Cuentas Inc. - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

FOR THE NINE MONTH 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: 333-148987

NEXT GROUP HOLDINGS, INC

(Exact name of Registrant as specified in its charter)

1111 BRICKEL AVE, SUITE 2200, MIAMI, FL 33131

(Address of principal executive offices)

800-611-3622

(Registrant’s telephone number)

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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a 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 ☒

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 21, 2016 the issuer had 246,914,217 shares of its common stock issued and outstanding.

Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NEXT GROUP HOLDINGS, INC

Table of Contents

NEXT GROUP HOLDINGS, INC

UNAUDITED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these unaudited consolidated financial statements 

NEXT GROUP HOLDINGS, INC

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements

NEXT GROUP HOLDINGS, INC

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

The accompanying notes are an integral part of these unaudited consolidated financial statements

NEXT GROUP HOLDINGS, INC

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these unaudited consolidated financial statements

NEXT GROUP HOLDINGS, INC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Next Group Holdings, Inc, (the “Company”) was incorporated under the laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiaries, both current and future. Its subsidiaries are Meimoun and Mammon, LLC (100% owned), Next Cala, Inc (94% owned). NxtGn, Inc. (65% owned) and Next Mobile 360, Inc. (100% owned). Additionally, Next Cala, Inc. has a 60% interest in NextGlocal, a subsidiary formed in May 2016.

Meimoun and Mammon, LLC (“M&M”) was formed under the laws of the State of Florida on May 21, 2001 as a real estate investment company. During the year ended December 31, 2010, M&M began winding down real estate operations and engaged in telecommunications services. M&M acquired telecom registrations, licenses and authorities to provide telecom services to the retail and wholesale markets including sales of prepaid long distance telecom services and Mobile Virtual Network Operator (MVNO) services. The services are sold under the brand name Next Mobile 360 and through the subsidiary of the same name.

Next Cala, Inc, (“Cala”) was formed under the laws of Florida on July 10, 2009 to the purpose of offering prepaid and reloadable debit cards to the retail market. Cala serves consumers in the underbanked and unbanked populations through Incomm, a leading provider of payment remittance services worldwide.

NxtGn, Inc. (“NxtGn”) was formed under the laws of Florida on August 24, 2011 to develop a unique High Definition telepresence product (AVYDA) which allows users to connect with celebrities, public figures, healthcare and education applications via a mobile phone, tablet or personal computer.

On January 1, 2016, NGH completed an Agreement and Plan of Merger (the “Merger Agreement”) with Pleasant Kids, Inc. (“Pleasant Kids”) and its wholly owned subsidiary, NGH Acquisition Corp. (“Acquisition Sub”), pursuant to which NGH merged with Acquisition Sub and Acquisition Sub was then merged into PLKD effective January 1, 2016. Under the terms of the Merger Agreement, the NGH shareholders received shares of PLKD common stock such that the NGH shareholders received approximately 80% of the total common shares and 100% of the preferred shares of PLKD issued and outstanding following the merger. Due to the nominal assets and limited operations of PLKD prior to the merger, the transaction was accorded reverse recapitalization accounting treatment under the provision of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805 whereby NGH became the accounting acquirer (legal acquiree) and PLKD was treated as the accounting acquiree (legal acquirer). The historical financial records of the Company are those of the accounting acquirer (NGH) adjusted to reflect the legal capital of the accounting acquire (PLKD). As the transaction was treated as a recapitalization, no intangibles, including goodwill, were recognized. Concurrent with the effective date of the reverse recapitalization transaction, the Company adopted the fiscal year end of the accounting acquirer of December 31.

On May 27, 2016, the Cala entered into a Joint Venture Agreement (the “Agreement”) with Glocal Payments Solutions, Inc (“Glocal”) to form a joint venture in which Cala has a 60% controlling interest and Glocal has a 40% interest. The Joint Venture will seek to launch and activate up to 45,000 prepaid debit cards under the Cala brand by December 31, 2016 and 360,000 additional cards during the 2017 calendar year. Either party may terminate the agreement at December 31, 2016 if certain objectives are not met.

On July 22, 2016, the Company completed its acquisition of Transaction Processing Products, Inc. (“TPP”) which has a 64% interest in Accent InterMedia, LLC (“AIM”) and no other assets or liabilities. AIM operates as a leading gift card provider and in business activities very synergistic with those the Company is currently engaged in.

On August 10, 2016, M&M, a wholly owned subsidiary of the Company, closed the acquisition of Tel3 from a related party. Tel3 provides prepaid international long distance telephone services.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting of interim financial information. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. Accordingly, these statements do not include all the disclosures normally required by accounting principles generally accepted in the United States for annual financial statements and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report. The accompanying consolidated balance sheet as of December 31, 2015 has been derived from our unaudited financial statements. The consolidated statements of operations and cash flows for the three and nine months ended September 30, 2016 are not necessarily indicative of the consolidated results of operations or cash flows to be expected for any future period or for the year ending December 31, 2016.

The accompanying unaudited consolidated financial statements have been prepared by management and in the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position and results of operations as of the dates and for the periods presented.

Effective January 12, 2016, the Company changed its name from Pleasant Kids, Inc. (“PLKD”) to Next Group Holdings, Inc. (“NGH”).

Basis of Presentation

This summary of accounting policies for Next Group Holdings, Inc. is presented to assist in understanding the Company’s financial statements. The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America ("GAAP" accounting) and have been consistently applied in the preparation of the unaudited consolidated financial statements.

Use of Estimates

The preparation of unaudited consolidated 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 as of the date of the financial statements. Actual results could differ from those estimates. Estimates are used when accounting for allowances for bad debts, collectability of loans receivable, potential impairment losses of the capitalized license fee and fair value calculations related to embedded derivative features of outstanding convertible notes payable.

Cash

For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. The Company held no cash equivalents as of September 30, 2016 or December 31, 2015.

As discussed in Note 1 – Organization and Description of Business Activities the Company acquired a majority interest in AIM through its acquisition of TPP. AIM operates as a leading gift card processing provider and carries cash in trust on behalf of its clients. The cash is carried on the balance sheet as restricted as a result.

Revenue recognition

The Company follows paragraph 605-10-S99 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Maintenance and repair costs are expensed as they are incurred while renewals and improvements which extend the useful life of an asset are capitalized. At the time of retirement or disposal of property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the consolidated results of operations.

Impairment of Long-Lived Assets

In accordance with ASC Topic 360, formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of its asset based on estimates of its undiscounted future cash flows. If these estimated future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the difference between the asset's estimated fair value and its carrying value. There was no impairment to its long-lived assets as of September 30, 2016 and December 31, 2015, respectively.

