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Can B Corp - Quarter Report: 2016 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended September 30, 2016

 

    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: 333-208293

 

WRAPMAIL, INC.

(Exact name of Registrant as specified in its charter)

 

Florida

 

20-3624118

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

445 NE 12th Avenue

Fort Lauderdale, Florida 33301

 (Address of principal executive offices)

 

(516) 590-1846

(Registrant’s telephone number, including area code)


 (Former name, former address and former fiscal, if changed since last report)

 

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   No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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   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 the definitions 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

Smaller reporting company

(Do not check if smaller reporting company)

 

 

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


The number of shares of the registrants only class of common stock issued and outstanding as of November 11 2016 was 146,008,250 shares.



1





WRAPMAIL, INC.

FORM 10-Q

September 30, 2016

 

TABLE OF CONTENTS

 

 

 

Page No.

PART I. - FINANCIAL INFORMATION

Item 1.

Financial Statements  

 

 

Consolidated Balance Sheets – September 30, 2016  and December 31, 2015

3

 

Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2016 and 2015

4

 

Consolidated Statements of Cash Flows – Three and Nine Months Ended September 30, 2016 and 2015


5

 

Condensed Notes to Unaudited Consolidated Financial Statements.

6

Item 2.

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

16

Item 3

Quantitative and Qualitative Disclosures About Market Risk.

18

Item 4

Controls and Procedures.

18

 PART II - OTHER INFORMATION

 

 

 

Item 1.  

Legal Proceedings  

18

Item 1A.  

Risk Factors  

18

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds  

18

Item 3.  

Defaults Upon Senior Securities  

18

Item 4.  

Mine Safety Disclosures  

18

Item 5.

Other Information

18

Item 6.

Exhibits

19

 





















2




PART 1 - FINANCIAL INFORMATION

 Item 1.

Financial Statements.

 

WRAPmail, Inc. and Subsidiary

Consolidated Balance Sheets

 

 

September 30,

 

December 31,

 

 

2016

 

 

2015

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

   Cash and cash equivalents

$

1,475

 

$

18,373

   Accounts receivable, less allowance for doubtful

      accounts of $15,726 and $15,726, respectively

 

     27,454

 

 

     24,473

   Prepaid expenses

 

       -

 

 

       39,671

   Total current assets

 

       28,929

 

 

        82,517

 

 

 

 

 

 

Property and equipment, at cost less accumulated

 

 

 

 

 

   depreciation of $16,214 and $13,754, respectively

 

            15,182

 

 

         17,642

 

 

 

 

 

 

Other assets:

 

 

 

 

 

   Security deposit

 

11,687

 

 

11,687

   Note receivable

 

39,000

 

 

39,000

  Intangible assets, net of accumulated amortization of $33,953 and

 

 

 

 

 

      $30,973, respectively

 

    26,475

 

 

    29,455

   Total other assets

 

   77,162

 

 

   80,142

 

 

 

 

 

 

Total assets

$

       121,273

 

$

       180,301

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

   Notes and loans payable

$

          94,933

 

$

          8,000

   Accounts payable

 

       57,394

 

 

         37,749

   Accrued expenses payable

 

    160,626

 

 

        31,264

   Total current liabilities and total liabilities

 

       312,953

 

 

        77,013

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

   Series A Preferred stock, no par value:

 

 

 

 

 

     authorized 20 shares, issued and outstanding 10 and 10 shares, respectively

 

103,664

 

 

103,664

   Common stock, no par value; authorized

 

 

 

 

 

      Common stock, no par value; authorized 400,000,000 shares, issued and     outstanding 146,008,250 and 145,363,750 shares, respectively

 

11,889,505

 

 

11,842,331

   Accumulated deficit

 

  (12,184,849)

 

 

(11,842,707)

   Total stockholders' equity (deficit)

 

      (191,680)

 

 

      103,288

 

 

 

 

 

 

Total liabilities and stockholders' equity (deficit)

$

       121,273

 

$

        180,301



See notes to consolidated financial statements.



3




WRAPmail, Inc. and Subsidiary

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)


 

Nine Months Ended September 30,

 

Three Months Ended September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

      71,990

 

$

86,525            

 

$

24,327

 

$

18,535

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

   Officers and directors compensation and payroll taxes (including

 

 

 

 

 

 

 

 

 

 

 

      stock - based compensation of $0, $750,000, $0 and $510,000 respectively

 

159,463

 

 

      800,751

 

 

38,897

 

 

45,751

   Consulting fees (including stock-based compensation of $30,000

 

 

 

 

 

 

 

 

 

 

 

       $386,415, $0 and $204,327 respectively)

 

98,473

 

 

       413,435

 

 

4,104

 

 

214,827

   Advertising expense

 

10,301

 

 

26,852

 

 

5,551

 

 

9,999

   Hosting expense

 

20,465

 

 

42,488

 

 

8,325

 

 

1,637

   Rent expense

 

48,795

 

 

37,108

 

 

16,265

 

 

22,108

   Professional fees

 

36,787

 

 

72,223

 

 

20,050

 

 

54,621

   Depreciation  of property and equipment

 

