Company Quick10K Filing
Northsight Capital
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 148 $0
10-Q 2018-11-15 Quarter: 2018-09-30
10-Q 2018-08-20 Quarter: 2018-06-30
10-Q 2018-05-21 Quarter: 2018-03-31
10-K 2018-04-02 Annual: 2017-12-31
10-Q 2017-11-14 Quarter: 2017-09-30
10-Q 2017-08-21 Quarter: 2017-06-30
10-Q 2017-05-15 Quarter: 2017-03-31
10-K 2017-04-17 Annual: 2016-12-31
10-Q 2016-11-14 Quarter: 2016-09-30
10-Q 2016-08-22 Quarter: 2016-06-30
10-Q 2016-05-16 Quarter: 2016-03-31
10-K 2016-04-14 Annual: 2015-12-31
10-Q 2015-11-20 Quarter: 2015-09-30
10-Q 2015-08-19 Quarter: 2015-06-30
10-Q 2015-05-20 Quarter: 2015-03-31
10-K 2015-05-20 Annual: 2014-12-31
10-Q 2014-11-19 Quarter: 2014-09-30
10-Q 2014-08-19 Quarter: 2014-06-30
10-Q 2014-05-20 Quarter: 2014-03-31
10-K 2014-04-15 Annual: 2013-12-31
10-Q 2013-11-19 Quarter: 2013-09-30
10-Q 2013-08-19 Quarter: 2013-06-30
10-Q 2013-05-20 Quarter: 2013-03-31
10-K 2013-04-01 Annual: 2012-12-31
10-Q 2012-11-19 Quarter: 2012-09-30
10-Q 2012-08-20 Quarter: 2012-06-30
10-Q 2012-05-21 Quarter: 2012-03-31
10-K 2012-05-14 Annual: 2011-12-31
10-Q 2011-11-21 Quarter: 2011-09-30
10-Q 2011-08-16 Quarter: 2011-06-30
10-Q 2011-05-10 Quarter: 2011-03-31
10-K 2011-03-03 Annual: 2010-12-31
10-Q 2010-11-12 Quarter: 2010-09-30
10-Q 2010-08-16 Quarter: 2010-06-30
10-Q 2010-05-17 Quarter: 2010-03-31
10-K 2010-04-15 Annual: 2009-12-31
8-K 2018-12-13 Enter Agreement, Off-BS Arrangement
8-K 2018-10-31 Enter Agreement, Off-BS Arrangement
8-K 2018-09-14 Off-BS Arrangement
8-K 2018-08-30 Sale of Shares
8-K 2018-08-07 Enter Agreement, Off-BS Arrangement
8-K 2018-07-11 Enter Agreement, Off-BS Arrangement
8-K 2018-06-25 Off-BS Arrangement
8-K 2018-02-05 Officers
8-K 2018-01-04 Enter Agreement, Leave Agreement, M&A, Sale of Shares
NCAP 2018-09-30
Part I - Financial Information
Item 1. Financial Statements.
Note 1 - Organization and Basis of Presentation
Note 2 - Liquidity/Going Concern
Note 3 - Recent Accounting Pronouncements
Note 4 - Web Development Costs and Domain Names Assets
Note 5 - Goodwill and Other Intangibles
Note 6 - Accounts Payable and Accrued Expenses Related Party
Note 7 - Notes Payable Related Party
Note 8 - Notes Payable
Note 9 - Derivative Liabilities
Note 10 - Business Acquisition
Note 11 - Equity
Note 12 - Stock Warrants
Note 13 - Earnings (Loss) per Share
Note 14 - Related Party Transactions
Note 15 - Commitments and Contingencies
Note 16 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-3.1 f10q093018_ex3z1.htm
EX-10.1 f10q093018_ex10z1.htm
EX-10.2 f10q093018_ex10z2.htm
EX-10.3 f10q093018_ex10z3.htm
EX-10.4 f10q093018_ex10z4.htm
EX-10.5 f10q093018_ex10z5.htm
EX-10.6 f10q093018_ex10z6.htm
EX-31.1 f10q093018_ex31z1.htm
EX-32.1 f10q093018_ex32z1.htm

Northsight Capital Earnings 2018-09-30

NCAP 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
BMIX 0 1 2 0 -0 -2 -2 -0 -581% 0.0 -199%
FHL
TELA
AFYA
THCB
PTACU
JFU
TIGR
FSRVU
JMIA

10-Q 1 f10q093018_10q.htm FORM 10-Q QUARTERLY REPORT FORM 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended September 30, 2018

 

[   ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the transition period from ____________ to____________

 

Commission File Number: 000-53661

 

NORTHSIGHT CAPITAL, INC.

(Exact name of issuer as specified in its charter)

 

Nevada

 

26-2727362

(State or Other Jurisdiction of incorporation or organization)

 

(I.R.S. Employer I.D. No.)

 

7580 E Gray Rd., Ste 103

Scottsdale, AZ 85260

(Address of Principal Executive Offices)

 

(480) 385-3893

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

 

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [   ]

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

[   ]

Accelerated filer

[   ]

Non-accelerated filer

[   ] (Do not check if a smaller reporting company)

Smaller reporting company

[X]

Emerging growth company

[   ]

 

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [X]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

The number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date:

 

Class

 

Outstanding as of November 14, 2018

Common Capital Voting Stock, $0.001 par value per share

 

148,755,141 shares


1



FORWARD LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, Financial Statements and Notes to Financial Statements contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended.

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

September 30, 2018

 

C O N T E N T S

 

Balance Sheets (unaudited)

3

Statements of Operations (unaudited)

4

Statements of Cash Flows (unaudited)

5

Notes to Unaudited Financial Statements

6


2



NORTHSIGHT CAPITAL, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

September 30,

 

December 31,

 

 

2018

 

2017

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$

72,980

 

$

612

Prepaid expenses

 

 

69,863

 

 

291,781

Stock subscription receivable

 

 

-

 

 

15,000

Total Current Assets

 

 

142,843

 

 

307,393

 

 

 

 

 

 

 

Web development costs, net $249,989 and $207,315 amortization

 

 

61,923

 

 

104,597

Goodwill

 

 

295,200

 

 

-

Other intangibles, net $87,345 amortization

 

 

385,225

 

 

-

Total Assets

 

$

885,191

 

$

411,990

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

196,398

 

$

219,800

Accounts payable and accrued expenses – related party

 

 

1,051,476

 

 

878,400

Notes payable – related party

 

 

2,282,188

 

 

2,000,293

Notes payable

 

 

159,900

 

 

79,900

Derivative liability

 

 

153,845

 

 

-

Convertible notes payable, net debt discounts

 

 

119,122

 

 

-

Total Current Liabilities

 

 

3,962,929

 

 

3,178,393

 

 

 

 

 

 

 

Noncurrent Liabilities

 

 

 

 

 

 

Convertible notes payable, net debt discounts

 

 

84,408

 

 

-

Notes payable – related party

 

 

400,000

 

 

400,000

Total Liabilities

 

 

4,447,337

 

 

3,578,393

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

-

 

 

-

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

Common stock - 500,000,000 shares authorized having a par value of $.001 per share; 148,255,141 and 121,018,241 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

148,255

 

 

121,018

Additional paid-in capital

 

 

19,540,455

 

 

18,638,874

Accumulated deficit

 

 

(23,250,856)

 

 

(21,926,295)

Total Stockholders’ Deficit

 

 

(3,562,146)

 

 

(3,166,403)

Total Liabilities and Stockholders’ Deficit

 

$

885,191

 

$

411,990

 

See accompanying notes to consolidated financial statements.