Non-Controlling Interest

The Company reports the non-controlling interest in its majority owned subsidiaries in the consolidated balance sheets within the stockholders’ deficit section, separately from the Company’s stockholders’ deficit. Non-controlling interest represents the non-controlling interest holders’ proportionate share of the equity of the Company’s majority-owned subsidiaries. Non-controlling interest is adjusted for the non-controlling interest holders’ proportionate share of the earnings or losses and other comprehensive income (loss) and the non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance.

Derivative Financial Instruments

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.

Fair Value of Financial Instruments

Fair value of certain of the Company’s financial instruments including cash, accounts receivable, account payable, accrued expenses, notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.

Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk.

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values.

Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of income.

Except as discussed in Note 7 – Derivative Liabilities the Company did not identify any other assets or liabilities that are required to be presented on the consolidated balance sheet at fair value in accordance with ASC 825-10 as of September 30, 2016 and December 31, 2015.

Reclassifications

Certain prior-year amounts have been reclassified in order to conform to the current-year presentation. Reclassifications are limited to the combination of related party payables accounts which were presented individually in the Company’s 10Q filing for the three month period ended March 31, 2016.

Income Taxes

Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized 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 carry forwards. 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. Use of net operating loss carry forwards for income tax purposes may be limited by Internal Revenue Code section 382 if a change of ownership occurs.

Basic Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing the Company's net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company's net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.

At September 30, 2016, the Company had thirteen outstanding convertible notes payable with conversion rights that are exercisable. The amount of outstanding principal on these convertible notes total $870,500 plus accrued interest of $42,751 for total convertible debts as of September 30, 2016 of $913,251 representing 35,665,724 new dilutive common shares if converted at the applicable rates. The effects of these notes have been excluded as the conversion would be anti-dilutive due to the net loss incurred in each period presented.

Dividends

The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during any of the periods shown.

On July 19, 2016, the Company announced a final record date of July 22, 2016 for a special dividend. The Company did not receive transmittal letters from all shareholders and, because of the significant discrepancy in reported ownership and the transmittal letters, rescinded the dividend.

Advertising Costs

The Company's policy regarding advertising is to expense advertising when incurred.

Stock-Based Compensation

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of subtopic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”) and subtopic 718-20 for awards classified as equity to employees. 

Related Parties

The registrant follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

Pursuant to Section 850-10-20 the Related parties include (a) affiliates of the registrant; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the registrant; (e) management of the registrant; (f) other parties with which the registrant may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Accounts Receivable

Accounts receivable balances are established for amounts owed to the Company from its customers from the sales of services and products. The Company closely monitors the collectability of outstanding accounts receivable and provide an allowance for doubtful accounts based on estimated collections of outstanding amounts.

Loans Receivable

The Company carries loans receivable for unsecured amounts lent to unrelated and related parties. The balance due to the Company monitored for collectability. An allowance for uncollectible loans is established based on the estimated collectability of outstanding loans.

License Fee

The Company entered into an agreement with a certain vendor whereby it obtained a license to market and distribute certain closed loop general purpose reloadable debit cards for an initial term of three years. The Company remitted $250,000 as a license fee in connection with the agreement which it is recognizing over the initial term of the agreement on a straight line basis. The unamortized balance of the license fee was $138,889 and $201,385 as of September 30, 2016 and December 31, 2015, respectively.

Subscription Receivable

During the year ended December 31, 2014, Cala accepted a $10,000 subscription receivable that remains outstanding as of September 30, 2016 and December 31, 2015. The subscription receivable is shown as a reduction to equity on the balance sheet pursuant to ASC 505.

Recently Issued Accounting Standards 

In April 7, 2015 the FASB issued Accounting Standards Update “ASU” 2015-03 on “Interest — Imputation of Interest (Subtopic 835-30)” To simplify presentation of debt issuance costs, the amendments in this Update would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by the amendments in this Update. This ASU 2015-3 is effective for annual periods ending after December 15, 2015, and interim periods and annual periods thereafter. We reviewed the provisions of this ASU and determined there was an impact on our consolidated financial position and results of operations.

In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers," ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 - Revenue Recognition ("ASC 605") and most industry-specific guidance throughout ASC 605. The standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective on December 15, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial position and results of operations.

In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," ("ASU 2015-11"). ASU 2015-11 amends the existing guidance to require that inventory should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out or the retail inventory method. ASU 2015- 11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the effects of ASU 2015-11 on its consolidated financial position or results of operations.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial position or results of operations.

In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers - Principal versus Agent Considerations." This Update provides clarifying guidance regarding the application of ASU No. 2014-09 - Revenue From Contracts with Customers when another party, along with the reporting entity, is involved in providing a good or a service to a customer. In these circumstances, an entity is required to determine whether the nature of its promise is to provide that good or service to the customer (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The amendments in the Update clarify the implementation guidance on principal versus agent considerations. The Update is effective, along with ASU 2014-09, for annual and interim periods beginning after December 15, 2017. The adoption of ASU 2016- 08 is not expected to have a material impact on our consolidated financial position or results of operations.

In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718)" ("ASU 2016- 09"). ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating ASU 2016-09 and its impact on its consolidated financial position or results from operations.

In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing" ("ASU 2016-1O"). The amendments in this update clarify the following two aspects to Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The entity first identifies the promised goods or services in the contract and reduce the cost and complexity. An entity evaluates whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). The Company is currently evaluating ASU 2016-10 and its impact on its consolidated financial statements or disclosures.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.

NOTE 3 – GOING CONCERN

The Company's unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustment relating to recoverability and classification of recorded amounts of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company has a minimum cash balance available for payment of ongoing operating expense, has experienced losses from operations since inception, and it does not have a source of revenue sufficient to cover its operating costs. Its continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or equity financing will be available, or will be available on terms acceptable to the Company. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

NOTE 4 – LOANS RECEIVABLE

At the time of the reverse recapitalization discussed in Note 1 – Organization and Description of Business, the Company had a loan that was made to an individual totaling $40,000 which was the balance on September 30, 2016 and on December 31, 2015, respectively. This loan was not memorialized in writing and accordingly, carries no terms as to repayment, interest or default. Additionally, the Company acquired a total of $83,353 of loans receivable through its acquisition of TPP as discussed in Note 1 – Organization and Description of Business. The balance due on this loan was $83,353 as of September 30, 2016. The total loans receivable balances were $123,353 and $40,000 as of September 30, 2016 and December 31, 2015, respectively.

As discussed in Note 8 – Related Party Transactions, during the year ended December 31, 2014, the Company made a series of loans to the sister of Mr. Arik Maimon, our Chief Executive Officer totaling $60,000. No repayments have been made leaving a total principal balance of $60,000 due at September 30, 2016 and December 31, 2015, respectively. These loans were not memorialized in writing and accordingly, carry no terms as to repayment, interest or default.

