entered into an agreement to issue a 10% convertible promissory note in the aggregate principal amount of up to $500,000 (the “December 2017 $500,000 CPN”). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note initially matured, with respect to each advance, one year from the effective date of each advance. Subsequently, the lender extended the maturity date, with the note payable upon demand, but in no event later than 60 months from December 14, 2017.
On December 14, 2017, we received proceeds of $60,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2018, amortization of debt discount was recorded to interest expense in the amount of $56,041 and the debt discount was fully amortized.
On January 11, 2018, we received proceeds of $70,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $70,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $2,110 and $67,890, respectively and the debt discount has been fully amortized.
On February 7, 2018, we received proceeds of $60,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $6,247 and $53,753, respectively and the debt discount has been fully amortized.
On March 8, 2018, we received proceeds of $55,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $10,096 and $44,904, respectively and the debt discount has been fully amortized.
On March 14, 2018, we received proceeds of $6,500 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $6,500 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $1,300 and $5,200, respectively and the debt discount has been fully amortized.
On April 9, 2018, we received proceeds of $77,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $77,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $20,885 and $56,115, respectively and the debt discount has been fully amortized.
On May 7, 2018, we received proceeds of $60,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $20,877 and $39,123, respectively and the debt discount has been fully amortized.
On June 7, 2018, we received proceeds of $52,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $52,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $22,510 and $29,490, respectively and the debt discount has been fully amortized.
On July 10, 2018, we received proceeds of $35,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $35,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $18,315 and $16,685, respectively and the debt discount has been fully amortized.
On August 16, 2018, we received proceeds of $24,500 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $24,500 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $15,304 and $9,196, respectively and the debt discount has been fully amortized.
August 2018 Convertible Promissory Note – $500,000
On August 17, 2018, we entered into an agreement to issue a 10% convertible promissory note in the aggregate principal amount of up to $500,000 (the “August 2018 $500,000 CPN”). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.01; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. Subsequently, the lender extended the maturity date, with the note payable upon demand, but in no event later than 60 months from August 17, 2018.
On August 17, 2018, we received proceeds of $10,500 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $10,500 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $6,588 and $3,912, respectively and the debt discount has been fully amortized.
On September 13, 2018, we received proceeds of $30,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $30,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $21,041 and $8,959, respectively and the debt discount has been fully amortized.
On October 8, 2018, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $19,247 and $5,753, respectively and the debt discount has been fully amortized.
On October 26, 2018, we received proceeds of $12,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $12,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $9,830 and $2,170, respectively and the debt discount has been fully amortized.
On November 5, 2018, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $21,164 and $3,836, respectively and the debt discount has been fully amortized.
On November 28, 2018, we received proceeds of $30,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $30,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $27,288 and $2,712, respectively and the debt discount has been fully amortized.
On November 30, 2018, we received proceeds of $10,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $10,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $9,151 and $849, respectively and the debt discount has been fully amortized.
On December 24, 2018, we received proceeds of $50,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $50,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $49,041 and $959, respectively and the debt discount has been fully amortized.
On January 17, 2019, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $23,836, resulting in a remaining debt discount of $1,164 as of December 31, 2019.
On February 25, 2019, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $21,164, resulting in a remaining debt discount of $3,836 as of December 31, 2019.
On March 22, 2019, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $19,399, resulting in a remaining debt discount of $5,601 as of December 31, 2019.
On March 26, 2019, we received proceeds of $15,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $15,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $11,475, resulting in a remaining debt discount of $3,525 as of December 31, 2019.
On April 11, 2019, we received proceeds of $15,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $15,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $10,820, resulting in a remaining debt discount of $4,180 as of December 31, 2019.
On April 19, 2019, we received proceeds of $65,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $65,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $45,464, resulting in a remaining debt discount of $19,536 as of December 31, 2019.
On June 28, 2019, we received proceeds of $30,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $30,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $15,246, resulting in a remaining debt discount of $14,754 as of December 31, 2019.
On July 29, 2019, we received proceeds of $40,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $40,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $16,940, resulting in a remaining debt discount of $23,060 as of December 31, 2019.
On September 27, 2019, we received proceeds of $33,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $8,566, resulting in a remaining debt discount of $24,434 as of December 31, 2019.
On October 8, 2019, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $5,738, resulting in a remaining debt discount of $19,262 as of December 31, 2019.