3



NORTHSIGHT CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

16,288

 

$

4,819

 

$

44,809

 

$

13,907

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

General administrative

 

246,794

 

 

43,383

 

 

937,699

 

 

164,699

Consulting expense - related party

 

45,000

 

 

45,000

 

 

135,000

 

 

135,000

Professional fees

 

66,701

 

 

49,899

 

 

226,301

 

 

190,813

Rent - related party

 

-

 

 

8,477

 

 

-

 

 

77,477

Total operating expenses

 

358,495

 

 

146,759

 

 

1,299,000

 

 

567,989

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(342,207)

 

 

(141,940)

 

 

(1,254,191)

 

 

(554,082)

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on extinguishment

 

5,352

 

 

-

 

 

68,264

 

 

(5,798)

Loss on investments

 

-

 

 

(17,361)

 

 

-

 

 

(17,361)

Interest expense

 

(99,589)

 

 

(11,327)

 

 

(151,167)

 

 

(49,128)

Gain (loss) on settlement of debt

 

-

 

 

(30,750)

 

 

-

 

 

45,867

Gain on derivatives

 

10,143

 

 

-

 

 

12,533

 

 

-

 Total other income (expense)

 

(84,094)

 

 

(59,438)

 

 

(70,370)

 

 

(26,420)

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

$

(426,301)

 

$

(201,378)

 

$

(1,324,561)

 

$

(580,502)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Number of Common Shares

 

 

 

 

 

 

 

 

 

 

 

Outstanding - Basic and Diluted

135,579,571

 

117,396,502

 

131,906,360

 

115,048,140

 

Loss per Common Share - Basic and Diluted

$

(0.00)

 

$

(0.00)

 

$

(0.01)

 

$

(0.01)

 

 

 

 

See accompanying notes to consolidated financial statements.


4



NORTHSIGHT CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

2018

 

2017

Cash Flows From Operating Activities

 

 

 

 

 

 

Net loss

 

$

(1,324,561)

 

$

(580,502)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

 

-

 

 

2,448

Amortization of web development costs

 

 

42,674

 

 

54,274

Amortization of intangible assets

 

 

87,345

 

 

-

Amortization of debt discounts

 

 

45,540

 

 

-

Gain (loss) on extinguishment of debt

 

 

(68,264)

 

 

5,798

Stock issued for consulting

 

 

298,918

 

 

-

Stock issued for debt commitment

 

 

23,400

 

 

-

Loss on settlement of obligations

 

 

-

 

 

(45,867)

Gain on derivatives

 

 

(12,533)

 

 

-

Loss on investments

 

 

-

 

 

17,361

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

(15,972)

 

 

46,051

Accounts payable - related party

 

 

173,076

 

 

139,168

Net Cash Used In Operating Activities

 

 

(750,377)

 

 

(361,269)

 

 

 

 

 

 

 

Cash Flows From by Investing Activities

 

 

 

 

 

 

Cash acquired in conjunction with business acquisition

 

 

4,400

 

 

-

Net Cash Provided by Investing Activities

 

 

4,400

 

 

-

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

 

Proceeds from the sale of common stock

 

 

150,000

 

 

25,000

Proceeds from equity receivable

 

 

30,000

 

 

-

Proceeds from convertible notes payable

 

 

451,250

 

 

-

Payments on convertible notes payable

 

 

(94,800)

 

 

-

Proceeds from notes payable – related party

 

 

484,550

 

 

457,549

Payments on notes payable – related party

 

 

(202,655)

 

 

(135,588)

Net Cash Provided by Financing Activities

 

 

818,345

 

 

346,961

 

 

 

 

 

 

 

Net Change In Cash

 

 

72,368

 

 

(14,308)

Cash, Beginning of Period

 

 

612

 

 

14,405

Cash, End of Period

 

$

72,980

 

$

97

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Cash paid for interest

 

$

-

 

$

-

Cash paid for income taxes

 

$

-

 

$

-

Non-Cash Activities

 

 

 

 

 

 

Common stock issued as settlement of obligations

 

$

263,823

 

$

142,398

Issuance of common stock payable

 

$

-

 

$

62,000

Conversion of notes payable into common stock

 

$

-

 

$

70,400

Common stock issued in conjunction with Crush Mobile acquisition

 

$

382,512

 

$

-

Common stock issued for debt payments

 

$

234,000

 

$

-

Derivatives recorded as debt discounts

 

$

166,378

 

$

-

Warrants recorded as debt discounts

 

$

32,082

 

$

-

 

See accompanying notes to consolidated financial statements.


5



NORTHSIGHT CAPITAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2018

 

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

 

Organization

 

Northsight Capital Inc. (“Northsight” or “the Company”) was incorporated in the State of Nevada on May 21, 2008. In May, 2011, Safe Communications, Inc. (n/k/a Kuboo, Inc.) acquired 80% of the Company’s issued and outstanding common stock, and, as a result, became its parent company. On June 25, 2014, the Company completed the acquisition of approximately 7,500 cannabis related Internet domain names, in exchange for which the Company issued 78.5 million shares of its common stock and a promissory note in the principal amount of $500,000. As a result of this transaction, the seller of the domain names became an 81% stockholder of the Company. Kuboo, Inc. continues to be a significant stockholder of the Company.  John Venners, our EVP of Operations and a director, is also a director of Kuboo, Inc.

 

The Company’s principal business is to provide a wide variety of online directories for a broad range of businesses engaged in the lawful sale and distribution of cannabis and hemp related products. Through the acquisition of Crush Mobile (described below), the Company is developing a group of dating sites with a presence in the Latino, Israeli and African American communities. The following constitute the Company’s major product categories:  a monthly listing in one or more of the Company’s online directories, paid advertising in one or more of the Company’s online directories, leasing to customers one or more internet domain names for the customer’s exclusive use, and paid and unpaid online dating applications.

 

In May 2017, we signed a non-binding memorandum of terms to acquire Crush Mobile. On August 8, 2017, we entered into a definitive agreement to acquire all the outstanding membership interests of Crush Mobile, LLC, which was amended by Amendment No. 1 dated January 4, 2018 (as amended, the “Agreement”). As reported in our form 8-K filed with the SEC on January 10, 2018, the Crush acquisition was closed January 8, 2018. Accordingly, Crush’s operations are not included in the financial statements of the company as of December 31, 2017. Under the terms of the Agreement, we acquired all the outstanding membership interests of Crush Mobile, in exchange for an aggregate of approximately 8 million shares of common stock, plus $80,000 in cash, payable within one year of closing. We also agreed to piggy-back registration rights with respect to the shares of common stock issuable to the sellers in connection with the acquisition. In connection with Amendment No. 1 to the Agreement, the parties waived the condition that the Company complete a funding of at least $500,000.

 

Crush Mobile’s assets consist primarily of trademarks, domain names, mobile dating applications and related software and intellectual property. Crush Mobile, with approximately nine hundred thousand members, has developed a group of dating sites with a presence in the Latino, Israeli and African American communities. Crush will also be incorporating Northsight’s “Joint Lovers” dating app, which concentrates on the Cannabis space, into its dating applications suite.

 

On October 15, 2018, the Company amended its Articles of Incorporation to increase the authorized common shares of the Company from 200,000,000 to 500,000,000.

 

The accompanying financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The interim financial statements reflect all adjustments, consisting of normal recurring adjustments which, in the opinion of management, are necessary to present a fair statement of the results for the period.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The results of operations for the three and nine months ended September 30, 2018, are not necessarily indicative of the operating results for the full year.

 

Principles of Consolidation

 

The Company and its subsidiary consist of the following entities, which have been consolidated in the accompanying financial statements:

 

Northsight Capital, Inc.

Crush Mobile, LLC

 

All intercompany balances have been eliminated in consolidation.


6



NOTE 2 – LIQUIDITY/GOING CONCERN

 

The Company had net losses of $426,301 and $1,324,561 for the three and nine months ended September 30, 2018, has accumulated losses of $23,250,856 and has had consistent negative cash flows from operating activities since inception (May 2008). These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. During the nine months ended September 30, 2018 the Company received a net $281,895 in loans from related party shareholders, and $451,250 from convertible notes to fund operations.  Management plans to (i) raise additional capital as soon as possible, to fund continued operations of the Company and (ii) continue its efforts to generate revenues and income from operations.

