Notes
to Consolidated Financial Statements
For
the Years Ended December 31, 2019 and 2018
Note
A – Organization and Business
Organization
and Nature of Business
Advantego
Corporation (“Advantego,” “we,” or the “Company”) was originally incorporated in Colorado on July
21, 1988, as Beneficial Capital Financial Services Corp. On February 2, 1995, the Company changed its name to Golden Eagle International,
Inc. (“GEII”). From late 2008 through June 2009, GEII engaged in contract gold milling operations in the state of Nevada
in the United States. GEII had not had any business operations since it disposed of its wholly owned subsidiary, Golden Eagle International,
Inc. (Bolivia), in the first quarter of fiscal 2010. Prior to that time, GEII had been involved in the business of minerals exploration
and (prior to 2005) mining and milling operations in Bolivia through that subsidiary. More recently, GEII had been a non-operating corporation
seeking to sell its remaining milling plant and equipment and/or merge with an operating company. Advantego Technologies, Inc. (“ATI”)
is a Colorado corporation formed on July 29, 2016. On October 27, 2016, GEII completed a reverse merger with ATI, which resulted in a
change of control and the perpetuation of ATI’s management and business operations.
Effective
February 1, 2018 and pursuant to Board authorization and majority shareholder approval, the Company changed its name to Advantego Corporation
(amending GEII’s Articles of Incorporation accordingly), cancelled its Series A, C, and D preferred shares, and effected a 1-for-11
reverse stock split on its issued and outstanding shares of common stock that became effective on the OTCQB on February 21, 2018 under
the symbol “ADGO.”
The
Company empowers business innovation as a technical solutions provider developing stand-alone digital and enterprise software products
to capitalize on niche opportunities within a specific market. The Company leverages a proprietary Intelligent Solution Platform combining
leading third-party technologies with existing data and systems to deliver a turnkey specialized Business Process as a Services (BPaaS)
that is both scalable and cost effective.
We
also provide subscription-based online directory listing services and are a reseller of software that allows potential customers to better
locate an auto collision center, or any business, on the internet.
Basis
of Presentation
The
accompanying consolidated financial statements represent the operations of Advantego Corporation and its wholly owned subsidiary, Advantego
Technologies, Inc., with all intercompany transactions eliminated.
Going
Concern
The
consolidated financial statements for the years ended December 31, 2019 and 2018 have been prepared on the going concern basis which
assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled
in the ordinary course of business. Accordingly, the financial statements do not include any adjustments related to the recoverability
of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern. The
Company has not yet achieved profitable operations, has negative working capital, has accumulated losses of $(4,512,593), since its inception
through December 31, 2019, and may incur further losses in the development of its business, all of which casts substantial doubt about
the Company’s ability to continue as a going concern. We can offer no assurances that we will be able to obtain adequate
financing to implement our business plan and remain a going concern.
Note
B – Summary of Significant Accounting Policies
Fair
Value of Financial Instruments
The
Company accounts for fair value measurements in accordance with accounting standard ASC 820-10-50, “Fair Value Measurements.”
This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances
disclosure requirements for fair value measures. The three levels are defined as follows:
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level
3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The
Company’s financial instruments consist of cash, accounts receivable, accounts payable, and notes payable. The carrying amount
of cash and accounts payable approximates fair value because of the short-term nature of these items. The carrying amount of notes payable
approximates fair value as the individual borrowings bear interest at market interest rates and are also short-term in nature.
Use
of Estimates
Preparation
of financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results
may differ from those estimates, and such differences may be material to the financial statements.
Concentration
of Credit Risk
From
time to time our cash balances, held at a major financial institution, exceed the federally insured limits of $250,000. Our management
believes that the financial institution is financially sound and the risk of loss is low.
Cash
and Cash Equivalents
For
the statement of cash flows, any liquid investments with a maturity of three months or less at the time of acquisition are considered
to be cash equivalents.