NOTE 5 – FIXED ASSETS

The Company acquired $4,572 of equipment net of accumulated depreciation of $1,430 through the reverse recapitalization discussed in Note 1 – Organization and Description of Business. The Company disposed of this property in April 2016 and recorded a loss on disposal of $2,926 during the nine months ended September 30, 2016. Additionally, the Company acquired a total of $123,013 of equipment at fair value through its acquisition of TPP as discussed in Note 1 – Organization and Description of Business. Depreciation expense was $24,796 and $25,012 during the three and nine months ended September 30, 2016. The Company had the following property and equipment as of September 30, 2016 and December 31, 2015:

NOTE 6 – CONVERTIBLE NOTES PAYABLE

The following is a summary of all convertible notes outstanding as of September 30, 2016:

Noteholder 1:

Through the reverse recapitalization as discussed in Note 2, the Company acquired a convertible note payable that was entered into by Pleasant Kids (PLKD) on August 12, 2015. PLKD sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $72,450 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, was due on August 12, 2016. The Note was convertible into the Company's common stock at the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company had the right to prepay the Note at any time from the date of issuance until the note was paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. The Company incurred a penalty of $14,490 under the terms of the note related to a DTC chill which was added to the then outstanding principal balance during the nine months ended September 30, 2016. During the nine months ended September 30, 2016, the Company issued 905,625 common shares for the conversion of $86,940 of principal which included the penalty and 99,286 common shares for the conversion of $9,518 of accrued interest. There was $0 of principal and $0 of accrued interest due at September 30, 2016.  

Through the reverse recapitalization as discussed in Note 2, the Company acquired a convertible note payable that was entered into by Pleasant Kids (PLKD) on September 21, 2015. PLKD sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $82,500 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The note contains a 7% OID such that the purchase price was $76,875. The Note, together with accrued interest at the annual rate of 8%, was due on September 21, 2016. The Note was convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company had the right to prepay the Note at any time from the date of issuance until the note was paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. During the nine months ended September 30, 2016, the Company issued 873,015 common shares for the conversion of $82,500 of principal and 44,010 common shares for the conversion of $4,159 of accrued interest. There was $0 of principal and $0 of accrued interest due at September 30, 2016.  

Through the reverse recapitalization as discussed in Note 2, the Company acquired a convertible note payable that was entered into by Pleasant Kids (PLKD) on October 19, 2015. PLKD sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $82,500 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, was due on October 15, 2016. The Note was convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company had the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. During the nine months ended September 30, 2016 the Company issued 1,499,662 common shares for the conversion of $82,500 of principal and 57,872 common shares for the conversion of $3,164 of accrued interest. As of September 30, 2016, there was $0 of principal and $0 of accrued interest due.

Through the reverse recapitalization as discussed in Note 2, the Company acquired a convertible note payable that was entered into by Pleasant Kids (PLKD) on November 25, 2015. PLKD sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $82,500 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on November 25, 2016. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $82,500 of principal and $5,605 of accrued interest due at September 30, 2016.  

Through the reverse recapitalization as discussed in Note 2, the Company acquired a convertible note payable that was entered into by Pleasant Kids (PLKD) on December 21, 2015. PLKD sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $27,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on December 21, 2016. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $27,000 of principal and $1,663 of accrued interest due at September 30, 2016.  

On January 15, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $131,250 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on January 15, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recorded a derivative liability upon the note qualifying for conversion rights on July 15, 2016. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $131,250 of principal and $7,451 of accrued interest due at September 30, 2016.  

On March 8, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $50,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on March 8, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recordd a derivative liability upon the note qualifying for conversion rights on September 8, 2016. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $50,000 of principal and $2,247 of accrued interest due at September 30, 2016. 

On April 11, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $82,500 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on April 11, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company will bifurcate the conversion feature of the note and record a derivative liability upon the note qualifying for conversion rights. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $82,500 of principal and $3,110 of accrued interest due at September 30, 2016. 

On April 11, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $82,500 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on April 11, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company will bifurcate the conversion feature of the note and record a derivative liability upon the note qualifying for conversion rights. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $82,500 of principal and $3,110 of accrued interest due at September 30, 2016. 

On April 11, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $82,500 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on April 11, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company will bifurcate the conversion feature of the note and record a derivative liability upon the note qualifying for conversion rights. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $82,500 of principal and $3,110 of accrued interest due at September 30, 2016. 

On May 16, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $100,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on May 16, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company will bifurcate the conversion feature of the note and record a derivative liability upon the note qualifying for conversion rights. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $100,000 of principal and $3,003 of accrued interest due at September 30, 2016. 

On July 22 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $50,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. Of the $50,000 total note, $2,500 was paid to third parties directly on our behalf as debt issues costs resulting in net cash proceeds to the Company of $47,500. The Note, together with accrued interest at the annual rate of 8%, is due on July 22, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion but not lower than $0.05 per share. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company will bifurcate the conversion feature of the note and record a derivative liability upon the note qualifying for conversion rights. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $50,000 of principal and $767 of accrued interest due at September 30, 2016. 

On August 2 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $50,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. Of the $50,000 total note, $2,500 was paid to third parties directly on our behalf as debt issues costs resulting in net cash proceeds to the Company of $47,500. The Note, together with accrued interest at the annual rate of 8%, is due on August 2, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion but not lower than $0.05 per share. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company will bifurcate the conversion feature of the note and record a derivative liability upon the note qualifying for conversion rights. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $50,000 of principal and $647 of accrued interest due at September 30, 2016. 

Noteholder 2:

Through the reverse recapitalization as discussed in Note 2, the Company acquired a convertible note payable that was entered into by Pleasant Kids (PLKD) on July 30, 2015. PLKD sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $37,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The note contains a 5% OID such that the purchase price was $35,000. The Note, together with accrued interest at the annual rate of 8%, was due on July 30, 2016. The Note was convertible into the Company's common stock commencing at any time from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company had the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. During the nine months ended September 30, 2016, the Company issued 440,476 common shares for the conversion of $37,000 of principal and 24,329 common shares for the conversion of $2,043 of accrued interest. There was $0 of principal and $0 of accrued interest due at September 30, 2016.

Through the reverse recapitalization as discussed in Note 2, the Company acquired a convertible note payable that was entered into by Pleasant Kids (PLKD) on November 20, 2015. PLKD sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $37,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The note contains a 5% OID such that the purchase price was $35,000. The Note, together with accrued interest at the annual rate of 8%, is due on November 20, 2016. The Note is convertible into the Company's common stock commencing at any time from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $37,000 of principal and $2,555 of accrued interest due at September 30, 2016.  

Noteholder 3:

Through the reverse recapitalization as discussed in Note 2, the Company acquired a convertible note payable that was entered into by Pleasant Kids (PLKD) on November 9, 2015. PLKD sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $75,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, was due on November 9, 2016. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company had the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. During the nine months ended September 30, 2016, the Company issued 1,153,855 common shares for the conversion of $75,000 of principal and 77,892 common shares for the conversion of $5,062 of accrued interest. There was $0 of principal and $0 of accrued interest due as of September 30, 2016.  