 

In the event the Company does not generate sufficient funds from revenues or financing through the issuance of its common stock or from debt financing, the Company will be unable to fully implement its business plan and pay its obligations as they become due, any of which circumstances would have a material adverse effect on its business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities.

 

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS

 

Management believes the impact of recently issued standards and updates, which are not yet effective, will not have a material impact on the Company’s financial position, results of operations or cash flows upon adoption.

 

With the adoption of ASC 606, the Company reviewed its previous revenue recognition policy under ASC 605.  The Company determined that there were no material changes resulting from the adoption. Revenue would be recognized when the promised goods or services is provided to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. This is consistent with the revenue recognition policy previously used by the Company. The Company also reviewed the timing and recognition of accounts receivable for which the Company generates revenue and has determined no changes to be made to prior periods.

 

NOTE 4 – WEB DEVELOPMENT COSTS AND DOMAIN NAMES ASSETS

 

In accordance with ASC 350-50, during the nine months ended September 30, 2018 and the year ended December 31, 2017, the Company did not capitalize any expenses towards the development of multiple websites on which third parties can advertise the sale and distribution of cannabis related products and services: an online “yellow pages.” During the nine months ended September 30, 2018 and 2017 the Company recorded website development expenses of $30,609 and $5,750, respectively, which is included in general and administrative expenses on the Company’s consolidated statements of operations.

 

The Company amortizes these assets over their related useful lives (approximately 1 to 5 years), using a straight-line basis. Assets are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable, or at least annually. Measurement of the amount of impairment, if any, is based upon the difference between the asset’s carrying value and estimated fair value. Fair value is determined through various valuation techniques, including market and income approaches as considered necessary. During the nine months ended September 30, 2018 and 2017 the Company recorded amortization expense of $42,674 and $54,274, respectively, related to websites previously launched.  

 

 

 

As of

September 30,

2018

 

As of

December 31,

2017

 

Amortization

Period

Web development costs

 

 

311,912

 

 

311,912

 

5 years

Capitalized costs

 

 

-

 

 

-

 

 

Less: accumulated depreciation

 

 

(249,989)

 

 

(207,315)

 

 

 

 

$

61,923

 

$

104,597

 

 


7



NOTE 5 – GOODWILL AND OTHER INTANGIBLES

 

On January 8, 2018, the Company closed its acquisition of Crush Mobile LLC. Under the terms of the Agreement, we acquired all the outstanding membership interests of Crush Mobile, in exchange for an aggregate 7,904,000 shares of common stock valued at $616,512, plus $80,000 in cash, payable within one year of closing. Crush Mobile’s assets consist primarily of trademarks, domain names, mobile dating applications and related software and intellectual property which the company has initially internally fair valued pending an independent 3rd party valuation.

 

Goodwill and intangible assets consisted of the following at September 30, 2018 and December 31, 2017:

 

 

 

As of

September 30,

2018

 

As of

December 31,

2017

 

Estimated

Useful Life

Trademarks

 

$

323,665

 

$

-

 

5 years

Software and intellectual property

 

 

140,000

 

 

-

 

3 years

Customer lists

 

 

8,905

 

 

-

 

1 year

Goodwill

 

 

295,200

 

 

-

 

1 year

Total

 

 

767,770

 

 

-

 

 

Less: Accumulated amortization

 

 

(87,345)

 

 

-

 

 

 

 

$

385,225

 

$

-

 

 

 

The Company records amortization expense for intangible assets on a straight-line basis over the estimated life of the related asset (approximately 1-5 years). Goodwill is tested annually for impairment.  The Company recorded amortization expense of $87,345 during the nine months ended September 30, 2018.

 

NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES RELATED PARTY

 

At September 30, 2018, the Company had a balance in related party accounts payable and accrued expenses of $1,051,476 which consisted of the following:

 

Party Name:

Relationship:

 

 

Amount

Howard Baer

Spouse of significant shareholder

Consulting fees

$

462,500

Howard Baer

Spouse of significant shareholder

Accrued interest

 

154,984

John Venners

Director/EVP, President and CEO of Kuboo, Inc.

Consulting fees/salaries

 

233,466

John Venners

Director/EVP, President and CEO of Kuboo, Inc.

Advances

 

3,000

Kuboo, Inc.

Former parent company, significant shareholder

Rent

 

166,976

John Lemak

Significant shareholder

Accrued interest

 

30,550

 

 

 

$

1,051,476

 

NOTE 7 – NOTES PAYABLE RELATED PARTY

 

On May 19, 2015, the Company issued Kae Yong Park and her spouse Howard Baer (together, “Park”) a non-interest bearing, unsecured demand promissory note to evidence all unpaid advances received by the Company to that point and to cover all additional advances received afterward.  Unpaid principal under the note is due and payable upon the earlier of (i) an “event of default” (as defined), (ii) written demand and (iii) the Company’s receipt of capital (to the extent of net proceeds received) from any capital raising transaction after May 15, 2015, whether in the form of debt, equity or otherwise.

 

On September 30, 2015, the Company amended and restated its promissory note to Park to include all advances to date and provide certain assets, including all internet domain names, websites and related assets as collateral.  Repayment terms remain the same, and Park has to date not enforced the provision requiring repayment upon receipt of net proceeds from capital raising transactions.

 

During the nine months ended September 30, 2018, Park advanced an aggregate of $259,550 on an unsecured basis to the Company for short-term capital needs.  During this period, the Company also repaid $142,650 of its debt to Park and recaptured $60,000 worth of payroll expenses for Park’s use of Company personnel.  At September 30, 2018, the Company had a note payable to Park for these advances of $1,349,252 which is secured by the assets of the Company.  Park’s security interest in certain of the Company’s domains, websites and other assets has been subordinated to the security interest granted to John Lemak (and affiliated persons), who is an affiliate of Sandor capital, a significant shareholder, in connection with advances Mr. Lemak and related persons made to the company. Due to the on-demand nature of the amount owed to Park, the company has classified it as a current liability.


8



The following table summarizes the Company’s balance for these advances for the nine months ended September 30, 2018:

 

Amount due - December 31, 2017

$

1,292,357

Advances received from Park

 

259,550

Repayments made to Park

 

(142,655)

Recapture of company expenses

 

(60,000)

Balance due – September 30, 2018

$

1,349,252

 

On June 23, 2014, the Company issued a $500,000 promissory note in conjunction with the purchase of approximately 7,500 cannabis-related internet domain names. The note originally bore interest at the rate of 3.25% per annum and the first $100,000 of which was payable upon the Company’s receipt of an aggregate of $1,000,000 in funding (whether debt or equity). The remaining $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month the Company realizes at least $150,000 in gross revenue (see Note 15 - Commitments and Contingencies).

 

On July 25, 2014, the Company amended and restated its promissory note in the principal amount of $500,000 owing to Kae Yong Park (the Company’s then majority shareholder) to provide that it would make the first $100,000 installment payment due under the Note on July 25, 2014 (earlier than required), in exchange for which Kae Yong Park agreed to waive all interest due over the term of the note. Thereafter, Kae Yong Park waived the requirement that the Company pay the $100,000 due under the Amended and Restated Note until August 25, 2014, at which time it was paid.  The Company subsequently recaptured all previously recorded interest expense related to the note.

 

Between December 1, 2016 and March 16, 2017, the Company received aggregate proceeds of $101,299 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which notes were issued bearing 8% interest annually. On April 1, 2017, the Company issued a note for $102,465 consisting of $101,000 in principal and $1,465 in accrued interest for the previous notes. The $299 forgiven as part of the note restructure was recorded as a gain on extinguishment of debt. The note is non-interest bearing, matures on September 30, 2018, as amended, and is unsecured.