Revenue
Recognition
The
Company recognizes revenue from the sale of products and services in accordance with ASC 606, “Revenue from Contracts with Customers”
following the five steps procedure:
Step
1: Identify the contract(s) with customers
Step
2: Identify the performance obligations in the contract
Step
3: Determine the transaction price
Step
4: Allocate the transaction price to performance obligations
Step
5: Recognize revenue when the entity satisfies a performance obligation
The
Company recognizes revenue when it satisfies its obligation by transferring control of the good or service to the customer. A performance
obligation is satisfied over time if one of the following criteria are met:
Revenue
from online directory services is recognized over the life of the agreement ranging from one to twelve months. Revenue from digital signage
sales is recognized at the time of sale. The Company recognized $217 and $17,967 in online directory services, and $105,366 and $182,094
in digital signage sales during the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, there were
no unfulfilled online directory listing arrangements, resulting in no deferred revenue.
Accounts
Receivable
Management
reviews outstanding receivables on a quarterly basis. An allowance for doubtful accounts is provided for all receivables deemed uncollectible.
As of December 31, 2019 and 2018, no allowance for doubtful accounts was deemed necessary.
Stock
Based Compensation
We
measure stock-based compensation cost in accordance with ASC 718, “Compensation – Stock Compensation,” based on the
fair value of the awards on the grant date using a Black-Scholes options pricing model. We recognize the expense as the awards vest or
as services are rendered.
Income
(Loss) Per Share
The
computation of basic earnings (loss) per common share in accordance with ASC 260, “Earnings per Share,” is based on the weighted
average number of shares outstanding during each year. The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the year plus the common stock equivalents using the “if-converted method” as
detailed in the following chart. In 2019 and 2018, the inclusion of these shares on the consolidated statements of operations would have
resulted in a weighted average shares fully diluted number that was anti-dilutive, and as such they are excluded.
Fully
diluted shares for the years ended December 31, 2019 and 2018:
Schedule of Anti-diluted Weighted Average Shares Outstanding
| | |
| | | |
| | |
| | |
2019 | | |
2018 | |
| Basic
weighted average shares outstanding | |
| 60,551,368 | | |
| 16,334,129 | |
| Convertible
debt | |
| 72,585,772,197 | | |
| 1,282,830 | |
| Series
A Preferred Stock | |
| 80,000 | | |
| - | |
| Series
B preferred stock | |
| 10,909 | | |
| 10,909 | |
| Warrants | |
| - | | |
| 181,818 | |
| Total | |
| 72,646,414,474 | | |
| 17,809,686 | |
Income
Taxes
Income
taxes are accounted for under the liability method in accordance with ASC 740, “Income Taxes.” Under the liability method,
future tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the amounts
reported in the financial statements and their respective tax bases. Future tax assets and liabilities are measured using enacted or
substantially enacted income tax rates expected to apply when the asset is realized, or the liability settled.
Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all the deferred tax assets will
not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax law and rates on the date of enactment.
Effect
of New Accounting Pronouncements
There
are no recent accounting pronouncements that are expected to have a material impact on our financial position, results of operations
or cash flows.
Note
C – Prepaid Expenses
We
recorded the following prepaid expenses at December 31:
Schedule of Prepaid Expenses
| | |
| | | |
| | |
| | |
2019 | | |
2018 | |
| Prepaid
Software License | |
$ | - | | |
$ | 1,584 | |
| Prepaid
Expenses | |
| - | | |
| 1,190 | |
| Prepaid
Insurance | |
| 2,238 | | |
| 3,845 | |
| Deposits | |
| 989 | | |
| 989 | |
| Total | |
$ | 3,227 | | |
$ | 7,608 | |
Note
D – Loans and Notes Payable
Convertible
Notes Payable - Related Parties
We
had uncollateralized related party convertible debt obligations outstanding during the year ended December 31, 2018, which were converted
in full as detailed below. There were no related party convertible debt obligations outstanding as of the years ended December 31, 2019
and 2018.