2,459     

 

 

              804

 

 

806

 

 

181

   Amortization of intangible assets

 

2,980

 

 

2,982

 

 

993

 

 

994

   Other

 

34,911

 

 

       90,163

 

 

13,464

 

 

44,361

 

 

 

 

 

 

 

 

 

 

 

 

   Total operating expenses

 

  414,634

 

 

    1,486,806

 

 

108,455

 

 

394,479

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 (342,644)

 

 

(1,400,281)

 

 

(84,128)

 

 

(375,944)

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

   Loss on Investment

 

-

 

 

(1,760)

 

 

-

 

 

(800)

   Interest income

 

877

 

 

6

 

 

292

 

 

1

   Impairment of goodwill

 

 -

 

 

(1,994,641)

 

 

-

 

 

-

   Interest expense   (including amortization of debt discounts of $0, $32,114,

       $0 and $32,114 respectively)

 

 (375)

 

 

(32,782)

 

 

(125)

 

 

(32,307)

 

 

 

 

 

 

 

 

 

 

 

 

   Other income (expense) – net

 

502

 

 

(2,029,177)                   

 

 

167

 

 

(33,106)

 

 

 

 

 

 

 

 

 

 

 

 

Loss before provision for income taxes

 

(342,142)

 

 

(3,429,458)

 

 

(83,961)

 

 

(409,050)

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

-

 

 

                   -

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and comprehensive loss

$

(342,142)

 

 

(3,429,458)

 

 

(83,961)

 

 

(409,050)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share – basic and diluted

$

(0.00)

 

$

(0.02)

 

$

(0.00)

 

$

(0.00)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares

 

 

 

 

 

 

 

 

 

 

 

   outstanding – basic and diluted

 

146,009,710   

 

 

227,708,384

 

 

146,012,598

 

 

240,509,185


See notes to consolidated financial statements.



4




WRAPmail, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

Operating Activities:

 

 

 

 

 

 

 Net loss

 

 

(342,142)

 

 

(3,429,458)

   Adjustments to reconcile net loss to net

 

 

 

 

 

 

      cash used in operating activities:

 

 

 

 

 

 

      Stock-based compensation

 

 

30,000 

 

 

1,136,415 

      Impairment of goodwill

 

 

 

 

1,994,641 

      Loss on investment

 

 

 

 

1,760 

      Depreciation of property and equipment   

 

 

2,460 

 

 

804 

      Amortization of intangible assets

 

 

2,980 

 

 

2,982 

      Amortization of debt discount

 

 

 

 

32,114 

   Changes in operating assets and liabilities:

 

 

 

 

 

 

      Accounts receivable

 

 

(2,981)

 

 

(10,569)

      Prepaid expenses

 

 

9,671 

 

 

5,594 

      Accounts payable

 

 

66,819 

 

 

19,110 

      Accrued expenses payable

 

 

129,362 

 

 

9,764 

 

 

 

 

 

 

 

   Net cash used in operating activities

 

 

(103,831)

 

 

(236,843)

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

      Cash received from acquisition of Prosperity Systems, Inc.

 

 

 

 

563 

   Intangible assets additions

 

 

 

 

67 

   Investment in Stock Market Manager, Inc.

 

 

 

 

(11,500)

 

 

 

 

 

 

 

   Net cash used in investing activities

 

 

 

 

(10,870)

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

  Proceeds from sales of common stock

 

 

 

 

300,000 

  Repayments of notes and loans payable

 

 

 

 

(40,000)

  Proceeds received from notes and loans payable

 

 

86,933 

 

 

50,000 

 

 

 

 

 

 

 

   Net cash provided by financing activities

 

 

86,933 

 

 

310,000 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

(16,898)

 

 

62,287 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

18,373 

 

 

100,475 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

 

1,475 

 

 

162,762 


 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

    Income taxes paid

 

 

 

 

Interest paid

 

 

 

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

    Issuance of common stock in satisfaction of debt

 

 

 

 

47,270 

    Issuance of common stock for acquisition

 

 

 

 

 

 

       of Prosperity Systems, Inc. (less $563 cash received)

 

 

 

 

1,998,911 

    Issuance of common stock in satisfaction of accrued interest

 

 

 

 

4,375 

   Issuance of common stock in satisfaction  of accounts payable

 

 

47,174 

 

 

82,376 

   Issuance of common stock as additional consideration for a $50,000 loan

 

 

$

 

 

$

47,872 

 

 

 

 

 

 

 

See notes to consolidated financial statements.



5



WRAPmail, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Three Months Ended September 30, 2016 and 2015

(Unaudited)


NOTE 1 – Organization and Description of Business


WrapMail, Inc. (“WRAP”) was incorporated in Florida on October 11, 2005.  Effective January 5, 2015 (see Note 5), we acquired 100% ownership of Prosperity Systems, Inc. (“Prosperity”), a New York corporation incorporated on April 2, 2008.  WRAP and its wholly owned subsidiary Prosperity (collectively, the “Company”) provide document, project, marketing and sales management systems to business clients through its website and proprietary software. After the acquisition of Prosperity, the Company transferred Prosperity’s operations to WRAP and is presently in the process of dissolving Prosperity.