 

Between December 15, 2016 and January 13, 2017, the Company received aggregate proceeds of $41,550 from Sandor Capital, a related party and significant shareholder, for which notes were issued bearing 8% interest annually. On April 1, 2017, the Company issued a note for $42,374 consisting of $41,550 in principal and $824 in accrued interest for the previous notes. The note is non-interest bearing, matures on September 30, 2018, as amended, and is unsecured.

 

On April 1, 2017, the company renegotiated a $65,000 note to Sandor Capital, a related party and significant shareholder, with interest tied to the performance of its joint venture agreement into a new $71,097 note. The note is non-interest bearing, matures on September 30, 2018, as amended, and is unsecured. At the time of the refinance, the joint venture had not produced positive income, so no interest was due on the note. The $6,097 consideration given on the new note was recorded as a loss on extinguishment of debt.

 

Between May 1, 2017 and June 29, 2017, the Company received aggregate proceeds of $140,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which notes were issued bearing 8% interest annually. On April 1, 2017, the Company issued a note for $140,000 to restructure the previous notes. The note is non-interest bearing, matures on January 31, 2019 as amended, and is secured by certain domain names and websites owned by the Company.

 

Between August 1, 2017 and September 28, 2017, the Company received aggregate proceeds of $182,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which several notes were issued bearing 8% interest annually. The notes are non-interest bearing, mature on January 31, 2019, as amended, and secured by certain of the company’s domain name and websites.

 

Between October 1, 2017 and December 22, 2017, the Company received aggregate proceeds of $170,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which several notes were issued bearing 8% interest annually. The notes mature on January 31, 2019, as amended, and are secured by certain of the company’s domain name and websites.

 

On February 15, 2018, the Company received $40,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by certain of the company’s domain name and websites.

 

On March 29, 2018, the Company received $25,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, 2018, as amended, and is secured by the Company’s equity interests in Crush Mobile LLC (pari passu with Park).


9



On March 29, 2018, the Company received $50,000 from Kae Yong Park and her spouse Howard Baer (together, “Park”), a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by the a subordinated interest in the Company’s equity interests in Crush Mobile LLC.

 

On April 17, 2018, the Company received $40,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by the Company’s equity interests in Crush Mobile LLC (pari passu with Park).

 

On May 8, 2018, the Company received $50,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by the Company’s equity interests in Crush Mobile LLC (pari passu with Park).

 

On June 1, 2018, the Company received $16,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by certain of the company’s domain name and websites.

 

On June 3, 2018, the Company received $4,000 from John Lemak, an affiliate of Sandor Capital, a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on January 31, 2019, as amended, and is secured by certain of the company’s domain name and websites.

 

NOTE 8 – NOTES PAYABLE

 

Notes Payable

 

On July 1, 2015, the Company entered into a seven (7) day loan agreement with two parties for aggregate proceeds of $34,900.  The note bears interest at the rate of six percent (6%) annually.  In addition to the loans, the Company issued an aggregate 349,000 shares of common stock valued at $26,016 and warrants to purchase an aggregate 100,000 shares of the Company’s common stock at an exercise price of $0.25 per share valued at $6,898.  The relative fair value of the shares and warrants associated with these notes have been recorded as debt discount to be amortized over the life of the loans.  As of September 30, 2018, these notes have not yet been repaid and are in default.

 

On August 10, 2015, the Company entered into a one hundred twenty (120) day loan agreement with an existing investor for aggregate proceeds of $45,000 (two installments of $22,500 each).  The note bears interest at the rate of six percent (6%) annually.  As additional consideration for these loans, the Company issued an aggregate 1,200,000 shares of common stock valued at $38,918.  The relative fair value of the shares associated with these notes have been recorded as debt discount to be amortized over the life of the loans). As of September 30, 2018, these notes have not yet been repaid and are in default.

 

On January 8, 2018, the Company assumed $80,000 in note payable to a former equity holder through its acquisition of Crush Mobile LLC.  The note bears interest at 1% annually and matures one year from the date of acquisition.

 

On January 8, 2018, the Company assumed $300,000 in notes payable to former equity holders through its acquisition of Crush Mobile LLC.  The notes were concurrently settled at closing through the issuance of 3,000,000 shares of the Company’s common stock. The Company recognized a gain on settlement of $66,000 related to these note settlements.

 

Convertible Notes

 

On January 10, 2018, the Company issued a three-year $100,000 convertible zero coupon note for proceeds of $85,000. The note is initially convertible into shares of the Company’s stock at a price of $0.10 per share or a total of 1,000,000 shares.  The note contains a provision which, in the event of default, adjusts the conversion price to equal 65% of the lowest closing price for the preceding 20 trading days.  At the time the note was signed, the Company was in default on a previous note which triggered this default provision. Consequently, the Company has accounted for this through the creation of a derivative liability initially valued at $19,487 which was recorded as a discount to the debt.


10



On June 21, 2018, the Company issued a $58,000 convertible note for which it received $55,000 in proceeds.  The note matures on September 20, 2019 and bears interest at an annual rate of 10%. The note is convertible into common stock at a price to equal 61% of the average of the lowest two trading prices for the preceding 15 trading days.  At the time the note was signed, the Company was in default on a previous note which triggered the default provision in the note.  Consequently, the Company accounted for this through the creation of a derivative liability initially valued at $15,140 which was recorded as a discount to the debt.  On September 19, 2018, this note was redeemed by the Company for an aggregate payment of $72,505.

 

On July 10, 2018, the Company borrowed $50,000 from a third-party pursuant to a convertible promissory note for which the company received $47,500 in proceeds. The note bears interest at 10% annually and matures on or about October 10, 2019. The Note is convertible into common stock of the Company, commencing 6 months after the issue date, at a variable conversion price equal to a 39% discount to the average of the two lowest closing bids over the last fifteen days of the Company’s common stock.  The conversion option pricing adjusts the number of shares the note is convertible into based on current stock price making the number of shares the note is convertible into variable.  Consequently, the Company accounted for this through the creation of a derivative liability initially valued at $6,695 which was recorded as a discount to the debt.  Between August 8, 2018 and September 25, 2018, the Company made aggregate principle repayments of $36,800 on the note, leaving a balance of $13,200 as of September 30, 2018

 

On August 2, 2018, the Company borrowed $66,150 from a third-party pursuant to a convertible promissory note for which the Company received $60,000 in proceeds. The note bears interest at 8% annually and matures on or about August 2, 2019.  The Note is convertible into Company common stock, commencing 6 months after the issue date, at a variable conversion price equal to a 38% discount to the market price of the common stock.  The conversion option pricing adjusts the number of shares the note is convertible into based on current stock price making the number of shares the note is convertible into variable.  Consequently, the Company accounted for this through the creation of a derivative liability initially valued at $20,447 which was recorded as a discount to the debt.

 

On September 13, 2018, the Company issued a promissory note in the principal amount of $150,000 and a warrant to purchase 3,750,000 shares, to a third-party for a purchase price of $150,000 for which the Company received $137,250 in proceeds. The note bears interest at 12% annually and matures on or about June 13, 2019.  The Note is convertible into Company common stock, commencing 6 months after the issue date, at a variable conversion price equal to a 39% discount to the market price of the common stock.  The conversion option pricing adjusts the number of shares the note is convertible into based on current stock price making the number of shares the note is convertible into variable.  Consequently, the Company accounted for this through the creation of a derivative liability initially valued at $57,820 which was recorded as a discount to the debt.  Additionally, the warrants which were valued at a relative fair value of $32,082 were also recorded as a discount of the debt.

 

On September 19, 2018, the Company borrowed $75,000 from a third-party pursuant to a convertible promissory note for which the Company received $66,500 in proceeds. The note bears interest at 12% annually and matures on or about September 19, 2019. The Note is convertible into Company common stock, commencing 6 months after the issue date, at a variable conversion price equal to a 40% discount to the market price of the common stock.  The conversion option pricing adjusts the number of shares the note is convertible into based on current stock price making the number of shares the note is convertible into variable.  Consequently, the Company accounted for this through the creation of a derivative liability initially valued at $46,788 which was recorded as a discount to the debt.

