NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - NATURE OF THE ORGANIZATION AND BASIS OF
PRESENTATION
XSport
Global, Inc. and Subsidiary (the “Company”,
“XSport” “us,” “our” or
“we”), formerly known as TeleHealthCare, Inc.
(“TeleHealthCare”), was incorporated under the laws of
the State of Wyoming on December 10, 2012. Prior to the reverse
merger described below, TeleHealthCare developed platforms in the
telehealth industry.
On
September 11, 2017, TeleHealthCare executed an Agreement and Plan
of Merger (the “Merger Agreement”) with XSport Global,
Inc., a North Carolina corporation, and HT Acquisition Corp., a
Wyoming corporation and wholly-owned subsidiary of XSport Global,
Inc. (the “Acquisition”) whereby the Acquisition was
merged with and into the Company (the “Merger”) in
consideration for 52,500,000 newly-issued shares of Common Stock of
the Company (the “Merger Shares”) (17,500,000 shares
post-reverse split). As a result of the Merger, XSport became a
wholly-owned subsidiary of TeleHealthCare, and following the
consummation of the Merger and giving effect to the retirement of
approximately 15,666,666 shares (leaving approximately 7,957,666
post-split shares remaining prior to the Merger), and the sale of
approximately 3,451,322 post-split shares at the Merger to
accredited investors, the stockholders of XSport became beneficial
owners of approximately 61% of our issued and outstanding common
stock. Certain assets and liabilities of the original
TeleHealthCare were then spun off, including assets and liabilities
associated with CarePanda, with the Company assuming approximately
$195,000 of remaining liabilities and changing the name of the
newly merged company to XSport Global, Inc.
As a
result of the Merger, the 17,325,000 post-split newly-issued shares
were issued to the pre-existing XSport shareholders for all of the
outstanding capital stock of XSport. XSport assumed net liabilities
totaling $194,632, with the remaining assets and liabilities
assumed by MD Capital Advisors, Inc., a Company owned by
TeleHealthCare’s former CEO, in a split-off agreement. For
accounting purposes, XSport was deemed to be the accounting
acquirer in the transaction and, consequently, the transaction was
treated as a recapitalization of the Company. Accordingly,
XSport’s assets, liabilities and results of operations became
the historical consolidated financial statements of the Company and
the Company’s assets, liabilities and results of operations
was consolidated with XSport effective as of the date of the
Merger. No step-up in basis or intangible assets or goodwill was
recorded in this transaction.
On
August 28, 2017, our Board of Directors approved a reverse stock
split of our issued and authorized shares of common on the basis of
three (3) shares for one (1) new share. Our shareholders approved
the reverse split through a special meeting held on November 2,
2017. FINRA effected the reverse stock split in July 2018. Our
authorized common stock remained unchanged with 500,000,000 shares
of common stock. No fractional shares were issued in connection
with the reverse stock split. Additionally, the Board of Directors
and shareholders approved the authorization of 10,000,0000 shares
of blank check preferred stock with a par value of $0.001 per
share. All share or per share information included in these
consolidated financial statements gives effect to the reverse
split.
On
March 22, 2018, the Board of Directors and Majority Shareholders
approved an amendment to our Articles of Incorporation to change
our name to XSport Global, Inc.
As a
result of the Merger with XSport Global, our business plan has
shifted to mobile applications for athletes of all ages and all
skill levels, designed to engage and improve cognitive abilities.
We are focused on developing a unique, industry-leading iOS and
Android cognitive training mobile device application platform
called XSport Global that we believe is differentiated from other
players in the cognitive training space with a primary focus on the
youth sports markets.
XSport Global, Inc.
HeadTrainer, Inc.
was incorporated in the state of North Carolina on May 13, 2014. It
subsequently changed its original name of Head Trainer, Inc. to
HeadTrainer, Inc, then subsequently to XSport Global,
Inc.
XSport
Global (formerly known as HeadTrainer, Inc.) was established to
create, develop, promote, market, produce, and distribute
online/mobile application cognitive training tools initially
intended for the youth, millennial and adult sports markets. The
Corporation initially intends to outsource product manufacturing,
distribution and the majority of its marketing efforts. The
Corporation may work in conjunction with other organizations that
provide computer programming, graphic design, and marketing
expertise, and/or accomplish these same tasks
in-house.
Shift Now Acquisition
On
August 28, 2018, the Company entered into a stock purchase
agreement (the “Agreement”) whereby the Company agreed
to acquire all of the outstanding capital stock of Shift Now, Inc.,
a North Carolina corporation (“Shift Now”). The
purchase price consisted of 700,000 shares of our common stock, par
value $0.001 per share, with a value of $0.075 per share totaling
$52,500, (of which 250,000 shares are contingent on meeting future
performance targets) and two convertible promissory notes for
$30,000.
Also,
on August 28, 2018, the Company entered into an employment
agreement (the “Employment Agreement”) with Kristi
Griggs, the former principal shareholder of Shift Now (the
“Employee”) to serve as Executive Vice President of the
Company’s Shift Now Division (See note 7). Additionally, as
additional consideration, the Company shall issue the Employee
150,000 shares of Common Stock at the 12-month anniversary of
execution of the Employment Agreement. These shares have not yet
been issued. Employee shall receive an additional 150,000 shares of
Common Stock upon the 24-month anniversary of the Employment
Agreement.
Shift
Now is a full-service strategic, creative and digital marketing
agency.
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements
of the Company have been prepared in accordance with generally
accepted accounting principles (“GAAP”) for interim
financial statements, instructions to Form 10-Q and Regulation S-X.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with GAAP
have been condensed or omitted. These unaudited condensed
consolidated financial statements should be read in conjunction
with the financial statements and notes thereto included in our
annual report on Form 10-K for the year ended September 30, 2018.
In management's opinion, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation
to make our financial statements not misleading have been included.
The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full
year, or any other period.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The
Company’s unaudited consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”). The Company has
a September 30 year-end.
Basis of Consolidation
The
consolidated financial statements include the accounts of XSport
Global, Inc. and its wholly-owned subsidiaries HeadTrainer, Inc.
and Shift Now, Inc. All significant intercompany transactions have
been eliminated in consolidation.
Business Segments
The
Company has two business segments. XSport Global is focused on the
development and sale software applications through subscriptions to
end users. Shift Now provides marketing services to
businesses.
Use of Estimates
The
preparation of unaudited consolidated financial statements in
accordance with United States GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the unaudited condensed
consolidated financial statements and the reported amounts of
revenue and expenses in the reporting period. The Company regularly
evaluates estimates and assumptions related to useful life and
recoverability of long-lived assets, valuation of shares for
services and assets, deferred income tax asset valuations and loss
contingencies. The Company bases its estimates and assumptions on
current facts, historical experience and various other factors that
it believes to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and
expenses that are not readily apparent from other sources. The
actual results experienced by the Company may differ materially and
adversely from the Company’s estimates. To the extent there
are material differences between the estimates and the actual
results, future results of operations will be
affected.
Cash
For
purposes of the statement of cash flows, the Company considers all
highly liquid instruments with maturity of three months or less at
the time of issuance to be cash equivalents. There is no restricted
cash or cash equivalents.
Revenue Recognition
The
Company recognizes revenue in accordance with ASC 606
“Revenue from Contracts with Customers”. The standard
outlines a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers and
supersedes most current revenue recognition guidance, including
industry-specific guidance. In applying the revenue recognition
model to contracts with customers, an entity: (1) identifies the
contract(s) with a customer; (2) identifies the performance
obligations in the contract(s); (3) determines the transaction
price; (4) allocates the transaction price to the performance
obligations in the contract(s); and (5) recognizes revenue when (or
as) the entity satisfies a performance obligation.
XSport
XSport
recognizes revenue from the sale of its software application
thorough subscriptions received from end users. XSport had no
revenues from its application during the three and nine months
ended June 30, 2019 and 2018.