| (a) |
Gulf
Coast Capital, LLC is a company owned by Mark Bogani, our former CEO. The note was dated September 30, 2016 and represented
the consolidation of various smaller notes payable previously outstanding totaling $145,112 plus $15,471 in accrued interest. Interest
continued to accrue at the rate of 5%, with principal and interest being due on demand and convertible into our common stock at the
option of the lender at a fixed rate of $.275 per share. Upon the note’s inception, there was a beneficial conversion
feature totaling $29,022 that was being amortized and netted against the principal balance as a debt discount. On December
30, 2016, Gulf Coast Capital converted $115,000 of the note into 418,182 shares of the Company’s common stock. On January
8, 2018, Gulf Coast Capital converted $24,090 principal plus $21,376 in accrued interest into 165,331 shares of our common stock
(Note D), at which point the remaining unamortized debt discount of $4,516 was amortized to interest expense. On June
30, 2018, the remaining $6,022 principal balance was forgiven and written-off to additional paid-in capital. |
| |
|
| (b) |
Avcon
Services, Inc. is a company owned by Tracy Madsen, our CFO. The note represented amounts totaling $30,500 for CFO services
during the period of June 2014 through September 2015, was dated December 31, 2015, carried an interest rate of 5%, and was due on
demand. The note and accrued interest, or any portion thereof, were convertible at the option of Avcon, into the Company’s
common stock at a fixed rate of $.275 per share through December 31, 2020. On May 10, 2018, this note was sold to Khalid Mirza.
On May 30, 2018, Mr. Mirza converted the note principal of $30,500 plus accrued interest of $5,548 into 131,083 shares of our common
stock. |
| (c) |
On
June 29, 2017, the Company entered into an uncollateralized note payable with its then-CFO, Philip Grey, in the amount of $12,500.
The note carried an interest rate of 6% and matured on June 29, 2018. The note and accrued interest, or any portion thereof,
were convertible at the option of the lender, into the Company’s common stock at a fixed rate of $.275 per share. Upon the
note’s inception, there was a beneficial conversion feature totaling $12,500 that was being amortized and netted against the
note balance as a debt discount. On January 8, 2018, Mr. Grey converted the $12,500 principal plus accrued interest of $375 into
46,818 shares of common stock (Note E), and the remaining debt discount of $6,216 was amortized to interest expense. |
| |
|
| (d) |
On
September 25, 2017, the Company entered into an uncollateralized note payable with its former CEO, Mark Bogani, in the amount of
$12,500. The note carried an interest rate of 6% and matured on September 25, 2018. The note and accrued interest, or
any portion thereof, were convertible at the option of the lender, into the Company’s common stock at a fixed rate of $.275
per share. Upon the note’s inception, there was a beneficial conversion feature totaling $12,500 that was being amortized and
netted against the principal balance as a debt discount. On January 8, 2018, Mr. Bogani converted the $12,500 principal plus accrued
interest of $188 into 46,138 shares of common stock (Note E), and the remaining debt discount of $9,204 was amortized to interest
expense. |
Deferred
Offering Costs
On
June 11, 2018, we issued a fixed price convertible note payable in the amount of $50,000 as a commitment fee to Tangiers in order to
provide a long-term funding facility for our operations. The note bears interest at 10% per year, is due and payable on January 11, 2019,
and is convertible into shares of our common stock at a fixed rate of $1.44 per share. Under the investment agreement, Tangiers has agreed
to provide us with up to $5,000,000 of funding during a three-year period. This investment agreement is pending approval of our S-1 filing.
This commitment fee is deemed an offering cost, along with an associated beneficial conversion feature of $14,236, for total offering
costs of $64,236 being reported as a non-current asset to be amortized to additional paid-in capital pro-rata in conjunction with each
future long-term funding tranche received from Tangiers.
As
of December 31, 2019, we determined that based on the current price of our stock and the limited prospects for a stock price that would
allow us to draw upon the line of credit, we canceled the line of credit and wrote off deferred offering costs in the amount of $64,236.