NOTE 2 – Going Concern Uncertainty


The consolidated financial statements have been prepared on a “going concern” basis, which contemplates the realization of assets and liquidation of liabilities in a normal course of business. As of September 30, 2016, the Company had cash and cash equivalents of $1,475 and negative working capital of $284,024. For the nine months ended September 30, 2016 and 2015, the Company had net losses of $342,142 and $3,429,458, respectively. These factors raise substantial doubt as to the Company’s ability to continue as a going concern.  The Company plans to improve its financial condition by raising capital through sales of shares of its common stock.  Also, the Company plans to pursue new customers to attain profitable operations. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.


NOTE 3 – Interim Financial Statements


The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they may not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The interim financial statements should be read in conjunction with the Company’s latest annual financial statement. In the opinion of management, the unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation. Operating results for the nine-month period ended September 30, 2016 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2016.


NOTE 4 – Summary of Significant Accounting Policies


(a)  Principles of Consolidation

 

The consolidated financial statements include the accounts of WRAP and its wholly owned subsidiary Prosperity from the date of its acquisition on January 5, 2015. All intercompany balances and transactions have been eliminated in consolidation.


(b)  Use of Estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.


(c)  Fair Value of Financial Instruments


The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, note receivable, notes and loans payable, accounts payable, and accrued expenses payable. Except for the note receivable, the fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to the short term maturity of these instruments. Based on comparable instruments with similar terms, the fair value of the note receivable approximates its carrying value.


Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:



6




Level 1 Level-1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.


Level 2- Level-2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.


Level 3 -Level 3 applies to assets or liabilities for which there are unobservable inputs to the Valuation  methodology that are significant to the measurement of the fair value of the assets or liabilities.


(d)  Cash and Cash Equivalents


The Company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents.


(e)  Property and Equipment, Net


Property and equipment, net, is stated at cost less accumulated depreciation.  Depreciation is calculated using the straight line method over the estimated useful lives of the respective assets.  Maintenance and repairs are charged to operations as incurred.


(f)  Intangible Assets, Net


Intangible assets, net, are stated at cost less accumulated amortization.  Amortization is calculated using the straight-line method over the estimated economic lives of the respective assets.


(g)  Goodwill and Intangible Assets with Indefinite Lives


The Company does not amortize goodwill and intangible assets with indefinite useful lives, but instead tests for impairment at least annually.  When conducting the annual impairment test for goodwill, the Company compares the estimated fair value of a reporting unit containing goodwill to its carrying value.  If the estimated fair value of the reporting unit is determined to be less than its carrying value, goodwill is reduced and an impairment loss is recorded.


 (h)  Long-lived Assets


The Company reviews long-lived assets held and used, intangible assets with finite useful lives and assets held for sale for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  If an evaluation of  recoverability is required, the estimated undiscounted future cash flows associated with the asset is compared to the asset’s carrying amount to determine if a write-down is required.  If the undiscounted cash flows are less than the carrying amount, an impairment loss is recorded to the extent that the carrying amount exceeds the fair value.

 

(i)  Revenue Recognition


The Company recognizes revenue over agreed periods of services delivered to customers, provided there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exists; the sales price is fixed or determinable; and collectability is deemed probable.

      

(j) Stock-Based Compensation


Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation” (“ASC718”) and ASC 505-50, Equity – Based Payments to Non-employees.


In addition to requiring supplemental disclosures, ASC 718 addresses the accounting for share-based payment transactions in which a company receives goods or services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments.  ASC 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.


In accordance with ASC 505-50 the Company determines the fair value of the stock based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached, or (2) the date at which the counterparty’s performance is complete.



7




 Options and warrants


The fair value of stock options and warrants is estimated on the measurement date using the Black-Scholes model with the following assumptions, which are determined at the beginning of each year and utilized in all calculations for that year:


Risk-Free Interest Rate.


We utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the expected term of

our awards.  


Expected Volatility.


We calculate the expected volatility based on a volatility index of peer companies as we did not have sufficient

historical market information to estimate the volatility of our own stock.

 

Dividend Yield.


We have not declared a dividend on its common stock since its inception and have no intentions of declaring a dividend   in the foreseeable future and therefore used a dividend yield of zero.

 

Expected Term.


The expected term of options granted represents the period of time that options are expected to be outstanding.  We

estimated the expected term of stock options by using the simplified method.  For warrants, the expected term   represents the actual term of the warrant.


Forfeitures.


Estimates of option forfeitures are based on our experience. We will adjust our estimate of forfeitures over the requisite   service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates.   Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change   and will also impact the amount of compensation expense to be recognized in future periods.


(k)  Advertising


Advertising costs are expensed as incurred and amounted to $10,301 and $26,852 for the nine months ended September 30, 2016 and 2015, respectively.      


(l) Research and Development


Research and development costs are expensed as incurred.


(m)  Income Taxes


Income taxes are accounted for under the assets and liability method.  Current income taxes are provided in accordance with the laws of the respective taxing authorities.  Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.