Shift Now
Shift
Now recognizes service revenue when the service is completed under
ASC Topic 606. The Company records project revenue and expenses as
net revenue for projects where the Company receives payments from
customers and has limited credit risk (acts as an agent versus
principal).
Accounts Receivable
Accounts receivable
are reported at their outstanding unpaid principal balances net of
allowances for uncollectible accounts. The Company provides for
allowances for uncollectible receivables based on
management’s estimate of uncollectible amounts considering
age, collection history, and any other factors considered
appropriate. The Company writes off accounts receivable against the
allowance for doubtful accounts when a balance is determined to be
uncollectible. As of June 30, 2019 and September 30, 2018, the
Company’s allowance for doubtful accounts was $10,000 and
$10,000, respectively.
Property and Equipment
Property and
equipment consists of computer equipment, and furniture and
fixtures, and is recorded at cost, less accumulated depreciation.
Property and equipment is depreciated on a straight-line basis over
its estimated life of three to seven years. We assess the
impairment of long-lived assets on an ongoing basis and whenever
events or changes in circumstances indicate that the carrying value
may not be recoverable. Our impairment review process is based upon
an estimate of future undiscounted cash flows. Factors we consider
that could trigger an impairment review include significant
underperformance relative to expected historical or projected
future operating results and significant negative industry or
economic trends. Based on our analysis, there have been no
impairment charges recorded during the nine months ended June 30,
2019 and 2018.
Intangible Assets
The
Company periodically reviews the carrying value of intangible
assets to determine whether impairment may exist. Intangible assets
are assessed annually, or when certain triggering events occur, for
impairment using fair value measurement techniques. These events
could include a significant change in the business climate, legal
factors, a decline in operating performance, competition, sale or
disposition of a significant portion of the business, or other
factors. Specifically, an impairment test is used to identify
potential impairment by comparing the fair value of a reporting
unit with its carrying amount. The Company uses level 3 inputs and
a discounted cash flow methodology, along to estimate the fair
value of a reporting unit. A discounted cash flow analysis requires
one to make various judgmental assumptions including assumptions
about future cash flows, growth rates, and discount rates. The
assumptions about future cash flows and growth rates are based on
the Company’s budget and long-term plans. Discount rate
assumptions are based on an assessment of the risk inherent in the
respective reporting units.
Convertible Notes Payable and Derivative Liability
The
Company had convertible notes outstanding at June 30, 2019 with
default payment provisions (default provisions that required
payment ranging from 150% to 200% of the outstanding principal
amount plus accrued interest). The Company determined that the
default provision is an embedded component that qualifies as a
derivative which should be bifurcated from the convertible notes
and separately accounted for in accordance with FASB ASC 815,
“Derivatives and Hedging”. ASC 815
–15–25–42 establishes criteria to determine
whether puts are closely and clearly related to a debt host should
the debt contain a substantial premium or default provision (one
that is greater than 10% of the principal resulting from puts that
require payoff for more than 110% of principal amount outstanding).
The embedded derivative is recorded at fair value on the date of
issuance and marked-to-market at each balance sheet date with the
change in the fair value recorded as income or expense in the
statement of operations.”
Income Taxes
The
Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes and
for operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply in the years in which these temporary differences
are expected to be recovered or settled. A valuation allowance is
established to reduce net deferred tax assets to the amount
expected to be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of
operations in the period that includes the enactment date. The
Company recognizes the effect of income tax positions only if those
positions are more likely than not of being sustained. Recognized
income tax positions are measured at the largest amount that is
greater than 50% likely of being recognized. Changes in recognition
and measurement are reflected in the period in which the change in
judgment occurs. Interest and penalties related to unrecognized tax
benefits are included in income tax expense.
The Tax
Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The
Act reduces the US federal corporate tax rate from 35% to 21% and
required the Company to re-measure certain deferred tax assets and
liabilities based on the rates at which they are anticipated to
reverse in the future, which is generally 21%. The Company has
reflected the aspects of the Act as it relates our calculations as
of September 30, 2018.
Fair value
Financial
instruments consist principally of cash, accounts receivable,
accounts payable and accrued liabilities, line of credit, notes
payable, convertible notes payable, and derivative liability.
Except for the derivative liability (see table below), the recorded
values of all financial instruments approximate their current fair
values because of their nature and respective relatively short
maturity dates or durations.
The
Company measures and discloses the estimated fair value of
financial assets and liabilities using the fair value hierarchy
prescribed by US GAAP. The fair value hierarchy has three levels,
which are based on reliable available inputs of observable data.
The hierarchy requires the use of observable market data when
available. The three-level hierarchy is defined as
follows:
●
Level 1 - Valuation
is based upon unadjusted quoted market prices for identical assets
or liabilities in accessible active markets.
●
Level 2 - Valuation
is based upon quoted prices for similar assets or liabilities in
active markets; quoted prices for identical or similar assets or
liabilities in inactive markets; or valuations based on models
where the significant inputs are observable in the
market.
●
Level 3 - Valuation
is based on models where significant inputs are not observable. The
unobservable inputs reflect a company’s own assumptions about
the inputs that market participants would use.
Fair
value estimates are made at a specific point in time, based on
relevant market information and information about the financial
statement. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Our
derivative liabilities have been valued as Level 3
instruments.
|
|
|
|
|
|
|
Fair value of
convertible note derivative liability – June 30,
2019
|
$–
|
$–
|
$290,472
|
$290,472
|
The
fair value of the derivative liability was based on the default
provisions of the convertible notes. The Company recorded
derivative liabilities of $290,472 related to our convertible notes
during the nine months ended June 30, 2019.
Research and development expenses
Research and
development expenses are expensed as incurred and are primarily
comprised of product development.
Warrants
The
Company has issued warrants in connection with financing
arrangements. Warrants that do not qualify to be recorded as
permanent equity are recorded as liabilities at their fair value
using the Black- Scholes option pricing model. The relative fair
value of the warrants, using the Black-Scholes model, is recorded
in additional paid-in capital and as a debt discount. For warrants
issued for services, the relative fair value is recorded in
additional paid-in capital and stock-based compensation. For
warrants with down round provisions, a deemed dividend is recorded
for the change in fair value of the warrants when the down round
provision is triggered.
Share-based Compensation
The
Company measures the cost of awards of equity instruments based on
the grant date fair value of the awards. That cost is recognized on
a straight-line basis over the period during which the employee is
required to provide service in exchange for the entire award. The
fair value of stock options on the date of grant is calculated
using the Black-Scholes option pricing model, based on key
assumptions such as the fair value of common stock, expected
volatility and expected term. The Company’s estimates of
these important assumptions are primarily based on third-party
valuations, historical data, peer company data and the judgment of
management regarding future trends and other factors.
Equity Instruments Issued for Services
Issuances of the
Company’s common stock for services is measured at the fair
value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable. The
measurement date for the fair value of the equity instruments
issued to employees and board members is determined at the earlier
of (i) the date at which a commitment for performance to earn the
equity instruments is reached (a “performance
commitment” which would include a penalty considered to be of
a magnitude that is a sufficiently large disincentive for
nonperformance) or (ii) the date at which performance is complete.
When it is appropriate for the Company to recognize the cost of a
transaction during financial reporting periods prior to the
measurement date, for purposes of recognition of costs during those
periods, the equity instrument is measured at the then-current fair
values at each of those financial reporting dates. Based on the
applicable guidance, the Company records the compensation cost but
treats forfeitable unvested shares as unissued until the shares
vest.
Advertising Costs
The
Company expenses the costs of advertising when the advertisements
are first aired or displayed. All other advertising and promotional
costs are expensed in the period incurred. Total advertising
expense for the period ended June 30, 2019 and 2018 was $0 and $0,
respectively. The Company’s mobile device application was
inactive and not sold during the three and nine months ended June
30, 2019 and 2018.