Convertible
Notes Payable
We
had uncollateralized convertible debt obligations with unaffiliated investors outstanding at December 31, 2019 and 2018 as follows:
Schedule
of Convertible Notes Payable
| | |
December
31, 2019 | | |
December
31, 2018 | |
| Note | |
Principal | | |
Less
Debt Discount | | |
Plus
Premium | | |
Net
Note Balance | | |
Accrued
Interest | | |
Principal | | |
Less
Debt Discount | | |
Plus
Premium | | |
Net
Note Balance | | |
Accrued
Interest | |
| (a) | |
$ | 66,691 | | |
$ | - | | |
$ | - | | |
$ | 66,691 | | |
$ | 5,177 | | |
$ | 75,000 | | |
$ | (33,599 | ) | |
$ | 56,250 | | |
$ | 97,651 | | |
$ | 1,134 | |
| (b) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 50,000 | | |
| - | | |
| - | | |
| 50,000 | | |
| 2,713 | |
| (c) | |
| 49,925 | | |
| - | | |
| - | | |
| 49,925 | | |
| 8,584 | | |
| 125,000 | | |
| (11,250 | ) | |
| 68,072 | | |
| 181,822 | | |
| 4,500 | |
| (d) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 63,000 | | |
| (4,980 | ) | |
| 34,308 | | |
| 92,328 | | |
| 2,016 | |
| (e) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 65,000 | | |
| (5,214 | ) | |
| 35,561 | | |
| 95,347 | | |
| 2,582 | |
| (f) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 125,000 | | |
| (12,003 | ) | |
| 58,829 | | |
| 171,826 | | |
| 5,417 | |
| (g) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 150,000 | | |
| (13,978 | ) | |
| 70,023 | | |
| 206,045 | | |
| 6,700 | |
| (h) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 50,000 | | |
| (5,597 | ) | |
| 35,401 | | |
| 79,804 | | |
| 1,111 | |
| (i) | |
| 273,000 | | |
| - | | |
| - | | |
| 273,000 | | |
| 11,070 | | |
| 273,000 | | |
| (37,942 | ) | |
| 145,942 | | |
| 381,000 | | |
| 2,791 | |
| (j) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (k) | |
| 67,101 | | |
| (1,076 | ) | |
| 10,293 | | |
| 76,318 | | |
| 6,156 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (l) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (m) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (n) | |
| 8,800 | | |
| (10,066 | ) | |
| 53,399 | | |
| 52,133 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (o) | |
| 100,000 | | |
| (62 | ) | |
| 17,542 | | |
| 117,480 | | |
| 8,750 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (p) | |
| 26,540 | | |
| (982 | ) | |
| 10,833 | | |
| 36,391 | | |
| 1,254 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (q) | |
| 200 | | |
| (369 | ) | |
| 15,757 | | |
| 15,588 | | |
| 4,936 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (r) | |
| 610,000 | | |
| (10,792 | ) | |
| 267,243 | | |
| 866,451 | | |
| 433,615 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (s) | |
| 85,380 | | |
| (3,514 | ) | |
| 18,741 | | |
| 100,607 | | |
| 5,940 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (t) | |
| 63,000 | | |
| (1,157 | ) | |
| 19,247 | | |
| 81,090 | | |
| 5,061 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (u) | |
| 282,000 | | |
| - | | |
| - | | |
| 282,000 | | |
| 14,284 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (v) | |
| 40,000 | | |
| (2,938 | ) | |
| 9,685 | | |
| 46,747 | | |
| 2,567 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (w) | |
| 65,185 | | |
| (6,004 | ) | |
| 23,218 | | |
| 82,399 | | |
| 3,632 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (x) | |
| 165,800 | | |
| (6,800 | ) | |
| 45,333 | | |
| 204,333 | | |
| 9,934 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (y) | |
| 200,000 | | |
| (7,535 | ) | |
| 99,537 | | |
| 292,002 | | |
| 10,278 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (z) | |
| 63,000 | | |
| (3,539 | ) | |
| 22,867 | | |
| 82,328 | | |
| 2,296 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (aa) | |
| 282,641 | | |
| (7,049 | ) | |
| 34,113 | | |
| 309,705 | | |
| 16,724 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (bb) | |
| 69,300 | | |
| (7,858 | ) | |
| 26,308 | | |
| 87,750 | | |
| 2,685 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (cc) | |
| 100,000 | | |
| (5,300 | ) | |
| 39,259 | | |
| 133,959 | | |
| 4,111 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| (dd) | |
| 88,000 | | |
| (2,118 | ) | |
| 61,166 | | |
| 147,048 | | |
| 4,165 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Totals | |
$ | 2,706,563 | | |
$ | (77,159 | ) | |
$ | 774,541 | | |
$ | 3,403,945 | | |
$ | 181,466 | | |
$ | 976,000 | | |
$ | (124,563 | ) | |
$ | 504,386 | | |