 

The following table summarizes the Company’s notes and convertible notes payable for the nine months ended September 30, 2018:

 

 

Notes

 

Convertible Notes

Balance – December 31, 2017

$

79,900

 

$

-

Note proceeds received

 

-

 

 

451,250

Original discounts

 

-

 

 

47,900

Notes acquired from business acquisition

 

80,000

 

 

-

Repayments on notes

 

-

 

 

(94,800)

Total

 

159,000

 

 

404,350

Short term portion

 

159,000

 

 

291,150

Long term portion

 

-

 

 

113,200

Debt discounts

 

-

 

 

(200,820)

Balance –September 30, 2018

$

159,900

 

$

203,530


11



NOTE 9 – DERIVATIVE LIABILITIES

 

The Company has identified conversion features embedded within its convertible notes issued January 10, 2018 and June 21, 2018 (see Note 8 – Notes Payable), and has determined that the features associated with the embedded conversion options should be accounted for at fair value as a derivative liability.  The Company has valued the embedded conversion features using a Binomial Lattice Model.

 

The fair value of the conversion feature is summarized as follows:

 

Derivative liability - December 31, 2017

 

 $

-

Day one value of derivatives issued

 

 

166,378

Fair value mark to market adjustment for equity instruments

 

 

(12,533)

Derivative liability – September 30, 2018

 

$

153,845

 

The Company recorded the day one value of derivative contract associated with the convertible note issuances as a discount to the debt agreement to be amortized over the life of the agreement. The Company recorded a gain on derivatives of $12,533 during the nine months ended September 30, 2018.

 

The fair values at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of September 30, 2018:

  

 

 

Commitment Date

 

Re-measurement Date

Expected dividends

 

 

0%

 

 

0%

Expected term:

 

 

9 months - 3 years

 

 

9 months – 2.25 years

Risk free interest rate

 

 

2.07 – 2.58%

 

 

2.59%

 

NOTE 10 – BUSINESS ACQUISITION

 

On January 8, 2018, the Company completed its acquisition of Crush Mobile, LLC (“Crush Mobile”) from its members.  Crush Mobile’s assets consist primarily of trademarks, domain names, mobile dating applications and related software and intellectual property. In connection with the closing of the acquisition, the Registrant is issuing an aggregate of 7,904,000 shares of common stock as follows: (i) 4,904,000 shares to the Crush Mobile members and (ii) 3,000,000 shares to certain Crush Mobile creditors (who are also members) in full satisfaction of $300,000 of indebtedness owed to them by Crush Mobile.

 

The Company applied the acquisition method of accounting to the business combination and has valued each of the assets acquired (cash, accounts receivable, customer lists, and intangible assets) and liabilities.  The cash, accounts receivable, intangible assets, accounts payable and notes payable were deemed to be recorded at fair value as of the acquisition date. The preliminary allocation of the purchase price was based on estimates of the fair value of the assets and liabilities assumed based on provisional amounts. The allocation of the excess purchase price is not final and the amounts allocated to intangible assets are subject to change pending the completion of final valuations of certain assets and liabilities. Under the purchase agreement, the Company issued 4,904,000 shares of common stock, and an additional 3,000,000 shares of common stock to satisfy outstanding notes payable.

 

The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

Purchase Price

 

 

4,904,000 shares of common stock valued at $0.078 per share

 

$

382,512

 

 

 

 

Allocation of Purchase Price

 

 

 

Cash

 

$

4,400

Receivables

 

 

15,000

Trademarks

 

 

323,665

Intellectual property

 

 

140,000

Customer lists

 

 

8,905

Goodwill

 

 

295,200

Accounts payable

 

 

(24,658)

Debt Obligations

 

 

(380,000)

 

 

$

382,512

 

From the date of acquisition on January 8, 2018 to September 30, 2018, Crush Mobile generated total revenue of $33,644.


12



NOTE 11 – EQUITY

 

On October 15, 2018, the Company amended its Articles of Incorporation to increase the authorized common shares of the Company from 200,000,000 to 500,000,000.

 

On January 10, 2018, the Company issued 106,500 shares of the Company’s commons stock to a vendor as settlement of a payable balance of $5,325, resulting in a loss on settlement of $3,089.

 

On January 8, 2018, the Company issued 300,000 shares of the Company’s commons stock valued at $23,400 as a commitment fee to a prospective investor.

 

On January 8, 2018, the Company issued an aggregate 7,904,000 shares of the Company’s common stock valued at $616,512, or $0.078 per share, in connection with the closing of the Crush Mobile acquisition (see Note 10 – Business Acquisition). Of these shares, 4,904,000 were issued as part of the acquisition and 3,000,000 shares were issued to settle $300,000 in notes payable.

 

On January 8, 2018, the Company issued 500,000 shares of the Company’s common stock valued at $39,000 to Tumbleweed Holdings pursuant to their prior settlement agreement.

 

On February 16, 2018, the Company issued 500,000 shares valued at $25,500, or $0.05 per share, of the Company’s common stock pursuant to a consulting contract.

 

On February 6, 2018, the Company issued 250,000 shares valued at $12,500, or $0.05 per share, of the Company’s common stock pursuant to a consulting contract.

 

On September 30, 2018, the Company issued 2,676,400 shares of the Company’s commons stock to, as settlement of a payable balance of $26,764, reflecting a price per share of $0.01.  The Company recorded a gain on settlement of $5,353 related to this transaction.

 

Between August 7, 2018 and September 30, 2018, the Company sold an aggregate of 15,000,000 shares of common stock for gross proceeds of $150,000 (a price per share of $0.01).  The securities were sold solely to “accredited investors”, as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended.

 

NOTE 12 – STOCK WARRANTS

 

The Company has applied fair value accounting for all warrants issued. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model.

 

On September 14, 2018, the Company issued a warrant to purchase 3,750,000 shares, in conjunction with a note payable (see Note 8 – Notes Payable).  The warrants which were valued at a relative fair value of $32,082, using the Black-Scholes pricing model after adjusting for relative value based on a total Black-Scholes value of $40,811.

 

The Company has classified the warrant as having Level 2 inputs, and has used the Black-Scholes option-pricing model to value the warrant.  The fair value at the commitment and re-measurement dates for the above warrant was based upon the following management assumptions:

 

 

 

Commitment Date

Expected dividends

 

 

0%

Expected volatility

 

 

225%

Expected term:

 

 

5 years

Risk free interest rate

 

 

2.87%

 

A summary of the Company’s warrant activity for the nine months ended September 30, 2018 is as follows:

 

 

 

Number of

Warrants

 

Weighted Average

Exercise Price

Outstanding – December 31, 2017

 

 

11,355,285

 

$

0.05

Granted

 

 

3,750,000

 

 

0.01

Expired

 

 

(1,225,000)

 

 

0.10

Cancelled

 

 

-

 

 

-

Exercised/settled

 

 

-

 

 

-

Balance as September 30, 2018

 

 

13,880,285

 

$

.04


13



 

The Company’s outstanding warrants at September 30, 2018 are as follows:

 

Warrants Outstanding

 

Warrants Exercisable

 


Exercise Price Range

 

Number
Outstanding

 

Weighted Average
Remaining
Contractual Life (in
years)

 

Weighted Average
Exercise Price

 

Number
Exercisable

 

Weighted
Average
Exercise Price

 

Intrinsic Value

 

$0.01 - $0.10

 

 

 

13,880,285

 

 

2.83

 

$

0.04

 

 

13,880,285

 

$

0.04

 

 

-

 

 

NOTE 13 – EARNINGS (LOSS) PER SHARE

 

Net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.