Earnings (Loss) Per Share (“EPS”)
Basic
EPS is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding. Diluted EPS
includes the effect from potential issuance of common stock, such
as stock issuable pursuant to the exercise of stock options and
warrants and the assumed conversion of convertible
notes.
The
following table summarizes the securities that were excluded from
the diluted per share calculation because the effect of including
these potential shares was antidilutive even though the exercise
price could be less than the average market price of the common
shares:
|
|
Three and Nine Months Ended
June
30,
|
|
|
|
|
|
|
|
|
|
Convertible
notes
|
53,446,854
|
4,298,984
|
|
Warrants
|
5,503,930
|
1,263,989
|
|
Potentially
dilutive securities
|
58,950,784
|
5,562,973
|
Recent Accounting Pronouncements
On May
10, 2017, the Financial Accounting Standards Board
(“FASB”) issued an Accounting Standards Update
(“ASU”) 2017-09 “Compensation—Stock
Compensation (Topic 718): Scope of Modification Accounting”,
which provides guidance to clarify when to account for a change to
the terms or conditions of a share-based payment award as a
modification. Under the new guidance, modification accounting is
required only if the fair value, the vesting conditions, or the
classification of the award (as equity or liability) changes as a
result of the change in terms or conditions. The guidance is
effective prospectively for all companies for annual periods
beginning on or after December 15, 2017. Early adoption is
permitted. The Company determined that the adoption of this ASU had
no material impact on its financial position or results of
operations.
In
March 2016, the FASB issued ASU 2016-09, Compensation - Stock
Compensation (Topic 718): Improvement to Employee Share-Based
Payment Accounting. The new standard contains several amendments
that will simplify the accounting for employee share-based payment
transactions, including the accounting for income taxes,
forfeitures, statutory tax withholding requirements, classification
of awards as either equity or liabilities, and classification on
the statement of cash flows. The changes in the new standard
eliminate the accounting for excess tax benefits to be recognized
in additional paid-in capital and tax deficiencies recognized
either in the income tax provision or in additional paid-in
capital. The ASU is effective for annual reporting periods
beginning after December 15, 2017, and interim periods within
annual reporting periods beginning after December 15, 2018. The
Company determined that the adoption of this ASU had no material
impact on its financial position or results of
operations.
In
February 2016, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic
842)." ASU 2016-02 requires that a lessee recognize the assets and
liabilities that arise from operating leases. A lessee should
recognize in the statement of financial position a liability to
make lease payments (the lease liability) and a right-of-use asset
representing its right to use the underlying asset for the lease
term. For leases with a term of 12 months or less, a lessee is
permitted to make an accounting policy election by class of
underlying asset not to recognize lease assets and lease
liabilities. In transition, lessees and lessors are required to
recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. This
amendment will be effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal
years. The FASB issued ASU No. 2018-10 “Codification
Improvements to Topic 842, Leases” and ASU No. 2018-11
“Leases (Topic 842) Targeted Improvements" in July 2018, and
ASU No. 2018-20 "Leases (Topic 842) - Narrow Scope Improvements for
Lessors" in December 2018. ASU 2018-10 and ASU 2018-20 provide
certain amendments that affect narrow aspects of the guidance
issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU
2016-02 to choose an additional (and optional) transition method of
adoption, under which an entity initially applies the new leases
standard at the adoption date and recognizes a cumulative-effect
adjustment to the opening balance of retained earnings in the
period of adoption. The Company will adopt this guidance beginning
with its first quarter ended December 31, 2019. Management does not
expect to have a material impact upon adoption.
The
Company has implemented all new accounting pronouncements that are
in effect and that may impact its unaudited condensed consolidated
financial statements and does not believe that there are any other
new accounting pronouncements that have been issued that might have
a material impact on its financial position or results of
operations.
NOTE 3 - LIQUIDITY, UNCERTAINTIES AND GOING CONCERN
The
Company is subject to a number of risks similar to those of early
stage companies, including dependence on key individuals, the
difficulties inherent in the development of a commercial market,
the potential need to obtain additional capital necessary to fund
the development of its products, and competition from larger
companies.
These
unaudited condensed consolidated financial statements have been
prepared on a going concern basis which assumes the Company will be
able to realize its assets and discharge its liabilities in the
normal course of business for the foreseeable future. The Company
has a working capital deficiency of approximately $3.6 million, has
incurred a loss since inception resulting in an accumulated deficit
of approximately $13.0 million as of June 30, 2019, and further
losses are anticipated in the development of its business raising
substantial doubt about the Company's ability to continue as a
going concern. The ability to continue as a going concern is
dependent upon the Company generating profitable operations in the
future and/or obtaining the necessary financing to meet its
obligations and repay its liabilities arising from normal business
operations when they come due. Management intends to finance
operating costs over the next twelve months from the date of the
issuance of these unaudited condensed consolidated financial
statements with existing cash on hand and loans from directors
and/or the private placement of common stock. There is, however, no
assurance that the Company will be able to raise any additional
capital through any type of offering on terms acceptable to the
Company and cash on hand will not be sufficient for the next twelve
months from the issuance of these financial
statements.
NOTE 4 – PROPERTY AND EQUIPMENT, NET
The
Company’s property and equipment, net consists of the
following:
|
|
|
|
|
|
|
|
|
Computer
equipment
|
$18,099
|
$14,302
|
|
Autos
|
37,308
|
37,308
|
|
|
55,407
|
51,610
|
|
Less: accumulated
depreciation
|
(21,221)
|
(8,738)
|
|
|
$34,186
|
$42,872
|
Depreciation
expense was $12,483 and $1,170 for the nine months ended June 30,
2019 and 2018, respectively.
NOTE 5 – INTANGIBLE ASSETS, NET
The
Company’s intangible assets, net consist of the
following:
|
|
|
|
|
|
|
|
|
Trade name and
trademarks
|
$10,000
|
$10,000
|
|
Customer
base
|
119,924
|
119,924
|
|
|
129,924
|
129,924
|
|
Less: accumulated
amortization
|
(12,770)
|
(1,277)
|
|
|
$117,154
|
$128,647
|
The
intangible assets have an estimated useful life ranging from 5 to 9
years.
Total
amortization expense related to the intangible assets during the
nine months ended June 30, 2019 was $11,493, resulting in an
unamortized balance of $117,154 as of June 30, 2019.
NOTE 6 – ACQUISITION
Shift Now, Inc.
On
August 28, 2018, the Company entered into a stock purchase
agreement to acquire all of the outstanding capital stock of Shift
Now for a total purchase price of $82,500. The purchase price
included 700,000 shares of our common stock with a value of $52,500
and a convertible promissory note for $30,000. 250,000 shares of
the 700,000 shares are contingent on future performance
targets.
The
total purchase price for Shift Now was allocated as
follows:
|
Intangible
assets
|
$129,924
|
|
Cash
|
123,625
|
|
Current
assets
|
306,125
|
|
Note receivable
– related party
|
3,183
|
|
Property and
equipment
|
44,259
|
|
Line of
credit
|
(98,310)
|
|
Note
payable
|
(30,000)
|
|
Current
liabilities
|
(396,306)
|
|
Total net assets
acquired
|
$82,500
|
|
The purchase price
consists of the following:
|
|
|
Convertible
notes payable – related party
|
$30,000
|
|
Common
Stock
|
52,500
|
|
Total purchase
price
|
$82,500
|
Amortization of the
intangible assets are deductible for tax purposes.
Intangible assets
consist of customer base totaling $119,924 and trade name and
trademarks totaling $10,000, with an estimated remaining useful
life of 9 years and 5 years, respectively.
Proforma Information
The
accompanying unaudited condensed consolidated financial statements
include the results of operations of Shift Now for the nine months
ended June 30, 2019, of which Shift Now contributed approximately
$1,814,000 of revenue and a net loss of approximately
$96,000.