$ | 1,355,823 | | |
$ | 28,964 | |
From
January 17, 2019 through August 7, 2019, the Company issued twenty-one (21) Convertible Promissory Notes to third parties ranging in
face values from a low of $40,000 to a high of $610,000 all with maturity dates ranging of nine (9) months to one (1) year. Annual interest
rates ranged from a low of 0% to a high of 12%. All notes are convertible at any time after 6 months of the funding of the note into
a variable number of the Company’s common stock, based on a conversion rate from 58% to 62% of the lowest trading price from a
range of 15 to 25 of the previous days to conversion. When the Company received proceeds, proceeds ranged from $31,800 to $557,500, after
disbursements for the lender’s transaction costs, fees and expenses which in aggregate resulted in a total discount ranging from
$500 to $52,500 that are amortized to interest expense over the life of each note. Additionally, the notes’ variable conversion
rate component requires that the note be valued at its stock redemption value (i.e., “if converted” value) pursuant to ASC
480, “Distinguishing Liabilities from Equity,” with the excess over the note’s undiscounted face value being
deemed a premium to be added to the principal balance and amortized to additional paid-in capital over the life of the note. As such,
the Company recorded premiums on the note(s) ranging from $42,200 to $1,300,101 as a reduction to additional paid-in capital based on
a discounted “if-converted” rates from $.04 to $.33 per share based on the trading prices ranging from 15 to 25 days preceding
the note’s issuance), with redemption values between $67,029 and $191,101 due to the range from $.06 to $.45 per share fair market
value of the Company’s stock on the note’s date of issuance. Debt discount amortization is recorded as interest expense,
while debt premium amortization is recorded as an increase to additional paid-in capital.
Debt
discount amortization for the years ended December 31, 2019 and 2018, totaled $326,754
and $210,108
respectively. Amortization of debt premiums for the years ended December 31, 2019 and 2018, totaled $3,096,431
and $805,150,
respectively, while interest expense for the years ended December 31, 2019 and 2018 totaled was $1,105,762
and $74,199
respectively. Based on the share conversion formula and the share price of $.0001
on December 31, 2019, the outstanding convertible debt principal of 2,706,563
is convertible into 68,023,290,276
shares of fully diluted common stock. Accrued interest of $181,465
on December 31, 2019, is convertible into 4,562,481,921
fully diluted shares if converted based on a discounted share price of $.0001 in
accordance with the conversion agreements
The
convertible notes have various default provisions which result in default during 2020 (see Note H – Subsequent Events). These default
terms include a default interest rate of 24% if the notes are not repaid or converted by the maturity date. The noteholder (aa) declared
an event of default during the quarter ending December 31, 2019, which increased the note payable from $75,000 to $207,641 and accrued
interest from $3,925 to $18,399.
For
a description of conversions of convertible notes payable during the reporting periods, please see Note E.
Note
E – Stockholders’ Equity
Common
Stock
We
are authorized to issue 300,000,000,000 shares of our $.0001 par value common stock, of which 487,359,288 and 16,712,819 were issued
and outstanding at December 31, 2019 and 2018, respectively.
On
January 8, 2018, the Company issued 95,890 shares of our common stock to a former officer in exchange for $38,500 owed to him for services
rendered during 2016 and 2017. The shares were issued at a 50% discount to the market price of the shares which resulted in a fair market
value adjustment of $39,552 which was classified as an additional wage expense during the year ended December 31, 2018.
On
February 1, 2018, the Company issued 190,000 shares of common stock based on the stock’s approximate trading price of $.80 per
share for total value of $152,000. The shares were issued to an independent consultant for services rendered over the six months following
issuance.
On
October 1, 2018, the company issued 20,000 shares of our common stock at a price of $2 per share to a former consultant in exchange for
$12,000 owed to him for services rendered during 2018.