October 2019 Convertible Promissory Note – $500,000
On October 31, 2019, we entered into an agreement to issue a 10% convertible promissory note in the aggregate principal amount of up to $500,000 (the “October 2019 $500,000 CPN”). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.01; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note matures, with respect to each advance, one year from the effective date of each advance. On October 31, 2019, we received proceeds of $25,000 pursuant to the October 2019 $500,000 CPN.
On October 31, 2019, we received proceeds of $25,000 pursuant to the October 2019 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $4,167, resulting in a remaining debt discount of $20,833 as of December 31, 2019.
On November 12, 2019, we received proceeds of $25,000 pursuant to the October 2019 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $3,347, resulting in a remaining debt discount of $21,653 as of December 31, 2019.
On December 19, 2019, we received proceeds of $25,000 pursuant to the October 2019 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $820, resulting in a remaining debt discount of $24,180 as of December 31, 2019.
November 23, 2018 Convertible Promissory Note – $33,000
Effective November 23, 2018, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $33,000. The note matured on November 23, 2019. The Company received proceeds of $30,000 after payment of $3,000 of the fees and expenses of the lender and its counsel. The lender, at its option after 180 days from the issuance of the note, had the option to convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 39% discount from the lowest trading price during the 15 days prior to conversion. The Company had the option to prepay the note during the 180 days from the issuance of the note at redemption premiums ranging from 20% to 45%. After the expiration of 180 days after issuance, the Company had no right of prepayment. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $29,564 and $3,436, respectively and the debt discount has been fully amortized. During the year ended December 31, 2019, we issued the lender a total of 47,512 shares of our common stock in consideration for the conversion of principal of $33,000 and accrued interest of $1,650, extinguishing the note in full.
December 5, 2018 Convertible Promissory Note – $33,000
Effective December 5, 2018, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $33,000. The note matured on December 5, 2019. The Company received proceeds of $30,000 after payment of $3,000 of the fees and expenses of the lender and its counsel. The lender, at its option after 180 days from the issuance of the note, had the option to convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 39% discount from the lowest trading price during the 15 days prior to conversion. The Company had the option to prepay the note during the 180 days from the issuance of the note at redemption premiums ranging from 20% to 45%. After the expiration of 180 days after issuance, the Company had no right of prepayment. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the years ended December 31, 2019 and 2018, amortization of debt discount was recorded to interest expense in the amount of $30,649 and $2,351, respectively, and the debt discount has been fully amortized. During the year ended December 31, 2019, we issued the lender a total of 76,090 shares of our common stock in consideration for the conversion of principal of $33,000 and accrued interest of $1,650, extinguishing the note in full.
January 25, 2019 Convertible Promissory Note – $38,000
Effective January 25, 2019, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $38,000. The note matures on January 25, 2020. The Company received proceeds of $35,000 after an original issue discount of $1,500 and payment of $1,500 in legal fees. The lender, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 39% discount from the lowest trading price during the 15 days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at redemption premiums ranging from 25% to 45%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $38,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $36,585, resulting in a remaining debt discount of $1,415 as of December 31, 2019. During the year ended December 31, 2019, we issued the lender a total of 115,556 shares of our common stock in consideration for the conversion of principal of $15,622 and fees of $1,000, resulting in a principal balance of $22,378 as of December 31, 2019.
February 13, 2019 Convertible Promissory Note – $38,000
Effective February 13, 2019, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $38,000. The note was to mature on February 13, 2020. The Company received proceeds of $35,000 after payment of $3,000 of the fees and expenses of the lender and its counsel. The lender, at its option after 180 days from the issuance of the note, had the option to convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 39% discount from the lowest trading price during the 15 days prior to conversion. The Company had the option to prepay the note during the 180 days from the issuance of the note at redemption premiums ranging from 20% to 45%. After the expiration of 180 days after issuance, the Company had no right of prepayment. We recorded a debt discount of $38,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $38,000, and the debt discount has been fully amortized. During the year ended December 31, 2019, we issued the lender a total of 120,318 shares of our common stock in consideration for the conversion of principal of $38,000 and accrued interest of $1,900, extinguishing the note in full.