The
following unaudited pro forma information presents the unaudited
condensed consolidated results of the Company’s operations
and the results of the acquisition of Shift Now had it been
consummated on October 1, 2017. Such unaudited pro forma
information is based on historical unaudited financial information
with respect to the Shift Now acquisition and does not include
operational or other charges which might have been affected by the
Company, including any pro forma adjustments for amortization of
intangible assets which approximates $1,277 per month. The
unaudited pro forma information for the nine months ended June 30,
2018 presented below is for illustrative purposes only and is not
necessarily indicative of the results which would have been
achieved or results which may be achieved in the
future:
|
|
Three
Months
Ended
June
30,
|
Nine
Months
Ended
June
30,
|
|
|
|
|
|
Net
revenue
|
$517,594
|
$2,028,095
|
|
Cost of
revenues
|
288,165
|
1,586,598
|
|
Operating
expenses
|
621,560
|
1,655,949
|
|
Net
loss
|
$(401,326)
|
$(941,166)
|
|
Net loss per share
– basic and diluted
|
$(0.01)
|
$(0.03)
|
NOTE 7- RELATED PARTIES
In June
2014, the Company entered into an agreement with HIP, LLC
(“HIP”), a company owned by the Company’s former
Chairman, Mr. Maurice Durschlag. Per the agreement, in exchange for
the intellectual property consisting of certain patents and
trademarks, the Company is to pay HIP periodic royalty payments
equal to 1.75% of the revenue derived from the sale of any product
incorporating the intellectual property. There was no material
revenue from these products since the Company’s inception.
This agreement was voided on November 30, 2018.
On July
24, 2015, the Company entered into a separation agreement and
release of liability (the ‘Separation Agreement”) with
the Company’s former Chief Executive Officer (the
“former CEO”) whereby the Company agreed to pay the
former CEO a severance payment of $150,000, plus repay a $50,000
unsecured promissory note, on or before December 31, 2017, or
within 10 days of the Company receiving $700,000 in cash proceeds
from the issuance of debt or equity securities. Additionally, the
Company agreed to pay the former CEO a royalty of 0.5% of the
Company’s gross revenue recognized from June 15, 2015 through
January 25, 2018 payable on a quarterly basis. There were no
material revenues during this period. The former CEO had initiated
legal action against the Company and it received a judgement to
collect the unpaid severance payment, promissory note, and
royalties. On June 22, 2018, the Company paid $41,909 to the former
CEO towards these amounts due, and an additional $25,000, $12,500
and $1,500 in January 2019, $1,500 in February 2019, and $1,500 in
March 2019. On June 17, 2019, the Company entered into a Settlement
Agreement and Release of All Claims, whereby the Company agreed to
settle all outstanding amounts due, including the severance payment
of $150,000 and accrued interest on the unsecured promissory note
of $7,635, for $60,000 and 2,651,311 shares of common stock,
resulting in a loss on settlement of $18,968 for the three and nine
months ended June 30, 2019. No liability remains related to this
settlement as of June 30, 2019.
On
February 1, 2015, the Company entered into an Employment Agreement
with one of the Company’s founders, Mr. Maurice Durschlag, to
serve as Chairman of the Board of Directors (the “Former
Chairman and current Director and CMO”). As of June 30, 2019
and September 30, 2018, a total of $27,750, remains accrued for
this agreement and is included in accrued compensation to related
parties on the accompanying balance sheet.
On
September 15, 2017, we entered into an amended employment agreement
with Mr. Maurice Durschlag as our CMO. Under the terms of the
employment agreement, Mr. Durschlag is considered an “At
Will” employee and shall receive annual compensation of
$120,000 per year. As of June 30, 2019 and September 30, 2018, a
total of $107,601 and $87,750 respectively, remains accrued for
this agreement and is included in accrued compensation to related
parties on the accompanying balance sheet. On September 1, 2018,
the Board of Directors approved a resolution to increase the annual
compensation under this agreement to $180,000 per year, allow an
annual bonus of in the form of stock up to 1% of the total number
of shares issued by the Company on last day of each calendar year,
extend the term of the agreement through December 31, 2020, modify
the stock compensation to 500,000 shares earned in increments of
125,000 per quarter commencing October 1, 2018, and modify the
purchase price for the optional deferment of salary from $0.0227 to
$0.0681 due the 3 for 1 reverse stock split. During the nine months
ended June 30, 2019, the Company issued at total of 881,056 shares
of the Company’s common stock with a value of $63,975 in
payment for unpaid salary under the agreement.
On
September 15, 2017, we entered into an amended employment agreement
with Mr. Robert Finigan as our former Chairman and CEO. Under the
terms of the employment agreement, Mr. Finigan is considered an
“At Will” employee and shall receive annual
compensation of $150,000 per year and be immediately vested in the
Company’s health and benefits package. Mr. Finigan was also
granted 1,000,000 shares of the Company’s common stock
(333,333 post-reverse stock split), with a fair value of $22,700,
that vests as to 41,667 shares on each of October 1, 2017, January
1, 2018, April 1, 2018, July 1, 2018, October 1, 2018, January 1,
2019, April 1, 2019 and July 1, 2019. Mr. Finigan also may defer up
to 50% of his annual salary to purchase an equivalent number of
shares in the Company based upon a purchase price of $0.0227 per
share. Mr. Finigan is also entitled to reimbursement of business
expenses and customary provisions for vacation, sick time and
holidays. Determinations with regard to bonus or option grants are
made by the Board of Directors. As of June 30, 2019 and September
30, 2018, a total of $53,075 and $42,327, respectively, remains
accrued for this agreement and is included in accrued compensation
to related parties on the accompanying balance sheet. In June 2018,
the Company granted Mr. Finigan 1,263,989 shares and 871,880 shares
of common stock for unpaid wages as Chairman and CEO, as well as
241,667 shares for incentives and director services. On September
1, 2018, the Board of Directors approved a resolution to increase
the annual compensation under this agreement to $200,000 per year,
allow an annual bonus of in the form of stock up to 1% of the total
number of shares issued by the Company on last day of each calendar
year, extend the term of the agreement through December 31, 2020,
modify the stock compensation to 500,000 shares earned in
increments of 125,000 per quarter commencing October 1, 2018, and
modify the purchase price for the optional deferment of salary from
$0.0227 to $0.0681 due the 3 for 1 reverse stock split. During the
nine months ended June 30, 2019, the Company issued a total of
1,002,303 shares of the Company’s common stock with a value
of $72,836 in payment for unpaid salary under the agreement. On May
16, 2019, Robert Finigan resigned as Chief Executive Officer
(Principal Executive Officer), Principal Financial Officer and as
Chairman of the Board of Directors of the Company.
On
August 28, 2018, the Company entered into an employment agreement
(the “Employment Agreement”) with Kristi Griggs, the
former principal shareholder of Shift Now (the
“Employee”) to serve as Executive Vice President of the
Company’s Shift Now Division. The Employment Agreement
provides that upon consummation of the Merger, Employee shall be
entitled to receive a salary of $100,000 per year plus a bonus of
5% of net revenue of clients managed by Employee or 1.5% of total
gross revenues of Shift Now to be paid on the last pay period of
the month for the prior month’s activity. Additionally, as
additional consideration, the Company shall issue the Employee
150,000 shares of Common Stock at the 12-month anniversary of
execution of the Employment Agreement. These shares have not yet
been issued. Employee shall receive an additional 150,000 shares of
Common Stock upon the 24-month anniversary of the Employment
Agreement. The Employee may receive severance of the greater of six
months’ salary or $50,000 upon termination of the Employment
Agreement and shall be entitled to retain all equity ownership
earned as of the date of termination.
In
February, 2019, the Company entered an Employment Agreement with
its new President and CEO. The Employment Agreement has a two-year
term, includes annual compensation of $180,000 per year, the
issuance of 5,000,000 shares of the Company’s common stock of
which 2,000,000 shares vest immediately, with the remainder vesting
equally over 12 months. The total unpaid balance under this
agreement was $51,000 as of June 30, 2019.