On March 8, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $50,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on March 8, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 50% of the lowest trade of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recorded a derivative liability upon the note qualifying for conversion rights on September 8, 2016. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and  unpaid interest due on the prepayment date. During the nine months ended September 30, 2016, the Company issued 520,000 common shares for the conversion of $26,000 of principal. There was $24,000 of principal and $3,003 of accrued interest due at September 30, 2016.

On May 16, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $100,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on May 16, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company will bifurcate the conversion feature of the note and record a derivative liability upon the note qualifying for conversion rights. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $100,000 of principal and $3,003 of accrued interest due at September 30, 2016. 

On July 22, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $50,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on July 22, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company will bifurcate the conversion feature of the note and record a derivative liability upon the note qualifying for conversion rights. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $50,000 of principal and $767 of accrued interest due at September 30, 2016. 

On March 8, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $25,000 pursuant to the terms March 8, 2017. The note was funded during the three months ended September 30, 2016. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recorded a derivative liability upon the note qualifying for conversion rights. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $25,000 of principal and $1,129 of accrued interest due at September 30, 2016. 

Noteholder 4:

On January 19, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $131,250 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on January 19, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recorded a derivative liability upon the note qualifying for conversion rights. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $131,250 of principal and $7,336 of accrued interest due at September 30, 2016.  

On March 9, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $50,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on March 9, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company bifurcated the conversion feature of the note and recorded a derivative liability upon the note qualifying for conversion rights. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. There was $50,000 of principal and $2,245 of accrued interest due at September 30, 2016.

Noteholder 5:

Through the reverse recapitalization as discussed in Note 2, the Company acquired a convertible note payable that was entered into by Pleasant Kids (PLKD) on November 9, 2015. PLKD sold and issued a Convertible Promissory Note to an unrelated party for the principal amount of $100,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, is due on November 9, 2016. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company has the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. During the nine months ended September 30, 2016, the Company issued a total of 800,000 common shares for the conversion of $35,000 of principal and 192,515 common shares for the conversion of $9,623 of accrued interest There was $65,000 of principal and $1,063 of accrued interest due at September 30, 2016.  

Noteholder 6:

Through the reverse recapitalization as discussed in Note 2, the Company acquired a convertible note payable that was entered into by Pleasant Kids (PLKD) on November 9, 2015. PLKD sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $25,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the annual rate of 8%, was due on November 9, 2016. The Note was convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company had the right to prepay the Note at any time from the date of issuance until the note is paid in full at an amount equal to 150% of the then outstanding principal amount of the Note, including accrued and unpaid interest due on the prepayment date. During the nine months ended September 30, 2016, the Company issued 500,000 common shares for the conversion of $25,000 of principal and 47,640 common shares for the conversion of $2,382 of accrued interest. There was $0 of principal and $0 of accrued interest due at September 30, 2016.  

Accrued Interest

There was $50,938 and $0 accrued interest due on all convertible notes as of September 30, 2016 and December 31, 2015, respectively.

NOTE 7 – DERIVATIVE LIABILITIES

As of September 30, 2016 the Company had a $832,771 derivative liability balance on the balance sheet and recorded a gain from derivative liability fair value adjustment of $1,191,239 and $1,583,425 during the three and nine months ended September 30, 2016, respectively.  The derivative liability activity comes from convertible notes payable as follows:

As discussed in Note 6 – Convertible Notes Payable, the Company acquired an $82,500 Convertible Promissory Notes to an unrelated party that matures on August 12, 2016 through the reverse recapitalization discussed in Note 1 – Organization and Description of Business. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion.  The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value.  The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change.  The Company fair values the embedded derivative using the Black-Scholes option pricing model.  The aggregate fair value of the derivative at the acquisition date of the note was $163,369 which was recorded as a derivative liability on the balance sheet.

During the nine months ended September 30, 2016, the noteholder elected to convert all outstanding principal and accrued interest to common stock. At September 30, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $23,250 gain from change in fair value of derivatives and a write off of derivative liability due to conversion of $140,119 for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 126%, (3) risk-free interest rate of .23%, (4) expected life of 0.35 of a year, and (5) estimated fair value of the Company’s common stock of $0.25 per share. 

As discussed in Note 6 – Convertible Notes Payable,  the Company acquired an $72,450 Convertible Promissory Notes to an unrelated party that matures on September 21, 2016 through the reverse recapitalization discussed in Note 1 – Organization and Description of Business. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion.  The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value.  The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change.  The Company fair values the embedded derivative using the Black-Scholes option pricing model.  The aggregate fair value of the derivative at the acquisition date of the note was $144,016 which was recorded as a derivative liability on the balance sheet.

During the nine months ended September 30, 2016, the noteholder elected to convert all outstanding principal and accrued interest to common stock. At September 30, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $78,916 loss from change in fair value of derivatives and a write off of derivative liability due to conversion of $222,932 for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 491%, (3) risk-free interest rate of 49%, (4) expected life of 0.54 of a year, and (5) estimated fair value of the Company’s common stock of $0.28 per share. 

As discussed in Note 6 – Convertible Notes Payable , the Company acquired an $82,500 Convertible Promissory Notes to an unrelated party that matures on October 15, 2016 through the reverse recapitalization discussed in Note 1 – Organization and Description of Business. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion.  The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value.  The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change.  The Company fair values the embedded derivative using the Black-Scholes option pricing model.  The aggregate fair value of the derivative at the acquisition date of the note was $164,342 which was recorded as a derivative liability on the balance sheet.

During the nine months ended September 30, 2016, the noteholder elected to convert all outstanding principal and accrued interest to common stock. At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $66,391 gain from change in fair value of derivatives and a write off of derivative liability due to conversion of $97,951 for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 85%, (3) risk-free interest rate of .32%, (4) expected life of 0.25 of a year, and (5) estimated fair value of the Company’s common stock of $0.12 per share. 

As discussed in Note 6 – Convertible Notes Payable , the Company acquired an $82,500 Convertible Promissory Notes to an unrelated party that matures on November 24, 2016 through the reverse recapitalization discussed in Note 1 – Organization and Description of Business. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion.  The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value.  The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change.  The Company fair values the embedded derivative using the Black-Scholes option pricing model.  The aggregate fair value of the derivative at the acquisition date of the note was $164,659 which was recorded as a derivative liability on the balance sheet.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $77,046 and recorded a $87,613 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 89%, (3) risk-free interest rate of .20%, (4) expected life of 0.15 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable , the Company acquired an $27,000 Convertible Promissory Notes to an unrelated party that matures on December 21, 2016 through the reverse recapitalization discussed in Note 1 – Organization and Description of Business. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion.  The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value.  The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change.  The Company fair values the embedded derivative using the Black-Scholes option pricing model.  The aggregate fair value of the derivative at the acquisition date of the note was $53,961 which was recorded as a derivative liability on the balance sheet.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $26,230 and recorded a $27,731 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 116%, (3) risk-free interest rate of .29%, (4) expected life of 0.22 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable , the Company acquired an $37,000 Convertible Promissory Notes to an unrelated party that matures on July 27, 2016 through the reverse recapitalization discussed in Note 1 – Organization and Description of Business. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion.  The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value.  The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change.  The Company fair values the embedded derivative using the Black-Scholes option pricing model.  The aggregate fair value of the derivative at the acquisition date of the note was $73,377 which was recorded as a derivative liability on the balance sheet.