 

Since the Company reflected a net loss for the three and nine months ended September 30, 2018 and 2017, respectively, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive. Therefore, a separate computation of diluted earnings (loss) per share is not presented.

 

The Company has the following common stock equivalents as of September 30, 2018:

 

 

 

As of

September 30,

2018

Warrants (exercise price $0.05 - $0.25/share)

 

 

13,880,285

Convertible debt (exercise price $0.0048 - $0.0052/share)

 

 

83,774,305

 

 

 

97,654,590

 

NOTE 14 – RELATED PARTY TRANSACTIONS

 

On April 13, 2016, the Company agreed to amend the promissory note with Kae Yong Park and Howard R. Baer so as to make $564,000 in principal amount due under said Note interest bearing at the rate of 10% per annum, effective January 1, 2016. The remaining principal is non-interest bearing. During the nine months ended September 30, 2018, the company incurred interest expense of $42,030 related to this note.  At September 30, 2018, the Company has accrued interest owed under this agreement of $154,984.

 

During the nine months ended September 30, 2018, the Company received aggregate proceeds of $175,000 from Sandor Capital, a related party and significant shareholder and John Lemak, its affiliate, for which notes were issued. The notes mature Between August 30 and September 30, 2018 and are secured by certain company assets. At September 30, 2018, the Company had accrued interest of $30,550 related to his notes.

 

During the nine months ended September 30, 2018, the Company received proceeds of $50,000 from Kae Yong Park, a significant shareholder, and her spouse, Howard Baer, a related party and significant shareholder for which a note was issued. The note, as amended, matures September 30, 2018 and is secured by certain company assets. At September 30, 2018, the Company had accrued interest of $2,027 related to this note.

 

During the nine months ended September 30, 2018, Kae Yong Park, a significant shareholder, and her spouse, Howard Baer (collectively, “Park”), advanced an aggregate of $259,550 on an unsecured basis to the Company for short-term capital needs.  During this period, the Company also repaid $142,655 of its secured debt to Park and recaptured $60,000 worth of payroll expenses for Park’s use of Company personnel.  At September 30, 2018, the Company had a note payable to Park for these advances of $1,349,252 which is secured by the assets of the Company.  

 

During the nine months ended September 30, 2018, the Company incurred expenses of $135,000 related to its consulting contract with Howard Baer, the spouse of Kae Yong Park, our significant shareholder.


14



NOTE 15 – COMMITMENTS AND CONTINGENCIES

 

In May 2014, The Company entered into an asset purchase agreement that requires the Company to pay a monthly royalty equal to six percent of gross monthly revenues over $150,000. The royalty payment is payable for a period of thirty-six months from and after the first month in which the Company’s gross revenues are in excess of $150,000.

 

On June 23, 2014, the Company issued a $500,000 promissory note in conjunction with the purchase of approximately 7,500 cannabis-related internet domain names. The original note bore interest at the rate of 3.25% per annum and was payable as follows: upon the Company’s receipt of an aggregate of $1,000,000 in funding (whether debt or equity), $100,000 was required to be paid. The remaining $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month the Company realizes at least $150,000 in gross revenue.

 

On July 25, 2014, the Company amended and restated its promissory note in the principal amount of $500,000 owing to Kae Yong Park (the Company’s then majority shareholder) to provide that it would make the first $100,000 installment payment due under the Note on July 25, 2014 (earlier than required), in exchange for which Kae Yong Park agreed to waive all interest due over the term of the note. Thereafter, Kae Yong Park waived the requirement that the Company pay the $100,000 due under the Amended and Restated Note until August 25, 2014, at which time it was paid.  

 

NOTE 16 – SUBSEQUENT EVENTS

 

We have evaluated all events that occurred after the balance sheet date through the date when our financial statements were issued to determine if they must be reported. Management has determined that other than as disclosed below, there were no additional reportable subsequent events to be disclosed.

 

Convertible Notes

 

On October 31, 2018, the Company borrowed $58,000 from a third-party pursuant to a convertible promissory note. The note has a face amount of $60,000 (issued for a purchase price of $58,000, a 3.33% original issue discount), bears interest at 10% annually and matures on or about October 29, 2019.

 

Equity

 

On October 1, 2018, the Company issued 500,000 shares of the Company’s common stock to an investor for proceeds of $5,000 or $0.01 per share.


15



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-looking Statements

 

Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.

 

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.

 

Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

 

Overview

 

On June 23, 2014, the Company acquired approximately 7,500 cannabis related Internet domain names from Kae Yong Park (who then became our majority shareholder in connection with such acquisition). The list of domain names we acquired is filed as Exhibit 99.3 to the Form 8-K Current Report filed with the Commission on June 25, 2014. Currently, we own approximately 1,276 cannabis related internet domain names. Based upon our limited capital resources, we have determined to continue to allow certain domain names to expire that we concluded were of little utility to us given our business strategy.

 

In consideration of the acquisition of these assets from Kae Yong Park, we issued her 78.5 million shares of our common stock. In addition, we issued a promissory note in the aggregate principal amount of $500,000, $100,000 of which has been paid and the payment of $400,000 of which is contingent upon our achieving $150,000 in monthly revenues (see Note 14 - Related Party Transactions and Note 15 - Commitments and Contingencies). The remaining balance of $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month the Company realizes at least $150,000 in gross revenue.

 

The Company has already launched several websites and portals and, subject to availability of sufficient funding (which the Company does not currently have), intends to build additional websites/portals around its owned internet domain names. These websites/portals will serve as directories for businesses engaged in the lawful sale and distribution of cannabis and hemp related products.

 

In May 2017, we signed a non-binding memorandum of terms to acquire Crush Mobile. On August 8, 2017, we entered into a definitive agreement to acquire all the outstanding membership interests of Crush Mobile, LLC, which was amended by Amendment No. 1 dated January 4, 2018 (as amended, the “Agreement”). As reported in our form 8-K filed with the SEC on January 10, 2018, the Crush acquisition was closed January 8, 2018. Accordingly, Crush’s operations are not included in the financial statements of the company as of December 31, 2017. Under the terms of the Agreement, we acquired all the outstanding membership interests of Crush Mobile, in exchange for an aggregate of approximately 8 million shares of common stock, plus $80,000 in cash, payable within one year of closing. We also agreed to piggy-back registration rights with respect to the shares of common stock issuable to the sellers in connection with the acquisition. In connection with Amendment No. 1 to the Agreement, the parties waived the condition that the Company complete a funding of at least $500,000.

 

Crush Mobile’s assets consist primarily of trademarks, domain names, mobile dating applications and related software and intellectual property. Crush Mobile, with approximately nine hundred thousand members, has developed a group of dating sites with a presence in the Latino, Israeli and African American communities. Crush will also be incorporating Northsight’s “Joint Lovers” dating app, which concentrates on the Cannabis space, into its dating applications suite.

 

The Company was previously a “shell company” within the meaning of applicable securities laws. The Company has ceased to be a “shell company” within the meaning of applicable securities laws in that the Company has raised capital, hired employees, leased space, acquired domain names, including prior to the acquisition described herein, engaged consultants and advisors, completed the construction and launch of its primary website, “WeedDepot.com’, negotiated vendor relationships and conducted extensive sales and marketing related activities, including through search engine optimization, direct selling efforts, direct mail, electronic mail, social media, and online advertising.


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Recent Funding History

 

Between January 8, 2018 and September 30, 2018, 2018 Kae Yong Park, a significant shareholder, and her spouse, Howard R, Baer (collectively, Park), made $259,550 of cash advances to us to fund our basic operations, $142,655 of which has been repaid and $60,000 of which was recaptured for Park’s use of Company personnel, leaving a balance due of $1,349,252, as of November 12, 2018.

 

On March 29, 2018, the Company received $50,000 from Kae Yong Park and her spouse Howard Baer (together, “Park”), a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on September 30, 2018, as amended, and is secured by the Company’s equity interests in Crush Mobile LLC.