March 25, 2019 Convertible Promissory Note – $35,000
Effective March 25, 2019, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $35,000. The note was to mature on March 25, 2020. The Company received proceeds of $32,000 after payment of $3,000 of the fees and expenses of the lender and its counsel. The lender, at its option after 180 days from the issuance of the note, had the option to convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 39% discount from the lowest trading price during the 15 days prior to conversion. The Company had the option to prepay the note during the 180 days from the issuance of the note at redemption premiums ranging from 20% to 45%. After the expiration of 180 days after issuance, the Company had no right of prepayment. We recorded a debt discount of $35,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $35,000, and the debt discount has been fully amortized. During the year ended December 31, 2019, we issued the lender a total of 204,763 shares of our common stock in consideration for the conversion of principal of $38,000 and accrued interest of $1,900, extinguishing the note in full.
May 23, 2019 Convertible Promissory Note – $33,000
Effective May 23, 2019, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $33,000. The note matures on May 23, 2020. The Company received proceeds of $30,000 after an original issue discount of $1,750 and payment of $1,250 in legal fees. The lender, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 39% discount from the lowest trading price during the 15 days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at redemption premiums ranging from 25% to 45%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $20,016, resulting in a remaining debt discount of $12,984 as of December 31, 2019.
May 24, 2019 Convertible Promissory Note – $33,000
Effective May 24, 2019, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $33,000. The note matures on May 24, 2020. The Company received proceeds of $30,000 after payment of $3,000 of the fees and expenses of the lender and its counsel. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 39% discount from the lowest trading price during the 15 days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at redemption premiums ranging from 20% to 45%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $26,236, resulting in a remaining debt discount of $7,764 as of December 31, 2019. During the year ended December 31, 2019, we issued the lender a total of 209,718 shares of our common stock in consideration for the conversion of principal of $13,400, resulting in a principal balance of $19,600 as of December 31, 2019.
June 27, 2019 Convertible Promissory Note – $33,000
Effective June 27, 2019, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $33,000. The note matures on June 27, 2020. The Company received proceeds of $30,000 after payment of $3,000 of the fees and expenses of the lender and its counsel. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 39% discount from the lowest trading price during the 15 days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at redemption premiums ranging from 20% to 45%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $16,861, resulting in a remaining debt discount of $16,139 as of December 31, 2019.
August 13, 2019 Convertible Promissory Note – $33,000
Effective August 13, 2019, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $33,000. The note matures on August 13, 2020. The Company received proceeds of $30,000 after payment of $3,000 of the fees and expenses of the lender and its counsel. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 39% discount from the lowest trading price during the 15 days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at redemption premiums ranging from 20% to 45%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $12,623, resulting in a remaining debt discount of $20,377 as of December 31, 2019.
August 29, 2019 Convertible Promissory Note – $33,000
Effective August 29, 2019, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $25,000. The note matures on August 29, 2020. The Company received proceeds of $22,000 after an original issue discount of $1,500 and payment of $1,500 in legal fees. The lender, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 39% discount from the lowest trading price during the 15 days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at redemption premiums ranging from 25% to 45%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2019, amortization of debt discount was recorded to interest expense in the amount of $11,180, resulting in a remaining debt discount of $13,820 as of December 31, 2019.
Total accrued interest payable on notes payable was $581,610 and $342,752 as of December 31, 2019 and December 31, 2018, respectively.
6. CAPITAL STOCK
At December 31, 2019, the Company’s authorized stock consisted of 2,000,000,000 shares of common stock, with a par value of $0.001 per share. The Company is also authorized to issue 20,000,000 shares of preferred stock, with a par value of $0.001 per share. The rights, preferences and privileges of the holders of the preferred stock will be determined by the Board of Directors prior to issuance of such shares.
Series A Preferred Stock
On August 31, 2017, the Company filed a Withdrawal of Certificate of Designation for its original Series A Preferred Stock with the Secretary of State of Nevada. On September 4, 2017, the Board of Directors of the Company authorized (a) the execution and recording with the Nevada Secretary of State of a new Certificate of Designation (the “Series A Certificate”) for its new Series A Preferred Stock, authorizing up to 1,000 shares, and (b) the issuance of 1,000 shares of Series A Preferred Stock to the Company’s President and Director, William E. Beifuss, Jr., which shares were issued and outstanding at December 31, 2017.
The shares of Series A Preferred Stock have a par value of $0.001 per share. The shares of Series A Preferred Stock do not have a dividend right or rate, or liquidation preference, and are not convertible into shares of common stock.