During the nine months ended September 30, 2016, the noteholder elected to convert all outstanding principal and accrued interest to common stock. At September 30, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $4,648 gain from change in fair value of derivatives and a write off of derivative liability due to conversion of $68,729 for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 111%, (3) risk-free interest rate of .30%, (4) expected life of 0.30 of a year, and (5) estimated fair value of the Company’s common stock of $0.24 per share. 

As discussed in Note 6 – Convertible Notes Payable , the Company acquired an $37,000 Convertible Promissory Notes to an unrelated party that matures on November 20, 2016 through the reverse recapitalization discussed in Note 1 – Organization and Description of Business. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value.  The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model.  The aggregate fair value of the derivative at the acquisition date of the note was $72,943 which was recorded as a derivative liability on the balance sheet.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $41,551 and recorded a $31,392 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 86%, (3) risk-free interest rate of .20%, (4) expected life of 0.14 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable , the Company acquired an $75,000 Convertible Promissory Notes to an unrelated party that matures on November 9, 2016 through the reverse recapitalization discussed in Note 1 – Organization and Description of Business. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion.  The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the acquisition date of the note was $149,708 which was recorded as a derivative liability on the balance sheet.

During the nine months ended September 30, 2016, the noteholder elected to convert all the outstanding principal to common stock. At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $69,877 gain from change in fair value of derivatives and $79,831 write off of derivative liability due to conversion for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 100%, (3) risk-free interest rate of .29%, (4) expected life of 0.34 of a year, and (5) estimated fair value of the Company’s common stock of $0.11 per share. 

As discussed in Note 6 – Convertible Notes Payable,  the Company acquired an $100,000 Convertible Promissory Notes to an unrelated party that matures on November 9, 2016 through the reverse recapitalization discussed in Note 1 – Organization and Description of Business. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion.  The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the acquisition date of the note was $199,632 which was recorded as a derivative liability on the balance sheet.

During the nine months ended September 30, 2016, the noteholder elected to convert $35,000 of outstanding principal to common stock. At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $72,909 and recorded a $83,074 gain from change in fair value of derivatives and $43,649 write off of derivative liability due to conversion for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 77%, (3) risk-free interest rate of .20%, (4) expected life of 0.11 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable,  the Company acquired an $25,000 Convertible Promissory Notes to an unrelated party that matures on November 9, 2016 through the reverse recapitalization discussed in Note 1 – Organization and Description of Business. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the acquisition date of the note was $50,000 which was recorded as a derivative liability on the balance sheet.

During the nine months ended September 30, 2016, the noteholder elected to convert all outstanding principal to common stock. At September 30, 2016 the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $19,102 gain from change in fair value of derivatives and $30,898 write off of derivative liability due to conversion for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 100%, (3) risk-free interest rate of .29%, (4) expected life of 0.34 of a year, and (5) estimated fair value of the Company’s common stock of $0.11 per share. 

As discussed in Note 6 – Convertible Notes Payable , the Company entered into an $82,500 convertible note payment with an unrelated party that matures on April 11, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at April 11, 2016 to be $178,542 which was recorded on the balance sheet of which $82,500 was recorded as a debt discount on the convertible note and will be recognized over the life of the instrument. The remaining $96,042 of value was immediately recognized as interest expense.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $96,164 and recorded a $82,378 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 150%, (3) risk-free interest rate of .45%, (4) expected life of 0.53 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable , the Company entered into an $82,500 convertible note payment with an unrelated party that matures on April 11, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at April 11, 2016 to be $178,542 which was recorded on the balance sheet of which $82,500 was recorded as a debt discount on the convertible note and will be recognized over the life of the instrument. The remaining $96,042 of value was immediately recognized as interest expense.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $96,164 and recorded a $82,378 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 150%, (3) risk-free interest rate of .45%, (4) expected life of 0.53 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable,  the Company entered into an $82,500 convertible note payment with an unrelated party that matures on April 11, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at April 11, 2016 to be $178,542 which was recorded on the balance sheet of which $82,500 was recorded as a debt discount on the convertible note and will be recognized over the life of the instrument. The remaining $96,042 of value was immediately recognized as interest expense.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $96,164 and recorded a $82,378 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 150%, (3) risk-free interest rate of .45%, (4) expected life of 0.53 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable,  the Company entered into an $131,250 convertible note payment with an unrelated party that matures on January 15, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion but not lower than $0.05 per share. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The note became convertible six months after issuance or July 15, 2016. The aggregate fair value of the derivative at July 15, 2016 to be $176,606 of which $131,250 was recorded as a debt discount on the convertible note and will be recognized over the life of the instrument. The remaining $45,356 of value was immediately recognized as interest expense.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $15,701 and recorded a $160,905 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 135%, (3) risk-free interest rate of .29%, (4) expected life of 0.29 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable,  the Company entered into an $50,000 convertible note payment with an unrelated party that matures on March 8, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion but not lower than $0.05 per share. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The note became convertible six months after issuance or September 8, 2016. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at September 8, 2016 to be $38,532 which was recorded on the balance sheet as a debt discount on the convertible note and will be recognized over the life of the instrument.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $10,921 and recorded a $27,611 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 165%, (3) risk-free interest rate of .29%, (4) expected life of 0.44 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable,  the Company entered into an $50,000 convertible note payment with an unrelated party that matures on March 8, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion but not lower than $0.05 per share. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The note became convertible six months after issuance or September 8, 2016. The aggregate fair value of the derivative at September 8, 2016 to be $38,524 which was recorded on the balance sheet as a debt discount on the convertible note and will be recognized over the life of the instrument.