The Company has adopted the provisions required by the Income Taxes topic of the FASB Accounting Standards Codification.  The Codification Topic requires the recognition of potential liabilities as a result of management’s acceptance of potentially uncertain positions for income tax treatment on a “more-likely-than-not” probability of an assessment upon examination by a respective taxing authority.  The Company believes that it has not taken any uncertain tax positions and thus has not recorded any liability.



8




(n)  Net Income (Loss) per Common Share


Basic net income (loss) per common share is computed on the basis of the weighted average   number of common shares outstanding during the period.


Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding.  Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation. For the periods presented, the diluted net loss per share calculation excluded the effect of Series A preferred stock and stock options outstanding (see Note 9 and Note 11).


(o)  Recent Accounting Pronouncements


Certain accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and therefore have not yet been adopted by the Company.  These include:


In August 2014, the FASB issued ASU 2014-15 “Disclosure about an Entities Ability to Continue as a Going Concern”. The update establishes management’s responsibility to evaluate whether there is substantial doubt about an entities ability to continue as a going concern including related disclosures.


In 2016 the FASB issued ASU 2016-2(topic 842) which establishes a new lease accounting model for lessees. Under the, new guidance lessees will be required to recognize right of use assets and liabilities for most leases having terms of 12 months or more.

 

The impact on the Company’s financial statements has not yet been determined.


NOTE 5 – Acquisition of Prosperity Systems, Inc.


Effective January 5, 2015, WRAP acquired 100% ownership of Prosperity Systems, Inc. (“Prosperity”)  in exchange for 36,354,077 newly issued shares of WRAP common stock (see Note 10).  The acquisition has been accounted for in the accompanying consolidated financial statements as a purchase transaction.  Accordingly, the financial position and results of operations of Prosperity prior to the date of the acquisition have been excluded from the accompanying consolidated financial statements.  


The estimated fair values of the identifiable net assets of Prosperity at January 5, 2015 (effective date of acquisition) consisted of:


Cash and cash equivalents

$

563

Accounts receivable

15,436

Prepaid expenses

5,594

Property and equipment, net

1,026

Intangible assets, net

29,947

Deferred consulting fees

35,838

 

 

Total assets

88,404

 

 

Note and loan payable to related party

37,270

Convertible notes payable

30,000

Accounts payable

10,462

Accrued interest payable

5,839

 

 

Total liabilities

83,571

 

 

Identifiable net assets

$

4,833


Goodwill of $1,994,641 (excess of the $1,999,474 fair value of the 36,354,077 shares of WRAP common stock issued to Prosperity's stockholders over the $4,833 identifiable net assets of Prosperity at January 5, 2015) was considered fully impaired at the acquisition date and an impairment expense of $1,994,641 was recorded in the three months ended March 31, 2015.



9



The following pro forma information summarizes the results of operations for the Nine Months ended September 30, 2015 as if the acquisition occurred at December 31, 2014.  The pro forma information is not necessarily indicative of the results that would have been reported had the transaction actually occurred on December 31, 2014, nor is it intended to project results of operations for any future period.


 

Nine Months Ended September  30, 2015

 

 

Revenues

$

86,525 

 

 

Operating expense

1,486,806 

 

 

Loss from Operations

(1,400,281)

 

 

Other income (loss) - net

(34,536)

 

 

Net loss

(1,434,817)

 

 

Net loss per common share

 

   – basic and diluted

$

(0.01) 

 

 

Weighted average common shares

 

  outstanding – basic and diluted

227,708,384 


NOTE 6 – Note Receivable


The $39,000 note receivable at September 30, 2016 and December 31, 2015 bears interest at a rate of 3% per annum and is due November 30, 2020. The receivable arose from the Company’s sale of its 50% interest in Stock Market Manager, Inc. to Endeavour Cooperative Partners, LLC (“Endeavour”) on November 30, 2015. Endeavour is affiliated with Carl Dilley, a Company director.


NOTE 7 – Intangible Assets, Net


Intangible assets, net, consist of:


 

September 30,

 

December 31,

 

2016

 

2015

Video conferencing software acquired

 

 

 

  by Prosperity in December 2009

$

30,000 

 

$

30,000 

 

 

 

 

Enterprise and audit software acquired

 

 

 

  by Prosperity in April 2008

20,000 

 

20,000 

 

 

 

 

Patent costs incurred by WRAP

6,880 

 

6,880 

 

 

 

 

Other

3,548 

 

3,548 

 

 

 

 

Total

60,428 

 

60,428 

 

 

 

 

Accumulated amortization

(33,953)

 

(30,973)

 

 

 

 

Net

$

26,475 

 

$

29,455 




10



Expected future amortization expense for intangible assets as of September 30, 2016 follows:


 

Amount

 

 

2016

$

995

2017

3,975

2018

3,975

2019

3,975

Thereafter

13,555

 

 

Total

$

26,475


NOTE 8 – Notes and Loans Payable


Notes and loans payable consist of:

 

 

 

 

September 30, 2016

 

December 31, 2015

Notes payable dated February 1, 2016, interest at 12% per

$

30,000

 