The shares of the Series A Preferred Stock were automatically redeemed by the Company at their par value in January 2018, 120 days after the effective date of the Series A Certificate
Series B Preferred Stock
On March 2, 2016, the Company filed a Certificate of Designation for its Series B Preferred Stock (the “Series B Certificate”) with the Secretary of State of Nevada designating 30,000 shares of its authorized preferred stock as Series B Preferred Stock. The shares of Series B Preferred Stock have a par value of $0.001 per share.
The total face value of this entire series is three million dollars ($3,000,000). Each share of Series B Preferred Stock has a stated face value of One Hundred Dollars ($100) (“Share Value”) and is convertible into shares of fully paid and non-assessable shares of common stock of the Company.
As of September 30, 2019, and December 31, 2018, the Company had 16,155 shares of Series B Preferred Stock outstanding, with a face value of $1,615,500. These shares were issued in March 2016 for the redemption and cancellation of $1,615,362 of convertible promissory notes and $264,530 of accrued interest payable.
The holders of outstanding shares of the Series B Preferred Stock (the “Series B Holders”) are entitled to receive dividends pari passu with the holders of common stock, except upon a liquidation, dissolution and winding up of the Company, in which case the Series B Preferred Stock has a preference. Such dividends will be paid equally to all outstanding shares of Series B Preferred Stock and common stock, on an as-if-converted basis with respect to the Series B Preferred Stock. The Series B Holders may elect to use the most favorable conversion price for the purpose of determining the as-if-converted number of shares.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Series B Holder shall be entitled to receive, out of the assets of the Company available for distribution to its shareholders upon such liquidation, whether such assets are capital or surplus of any nature, an amount equal to one hundred dollars ($100) for each such share of the Series B Preferred Stock (as adjusted for any combinations, consolidations, stock distributions, stock splits or stock dividends with respect to such shares), plus all dividends, if any, declared and unpaid thereon as of the date of such distribution, before any payment is made or any assets distributed to the holders of common stock. After such payment, the remaining assets of the Company will be distributed to the holders of common stock.
If the assets to be distributed to the Series B Holders are insufficient to permit the receipt by such Holders of the full preferential amounts, then all of such assets will be distributed among such Holders ratably in accordance with the number of such shares then held by each such Holder.
The sale of all or substantially all of the Company’s assets, any consolidation or merger of the Company with or into any other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the Company’s voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company, is deemed to be a liquidation, dissolution or winding up.
The Series B Preferred Stock is convertible into shares of common stock.
The Series B Holder has the right, at any time, at its election, to convert all or part of the Share Value into shares of common stock. The conversion price is the lesser of (1) Fifty Percent (50%) of the lowest trade price of common stock recorded on any trade day after December 12, 2012 or (2) the lowest effective price per share granted to any person or entity, including the Series B Holder but excluding officers and directors of the Company, to acquire common stock, or adjusted, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire common stock or outstanding common stock equivalents (the “Conversion Price”).
The conversion formula is as follows: The number of shares receivable upon conversion equals the Share Value divided by the Conversion Price. A conversion notice (the “Conversion Notice”) may be delivered to Company by any method of the Series B Holder’s choice (including but not limited to email, facsimile, mail, overnight courier, or personal delivery), and all conversions will be cashless and not require further payment from the Holder. If no objection is delivered from the Company to the Series B Holder, with respect to any variable or calculation reflected in the Conversion Notice, within 24 hours of delivery of the Conversion Notice, the Company will thereafter be deemed to have irrevocably confirmed and ratified such notice of conversion and waived any objection. The Company will deliver the shares of common stock from any conversion to the Series B Holder (in any name directed by the Series B Holder) within three (3) business days of Conversion Notice delivery. If the Company is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, then upon request of the Holder and provided that the shares to be issued are eligible for transfer under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), or are effectively registered under the Securities Act, the Company will cause its transfer agent to electronically issue the Common Stock issuable upon conversion to the Holder through the DTC Direct Registration System (“DRS”). If the Company is not participating in the DTC FAST program, then the Company agrees in good faith to apply and cause the approval for participation in the DTC FAST program.
The Conversion Price is subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company’s securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events. No fractional shares of common stock shall be issuable upon the conversion of shares of the Series B Preferred Stock and the Company shall pay the cash equivalent of any fractional share upon such conversion.