On
March 18, 2019, the Company entered an Employment Agreement for the
position of Vice President of Business Development. The Employment
Agreement has a two-year term, includes annual compensation of
$120,000 per year contingent on the successful capital raise of
more than $500,000, and the issuance of 2,000,000 shares of the
Company’s common stock of which 200,000 shares vest
immediately, with the remainder vesting equally over 8 quarters of
the Employment Agreement. The total unpaid balance under this
agreement was $3,000 as of June 30, 2019.
As of
June 30, 2019 and September 30, 2018 an additional $99,492 and
$46,806, respectively, was accrued for other employees and employer
taxes which is included in accrued compensation to related parties
on the accompanying unaudited condensed balance sheet.
NOTE 8 – ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND
ADJUSTMENT
Accounts payable
and accrued liabilities are as:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
$1,070,674
|
$611,840
|
|
Accrued consulting
and brand endorsement fees
|
1,511,666
|
1,361,666
|
|
Accrued
other
|
209,176
|
170,424
|
|
|
$2,791,516
|
$2,143,930
|
NOTE 9 – LINE OF CREDIT, NOTES PAYABLE RELATED PARTIES AND
NON-RELATED PARTY
Note payable
The
Company has a note payable dated January 2017 to a finance company
for the finance of an automobile. The note bears interest at 3.25%
per and calls for 60 monthly payments of $685 per month through
March 2022. Total balance of the note is $19,408 as of June 30,
2019, with current maturities of $7,392 and long-term maturities of
$12,016.
Line of Credit
The
Company has a $100,000 line of credit with a bank with a balance of
$68,310 and $98,310 as of June 30, 2019 and September 30, 2018,
respectively. The line bears interest at prime rate (5.50% as of
June 30, 2019), or a minimum of 4.5%, is collateralized by
substantially all assets of the Company, and matured on May 15,
2019. This line of credit is currently in default.
Notes payable – related parties
Current
related party notes payable are as follows at June 30, 2019 and
September 30, 2018, respectively:
|
|
|
|
|
|
|
|
|
Notes payable,
shareholder, 0% interest, unsecured, due upon demand. On May 18,
2016, the noteholder converted the note to an 8% unsecured
promissory note due August 1, 2016. This note is in default as of
June 30, 2019.
|
$100,000
|
$100,000
|
|
|
|
|
|
Notes payable,
shareholder, 0% interest, unsecured, due upon demand
|
2,000
|
2,000
|
|
|
102,000
|
102,000
|
|
|
|
|
|
Accrued
interest
|
24,943
|
18,959
|
|
|
$126,943
|
$120,959
|
Interest expense
related to these notes for the nine months ended June 30, 2019 and
2018 was $5,984 and $5,984, respectively.
NOTE 10 – CONVERTIBLE NOTES PAYABLE
Convertible notes
payable are as follows at June 30, 2019 and September 30, 2018,
respectively:
|
|
|
|
|
|
|
|
|
Convertible note
payable, including interest at 10%, due December 31, 2016,
convertible at $1.47 per share. This note is in default as of June
30, 2019 and continues to accrue interest at 10%.
|
$100,000
|
$100,000
|
|
|
|
|
|
Convertible notes
payable dated May 5, 2017, including interest at 10%, due May 5,
2018. On June 28,2019, this note was converted in full for 40,000
shares of the Company’s common stock.
|
-
|
10,000
|
|
|
|
|
|
Four convertible
denture notes payable dated in August and September 2017, including
interest at 0% (12% after an event of default) due in August and
September of 2020, convertible at any time into shares of the
Company’s common stock at $0.0615 per share. The Company
recorded a debt discount of $25,756 for the beneficial conversion
feature upon issuance, with an unamortized balance of $10,136 and
$16,576 as of June 30, 2019 and September 30, 2018, respectively. A
total of $200,000 of these notes were assumed in the Merger, with
$40,000 received in cash subsequent the Merger. These debentures
went into default subsequent to June 30, 2019.
|
229,864
|
223,424
|
|
|
|
|
|
Three convertible
denture notes payable dated in August and September 2018, including
interest at 0% (12% after an event of default) due in August and
September of 2021, convertible at any time into shares of the
Company’s common stock at $0.075 per share.
|
175,000
|
175,000
|
|
|
|
|
|
Convertible note
payable dated December 14, 2018, with principal of $57,000,
interest at 8%, due December 14, 2019, convertible after 180 days
into shares of the Company’s common stock at $0.25 per share,
an original issue debt discount of $7,000 and a beneficial
conversion feature of $50,000, with an unamortized balance of
$2,911 and $27,649, respectively, as of June 30, 2019. The terms of
the note include a reduced conversion price at a 25% discount the
price of the issuance of subsequent common stock equivalents,
resulting in a conversion price of $0.012 per share as of June 30,
2019, due to the June 14, 2019 issuance of the note below. In June
2019, the noteholder converted $15,000 of this note for 877,192
shares of the Company’s common stock. This note is currently
in default which created a derivative liability with a balance of
$8,895 as of June 30, 2019.
|
11,440
|
-
|
|
|
|
|
|
Convertible note
payable dated December 17, 2018, with principal of $165,000,
interest at 18%, due December 17, 2019, convertible at any time
into shares of the Company’s common stock at a price equal to
65% of the lowest one day trading price during the prior 20 day
trading period , with an original issue debt discount of $15,000,
and a $24,344 debt discount related to the relative fair value of
the warrants issued with the note, and a $70,656 debt discount
related to the beneficial conversion feature. The total debt
discount was expensed in full as this note is in default as of June
30, 2019. Additionally, the Company recorded a derivative liability
with a balance of $55,000, which was transferred to the balance of
the note in March 2019, with no derivative liability remaining
related to this note as of June 30, 2019. The note includes
anti-dilution provisions which may impact the conversion price in
the future.
|
165,000
|
-
|
|
|
|
|
|
On January 3, 2019,
the Company entered into convertible note payable for $53,000,
including an original issue discount of $8,300, resulting in net
proceeds of $44,700, with interest at 8%, due January 3, 2020,
convertible after 180 days at a price of 65% of the average of the
lowest two trading prices of the Company’s common stock
during the 15 trading days prior to conversion, with a $27,006 debt
discount, and derivative liability related to the beneficial
conversion feature with a balance of $27,534 as of June 30, 2019.
The unamortized balance of the original issue discount and
beneficial conversion features was $4,252 and $13,836,
respectively, as of June 30, 2019. This note is currently in
default.
|
34,912
|
-
|
|
On February 15,
2019, the Company entered into convertible note payable for
$75,000, including original issue debt discount of $15,000,
resulting in net proceeds of $60,000, with interest at 10%, due
October 15, 2020, convertible at any time at a price of 60% of the
lowest trading price of the Company’s common stock during the
20 trading days prior to conversion, with a $57,356 debt discount
related to the beneficial conversion feature and a $2,644 debt
discount related to the value of the 37,500 warrants issued with
the note (see Note 13). Additionally, the Company recorded a
derivative liability due to the default provision with a balance of
$72,316 as of June 30, 2019. The unamortized balance of the
original issue discount, beneficial conversion feature and warrants
was $6,667, $20,767 and $957, respectively as of June 30, 2019.
This note is currently in default.
|
46,609
|
-
|
|
|
|
|
|
On February 19,
2019, the Company entered into convertible note payable for
$43,000, including original issue debt discount of $7,300,
resulting in net proceeds of $35,700, with interest at 8%, due
February 19, 2020, convertible after 180 days at a price of 60% of
the lowest trading price of the Company’s common stock during
the 20 trading days prior to conversion, with a $21,689 debt
discount related to the beneficial conversion feature.