On
March 8, 2018, the Company issued 20,000 shares of common stock to an unaffiliated individual as a finder’s fee in connection with
the procurement of a variable rate convertible note with an unrelated party as detailed in Note C (d). The stock was valued at $15,000
based on the per-share stock price of $.75 on the issuance date and recorded as a debt discount that was netted with the underlying convertible
note and amortized to interest expense over the length of the note, which was converted in full in May 2018.
On
May 21 through May 30, 2018, the Company issued 110,955 shares of common stock to friends and family under the Company’s Friends
and Family Stock Offering at a price of $.55 per share in exchange for $61,025 in cash.
During
August and September 2016, we sold 33,058 shares of our common stock, with warrants to purchase an additional 545,454 shares of our common
stock, to a group of private investors for $100,000. The warrants were issued prior to the reverse merger (Note A) and were subsequently
still deemed issued and outstanding. The Series A and B warrants expired prior to December 31, 2018, while the Series C warrants expired
on June 30, 2019. The warrants were originally exercisable at prices between $0.55 and $2.20 share at any time between June 30, 2017
and June 30, 2019. Each series of warrants was valued using the Black-Scholes Options Pricing Model resulting in total warrant value
of $85,833. The remaining proceeds of $14,167 were allocated to the common stock. Black-Scholes data inputs used to value the warrants
are as follows:
Schedule
of Data Inputs Value Warrant Activity
| Warrants | |
Stock
Price | | |
Exercise
Price | | |
Expected
Life (Yrs) | | |
Risk-Free
Rate | | |
Warrant
Value | | |
Number
of Warrants | | |
Extended
Value | |
| Series
A (expired) | |
$ | .275 | | |
$ | .55 | | |
| .75 | | |
| .54 | % | |
$ | .1168 | | |
| 181,818 | | |
$ | 21,249 | |
| Series
B (expired) | |
$ | .275 | | |
$ | .1.10 | | |
| 1.75 | | |
| .69 | % | |
$ | .1639 | | |
| 181,818 | | |
$ | 29,817 | |
| Series
C (expired) | |
$ | .275 | | |
$ | 2.20 | | |
| 1.75 | | |
| .85 | % | |
$ | .1912 | | |
| 181,818 | | |
$ | 34,767 | |
| Total | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 85,833 | |
During
May and June 2018, various Series B warrant holders elected to exercise their warrants prior to their June 30, 2018 expiration. As such,
the Company issued 19,636 shares of common stock at $1.10 per share for $21,600. The remaining un-exercised warrants were forfeited and
expired on June 19, 2019.
The
following table represents the warrant activity for the periods presented.
Schedule of Warrant Activity
| | |
Number
of Warrants | |
| | |
| |
| Balance,
December 31, 2017 | |
| 363,636 | |
| Granted | |
| - | |
| (Exercised) | |
| (19,636 | ) |
| (Forfeited/expired) | |
| (162,182 | ) |
| Balance,
December 31, 2018 | |
| 181,818 | |
| Granted | |
| - | |
| (Exercised) | |
| - | |
| (Forfeited/expired) | |
| (181,818 | ) |
| Balance,
December 31, 2019 | |
| - | |
2019
Debt Conversions - Unaffiliated
During
the year ended December 31, 2019, unaffiliated holders of our convertible notes payable elected to convert $234,678 of principal into
281,322,314 shares of our common stock and $18,766 in accrued interest into 101,256,825 shares of common stock at prices per share between
$.00004 and $.21 per share at rates discounted from the stock’s fair market value on each conversion date based on discount rates
specified in each respective note.
During
the year ended December 31, 2019, unaffiliated convertible debt holders were issued 87,705,792 shares of common stock in exchange for
$15,100 in conversion fees at prices between $.00008 and $.00315 at rates discounted from the stock’s fair market value on each
conversion date based on discount rates specified in each respective note.
2018
Debt Conversions – Related Party
During
the year ended December 31, 2018, related party holders of our convertible notes payable elected to convert $79,590 of principal into
289,417 shares of our common stock and $27,487 in accrued interest into 99,953 shares of common stock at a price of $.275 per share.