If the Company fails to deliver shares in accordance with the required time frame, then for each conversion, a penalty of $1,500 per day will be assessed for each day after the third business day (inclusive of the day of the conversion) until share delivery is made. Such penalty may be converted into common stock at the Conversion Price or payable in cash, at the sole option of the Series B Holder (under the Holder’s and the Company’s expectations that any penalty amounts shall tack back to the original date of the issuance of Series B Preferred Stock, consistent with applicable securities laws).
In no event will the Series B Holder be entitled to convert any Series B Preferred Stock, such that upon conversion the sum of (1) the number of shares of common stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Series B Preferred Stock or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to these limitations), and (2) the number of shares of Common Stock issuable upon the conversion of Series B Preferred Stock, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of common stock. The limitations on conversion may be waived by the Holder upon, at the election of the Series B Holder, not less than 61 days prior notice to the Company, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Series B Holder, as may be specified in such notice of waiver).
Except as required by law, the Series B Holders are not entitled to vote, as a separate class or otherwise, on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting). Each Holder of outstanding shares of Series B Preferred Stock will be entitled, on the same basis as holders of common stock, to receive notice of such action or meeting.
So long as any shares of the Series B Preferred Stock remain outstanding, the Company will not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock voting together as one class: (a) alter or change the rights, preferences or privileges of the shares of the Series B Preferred Stock so as to affect materially and adversely such shares; or (b) create any new class of shares having preference over the Series B Preferred Stock.
The Series B Holder has the right, at its sole discretion, to elect a fixed conversion price for the Series B Preferred Stock. The Fixed Conversion Price may not be lower than the Conversion Price. The Company will not, by amendment of its Articles of Incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Series B Certificate, and will at all times carry out all the provisions of the Series B Certificate.
Series C Preferred Stock
In November 2018, the Company filed a Certificate of Designation for its Series C Preferred Stock (the “Series C Certificate”) with the Secretary of State of Nevada designating 36,000 shares of its authorized preferred stock as Series C Preferred Stock. The shares of Series C Preferred Stock have a par value of $0.001 per share. The total face value of this entire series is three million six hundred thousand dollars ($3,600,000). Each share of Series C Preferred Stock has a stated face value of One Hundred Dollars ($100) (“Share Value”) and is convertible into shares of fully paid and non-assessable shares of common stock of the Company.
As discussed in Note 3, the Company issued 36,000 shares of Series C Preferred Stock to the owner of the common stock of EllisLab, Inc. in the Merger, which shares were surrendered and cancelled on September 30, 2019 pursuant to the sale of EllisLab Corp.
The holders of outstanding shares of the Series C Preferred Stock (the “Series C Holders”) shall be entitled to receive dividends pari passu (on a pro rata basis) with the holders of Series B Preferred Stock and Common Stock, except upon a liquidation, dissolution and winding up of the Company. Such dividends shall be paid equally to all outstanding shares of Series C Preferred Stock, Series B Preferred Stock and common stock, on an as-if-converted basis with respect to the Series C Preferred Stock and Series B Preferred Stock.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Holder of each outstanding share of the Series C Preferred Stock shall be entitled to receive, on a pro rata basis with the outstanding Series B Preferred Stock, out of the assets of the Company available for distribution to its shareholders upon such liquidation, whether such assets are capital or surplus of any nature, an amount equal to one hundred dollars ($100.00) for each such share of the Series C Preferred Stock (as adjusted for any combinations. consolidations, stock distributions, stock splits or stock dividends with respect to such shares), plus all dividends, if any, declared and unpaid thereon as of the date of such distribution, before any payment shall be made or any assets distributed to the holders of common stock, and, after such payment, the remaining assets of the Company shall be distributed to the holders of common stock.
Each share of Series C Preferred Stock is convertible into twenty thousand (20,000) shares of the Company’s fully paid and nonassessable shares of common stock, as adjusted. The Series C Preferred Stock have the respective rights, privileges and designations as are set forth in the Certificate of Designations, Preferences, Rights and Limitations of Series C Preferred Stock appended hereto as Exhibit 4.1. The Series C Preferred Stock contains a blocker that prevents the Holder from converting the Series C Preferred Stock if such exercise would result in beneficial ownership of more than 4.99% of the outstanding shares of the Company’s stock, without at least 61 days of prior notice. Under the Series C Preferred Stock, the Holder is also subject to the Rule 144 restrictions of an affiliate.
Except as required by law or as specifically provided in the Certificate of Designation, the Series C Holders shall not be entitled to vote, as a separate class or otherwise, on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting); provided, however, that each Series C Holder shall be entitled, on the same basis as holders of Common Stock, to receive notice of such action or meeting.