During the nine months ended September 30, 2016, the noteholder elected to convert $26,000 of principal to common stock. At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $5,245 and recorded a $13,396 gain from change in fair value of derivatives and $19,883 write off of derivative liability due to conversion for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 165%, (3) risk-free interest rate of .45%, (4) expected life of 0.44 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable,  the Company entered into an $25,000 convertible note payment with an unrelated party that matures on March 8, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion but not lower than $0.05 per share. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The note became convertible six months after issuance or September 8, 2016. The aggregate fair value of the derivative at September 8, 2016 to be $19,266 which was recorded on the balance sheet as a debt discount on the convertible note and will be recognized over the life of the instrument.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $5,461 and recorded a $13,805 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 165%, (3) risk-free interest rate of .29%, (4) expected life of 0.44 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable,  the Company entered into an $131,250 convertible note payment with an unrelated party that matures on January 15, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion but not lower than $0.05 per share. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The note became convertible six months after issuance or September 9, 2016. The aggregate fair value of the derivative at September 9, 2016 to be $138,780 of which $131,250 was recorded on the balance sheet as a debt discount on the convertible note and will be recognized over the life of the instrument. The remaining $7,530 of value was immediately recognized as interest expense.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $15,701 and recorded a $123,079 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 135%, (3) risk-free interest rate of .29%, (4) expected life of 0.29 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

As discussed in Note 6 – Convertible Notes Payable,  the Company entered into an $50,000 convertible note payment with an unrelated party that matures on March 9, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion but not lower than $0.05 per share. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The note became convertible six months after issuance or September 9, 2016. The aggregate fair value of the derivative at September 9, 2016 to be $38,357 which was recorded on the balance sheet as a debt discount on the convertible note and will be recognized over the life of the instrument.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $11,014 and recorded a $27,343 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 655%, (3) risk-free interest rate of .29%, (4) expected life of 0.44 of a year, and (5) estimated fair value of the Company’s common stock of $0.035 per share. 

In addition to derivative liabilities associated with convertible notes payable, the Company recorded a derivative liability due to a ratchet strike price feature associated with the options issued in the acquisition of TPP. The options are exercisable at $0.18 per share unless the Company’s common stock is quoted at a price greater than $0.50 per share at which point the options are exercisable at $0.001 per share. At the time of issuance, the Company measured the fair value of the options issued and recorded a derivative liability of $898,490.

At September 30, 2016, the Company marked-to-market the fair value of the derivative liabilities related to options and determined an aggregate fair value of $262,500 and recorded a $635,990 gain from change in fair value of derivatives for the nine months ended September 30, 2016. The fair value of the embedded derivatives for the options was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 913%, (3) risk-free interest rate of .88%, (4) expected life of 2.79 years, and (5) estimated fair value of the Company’s common stock of $0.035 per share.

A summary of the changes in derivative liabilities balance for the nine months ended September 30, 2016 is as follows:

NOTE 8 – STOCK OPTIONS

The following table summarizes all stock option activity for the nine months ended September 30:

The following table discloses information regarding outstanding and exercisable options at September 30, 2016:

On May 31, 2016, the Company issue 10,000,000 options to a board member pursuant to its agreement with the member. One third of the 10,000,000 options issued vested immediately upon execution of the related agreement, resulting in an immediate stock based expense of $558,323 being recognized. The remaining shares of this issuance vest based on performance milestones which the Company believes is 50% likely of occurring resulting in stock based expense of $558,328. The remaining fair value of the unvested shares will be recognized according to the estimated probability of the performance obligations being achieved.

On July 14, 2016, the Company issued 7,500,000 options as part of its acquisition of TPP. The options are exercisable for a period of three years and carry an exercise price of $0.18 per share. The options carry a ratchet pricing feature whereby they become exercisable at $0.001 per share if the Company’s common stock trades at a price greater than $0.50 per share. The options carried a value of $898,490 which was recorded as a derivative liability as discussed in Note 7 – Derivative Liabilities.

The Company issued 1,000,000 stock options exercisable at $1.00 pursuant to its agreement with Glocal. This agreement was amended on August 9, 2016 in which the option owners forfeited these options. The fair value of the 1,000,000 stock options granted with an exercise price of $1.00 was amortized through the forfeiture resulting in stock based compensation expense of $14,166.

Total stock based compensation expense was $7,083 and $1,130,818 during the three and nine months ended September 30, 2016 leaving an unrecognized expense of $558,328 as of September 30, 2016. In determining the compensation cost of the stock options granted, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in these calculations are summarized as follows:

NOTE 9 – RELATED PARTY TRANSACTIONS

The Company follows the provisions of ASC 850—Related Party Transactions & Disclosures relating to the identification of related parties and disclosure of related party transactions.

Our financial statements include disclosures of material related party transactions, other than expense allowances, and other similar items in the ordinary course of business. The disclosures include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

The Company has had extensive dealings with related parties including those in which our Chief Executive Officer holds a significant ownership interest as well as an executive position during the nine months ended September 30, 2016 and year ended December 31, 2015. Due to our operational losses, the Company has relied to a large extent on funding received from Next Communications, Inc., an organization in which our Chief Executive Officer and Chairman holds a controlling equity interest and holds an executive position.

With the exception of the Company’s purchase of a 9% interest in Next Cala, Inc. from a related party as described below, amounts scheduled below as “due to related parties” and “due from related parties” have not had their terms, including amounts, collection or repayment terms or similar provisions memorialized in formalized written agreements.

Related party balances at September 30, 2016 and December 31, 2015 consisted of the following:

Loans Receivable, Related Party

During the year ended December 31, 2014, the Company made a series of loans to the sister of Mr. Arik Maimon, our Chief Executive Officer totaling $60,000. No repayments have been made leaving a total principal balance of $60,000 due at September 30, 2016 and December 31, 2015, respectively. These loans were not memorialized in writing and accordingly, carry no terms as to repayment, interest or default.

Due from related parties

Due to related parties

During the three and nine months ended September 30, 2016, the Company recorded interest expense of $59,111 and $179,706 using an interest rate equal to that on the outstanding convertible notes payable as discussed in Note 6 – Convertible Notes Payable as imputed interest on the related party payable due to Next Communications. The interest was immediately forgiven by the related party and recorded to additional paid in capital.

Notes Payable, Related Party

During the year ended December 31, 2014, the Company entered into two notes with its President to purchase his interest in Next Cala, Inc. and separately his voting control in Next Cala. Inc. There was $280,000 of total principal and $13,479 of interest due at September 30, 2016.

Cost of Revenues (Related Party)

The Company purchases cellular minutes for wholesale distribution from Next Communications, Inc. Next Communications is a cellular company in which our Chief Executive Officer owns a 50% interest and serves as Chief Executive Officer. Purchases from Next Communications, Inc. for wholesale distribution of minutes totaled $80,988 and $230,342 during the three and nine months ended September 30, 2016.

Revenues (Related Party)

The Company generated revenues from related parties of ($619) and $85,238 during the three and nine months ended September 30, 2015. Of this total, $20,381 and $103,805 was generated from Next Cala 360 during the three and nine months ended September 30, 2015, respectively and ($21,000) and $0 was generated from a separate entity controlled by our CEO during the three and nine months ended September 30, 2015.

The Company generated revenues of $12,758 and $12,818 from related parties during the three and nine months ended September 30, 2016. During the three months ended September 30, 2016, $12,676 was received from Next Cala 360 and $82 from Asiya Communications SAPI de C.V. During the nine months ended September 30, 2016, $12,676 was received from Next Cala 360 and $142 from Asiya Communications SAPI de C.V.