Additionally, the Company recorded a derivative liability due to
the default provision with a balance of $22,118 as of June 30,
2019. The unamortized balance of the original issue debt discount
and beneficial conversion feature was $4,680 and $13,904,
respectively, as of June 30, 019. This note is currently in
default.
|
24,416
|
-
|
|
|
|
|
|
On February 26,
2019, the Company entered into convertible note payable for
$62,500, including original issue debt discount of $13,200,
resulting in net proceeds of $49,300, with interest at 10%, due
November 21, 2019, convertible at any time at a price of 60% of the
lowest trading price of the Company’s common stock during the
20 trading days prior to conversion, with a $46,681 debt discount
related to the beneficial conversion feature and a $2,619 debt
discount related to the value of the 37,500 warrants issued with
the note (see Note 13). Additionally, the Company recorded a
derivative liability due to the default provision with a balance of
$60,008 as of June 30, 2019. The unamortized balance of the
original issue debt discount, beneficial conversion feature and
warrants was $7,226, $21,767, and $1,221 as of June 30, 2019. This
note is currently in default.
|
32,286
|
-
|
|
|
|
|
|
On June 6, 2019,
the Company entered into convertible note payable for $48,000,
including original issue debt discount of $7,800, resulting in net
proceeds of $40,200, with interest at 8%, due January 6, 2020,
convertible after 180 days at a price of 60% of the lowest trading
price of the Company’s common stock during the 20 trading
days prior to conversion, with a $24,126 debt discount related to
the beneficial conversion feature. Additionally, the Company
recorded a derivative liability due to the default provision with a
balance of $24,126 as of June 30, 2019. The unamortized balance of
the original issue debt discount and beneficial conversion feature
was $7,287 and $22,544, respectively, as of June 30, 2019. This
note is currently in default.
|
18,169
|
-
|
|
|
|
|
|
On June 14, 2019,
the Company entered into convertible note payable for $150,000,
including original issue debt discount of $19,500, resulting in net
proceeds of $130,500, with interest at 12%, due June 14, 2020,
convertible at any time at a price of 55% of the lowest trading
price of the Company’s common stock during the 20 trading
days prior to conversion, with a $130,500 debt discount related to
the beneficial conversion feature. Additionally, the Company
recorded a derivative liability and a charge to interest expense of
$75,395 as of June 30, 2019 due to the default provision. The
unamortized balance of the original issue debt discount and
beneficial conversion feature was $18,645 and $124,795,
respectively, as of June 30, 019. This note is currently in
default.
|
6,560
|
-
|
|
|
|
|
|
|
|
|
|
|
844,256
|
508,424
|
|
|
|
|
|
Accrued
interest
|
72,649
|
36,816
|
|
|
916,905
|
545,240
|
|
Less current
portion
|
(512,041)
|
(146,816))
|
|
Long-term
convertible notes payable, net
|
$404,864
|
$398,424
|
Interest expense
related to these notes for the nine months ended June 30, 2019 and
2018 was $35,833 and $8,544, respectively. Amortization of the debt
discounts and non-cash interest was $520,466 and $9,166 for the
nine months ended June 30, 2019 and 2018, respectively, and
included in interest expense for each period on the accompanying
unaudited consolidated statement of operations.
NOTE 11 – CONVERTIBLE NOTES PAYABLE – RELATED
PARTIES
Convertible notes
payable to related parties are as follow at June 30, 2019 and 2018,
respectively:
|
|
|
|
|
|
|
|
|
Convertible note
payable to brother of former CEO, including interest at 10%, due
December 31, 2016, convertible at $1.47 per share. This note is in
default as of June 30, 2019 and continues to accrue interest at
10%.
|
$50,000
|
$50,000
|
|
|
|
|
|
Convertible note
payable to former CEO, including interest at 10%, due December 31,
2017, convertible at $1.47 per share. The Company paid $41,909
towards this note in June 2018 and $16,500 towards principal
($8,091) and interest ($8,409) during the nine months ended June
30, 2019. The remaining accrued interest of $7,635 was settled on
June 17, 2019 (See Note 7).
|
-
|
8,091
|
|
|
|
|
|
Convertible notes
payable, with a shareholder, dated May 5, 2017, including interest
at 10%, due May 5, 2018, convertible into shares of the
Company’s common stock at $0.0681 per share. This note is
currently in default.
|
5,000
|
5,000
|
|
|
|
|
|
Convertible notes
payable, with a shareholder as part of the purchase price of Shift
Now, Inc., dated August 10, 2018, including interest at 5%,
convertible into shares of the Company’s common stock at
$0.075 per share on August 10, 2019. 50% of the principal and
interest are due on August 19, 2019, with the balance due August
19, 2020.
|
30,000
|
30,000
|
|
|
85,000
|
93,091
|
|
Accrued
interest
|
23,176
|
33,655
|
|
|
108,176
|
126,746
|
|
Less current
portion
|
(93,176)
|
(111,746)
|
|
Long-term
convertible notes payable, related parties
|
$15,000
|
$15,000
|
Interest expense
related to these notes for the nine months ended June 30, 2019 and
2018 was $4,443 and $7,874, respectively.
NOTE 12 – COMMON STOCK
On May
13, 2014, the Company filed its Articles of Incorporation with the
State of North Carolina Secretary of State giving it the authority
to issue 10,000,000 common shares, with no par value. On February
3, 2016, the majority voting common shareholders approved the
amendment of the Company’s articles of incorporation in order
to increase its authorized common stock from 10,000,000 shares to
25,000,000 shares.
On
September 11, 2017, TeleHealthCare executed an Agreement and Plan
of Merger (the “Merger Agreement”) with HeadTrainer,
Inc., a North Carolina corporation, and HT Acquisition Corp., a
Wyoming corporation and wholly-owned subsidiary of HeadTrainer,
Inc. (the “Acquisition”) whereby the Acquisition was
merged with and into the Company (the “Merger”) in
consideration for 52,500,000 newly-issued shares of Common Stock of
the Company (the “Merger Shares”) (17,500,000 shares
post-reverse stock split). As a result of the Merger, HeadTrainer
became a wholly-owned subsidiary of TeleHealthCare, and following
the consummation of the Merger and giving effect to the retirement
of approximately 47,000,000 shares (15,666,667 shares post-reverse
stock split) (leaving approximately 24,000,000 shares remaining
prior to the Merger or 8,000,000 shares post-reverse stock split),
and the sale of approximately 10,000,000 shares (3,333,333 shares
post-reverse stock split) at the Merger to accredited investors,
the stockholders of HeadTrainer, Inc. became beneficial owners of
approximately 61% of our issued and outstanding common stock.
Certain assets and liabilities of the original TeleHealthCare were
then spun off, including assets and liabilities associated with
CarePanda, with the Company assuming approximately $195,000 of
remaining liabilities and changing the name of the newly merged
company to HeadTrainer, Inc. All TeleHealthCare stock options or
warrants expired by September 30, 2017. Warrants to purchase an
aggregate of 1,500,000 shares of common stock (500,000 shares
post-reverse stock split) remain from HeadTrainer, with a total of
2,625,000 HeadTrainer stock options cancelled (875,000 post-reverse
stock split).
As a
result of the Merger, each HeadTrainer shareholder received
approximately 2.53 newly issued shares of TeleHealthCare for every
1 common share of HeadTrainer owned.
Concurrent with
Merger, our Board of Directors approved an amendment to our
Articles of Incorporation (the “Amendment”) to (i)
change our name to HeadTrainer, Inc.; (ii) to increase the number
of our authorized shares of capital stock to 510,000,000 shares, of
which 500,000,000 shares shall be common stock and 10,000,000
shares shall be blank check preferred stock; and (iii) to provide
that the Company may take action without a meeting on the written
consent of the holders of a majority of the shares entitled to vote
at such meeting.
On
March 22, 2018, the Board of Directors and Majority Shareholders
approved an amendment to our Articles of Incorporation to change
our name to XSport Global, Inc.
On
August 2, 2019, the Board of Directors amended our Articles of
Incorporation to increase the Company’s authorized shares of
common stock from 500,000,000 shares to 5,000,000,000
shares.