Series D Preferred Stock
On November 27, 2019, the Company filed a Certificate of Designation for its Series D Preferred Stock (the “Series D Certificate”) with the Secretary of State of Nevada which designates 1,000 shares of the Company’s preferred stock par value $0.001 per share as Series D Preferred Stock. William E. Beifuss, Jr., the Company’s President and Chief Executive Officer, was issued 1,000 shares of Series D Preferred Stock valued at $15,000 by an independent valuation firm, which shares were outstanding as of December 31, 2019.
Pursuant to the terms of the Designation, holders of Series D Preferred Stock shall not be entitled to dividends or a liquidation preference and shall have no conversion rights. For so long as any shares of the Series D Preferred Stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have the right to vote in an amount equal to fifty-one percent (51%) of the total voting power of the Company’s shareholders. Such vote shall be determined by the holder(s) of a majority of the then issued and outstanding shares of Series D Preferred Stock.
The shares of the Series D Preferred Stock shall be automatically, and without any required action by the Company or the holders thereof, redeemed by the Company at their par value on the first to occur of the following triggering events: (i) a date forty-five (45) days as after the Effective Date, (ii) on the date that Mr. Beifuss. ceases, for any reason, to serve as officer, director or consultant of the Company, it being understood that if Mr. Beifuss continues without interruption to serve thereafter in one or more capacities as officer, director or consultant of the Company this shall not be considered a cessation of service, or (iii) on the date that the Company’s shares of common stock first trade on any national securities exchange and such listing is conditioned upon the elimination of the preferential voting rights of the Series D Preferred Stock set forth in the Certificate of Designation.
Common Stock
On April 20, 2016, the Company amended its articles of incorporation to reduce the number of authorized shares of common stock from 1,000,000,000 to 100,000,000 and to affect a one-for-ten reverse stock split of its authorized, issued and outstanding shares of common stock.
On April 29, 2016, our Board of Directors and the holder of a majority of the total issued and outstanding voting stock of the Company authorized and approved an amendment to the Company’s articles of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 2,000,000,000.
Effective February 14, 2020, the Company effected a reverse split of its common stock at a ratio of one for two hundred twenty-five shares (1:225) with the filing of a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada. The Company has given retroactive effect for the reverse stock split in its financial statements and notes thereto for all periods presented.
As of December 31, 2019 and 2018, the Company had 1,049,380 and 181,112 shares of common stock issued and outstanding, respectively.
During the year ended December 31, 2019, the Company issued a total of 868,268 shares of common stock at fair value in consideration for the conversion of $182,247 of convertible promissory notes, accrued interest payable of $11,634 and fees of $1,000. In connection with the debt conversions, the Company reduced derivative liabilities by $195,042. There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the convertible note.
During the year ended December 31, 2018, the Company the Company issued a total of 8,772 shares of common stock at fair value in consideration for the conversion of $2,330 of convertible promissory notes and accrued interest payable of $631. In connection with the debt conversion, the Company reduced derivative liabilities by $8,209. There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the convertible note.
7. STOCK OPTIONS AND WARRANTS
As of December 31, 2019, the Board of Directors of the Company had granted non-qualified stock options and warrants exercisable for a total of 184,001 shares of common stock to its officers, and consultants.
As further discussed in Note 3, on November 30, 2018 in connection with the Merger, the Company issued a ten-year option to purchase 444,445 shares of common stock of the Company, at an exercise price of $1.13. The option vested upon grant but may not be exercised for 2 years from the date of the Merger. Stock-based compensation of $599,998, measured at the grant date using a multinomial lattice model, was included in the purchase price recorded in the Merger and recorded to additional paid-in capital. This option was surrendered upon the sale of EllisLab Corp. on September 30, 2019.
On November 30, 2018, the Company also issued ten-year warrants to two consultants to purchase a total of 177,778 shares of common stock of the Company, at an exercise price of $1.13. The warrants vested upon grant but may not be exercised for two years from the date of issuance. Stock-based compensation of $188,127, measured at the grant date using a multinomial lattice model, was included in general and administrative expenses for the year ended December 31, 2018 and recorded to derivative liabilities due to the existence of a tainted equity environment.
We recognized no stock-based compensation expense for the year ended December 31, 2019.