$

-

annum, due April 1, 2016

 

 

 

Notes payable dated March 15, 2016, interest at 14.99% per

51,250

 

-

      annum, due March 24, 2017

 

 

 

Convertible note payable to brother of Marco Alfonsi, Chief       

5,000

 

5,000

Executive Officer of the Company, interest at 10% per

 

 

 

      annum, due August 22, 2016

 

 

 

Loan payable to Mckenzie Webster Limited (“MWL”), an

3,000

 

3,000

entity controlled by the Chairman of the Board of

 

 

 

Directors of the Company, non-interest bearing, due on

 

 

 

demand

2,240

 

 

Loan payable to Marco Alfonsi, Chief Executive Officer of the

 

 

 

        Company, non-interest bearing, due on demand

3,443

 

-

 

 

 

 

Total

$

94,933

 

$

8,000


The notes payable dated February 1, 2016 totaling $30,000 consist of two $15,000 notes. One of the $15,000 notes is due to the brother of the Chief Executive Officer of the Company.


NOTE 9 – Preferred Stock


On October 29, 2015, the Company issued a total of 10 shares of WRAP Series A Preferred Stock (5 shares to MWL and 5 shares to Marco Alfonsi) in exchange for the retirement of a total of 100,000,000 shares of WRAP common stock (50,000,000 shares from MWL and 50,000,000 shares from Marco Alfonsi).


Each share of Series A Preferred Stock is convertible into 10,000,000 shares of WRAP common stock and is entitled to 20,000,000 votes.


NOTE 10 – Common Stock


On January 5, 2015, the Company issued a total of 36,354,077 shares of WRAP  common stock to Prosperity stockholders pursuant to the acquisition of Prosperity.  See Note 5.


On January 5, 2015, the Company issued 70,166,750 shares of WRAP  common stock to Marco Alfonsi in satisfaction of $22,270 Prosperity loans payable to Marco Alfonsi.  


On January 5, 2015, MWL retired 70,166,750 shares of WRAP common stock owned by it.



11




On March 19, 2015, the Company issued 117,500 shares of WRAP  common stock to an investor in satisfaction of a $25,000 Prosperity  note payable and $4,375 accrued interest.


On March 26, 2015, the Company issued a total of 5,000,000 shares of WRAP  common stock to the three members of the Board of Directors (1,000,000 shares each) and the four members of the Board of Advisors (500,000 shares each)  for services rendered.  The $400,000 fair value of the 5,000,000 shares of WRAP common stock was charged $240,000 to officers and directors compensation and $160,000 to consulting fees in the three months ended March 31, 2015.


On June 14, 2015 (see Note 13), the Company issued 10,000,000 shares of WRAP  common stock to Marco Alfonsi pursuant to an Executive Employment Agreement dated May 14, 2015.  The $510,000 fair value of the 10,000,000 shares of WRAP common stock was charged to officers and directors compensation in the three months ended June 30, 2015.


On June 30, 2015, the Company issued 1,600,000 shares of WRAP  common stock to a vendor  in satisfaction of a $82,376 account payable to the vendor.


On July 6, 2015, the Company issued a total of 1,200,000 shares of WRAP common stock to two consultants for services rendered.  The $60,000 fair value of the 1,200,000 shares of WRAP common stock was charged to consulting fees in the three months ended September 30, 2015.


On July 31, 2015, the Company issued 50,000 shares of WRAP common stock to a consultant for services rendered.  The $14,995 fair value of the 50,000 shares of WRAP common stock was charged to consulting fees in the three months ended September 30, 2015.


On August 4, 2015, the Company sold 1,000,000 shares of WRAP common stock to an investor at a price of $0.10 per share for proceeds of $100,000.


On August 14, 2015, the Company issued 430,000 shares of WRAP common stock to a consultant for services rendered.  The $107,457 fair value of the 430,000 shares of WRAP common stock was charged to consulting fees in the three months ended September 30, 2015.


On August 18, 2015, the Company sold 1,000,000 shares of WRAP common stock to a non-U.S. individual investor at a price of $0.10 per share for proceeds of $100,000.


On August 19, 2015, the Company sold 1,000,000 shares of WRAP common stock to a non-U.S. entity investor at a price of $0.10 per share for proceeds of $100,000.


On August 21, 2015, the Company issued 400,000 shares of WRAP common stock to a consultant for services rendered.  $60,000 of the $90,000 fair value of the 400,000 shares of WRAP common stock was charged to consulting fees in the six months ended December 31, 2015 and $30,000 was charged to consulting fees in the three months ended March 31, 2016.


On August 21, 2015, pursuant to a $50,000 Bridge Loan Financing Agreement and related Note dated August 20, 2015, the Company issued 5,000,000 shares of WRAP common stock to an investor as additional  consideration for a $50,000 loan. The proceeds of the Note were allocated between the principal and the $1,125,000 fair value of the 5,000,000 shares of WRAP common stock resulting in the Company recording a discount on the debt of $47,872.  This amount was amortized over the term of the Note.