 

Neither Ms. Park nor Mr. Baer are under any obligation to provide any further funding to the Company. The funding received to date is insufficient to fund the Company’s basic business operations.  The Company has an immediate and urgent need for additional capital. Since early 2015, the Company has experienced great difficulty in raising capital from third parties. See “Liquidity and Capital Resources.”

 

Between February 15, 2018 and June 5, 2018, the Company received aggregate proceeds of $175,000 from a Sandor Capital, related party and significant shareholder and John Lemak, its affiliate, for which notes were issued bearing 8% interest annually. The notes mature between August 30, 2018 and September 30, 2018, as amended, and are secured by certain of the Company’s URLs and websites (www.weedepot.com, www.ratemystrain.com, www.marijuanamd.com and www.420careers.com) and its ownership interests in Crush Mobile LLC.  The Company had total notes payable to the related party and its affiliate of $882,936 at November 14, 2018.

 

Neither Mr. Lemak nor Sandor Capital are under any obligation to provide any further funding to the Company.

 

Additionally, Between January 8, 2018 and October 31, 2018, but Company issued an aggregate $557,150 in convertible notes to fund operations.

 

The Company has used these limited funds to fund its basic operations on a severely scaled back basis.

 

Results of Operations

 

Three Months Ended September 30, 2018 Compared to the Three Months Ended September 30, 2017

 

The Company incurred net losses of approximately $426,000 for the three months ended September 30, 2018 as compared to a net loss of $201,000 for the three months ended September 30, 2017.  The approximate $225,000 increase in net loss is due primarily to the following: (all numbers approximate) an increase in general and administrative expense of $203,000, due mainly to an increase in consulting and contract labor expenses related to the operations of the Crush Mobile acquisition, a $17,000 increase in professional fees and an increase of $88,000 in interest expense due to increased borrowing in the current period, partially offset by a $8,000 decrease in rent – related party, a $10,000 increase in gain on derivatives, a 5,000 non-cash increase in gain on extinguishment of debt, a $31,000 non-cash decrease in settlement expense, and a 17,000 non-cash decrease in loss on investments. Due to the Crush Mobile acquisition, we expect this higher level of operating expenses to continue in future periods.  If we are able to raise substantial additional capital, we expect to further ramp up our operations which will cause our operating expenses to increase substantially.  

 

Nine months ended September 30, 2018 Compared to the Nine months ended September 30, 2017

 

The Company incurred net losses of approximately $1,325,000 for the nine months ended September 30, 2018 as compared to a net loss of $581,000 for the nine months ended September 30, 2017.  The approximate $744,000 increase in net loss is due primarily to the following: (all numbers approximate) an increase in general and administrative expense of $773,000, due mainly to an increase in consulting and contract labor expenses related to the operations of the Crush Mobile acquisition, and non-cash consulting expenses of $148,000, a $35,000 increase in professional fees and an increase of $102,000 in interest expense, and a $46,000 non-cash decrease in gain on settlement, partially offset by a $77,000 decrease in rent – related party, a $13,000 non-cash increase in gain on derivatives, a 74,000 non-cash increase in gain on extinguishment of debt, and a 17,000 non-cash decrease in loss on investments. Due to the Crush Mobile acquisition, we expect this higher level of operating expenses to continue in future periods.  If we are able to raise substantial additional capital, we expect to further ramp up our operations which will cause our operating expenses to increase substantially.  


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Liquidity and Capital Resources

 

As of September 30, 2018 and November 14, 2018, we had approximately $72,000 and a nominal amount of cash on hand. Between February 15 and June 5, 2018, the Company received gross proceeds from debt agreements of $175,000 from Sandor Capital, a related party and significant shareholder, and John Lemak, its affiliate.  Additionally, in order to fund our basic operations, between January 3 and September 30, 2018, Kae Yong Park, a significant shareholder, and her spouse, Howard Baer (together, “Park”), have collectively made cash advances of $259,550 of cash advances to us to fund our basic operations, $142,655 of which has been repaid and $60,000 of which was recaptured for Park’s use of Company personnel, leaving a balance due of $1,349,252, as of November 12, 2018.

 

On March 29, 2018, the Company received $50,000 from Kae Yong Park and her spouse Howard Baer (together, “Park”), a related party and significant shareholder, for which a note was issued bearing 8% interest annually. The note matures on September 30, 2018, as amended, and is secured by the Company’s equity interests in Crush Mobile LLC, which lien has since been subordinated to a lien granted to John Lemak and affiliated parties.

 

Additionally, Between January 8, 2018 and September 19, 2018, but Company issued an aggregate $499,150 in convertible notes to fund operations.

 

Consequently, during the first 10 months of 2018 most of our funding was in the form of debt and equity issuances. This ever-increasing amount of debt, coupled with our negative cash flow from operations, puts us at risk of defaulting on repayment of these notes, which would result in our assets being foreclosed upon by the secured creditors, in which case we would cease to be a going concern.

 

At September 30, 2018 (all numbers approximate), we had a working capital deficiency of $3,820,086, compared to $2,871,000 at December 31, 2017.  The $949,000 increase in our working capital deficiency was due primarily to a $173,000 increase in accounts payable related party, a $80,000 increase in notes payable, a $282,000 increase in notes payable related party, a $119,000 increase in convertible notes payable, a $154,000 increase in derivative liabilities, a $222,000 decrease in prepaid expenses and a $15,000 decrease in accounts receivable, partially offset by at $23,000 decrease in accounts payable.

 

We continue to have an immediate and urgent need for additional capital. The lack of operating capital continues to materially and adversely affect our business operations. Due to the lack of operating capital, we are unable to implement our business plan. If the Company does not receive a significant infusion of capital in the near term, it is unlikely that the Company will be able to continue as a going concern, in which case, investors would suffer a total loss of their investment in the Company.  

 

We have not yet realized significant operating revenues. Although our operations have been scaled back due to our lack of operating capital, we continue to incur significant costs and expenses in connection with our basic operations and ongoing compliance costs associated with being a public company. Consequently, we are currently experiencing ongoing negative cash flows from operations.

 

Cash used in operating activities during the nine months ended September 30, 2018 (all numbers approximate) was $750,000 (about $83,000 per month), an increase of approximately $381,000 from the $361,000 used during the comparable prior period. The $250,000 increase in cash used by operations was due primarily to a $744,000 increase in net loss, a $28,000 decrease in the change (increase) in accounts payable and accrued expenses and accounts payable – related party, and a $74,000 increase in gain on settlement of debt (non-cash), a $13,000 increase in gain on derivatives and a $17,000 decrease in loss on investments, partially offset by a $119,000 increase in depreciation and amortization expense, a $298,000 increase in stock issued for consulting (non-cash), a $45,000 decrease in gain on settlement of obligations and a $23,000 increase in stock issued for debt (non-cash).

 

Cash provided by financing activities for the nine months ended September 30, 2018 was approximately $818,000 as compared to approximately $347,000 in the prior comparable period. The (all numbers are approximate) $471,000 increase is due primarily to an increase of $356,000 from the proceeds net of repayments of convertible notes, an increase of $27,000 in proceeds from the issuance of notes payable – related party, a $125,000 increase in proceeds from the sale of common stock and a $30,000 increase in proceeds from equity receivable, partially offset by an increase of $67,000 in repayments of notes payable – related party.  The Company is experiencing ever increasing difficulty raising capital from third parties. Cash provided by financing activities is insufficient to fund the Company’s basic operating activities.  

 

If we are able to obtain additional funding and ramp up our operations, our operations will use increasing amounts of cash in coming quarters, unless and until we are able to generate revenue from our operating activities.


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Subject to the availability of funds, which we currently do not have, based on our current business plan, we anticipate that our operating and website development activities will use approximately $100,000 in cash per month over the next twelve months, or $1.2 million. Currently we have virtually no cash on hand, and consequently, we are unable to implement our current business plan. We believe that our operations will not begin to generate positive cash flows until we secure sufficient funding to fully implement our business plan, which funding we currently do not have. Accordingly, we have an immediate and extremely urgent need for capital to fund our operating activities.