A summary of the Company’s stock options and warrants as of December 31, 2019, and changes during the two years then ended is as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contract Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
6,290
|
|
|
$
|
42.75
|
|
|
|
|
|
|
|
Granted
|
|
|
622,223
|
|
|
$
|
1.13
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(38
|
)
|
|
$
|
3,044.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
628,475
|
|
|
$
|
1.36
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(444,474
|
)
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
184,001
|
|
|
$
|
1.544
|
|
|
|
8.65
|
|
|
$
|
0
|
|
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of our common stock of $0.0676 as of December 31, 2019, which would have been received by the holders of in-the-money options and warrants had the holders exercised their options and warrants as of that date.
8. DERIVATIVE LIABILITIES
The fair value of the Company’s derivative liabilities is estimated at the issuance date and is revalued at each subsequent reporting date. We estimate the fair value of derivative liabilities associated with our convertible notes payable, Series B preferred stock and warrants using a multinomial lattice model based on projections of various potential future outcomes. Where the number of warrants or common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional warrants and convertible debt and equity are included in the value of the derivatives.
The significant assumptions used in the valuation of the derivative liabilities at September 30, 2019 are as follows:
Conversion to stock
|
|
Monthly
|
|
Stock price on the valuation date
|
|
$
|
0.0676
|
|
Conversion price
|
|
$
|
21.38 - $0.095
|
|
Risk free interest rates
|
|
|
1.49% - 2.74
|
%
|
Years to maturity
|
|
|
15.0
|
|
Expected volatility
|
|
|
185%–363
|
%
|
The value of our derivative liabilities was estimated as follows at December 31:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
$
|
3,606,194
|
|
|
$
|
7,809,054
|
|
Series B preferred stock
|
|
|
2,535,359
|
|
|
|
2,339,898
|
|
Warrants
|
|
|
19,342
|
|
|
|
214,153
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,160,895
|
|
|
$
|
10,363,105
|
|
The calculation input assumptions are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liability will fluctuate from period to period, and the fluctuation may be material.
9. INCOME TAXES
A reconciliation of the income tax provision (benefit) that would result from applying a 2019 combined U.S. federal and state rate of 29% to loss before income taxes with the provision (benefit) for income taxes presented in the financial statements is as follows:
|
|
Years Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Income tax provision (benefit) at statutory rate
|
|
$
|
761,100
|
|
|
$
|
(2,369,000
|
)
|
State income taxes, net of federal benefit
|
|
|
(200
|
)
|
|
|
(200
|
)
|
Non-deductible expenses
|
|
|
209,900
|
|
|
|
2,123,100
|
|
Non-taxable gains
|
|
|
(1,464,700
|
)
|
|
|
-
|
|
Other
|
|
|
1,000
|
|
|
|
5,000
|
|
Valuation allowance
|
|
|
492,900
|
|
|
|
241,100
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax assets (liabilities) are comprised of the following:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
3,597,300
|
|
|
$
|
3,104,700
|
|
Research and development credit carryforward
|
|
|
125,300
|
|
|
|
125,300
|
|
Accrued compensated absences
|
|
|
1,000
|
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(3,723,600
|
)
|
|
|
(3,230,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act establishes new tax laws that affect 2018 and future years, including a reduction in the U.S. federal corporate income tax rate to 21%, effective January 1, 2018.
The ultimate realization of our deferred tax assets is dependent, in part, upon the tax laws in effect, our future earnings, and other events. As of December 31, 2019, we recorded a valuation allowance of $3,723,600 against net current deferred tax. In recording the valuation allowance, we were unable to conclude that it is more likely than not that our deferred tax assets will be realized.
As of December 31, 2019, we had a net operating loss carryforward available to offset future taxable income of approximately $12,405,000, which begins to expire at dates that have not been determined. If substantial changes in the Company’s ownership should occur, there would be an annual limitation of the amount of the net operating loss carryforward that could be utilized.
We perform a review of our material tax positions in accordance with recognition and measurement standards established by authoritative accounting literature, which requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. Based upon our review and evaluation, during the years ended December 31, 2019 and 2018, we concluded the Company had no unrecognized tax benefit that would affect its effective tax rate if recognized.
We file income tax returns in the U.S. federal jurisdiction and in the state of California. With few exceptions, we are no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years before 2011.
We classify any interest and penalties arising from the underpayment of income taxes in our statements of operations and comprehensive loss in other income (expense). As of December 31, 2019 and 2018, we had no accrued interest or penalties related to uncertain tax positions.