On December 30, 2015, the Company issued 150,000 shares of WRAP common stock to an entity for accounting services rendered. The $15,000 fair value of the 150,000 shares of WRAP common stock was charged to other operating expenses in the three months ended December 31, 2015.


On January 2, 2016, the Company issued 104,500 shares of WRAP common stock to a technical consultant in satisfaction of a $12,864 account payable to that vendor.


On March 9, 2016, the Company issued 140,000 shares of WRAP common stock to a technical consultant in satisfaction of a $8,693 account payable to that vendor.


On September 30, 2016, the Company issued 400,000 shares of WRAP common stock to a technical consultant in satisfaction of a $25,617 account payable to that vendor.



12



NOTE 11 – Stock Options and Warrants


A summary of stock options and warrants activity follows:


 

Shares of Common Stock Exercisable Into

 

Stock

 

 

 

 

 

Options

 

Warrants

 

Total

Balance, December 31, 2014

200,000

 

307,500

 

507,500

Granted in 2015

-

 

-

 

-

Cancelled in 2015

-

 

-

 

-

 

 

 

 

 

 

Balance, December 31, 2015

200,000

 

307,500

 

507,500

Granted in 1Q and 2Q 2016

-

 

-

 

-

Cancelled in 1Q and 2Q  2016

-

 

-

 

-

 

 

 

 

 

 

Balance, September 30, 2016

200,000

 

307,500

 

507,500


Issued and outstanding stock options as of September 30, 2016 consist of:


Year

 

Number Outstanding

 

Exercise

 

Year of

Granted

 

and Exercisable

 

Price

 

Expiration

2006

 

150,000

 

$

1.00

 

2016

2009

 

50,000

 

$

1.00

 

2019

 

 

 

 

 

 

 

Total

 

200,000

 

 

 

 


Issued and outstanding warrants as of September 30, 2016 consist of:


Year

 

Number Outstanding

 

Exercise

 

Year of

Granted

 

and Exercisable

 

Price

 

Expiration

2006

 

60,000

 

$

1.00

 

2016

2010

 

247,500

 

$

1.00

 

2020

 

 

 

 

 

 

 

Total

 

307,500

 

 

 

 


NOTE 12 – Income Taxes


No provisions for income taxes were recorded for the periods presented since the Company incurred net losses in those periods.


The provisions for (benefits from) income taxes differ from the amounts determined by applying the U.S. Federal income tax rate of 35% to pretax income (loss) as follows:



13




 

Nine Months Ended September 30,

 

2016

 

2015

 

 

 

 

Expected income tax (benefit) at 35%

$

(119,750)

 

$

(1,200,311)

 

 

 

 

Non-deductible stock-based compensation

10,500 

 

397,745 

 

 

 

 

Non-deductible impairment of goodwill

 

698,124 

 

 

 

 

Increase in deferred income tax assets 

 

 

 

  valuation allowance

109,250 

 

104,442 

 

 

 

 

Provision for (benefit from) income taxes

$

 

$


Deferred income tax assets consist of:


 

September 30,

 

December 31,

 

2016

 

2015

 

 

 

 

Net operating loss carryforward

$

1,194,524 

 

$

1,085,274 

 

 

 

 

Valuation allowance

(1,194,524)

 

(1,085,274)

 

 

 

 

Net

$

 

$


Based on management's present assessment, the Company has not yet determined it to be more likely than not that a deferred income tax asset of $1,194,524 attributable to the future utilization of the $3,412,925 net operating loss carryforward as of September 30, 2016 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred income tax asset in the financial statements at September 30, 2016. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforward expires in years 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2033, 2034, 2035, and 2036 in the amount of $1,369, $518,390, $594,905, $686,775, $159,141, $151,874, $135,096, $166,911, $311,890, $28,511, $345,921, and $312,142, respectively.

 

Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs.  Therefore, the amount available to offset future taxable income may be limited.


The Company's U.S. Federal and state income tax returns prior to 2012 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The statute of limitations on the 2012 tax year returns expired in March 2016.

 

The Company recognizes interest and penalties associated with uncertain tax positions as part of the income tax provision and would include accrued interest and penalties with the related tax liability in the consolidated balance sheets. There were no interest or penalties paid during 2016 and 2015.




14



NOTE 13 – Commitments and Contingencies


Employment Agreements


On May 14, 2015, the Company executed an Executive Employment Agreement with Marco Alfonsi (“Alfonsi”) for Alfonsi to serve as the Company's chief executive officer for cash compensation of $5,000 per month (increased to $6,000 per month in August 2015). Pursuant to the agreement, the Company issued 10,000,000 restricted shares of WRAP common stock to Alfonsi on June 14, 2015 (see Note 10). Alfonsi may terminate his employment upon 30 days written notice to the Company. The Company may terminate Alfonsi's employment upon written notice to Alfonsi by a vote of the Board of Directors.


On August 17, 2015, the Company executed an Employment Agreement with Romuald Stone (“Stone”) for Stone to serve as the Company's Chief Technology Officer for cash compensation of $12,500 per month. Stone may terminate his employment upon 30 days written notice to the Company. The Company may terminate Stone's employment upon written notice to Stone by a vote of the Board of Directors. If the Company's termination is without cause (as defined), Stone will be entitled to a severance payment of $12,500.