 

In order to remedy this liquidity deficiency, we are actively seeking to raise additional funds through the sale of equity and debt securities, and ultimately we will need to generate substantial positive operating cash flows. Our internal sources of funds will consist of cash flows from operations, but not until we begin to realize substantial revenues from the sale of services. As previously stated, we currently have only nominal revenue, and our operations are generating negative cash flows, and thus adversely affecting our liquidity. Although we are attempting to raise additional funds through equity and/or debt financing, we are having great difficulty in securing any significant funding from unrelated third parties. Until we are able to secure sufficient funding and fully implement our business plan, we do not expect that our operations will generate significant revenues. If we are unable to raise additional funds in the near term, we will not be able to implement our business plan, and it is unlikely that we will be able to continue as a going concern.

 

In the event we do not generate sufficient funds from revenues or financing through the issuance of common stock or from debt financing, we will not be able to implement our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities (see Note 2 to the Financial Statements - Liquidity/Going Concern).

 

Subject to the availability of funds, which we currently do not have, we expect to incur approximately $35,000 in website development expenditures over the next 12 months (included in the $1.2 million estimate of cash required over the next twelve months). The purpose of these expenditures will be for the development of various Websites/portals we intend to create and acquisition of additional domain names.

 

We expect to fund these website development expenditures through a combination of cash flows from operations and proceeds from equity and/or debt financing. If we are unable to generate positive cash flows from operations, and/or raise additional funds (either through debt or equity), we will be unable to fund our website development expenditures, in which case, there could be an adverse effect on our business and results of operations.

 

We intend to raise additional funds in the near term from the further sales of debt and equity securities. Additional sales of common stock will reduce the percentage interest of existing shareholders in our company.

 

As described above, In June, 2014, we issued Kae Yong Park a promissory note in the principal amount of $500,000, as partial consideration for the acquisition of approximately 7,500 cannabis related internet domain names. We have since paid $100,000 in principal to Ms. Park. The remaining balance of $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month we realize at least $150,000 in gross revenue. This remaining $400,000 balance is currently classified as a noncurrent liability. We believe that we will be able to make the approximate $11,000 monthly payment when (and if) we achieve the monthly $150,000 revenue threshold which triggers our repayment obligation.

 

In addition, as described above, as of August 20, 2018, we are indebted to Kae Park, a significant shareholder, and Howard Baer, her spouse, in the aggregate amount of $1,1,349,252, which is secured by the certain Company assets. As of April 13, 2016 (with an effective date of January 1, 2016), $564,000 of the principal due under the note evidencing this indebtedness is interest bearing at the rate of 10% annually with any remainder being non-interest bearing. The $50,000 advance made March 29, 2018 bears interest at 8%, is secured by the Company’s interest in Crush Mobile, and is due January 31, 2019, as amended. Otherwise, amounts due under the main note are payable on demand. If demand for payment is made, and we are unable to pay the amount due, we would be in default and Ms. Park and Mr. Baer would have the right to sell our assets to satisfy the amounts due them under the promissory note. In such event, shareholders of the company would lose their entire investment in the Company.


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Further, as described above, between February 15, 2018 and June 5, 2018, we received proceeds of $175,000 from John Lemak (and affiliates), a related party and significant shareholder, for which both interest bearing and non-interest bearing notes were issued. The notes, as extended, mature on January 31, 2019, as amended, with certain notes secured by certain of the Company’s URLs and websites (www.weedepot.com, www.ratemystrain.com, www.marijuanamd.com and www.420careers.com). The Company had total notes payable to this related party of $882,936 at November 14, 2018. The $25,000 advance made March 29, 2018 bears interest at 8%, is secured by a subordinated interest in the Company’s interest in Crush Mobile (pari passu with Park) and is due January 31, 2019, as amended. If the notes due January 31, 2019 are not extended again, and we are unable to pay the amount due, which we cannot currently pay, then we would be in default and Mr. Lemak and his affiliates would have the right to sell our assets to satisfy the amounts due them under the promissory note. In such event, shareholders of the company would lose their entire investment in the Company.

 

As described above, form January 1, 2018 through October 31, 2018 we raised an aggregate of $557,150 from the sale of convertible notes, which will mature at various dates in 2019. Currently, we do not have the funds necessary to repay these notes.  If we are unable to pay these notes as they become due, there will be an event of default under the notes, as applicable, which would have material adverse effect on our business and financial condition.

 

Off-balance Sheet Arrangements

 

None.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not required.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls over Procedures

 

Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including the EVP and Financial Controller, to allow timely decisions regarding required disclosures.

 

Under the supervision and with the participation of our management, including our EVP Operations and financial controller, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our EVP and financial controller concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls were not effective for reasons discussed in our annual report.

 

Changes in Internal Control over Financial Reporting

 

None


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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not currently party to any pending legal proceedings

 

Item 1A. Risk Factors

 

Not required.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

 

On September 30, 2018, the Company issued 2,676,400 shares of the Company’s commons stock to, as settlement of a payable balance of $26,764, reflecting a price per share of $0.01.  The Company recorded a gain on settlement of $5,353 related to this transaction.

 

We believe that the foregoing transactions were exempt from the registration requirements under the Securities Act of 1933, as amended (“the Act”), based on the following facts: there was no general solicitation, there was a limited number of purchasers, each of whom the Registrant believes was an “accredited investor” (within the meaning of Regulation D under the Securities Act of 1933, as amended) and was sophisticated about business and financial matters, and all shares issued were subject to restriction on transfer, so as to take reasonable steps to assure that the purchaser was not an underwriter within the meaning of Section 2(11) under the Act.

 

Item 3. Defaults upon Senior Securities

 

As of November 14, 2018, the Company is in default under the following promissory notes:

 

Notes in the aggregate principal amount of $34,900 were due July 8, 2015.  The aggregate amount in default as of the date of this report was approximately $41,968, consisting of $34,900 in unpaid principal and approximately $7,068 in unpaid interest.

 

Notes in the aggregate principal amount of $45,000 were due on or around December 10, 2015. The aggregate amount in default as of the date of this report was approximately $83,818, consisting of $45,000 in unpaid principal and approximately $8,818 in unpaid interest.

 

On January 10, 2018, the Company issued a three-year $100,000 convertible zero coupon note for proceeds of $85,000. The note is initially convertible into shares of the Company’s stock at a price of $0.10 per share or a total of 1,000,000 shares.  The note contains a provision which, in the event of default, adjusts the conversion price to equal 65% of the lowest closing price for the preceding 20 trading days.  At the time the note was signed, the Company was in default on a previous note which triggered this default provision. Consequently, the Note is in default for the entire $100,000 principal amount.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.


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Item 6. Exhibits

 

(a)Exhibits 

 

Identification of Exhibit

 

3.1

Articles of Incorporation, as amended *

3.2

Bylaws (1)

10.1

Form of Convertible Note dated July 12, 2018 *

10.2

Form of Convertible Note dated August 2, 2018 *

10.3

Form of Convertible Note dated September 13, 2018 *

10.4

Form of Warrant dated September 13, 2018 *

10.5

Form of Convertible Note dated September 19, 2018 *

10.6

Form of Convertible Note dated October 31, 2018 *

31.1

Certification of Principal Executive and Principal Financial Officer as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 *

32.1

Certification of Principal Executive and Principal Financial Officer pursuant to 18 U.S.C section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

 

(1)Filed as Exhibits to our Form S-1 Registration Statement on July 11, 2008 and incorporated herein by reference. 

 

*Filed herewith 


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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

NORTHSIGHT CAPITAL, INC.

(Issuer)

 

Date:

November 14, 2018

 

By:

/s/John Venners

 

 

 

 

John Venners,

EVP Operations and Director

 


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