10. RELATED PARTY TRANSACTIONS
Pursuant to a written consulting agreement, dated May 31, 2013 and amended effective November 1, 2016, William E. Beifuss, Jr., our current President, Chief Executive Officer and Acting Chief Financial Officer, received fees for services totaling $110,000 and $120,000 for the years ended December 31, 2019 and 2018, respectively. Fees payable to Mr. Beifuss of $10,000 are included in accounts payable as of December 31, 2019.
Effective December 1, 2018, Rick Ellis, the former Chief Executive Officer of the Company and Chief Executive Officer of EllisLab Corp., received a monthly salary of $10,000, or $90,000 and $10,000 for the years ended December 31, 2019 and 2018, respectively. Effective with the EllisLab Corp. Sale Agreement which closed on September 30, 2019, Mr. Ellis resigned as the Company’s Chief Executive Officer and the monthly salary was terminated.
As discussed in Note 3, the Company issued 36,000 shares of Series C Preferred Stock to Rick Ellis, in the EllisLab Corp. Merger, which shares were surrendered and cancelled on September 30, 2019 pursuant to the EllisLab Corp. Sale Agreement.
As discussed in Note 6, in November 2019, the Company issued to Mr. Beifuss 1,000 shares of Series D Preferred Stock for services valued at $15,000 by an independent valuation firm.
See Note 6 for a discussion regarding the issuance in August 2017 of 1,000 shares of Series A Preferred Stock to Mr. Beifuss for services rendered. The shares were automatically redeemed 120 days after the effective date of the related Series A Certificate.
See Note 5 for discussion of convertible notes payable with related parties.
11. COMMITMENTS AND CONTINGENCIES
Operating Lease
On September 5, 2017, we entered into an operating sublease for office space. The base rent for the sublease is $1,000 per month for a period of one year and month-to-month thereafter. Management has assumed a three-year life for the sublease arrangement. On January 1, 2019, we adopted ASC 842, “Leases,” which resulted in the recognition of an operating lease liability and corresponding right-of use asset (“ROU”) in the amount of $18,352.
As of December 31, 2019, the operating lease liability and ROU asset had a balance of $7,708. The operating lease liability was recorded as a current liability as of December 31 2019.
For the years ended December 31, 2019 and 2018, the Company recognized operating lease cost of $12,000,
The table below reconciles the Company’s future cash obligations for the operating lease liability recorded on the consolidated balance sheet as December 31, 2019:
2020
|
|
$
|
8,000
|
|
Total minimum lease payments
|
|
|
8,000
|
|
Less amount representing interest
|
|
|
(292
|
)
|
|
|
|
|
|
Present value of operating lease obligation
|
|
$
|
7,708
|
|
Consulting Agreement
We have a written consulting agreement, dated May 31, 2013 and amended effective November 1, 2016, with William E. Beifuss, Jr., our President, Chief Executive Officer, and Acting Chief Financial Officer, for the payment of monthly compensation of $10,000 per month. The agreement may be cancelled by either party with 30 days’ notice.
12. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:
Reverse Stock Split
Effective February 14, 2020, the Company effected a reverse split of its common stock at a ratio of one for two hundred twenty-five shares (1:225) with the filing of a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada. Outstanding common shares were increased by 2,605 shares for rounding of shares in the reverse split.
Redemption of Series D Preferred Stock
The 1,000 shares of Series D preferred stock issued to the Company’s President and Chief Executive Officer on November 27, 2019 were automatically redeemed on January 11, 2020, 45 days after the effective date of the Series D Certificate.
Convertible Note Conversions
Subsequent to December 31, 2019, two lenders converted a total of $8,600 principal and $1,589 accrued interest payable into 1,645,256 shares of the Company’s common stock.
Series B Preferred Shares Conversion
Effective February 26, 2020, William Beifuss, Jr., the Company’s President, converted 1,100 shares of Series B preferred stock into 9,777,778 shares of the Company’s common stock. Mr. Beifuss previously acquired the Series B shares from a lender in a private transaction.
Subsequent Borrowing
Effective March 16, 2020, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $38,000. The note matures March 16, 2021. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment.
Extension of Maturity Dates of Convertible Promissory Note
Subsequent to December 31, 2019, the maturity date of a note payable issued for services with a principal balance of $32,620 at December 31, 2019 was extended from December 31, 2019 to December 31, 2020.