2018
Debt Conversions - Unaffiliated
During
the year ended December 31, 2018, unaffiliated holders of our convertible notes payable elected to convert $427,775 of principal into
1,166,469 shares of our common stock and $13,835 in accrued interest into 35,781 shares of common stock at a price of $.275 per share.
2019
Commitment Fee Shares
On
May 1, 2019, The Company issued 361,538 shares of common stock to the holder of convertible note as a commitment fee at a price of $.38
per share. The shares were to have been returned to the Company if the note was fully repaid and satisfied prior to 180 days from the
issue date, which did not occur. The commitment fee shares were valued at $0.38 fair market value on their date of issuance, and their
total value of $137,384 was recorded as a debt discount and amortized to interest expense during 2019.
Preferred
Stock
Our
Articles of Incorporation provide that we may issue up to 10,000,000 shares of various series of preferred stock. Subject to the requirements
of the Colorado Business Corporation Act, the Board of Directors may issue the preferred stock in series with rights and preferences
as the Board of Directors may determine appropriate, without shareholder approval.
As
of December 31, 2019 and 2018, 4,500,000
Series B Convertible Preferred shares had been designated, and 240,000
Series B Convertible Preferred shares were issued and outstanding. These 240,000
Series B shares are convertible into 10,909
common shares.
On
October 30, 2019, our Board of Directors authorized the designation of 150,000 shares of Series A Convertible Preferred Shares. These
shares entitle the holder to $.01 per share dividend when declared by the Board of Directors. Each Series A share entitles the holder
thereof to 1,000 votes on all matters submitted to a vote of the shareholders of the Corporation. Each Series A Convertible Preferred
share may be converted into one share of our common stock.
On
October 30, 2019, Robert W. Ferguson, our CEO, and Fred J. Popke, our COO, were each issued 40,000
shares of Series A Convertible Preferred stock at $.01
par value in exchange for $50 resulting
in 80,000
shares of Series A preferred stock issued and outstanding at December 31, 2019.
Note
F – Related Party Transactions
We
incur various consulting, management, and software licensing expenses with our officers, directors, and companies owned by our officers
and directors. During the years ended December 31, 2019 and 2018, we incurred $205,514 and $301,152, respectively, with these individuals
and companies, of which $217,500 and $255,250 was payable at December 31, 2019 and 2018, respectively.
We
also had various convertible debt activity with related parties during 2018, which is disclosed in detail in Notes D and E. During the
year ended December 31, 2018, the Company issued 289,417 shares of common stock in conversion of $79,590 in convertible notes payable
– related party, and 99,953 shares of common stock in conversion of $27,487 in accrued interest – related party.
During
the year ended December 31, 2018, a former officer forgave principal owed to him by the Company totaling $6,022, which was written off
to additional paid-in capital. These transactions resulted in $0 principal and interest owed to related parties at December 31, 2019
and 2018.
During
the year ended December 31, 2018, the Company issued 95,890 shares of common stock to its former CFO in satisfaction of $38,500.
Note
G – Income Taxes
Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, and operating
loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Deferred
tax assets and valuation allowance at December 31, 2019 and 2018:
Schedule
of Deferred Tax Assets and Liabilities
| | |
2019 | | |
2018 | |
| | |
| | |
| |
| Net
loss carry-forward | |
$ | 5,741,471 | | |
$ | 5,384,612 | |
| Valuation
allowance | |
| (5,741,471 | ) | |
| (5,384,612 | ) |
| Deferred
Tax Assets | |
$ | - | | |
$ | - | |
A
provision for income taxes has not been made due to net operating loss carry-forwards of $18,317,084 at December 31, 2019, which may
be offset against future taxable income through 2037. No tax benefit has been reported in the financial statements.