Lease Agreements


On December 1, 2014, Prosperity entered into a lease agreement with KLAM, Inc. for office space in Hicksville, New York for an initial term of one year commencing December 1, 2014. The lease provides for monthly rentals of $2,500 and provides Prosperity an option to renew the lease after the initial term. The Company has continued to occupy this space after November 30, 2015 under a month to month arrangement at $2,500 per month. KLAM, Inc. is controlled by the wife of the Company's chief executive officer Marco Alfonsi.


On September 11, 2015, the Company executed a lease agreement with an unrelated third party for office space in Hicksville, New York for a term of 37 months. The lease provides for monthly rentals of $2,922 for lease year 1, $3,009 for lease year 2, and $3,100 for lease year 3. The lease also provides for additional rent based on increases in base year operating expenses and real estate taxes.


Rent expense for the nine months ended September 30, 2016 and 2015 was $48,795 and $37,108, respectively.


At September 30, 2016, the future minimum lease payments under non-cancellable operating leases were:


Year ended December 31, 2016

$

9,118

Year ended December 31, 2017

36,472

Year ended December 31, 2018

27,900

 

 

Total

$

73,490


Major Customers


For the nine months ended September 30, 2016, three customers accounted for approximately 36%, 29%, and 15%, respectively, of total revenues.


For the nine months ended September 30, 2015, three customers accounted for approximately 30%, 24%, and 14%, respectively, of total revenues.


Public Offering of Units


On August 2, 2016, the Company’s Registration Statement on Form S-1 was declared effective by the Securities and Exchange Commission. On a self-underwritten basis, the Company is offering up to 40,000,000 Units at a price of $0.05 per Unit or $2,000,000 maximum. Each Unit consists of one share of Company common stock and one warrant to purchase ½ share of Company common stock of a price of $0.10 per share for a period of three years. There is no minimum offering amount or escrow required as a condition to closing and the Company may sell significantly fewer Units than those offered. The offering will terminate on August 2, 2018 unless earlier terminated or extended by the Company’s filing of an amendment to the Registration Statement.



15



ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


General


We were incorporated in Florida on October 11, 2005. Effective January 5, 2015, we acquired 100% ownership of Prosperity Systems, Inc. (“Prosperity”), a New York corporation incorporated on April 2, 2008. We and our wholly owned subsidiary Prosperity (collectively, the “Company”) provide document, project, marketing and sales management systems to business clients through its website and proprietary software.


The consolidated financial statements include the accounts of WRAP and its wholly owned subsidiary Prosperity from the date of its acquisition on January 5, 2015.


Results of Operations


Three Months Ended September 30, 2016 compared with Three Months Ended September 30, 2015:


Revenues increased $5,792 from $18,535 in 2015 to $24,327 in 2016.  The increase was due to the business from new customers.


Officers and directors compensation and payroll taxes decreased $6,854 from $45,751 in 2015 to $38,897 in 2016.  The 2015 expense amount ($45,751) consists of salary paid to our Chief Technology Officer ($18,750) and Chief Executive Officer ($22,000) pursuant to their respective employment agreements and related payroll taxes ($5,001). The 2016 expense amount ($38,897) consists of salaries paid or accrued to our Chief Technology Officer ($18,750) and our Chief Executive Officer ($18,000) pursuant to their respective employment agreements and related payroll taxes ($2,147).


Consulting fees decreased $210,723 from $214,827 in 2015 to $4,104 in 2016.  The 2015 expense amount ($214,827) includes stock-based compensation of $204,327, resulting from stock issued for the service of several consultants ($198,077) and the amortization of prior year deferred consulting fees relating to one Prosperity consultant ($6,250). The 2016 expense amount ($4,104) represents the amount paid for consulting services rendered by an Indian consulting firm.


Advertising expense decreased $4,448 from $9,999 in 2015 to $5,551 in 2016.  


Hosting expense increased $6,688 from $1,637 in 2015 to $8,325 in 2016.


Rent expense decreased $5,843 from $22,108 in 2015 to $16,265 in 2016.


Professional fees decreased $34,571 from $54,621 in 2015 to $20,050 in 2016.


Depreciation of property and equipment increased $625 from $181 in 2015 to $806 in 2016.  


Amortization of intangible assets decreased $1 from $994 in 2015 to $993 in 2016.


Other operating expenses decreased $30,897 from $44,361 in 2015 to $13,464 in 2016.  The decrease was due largely to lower office expenses in 2016 compared to 2015.


Net loss decreased $325,089 from $409,050 in 2015 to $83,961 in 2016. The decrease was due to the $286,024 decrease in total operating expenses and the $33,273 improvement in other income (expense) – net from $33,106 other expense – net in 2015 to $167 other income – net in 2016, and the $5,792 increase in revenues.


Nine Months Ended September 30, 2016 compared with Nine Months Ended September 30, 2015:



16




Revenues decreased $14,535 from $86,525 in 2015 to $71,990 in 2016.  The decrease was due to the loss of business from certain customers.