NOTE 10 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following as of September 30, 2016:

During the year ended December 31, 2014, a former employee, Franjose Yglesias-Bertheau of Pleasant Kids (PLKD) filed lawsuit against PLKD claiming unpaid wages of $622,968 and was initially awarded that amount in a judgement. However, the judgement was later reversed and the Company does not expect to pay more than the accrued salary of $35,025 currently recorded and included in accrued salaries and wages.

NOTE 11 – STOCKHOLDERS’ EQUITY

Preferred Stock

At the time of incorporation, the Company was authorized to issue 60,000,000 shares of preferred stock with a par value of $0.001 of which 50,000,000 was designated Series A and 10,000,000 as Series B. With the completion of the recapitalization as discussed in Note 2, the outstanding Series A preferred shares were cancelled leaving a balance outstanding of Preferred Series A of -0-.

The Company has 10,000,000 shares of Preferred Stock designated as Series B. The Series B Preferred Stock is not convertible into Common Stock at any time and is not entitled to dividends of any kind or liquidation, dissolution rights of any kind. The holders of Series B Preferred Stock shall be entitled to 1,000 votes for each share of Series B Stock that is held when voting together with holders of the Common Stock.

Common Stock

Effective November 20, 2015 the Company amended its Articles of Incorporation to decrease the common shares authorized from 9,500,000,000 to 360,000,000 with a par value of $0.001. 

As discussed in Note 1 – Organization and Description of Business the Company is accounting for the exchange as though it were a reverse recapitalization. Through the recapitalization, the Company assumed total net liabilities of $1,032,616. 

During the nine months ended September 30, 2016, the Company has issued 6,692,633 shares of commons stock for the conversion of $449,940 of principal of convertible notes payable and 543,544 shares for the conversion of $35,956 of accrued interest. The conversion of principal and accrued interest on convertible notes payable to common stock were done so at the contractual terms of each respective agreement. Additionally, the Company issued 450,000 common shares valued at $13,260 as repayment of a non-convertible loan and rescinded 4,000,000 common shares previously issued in connection with the reverse recapitalization discussed in Note 1 – Organization and Description of Business. Common stock issued for services were valued using the close price of the Company’s common stock on the date of issuance as quoted on the OTCBB. The details of certain issuances of common stock are as follows:

Common Shares Issued for Services

The Company issued 8,774,959 common shares for services totaling $2,092,828 pursuant to an agreement whereby a third party would provide certain services on behalf of the Company for a period of six months effective April 7, 2016. The Company valued the common shares using the close price of the stock as listed on the OTCBB on April 7, 2016. The Company recognized the value of the shares over the term of the agreement resulting in $1,046,414 and $2,092,828 of expense during the three and nine months ended September 30, 2016.

Additionally, the Company issued a total of 500,000 shares for services in connection with its amendment to its Joint Venture agreement with Glocal Payment Solutions dated August 9, 2016. The shares were valued using the close price on the date of issuance as quoted by Nasdaq of $0.0745 resulting in total expense of $37,250.

Common Shares Issued for Prepayment of Services

The Company issued 1,428,571 common shares as a prepayment for services pursuant to an agreement with a third party whereby the third party would provide certain marketing and consulting services for a period of six months effective October 1, 2016. The shares were valued using the close price on the date of issuance as quoted by Nasdaq of $0.035 resulting in a total value of $50,000. The amount is being carried as a prepaid expense as of September 30, 2016.

Common Shares Issued for Acquisitions

On July 22, 2016, the Company completed its acquisition of TPP as discussed in Note 1 – Organization and Description of Business. Pursuant to this agreement, the Company issued 10,000,000 shares of common stock valued at $1,270,000.

Common Shares Issued for Other Expenses

The 200,535 common shares issued for other expenses were pursuant to an agreement executed on February 11, 2016 whereby the Company agreed to issue $45,000 of common shares plus a cash payment of $5,000 in exchange for the option to purchase a controlling interest in an Israeli business. The Company determined the number of shares to be issued pursuant to the agreement using the close price of our common stock as quoted by the OTCBB on February 11, 2016 of $0.2244 per share. The Company did not execute its option to purchase a controlling interest in the business and the fair value of the shares totaling $45,000 was expensed.

Common Shares Rescinded

On April 22, 2016, the Company entered into a settlement agreement with the former officers of Pleasant Kids, Inc. to settle certain claims the Company brought against former management. Under the terms of the agreement, former management agreed to return a total of 4,000,000 common shares to the Company and the Company agreed to lift a stop transfer order that was placed on other shares.

NOTE 12 – CUSTOMER CONCENTRATION

The Company did not have any one customer account for more than 10% of its revenues during the three months ended September 30, 2015 or 2016.

During the nine months ended September 30, 2016 and 2015, the Company generated 14% and 91% of its revenues from five and six separate customers, respectively. Of the 91% during the nine months ended September 30, 2015, 40% was from related parties. The loss of any one of these customers would have a material adverse effect on the Company’s operations. The concentration of revenues during the nine months ended September 30, 2016 and 2015 were:

NOTE 13 – COMMITMENTS AND CONTINGENCIES

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

On April 7, 2016, the Company executed an agreement with a third party to provide certain services for the Company. The agreement requires 1% of the outstanding common share equivalent to be issued to the third party when the market capitalization of the Company reaches $500,000,000 and an additional 1% when it reached $750,000,000. The probability of this event is uncertain at present and the Company has not accrued a contingent loss as of September 30, 2016 as a result.

On September 20, 2016, the Company received a notice it has been named as a defendant in a suit brought against Next Communications, an entity controlled by our CEO. In addition to being named a defendant, it was requested the Company provide certain documents for the discovery process. Due to the original suit being filed against a related party and not against the Company or its subsidiaries, we believe it likely the Company and its subsidiaries be dismissed as defendants and has not accrued a contingent loss as of September 30 as a result.

NOTE 14 – ACQUISITIONS

Transaction Processing Products, Inc.

As discussed in Note 1 – Organization and Description of Business Company completed its acquisition of Transaction Processing Products, Inc. (“TPP”) on July 22, 2016. The Company executed two separate agreements as part of the transaction; the first to purchase outstanding debt totaling $5.2 million owed by TPP to the seller in exchange for 10,000,000 shares of common stock and 7,500,000 options to purchase additional shares of stock at $0.18 per share and the second to purchase the sellers interest in Accent InterMedia, LLC for cash consideration of $10. Where the agreements were executed simultaneously, they were accounted for as a single transaction. The common shares issued were valued at $1,270,000 and the options issued at $898,490 resulting in total consideration of $2,168,500 when combined with the $10 of cash paid. The Company assumed net liabilities of $1,792,912 at fair value and identifiable intangible assets totaling $1,310,058, resulting in goodwill of $2,651,354. Net liabilities assumed consisted of the following:

Goodwill

Goodwill of $2.65 million represents the excess of consideration transferred over the fair value of assets acquired including identifiable intangible assets and liabilities assumed and is attributable to TPPs strategic position value and projected profits from new products.