The
actual provision for income tax differs from the statutory U.S. federal income tax rate for the years ended December 31, 2019 and 2018
as follows:
Schedule
of Effective Income Tax Rate Reconciliation
| | |
2019 | | |
2018 | |
| | |
| | |
| |
| Provision
(benefit) at US statutory rate of 21% | |
$ | 356,859 | | |
$ | 379,154 | |
| Change
in valuation allowance | |
| (356,859 | ) | |
| (379,154 | ) |
| | |
| | | |
| | |
| Provision
for income tax | |
$ | - | | |
$ | - | |
Current
accounting guidance requires the Company to provide a reconciliation of the beginning and ending amount of unrecognized tax impacts related
to the sustainability of tax positions taken in current and prior periods.
As
of December 31, 2019, the Company did not have any tax positions for which it is reasonably possible that the total amount of unrecognized
tax benefits will significantly increase or decrease within the next 12 months.
The
Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision
for income taxes. As of December 31, 2019, the Company had no accrued interest or penalties related to uncertain tax positions.
The
tax years that remain subject to examination by major taxing jurisdictions are those for the years ended December 31, 2016, through the
present.
Note
H – Subsequent Events
The
Company has analyzed events occurring subsequent to December 31, 2019, through the date these financial statements were issued, and noted
the following material items requiring disclosure herein:
(1)
On January 15, 2020, Robert W. Ferguson, our CEO, and Fred J. Popke, our COO, were each issued 450,000
shares of Series A convertible preferred stock in exchange for $25
each.
(2)
The Company’s Nevada office was closed on April 30, 2020, and the other leases have since been converted to month-to-month obligations
of under $300/month.
(3)
On January 17, 2020, John J. Carvelli and James Mason resigned as officers and directors of the Company, and on February 19, Carl L.
Engstrom was appointed an independent director. The resignations of Mr. Carvelli and Mr. Mason were not the result of any disagreement
on any matter relating to the Company’s operations, policies or practices.
(4)
On February 1, 2021, the Company issued to an independent investor a convertible promissory note with a face value of $35,000, maturity
date of February 1, 2022, and stated interest of 8%. The note is convertible at any time after the funding of the note into the Company’s
common stock at a fixed conversion rate of $ .0001 per share. The note was funded on February 4, 2021, when the Company received proceeds
of $22,279, after disbursements for the lender’s transaction costs, fees and expenses which in aggregate resulted in a total discount
of $3,000 to be amortized to interest expense over the life of the note and payment of certain outstanding fees to our transfer agent
in the amount of $10,278.
(5)
On February 10, 2021, the Company issued to an independent investor a convertible promissory note with a face value of $84,750, maturity
date of February 10, 2022, and stated interest of 10%. The note is convertible at any time after 6 months of the funding of the note
into a variable number of the Company’s common stock, based on a conversion rate of 60%. The note was funded on February 12, 2021,
when the Company received proceeds of $75,750, after disbursements for the lender’s transaction costs, fees and expenses which
in aggregate resulted in a total discount of $9,000 to be amortized to interest expense over the life of the note.
(6)
On March 11, 2020, the Board of Directors amended the Company’s Articles of Incorporation to increase the number of authorized
common shares from 15,000,000,000 to 300,000,000,000, as retroactively reflected in the financial statements.
(7)
During the period January 1, 2020, through July 27, 2022 holders of our convertible notes payable elected to convert $1,679,860 in principle
in exchange for 13,288,670,557 shares of common stock, and $494,058 in accrued interest in exchange for 3,134,023,238 shares of common
stock. We also issued 333,840,157 shares of our common stock for $28,300 in conversion fees. These issuances ranged in price from $
to $.0011 per share. Total common shares issued for principal, accrued interest and conversion fees was 16,713,533,953 valued at $2,199,638
(8)
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to
spread throughout the world. While the disruption is currently expected to be temporary, there is uncertainty around its duration. As
a result of COVID-19 mobility restrictions globally, there have been changes in consumer behavior. We expect these changes in behavior
to continue to evolve as the pandemic progresses. The impacts seen to date may continue to create a wider range of outcomes as consumer
behaviors and mobility restrictions continue to evolve.
The
Covid 19 pandemic has impacted our business resulting in the cancellation of certain business contracts and eliminated our ability to
raise additional capital. Management will continue to explore business opportunities with patented technology that it feels it has the
expertise and resources to commercialize utilizing the Company’s capital structure.