Officers and directors compensation and payroll taxes decreased $641,288 from $800,751 in 2015 to $159,463 in 2016.  The 2015 expense amount ($800,751) consists of  stock-based compensation from a March 26, 2015 stock grant of a total of 3,000,000 shares of our common stock to the three members of the Board of Directors (1,000,000 shares each) for services rendered ($240,000), stock-based compensation from a June 14, 2015 stock grant of a total of 10,000,000 shares of our common stock to the Chief Executive Officer pursuant to an Executive Employment Agreement ($510,000), salary paid to our Chief Technology Officer ($18,750) and our Chief Executive Officer ($27,000), and related payroll taxes ($5,001). The 2016 expense amount ($159,463) consists of salaries paid or accrued to our Chief Technology Officer ($93,750) and our Chief Executive Officer ($54,000) pursuant to their respective employment agreements, and related payroll taxes ($11,713).


Consulting fees decreased $314,962 from $413,435 in 2015 to $98,473 in 2016.  The 2015 expense amount ($413,435) includes stock-based compensation of $386,415, consisting of a March 26, 2015 stock grant of a total of 2,000,000 shares of our common stock to the four members of the Board of Advisors (500,000 shares each) ($160,000), July 6, 2015 issuance of 1,200,000 shares of common stock to Greg Partin (1,000,000 shares) and Addon Functionality Corp (200,000 shares) for consulting services received ($60,000), July 31, 2015 issuance of 50,000 shares to Ben Burke for consulting service received ($14,995), August 14, 2015 issuance of 430,000 shares to Greg Partin for consulting service received ($107,457), August 21, 2015 issuance of 400,000 shares to Microcap Haedlines, Inc. for consulting service received from September 2015 to February 2016 ($15,000 expensed, $75,000 prepaid ) and the amortization of prior year deferred consulting fees relating to two Prosperity consultants ($28,963). The 2016 expense amount includes stock-based compensation of $30,000.


Advertising expense decreased $16,551 from $26,852 in 2015 to $10,301 in 2016.  


Hosting expense decreased $22,023 from $42,488 in 2015 to $20,465 in 2016.


Rent expense increased $11,687 from $37,108 in 2015 to $48,795 in 2016.


Professional fees decreased $35,436 from $72,223 in 2015 to $36,787 in 2016.


Depreciation of property and equipment increased $1,655 from $804 in 2015 to $2,459 in 2016.  


Amortization of intangible assets decreased $2 from $2,982 in 2015 to $2,980 in 2016.


Other operating expenses decreased $55,252 from $90,163 in 2015 to $34,911 in 2016.  The decrease was due largely to lower office expenses and travel expense in 2016 compared to 2015.


Impairment of goodwill decreased $1,994,641 from $1,994,641 in 2015 to $0 in 2016.  The 2015 expense resulted from the January 5, 2015 acquisition of Prosperity.


Net loss decreased $3,087,316 from $3,429,458 in 2015 to $342,142 in 2016. The decrease was due to the $1,072,172 decrease in total operating expenses and the $2,029,679 improvement in other income (expense) – net from $2,029,177 other expense – net in 2015 to $502 other income – net in 2016, offset partially by the $14,535 decrease in revenues.


Liquidity and Capital Resources


At September 30, 2016, we had cash and cash equivalents of $1,475 and negative working capital of $284,024.


Cash and cash equivalents decreased $16,898 from $18,373 at December 31, 2015 to $1,475 at September 30, 2016.  For the nine months ended September 30, 2016, $86,933 was provided by financing activities and $103,831 was used in operating activities.



17




We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.


We currently have no commitments with any person for any capital expenditures.


We have no off-balance sheet arrangements.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

None.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

As of September 30, 2016, our principal executive officer and principal financial officer conducted an evaluation regarding the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon the evaluation of these controls and procedures, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

(B) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

There were no changes in our internal control over financial reporting in our first fiscal quarter for the period ended September 30, 2016 covered by this Quarterly Report on Form 10-Q, that have materially affected, or are reasonably likely to materially affect our  internal control over financial reporting.

 

PART II-OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not currently a party to any legal proceedings.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, we are not required to provide risk factors in this Form 10-Q; however, you may review risk factors contained in our S-1 Registration Statement, which are available for review at sec.gov.

  

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There have been no sales of unregistered securities during the quarterly period ending September 30, 2016.  Our prior sales of unregistered securities may be reviewed in our S-1 Registration Statement, which are available for review at sec.gov.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.



18




 

ITEM 6. EXHIBITS

 

31.1

 

Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer

31.2

 

Rule 13a-14(a)/15d-14(a) certification of Principal Financial Officer

32.1

 

Section 1350 certification of Chief Executive Officer and Chief Financial Officer

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 




19




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.

 

 

WRAPMAIL, INC.

 

 

 

Date: November 18, 2016

By:

/s/ Marco Alfonsi

 

 

Marco Alfonsi, Chief Executive Officer

 

 

 

 

 

 

Date: November 18, 2016

By: 

/s/ Rolv Heggenhougen

 

 

 
Rolv Heggenhougen Chief Financial Officer/Chief Accounting Officer




20