Transactions during the nine months ended June 30, 2018 (all shares
are post-reverse stock split):
On
October 2, 2017, the Company received proceeds of $60,000 from an
accredited investor for the sale of 881,057 shares of the
Company’s common stock at a price of $0.068 per
share.
On
January 10, 2018, the Company received aggregate proceeds of
$60,000 from two investors for the sale of a total of 200,000
shares of the Company’s common stock at a price of $0.30 per
share.
In
April and May 2018, the Company received aggregate proceeds of
$50,030 from two investors for the sale of a total of 333,334
shares of the Company’s common stock at a price of $0.15 per
share.
In June
2018, the Company received aggregate proceeds of $150,004 from two
investors for the sale of a total of 2,000,053 shares of the
Company’s common stock at a price of $0.075 per
share.
During
the nine months ended June 30, 2018, the Company’s CEO was
granted 333,333 shares of restricted common stock as part of future
compensation and vested in 125,000 of those shares at $0.0681 per
share, with a total value of $8,513 for services pursuant to his
employment agreement dated September 15, 2017. These shares have
not yet been issued, however, the compensation expense has been
recognized. No unvested shares or unrecognized compensation
remained as of June 30, 2019.
During
the nine months ended June 30, 2018, the Company’s Chief
Marketing Officer was granted 333,333 shares of restricted common
stock as part of future compensation and vested in 125,000 of those
shares at $0.0681 per share, with a total value of $8,513 for
services pursuant to his employment agreement dated September 15,
2017. These shares have not yet been issued, however, the
compensation expense has been recognized. No unvested shares or
unrecognized compensation remained as of June 30,
2019.
In June
2018, the Company granted the Company’s Chief Marketing
Officer an aggregate of 3,316,707 shares of the Company’s
common stock for services with an aggregate fair value of
approximately $248,000, of which $106,875 was credited against
accrued payroll due.
Transactions during the nine months ended June 30, 2019 (all shares
are post-reverse stock split):
In
October 2018, the Company issued 324,749 and 271,094 shares of the
Company’s common stock the Company’s former CEO and
current CMO, respectively, at a price of $0.075 per share for
payment of deferred wages.
In
October 2018, the Company received proceeds of $25,000 from an
accredited investor for the sale of 333,334 shares of the
Company’s common stock at a price of $0.075 per share, under
a subscription agreement for 666,667 shares for
$50,000.
In
January 2019, the Company issued 338,868 and 304,981 shares of the
Company’s common stock the Company’s former CEO and the
Company’s current CMO, respectively, at a price of $0.075 per
share for payment of deferred wages.
In
January 2019, the Company issued 125,000 and 125,000 shares of the
Company’s common stock the Company’s former CEO and the
Company’s current CMO, respectively, at a price of $0.075 per
share for incentive payments of under their employment
contracts.
In
January 2019, the Company issued 582,489 and 388,327 shares of the
Company’s common stock the Company’s former CEO and
current CMO, respectively, at a price of $0.075 per share for
payment of bonus shares under their employment
contracts.
In
February 2019, the Company issued 250,000 shares to a consultant
for services at a price of $0.075 per share.
Effective March 31,
2019, the Company issued 125,000 and 125,000 shares of the
Company’s common stock the Company’s former CEO and
current CMO, respectively, at a price of $0.075 per share for
incentive payments of under their employment
contracts.
Effective March 31,
2019, the Company issued 2,221,918 shares to our current CEO at a
price of $0.075 per share that became vested under his employment
agreements.
Effective March 31,
2019, the Company issued 232,011 shares to an employees at a price
of $0.075 per share that became vested under his employment
agreements.
In
April 2019, the Company issued 338,686 and 304,981 shares of the
Company’s common stock the Company’s former CEO and
current CMO, respectively, at a price of $0.0681 per share for
payment of deferred wages.
On May
13, 2019, the Company issued 3,560,000 shares of the
Company’s common stock to a consultant as a deposit for
future capital raising services at a price of $0.0679 per
share.
In May
2019, the Company issued 877,192 shares of the Company’s
common stock to a noteholder for the conversion of a portion of a
note payable totaling $15,000 at a price of $0.0171 per
share.
In May
2019, the Company issued 40,000 shares of the Company’ common
stock to a noteholder for the conversion of a note payable totaling
$10,000 at a price of $0.25 per share.
In June
2019, the Company issued 2,651,311 shares of the Company’s
common stock to the Company’s former CEO for settlement of
amounts due (See Note 7).
Effective June 30,
2019, the Company issued 750,000 shares to our current CEO at a
price of $0.045 per share that became vested under his employment
agreement.
Effective June 30,
2019, the Company issued 222,222 shares to an employee at a price
of $0.045 per share that became vested under his employment
agreement.
In June
2019, the Company issued an aggregate of 733,333 shares of the
Company’s common stock to third parties for services at a
price of $0.022 per share.
NOTE 13 - STOCK OPTIONS AND WARRANTS
As of
June 30, 2019, the Company had no outstanding stock
options.
Warrants for Common Stock
A
summary of warrant activity as of June 30, 2019 is presented
below:
|
|
|
Weighted-Average
Exercise
Price
Per
Share
|
Weighted-Average
Remaining
Contractual
Life
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
Outstanding at
October 1, 2017
|
1,263,988
|
$0.21
|
6.09
|
$–
|
|
Granted
|
–
|
–
|
–
|
–
|
|
Exercised
|
–
|
–
|
–
|
–
|
|
Canceled/forfeited/expired
|
–
|
–
|
–
|
–
|
|
Warrants vested and
exercisable at September 30, 2018
|
1,263,988
|
0.21
|
5.09
|
–
|
|
|
|
|
|
|
|
Granted
|
4,239,942
|
0.02
|
4.58
|
–
|
|
Exercised
|
–
|
–
|
–
|
–
|
|
Canceled/forfeited/expired
|
–
|
–
|
–
|
–
|
|
Outstanding at
March 31, 2018
|
5,503,930
|
0.06
|
4.57
|
–
|
|
Warrants vested and
exercisable at June 30, 2019
|
5,503,930
|
$0.06
|
4.57
|
$–
|
On
April 21, 2016, the Company issued a warrant for 1,895,983 shares
of common stock (631,994 shares post-reverse split) to NUWA
Consulting Group pursuant to their agreement to purchase common
stock. The warrants have a 5-year term and exercise price of $0.21.
The Company valued the warrant using the Black-Scholes option
pricing model with the following assumptions: dividend yield of
zero, expected term of 5 years, risk free rate 1.93 percent, and
annualized volatility of 274%. These warrants were not converted in
the Merger and remain outstanding.
On May
18, 2016, the Company issued a warrant for 1,895,983 shares of
common stock (631,994 shares post-reverse split) under a Debt
Restructure and Conversion Agreement with a consultant. The
warrants have a 10-year term and an exercise price of $0.21 The
Company valued the warrant using the Black-Scholes option pricing
model with the following assumptions: dividend yield of zero,
contractual term of 10 years, risk free rate of 2.45 percent, and
annualized volatility of 277%. These warrants were not converted in
the Merger and remain outstanding.
On
December 17, 2018, the Company issued a warrant for 372,754 shares
of common stock in connection with a convertible note payable. The
warrants have a 5-year term and an exercise price of $0.50 per
share. The warrant includes an anti-dilution provision whereby the
exercise price adjusts to the price included in the issuance of any
common stock purchase warrant, option or similar security with a
more favorable price during the term of the warrant. The Company
valued the warrant at a relative fair value of approximately
$24,000 using the Black-Scholes option pricing model with the
following assumptions: dividend yield of zero, expected term of 5
years, risk free rate 2.69 percent, and annualized volatility of
247%.
On
February 6, 2019, the Company issued a warrant for 37,500 shares of
common stock in connection with a convertible note payable. The
warrants have a 5-year term and an exercise price of $0.50 per
share. The Company valued the warrant at a relative fair value of
approximately $3,000 using the Black-Scholes option pricing model
with the following assumptions: dividend yield of zero, expected
term of 5 years, risk free rate 2.45 percent, and annualized
volatility of 247%. The warrant includes an anti-dilution provision
whereby the exercise price adjusts to the price included in the
issuance of any common stock purchase warrant, option or similar
security with a more favorable price during the term of the warrant
(currently at $0.016), along with an adjustment to the number of
warrant shares related to the aggregate exercise price which
adjusted the number shares under the warrant to
1,171,875.
In
connection with financing referenced above, the placement agent
received of a warrant to purchase 3,750 shares of common stock
(117,188 shares after anti-dilution provision above) with terms
substantially similar under an Engagement Agency Agreement dated
December 7, 2018.
On
February 26, 2019, the Company issued a warrant for 37,500 shares
of common stock in connection with a convertible note payable. The
warrants have a 5-year term and an exercise price of $1.00 per
share. The Company valued the warrant at a relative fair value of
approximately $3,000 using the Black-Scholes option pricing model
with the following assumptions: dividend yield of zero, expected
term of 5 years, risk free rate 2.49 percent, and annualized
volatility of 241%. The warrant includes an anti-dilution provision
whereby the exercise price adjusts to the price included in the
issuance of any common stock purchase warrant, option or similar
security with a more favorable price during the term of the warrant
(currently at $0.16), along with an adjustment to the number of
warrant shares related to the aggregate exercise price which would
adjusted the number of shares under the warrant to
2,343,750.
In
connection with financing referenced above, the placement agent
received of a warrant to purchase 3,750 shares of common stock
(234,375 shares after anti-dilution provision above) with terms
substantially similar under an Engagement Agency Agreement dated
December 7, 2018.
The
down round anti-dilution provision in the above warrants issued on
February 6, 2019 and February 26, 2019 created a deemed dividend to
common stockholders of $125,845 which is reflected on the
accompanying condensed consolidated statements of operations and
stockholders’ deficit.
During
the nine months ended June 30, 2019, the Company has issued a total
of 454,629 warrants with a weighted average term of 5 years and a
weighted average exercise price of $0.55. The down round feature of
certain warrants created the issuance of an additional 3,784,688
warrants during the period. There were 5,503,930 outstanding at
June 30, 2019, with a weighted average exercise price of $0.06,
weighted average remaining term of 4.6 years and weighted average
intrinsic value of $0.005 per warrant. No warrants were exercised,
forfeited or cancelled during the period.
NOTE 14 – CONCENTRATIONS
Significant Customers
As of
June 30, 2019, the Company had accounts receivable balances
comprising 28%, 20% and 11% of total accounts receivable from three
customers.
As of
September 30, 2018, the company had accounts receivable balances
comprising 28%, 16% and 11% of total accounts receivable from three
customers.
During
the nine months ended June 30, 2019, the Company had revenues
comprising 28%, 18% and 16% of total revenues from three
customers.
NOTE 15 – OPERATING LEASE
The
Company entered into a lease agreement for office space in August
2017 for a total monthly rental of $1,995 and a term of 24
months.
The
Company’s subsidiary, Shift Now, entered into a lease for
office space in November 8, 2017 for a total monthly rental of
$2,500 per month through December 31, 2018. Shift Now renewed this
lease through December 31, 2019 at $2,500 per month.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
The
Company has endorsement agreements with spokespeople to serve as
the Company’s brand ambassadors entered in January 2015,
providing for cash compensation of $100,000 annually. The
agreements have a ten-year term and provide for one-year extensions
by agreement of both parties. The future compensation to brand
ambassadors is approximately $1,150,000, to be earned during the
period from April 1, 2019 to December 31, 2024. In addition, the
Company will pay royalties to each spokesperson of .5% per month
for all gross subscription revenue received by the Company for US
subscriptions and 0.25% per month for all gross product
subscription revenue received by the Company for all non-US
subscriptions. Accrued royalties under these agreements were not
material as of June 30, 2019 or September 30, 2018 as the Company
had no product sales. Total accrued expense under these agreements
was $600,000 and $450,000 respectively, as of June 30, 2019 and
September 30, 2018, respectively.
The
Company has endorsement agreements with athletes with dates all
expiring in 2017, providing for cash compensation of amounts
ranging from $50,000 annually to $150,000 annually. The future
compensation to athletes is $0 as of June 30, 2019. In addition,
the Company agreed to pay royalties of .5% of revenues from
subscribers that identify the selected athlete as their favorite
athlete. Accrued royalties under these agreements were not material
as of June 30, 2019 as the Company had no product revenues during
through June 30, 2019. Total accrued expense related to these
agreements was $775,000 as of June 30, 2019, and September 30,
2018. All agreements were expired as of September 30,
2017.
In
addition to the royalties to be paid for products sales to brand
ambassadors and athletes, the Company is to pay royalties the
former CEO and to the Company's Founder as disclosed in Related
Party footnote, however there have been no material product sales
through June 30, 2019.
The
Company is to pay commissions to Apple and Google in consideration
for services as the Company's agent and commissionaire for sales of
licensed applications to end-users in the amount of 30% of all
purchase prices payable to each end-user. The Company’s
application was inactive during the nine months ended June 30, 2019
and 2018.
On
August 28, 2018, the Company entered into a Stock Purchase
Agreement with Shift Now (see note 6), which includes the issuance
of 125,000 incentive shares of common stock based on gross revenue
targets of $500,000 during the 12 months following the closing of
the acquisition, which were met but not yet issued, plus an
additional 125,000 shares of common stock base on gross revenue
targets of $500,000 during the following 12 months.
NOTE 17 - BUSINESS SEGMENT INFORMATION
As of
June 30, 2019, the Company had two operating segments, XSport and
Shift Now.
The
Company’s reportable segments are distinguished by types of
service, customers and methods used to provide their services. The
operating results of these business segments are regularly reviewed
by the Company’s chief operating decision maker.
The
accounting policies of each of the segments are the same as those
described in the Summary of Significant Accounting Policies in Note
2. The Company evaluates performance based primarily on income
(loss) from operations.
Operating results
for the business segments of the Company were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2019
|
|
|
|
|
Net
sales
|
$-
|
$645,850
|
$645,850
|
|
Loss from
operations
|
$(790,322)
|
$(10,498)
|
$(800,820)
|
|
|
|
|
|
|
Three
months ended June 30, 2018
|
|
|
|
|
Net
sales
|
$-
|
$-
|
$-
|
|
Income (loss) from
operations
|
$(356,577)
|
$-
|
$(356,577)
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended June 30, 2019
|
|
|
|
|
Net
sales
|
$-
|
$1,814,158
|
$1,814,158
|
|
Loss from
operations
|
$(1,725,868)
|
$(73,656)
|
$(1,799,524)
|
|
|
|
|
|
|
Nine
months ended June 30, 2018
|
|
|
|
|
Net
sales
|
$-
|
$-
|
$-
|
|
Income (loss) from
operations
|
$(844,998)
|
$-
|
$(844,998)
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
June 30,
2019
|
$248,302
|
$526,031
|
$774,333
|
|
September 30,
2018
|
$283,485
|
$380,919
|
$664,404
|
NOTE 18 – SUBSEQUENT EVENTS
In July
and August 2019, the Company issued an aggregate of 58,435,099
shares of the Company’s common stock to noteholders for the
conversion of convertible notes payable totaling $167,745 at prices
ranging from $0.001 to $0.014.
On
August 22, 2019, the Company entered into convertible note payable
for $33,000, including original issue debt discount of $3,000,
resulting in net proceeds of $30,000, with interest at 8%, due
August 22, 2020, convertible after 180 days at a price of 60% of
the lowest trading price of the Company’s common stock during
the 20 trading days prior to conversion.