Identifiable Intangible Assets

The Company acquired intangible assets that consisted of client contracts and client relationships which had estimated fair values of $93,190 and $1,216,868, respectively. The value of the identifiable intangible assets has yet to be verified by an independent valuation expert and as such, the values are subject to future measurement period adjustments. The intangible assets were measured at fair value using an income approach that discounts expected future cash flows to present value. The Company will amortize the intangible assets on a straight line basis over their expected useful lives. Identifiable intangible assets were recorded as follows:

Tel3

As discussed in Note 1 – Organization and Description of Business Company completed its acquisition of Tel3 on August 9, 2016 from a related party for cash considerations of $10. As part of the acquisition, the company assumed net liabilities of $780,137 whose book values equaled fair values at the time of acquisition. The Company did not record goodwill for the amount of consideration in excess of the fair values of net liabilities assumed due to the acquisition being from a related party. The excess instead was recorded as a reduction to additional paid-in capital. Net liabilities assumed consisted of the following:

Pro Forma Information

The unaudited pro forma information for the three and nine months ended September 30, 2015 and 2016 presented below include the effects of the TPP acquisition as if it had been consummated as of July 22, 2015, and the Tel3 acquisition had it been consummated on August 10, 2015 with adjustments to give effect to pro forma events that are directly attributable to the acquisitions, specifically adjustments related to the amortization of acquired intangible assets in TPP for the three and nine months ended September 30, 2015. These adjustments are based upon information and assumptions available to us at the time of filing this Quarterly Report on Form 10-Q. Accordingly, the unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of what the actual results of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor is it indicative of the future results of operations.

NOTE 15 – SUBSEQUENT EVENTS   

Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that other than listed below no material subsequent events exist through the date of this filing.

On July 22, 2016, the Company entered into four separate agreements with convertible note holders agreed not to convert any amount of outstanding principal or accrued interest to shares of common stock for a period of 60 days. These agreements were extended for an additional 30 days upon expiration on September 22, 2016 then an additional 30 days upon expiration of the original extensions on October 22, 2016. Currently, the agreements will expire on November 26, 2016. Under the terms of the agreement, the Company may prepay the outstanding principal and accrued interest of the notes for 130% of the then outstanding amounts. Additionally, the Company amended the notes with Noteholder 1, Noteholder 3 and Noteholder 4 to have a conversion floor of $0.04 per share from the original terms of the convertible notes of $0.05 per share. The amount of principal agreed to freeze by each convertible note holder is as follows:

On November 2, 2016, the Company entered into a convertible note payable for $52,500. The note is due on November 2, 2017 and carries an interest rate of 8% per annum. The note is convertible at the option of the holder into common stock of the Company after six months from issuance at a rate equal to 50% of the lowest trading price of the Company’s common stock during the twenty prior trading days from the date of conversion.

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

The following discussion and analysis provides information which management of the Company believes to be relevant to an assessment and understanding of the Company’s results of operations and financial condition. This discussion should be read together with the Company’s financial statements and the notes to the financial statements, which are included in this report.

Forward-Looking Statements

This Report contains forward-looking statements that relate to future events or our future financial performance. Some discussions in this report may contain forward-looking statements that involve risk and uncertainty. A number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made by us in this Report. Forward-looking statements are often identified by words like “believe,” “expect,” “estimate,” “anticipate,” “intend,” “project” and similar words or expressions that, by their nature, refer to future events.

In some cases, you can also identify forward-looking statements by terminology such as “may,” “will,” “should,” “plans,” “predicts,” “potential,” or “continue,” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements in an effort to conform these statements to actual results.

Business History

Next Group Holdings, Inc, (the “Company”) was incorporated under the laws of the State of Florida on September 21, 2005 to act as a holding company for its subsidiaries, both current and future. Its subsidiaries are Meimoun and Mammon, LLC (100% owned), Next Cala, Inc (94% owned). NxtGn, Inc. (65% owned) and Next Mobile 360, Inc. (100% owned). Additionally, Next Cala, Inc. has a 60% interest in NextGlocal, a subsidiary formed in May 2016.

Meimoun and Mammon, LLC (“M&M”) was formed under the laws of the State of Florida on May 21, 2001 as a real estate investment company. During the year ended December 31, 2010, M&M began winding down real estate operations and engaged in telecommunications services. M&M acquired telecom registrations, licenses and authorities to provide telecom services to the retail and wholesale markets including sales of prepaid long distance telecom services and Mobile Virtual Network Operator (MVNO) services. The services are sold under the brand name Next Mobile 360 and through the subsidiary of the same name.

Next Cala, Inc, (“Cala”) was formed under the laws of Florida on July 10, 2009 to the purpose of offering prepaid and reloadable debit cards to the retail market. Cala serves consumers in the underbanked and unbanked populations through Incomm, a leading provider of payment remittance services worldwide.

On May 27, 2016, the Cala entered into a Joint Venture Agreement (the “Agreement”) with Glocal Payments Solutions, Inc (“Glocal”) to form a joint venture in which Cala would have a 60% interest and Glocal would have a 40% interest. The Joint Venture will seek to launch and activate up to 45,000 prepaid debit cards under the Cala brand by December 31, 2016 and 360,000 additional cards during the 2017 calendar year. Either party may terminate the agreement at December 31, 2016 if certain objectives are not met.

NxtGn, Inc. (“NxtGn”) was formed under the laws of Florida on August 24, 2011 to develop a unique High Definition telepresence product (AVYDA) which allows users to connect with celebrities, public figures, healthcare and education applications via a mobile phone, tablet or personal computer.

On July 22, 2016, the Company completed its acquisition of Transaction Processing Products, Inc. (“TPP”) which has a 64% interest in Accent InterMedia, LLC (“AIM”) and no other assets or liabilities. AIM operates as a leading gift card provider and in business activities very synergistic with those the Company is currently engaged in.

On August 10, 2016, M&M, a wholly owned subsidiary of the Company, closed the acquisition of Tel3 from a related party. Tel3 provides prepaid international long distance telephone services. 

Overview

On January 12, 2016, and effective as of January 1, 2016, the Company issued 177,539,180 shares of its restricted common stock and 10,000,000 shares of its Series B preferred stock for 100% of the issued and outstanding shares of Next Group Holdings, Inc. (NEXT). Based on the completion of the agreement NEXT became a wholly-owned subsidiary of the Company.

On December 31, 2015, we signed our merger with Next Group Holdings, Inc. a Florida Corporation but the transaction was not completed until January 12, 2016, when the document was filed with the State of Florida. The accounting effective date of the transaction in January 1, 2016. The Company filed for a change of name is Next Group Holdings, Inc. and its symbol is NXGH.

As a result of this merger, we adopted Next Group’s corporate structure and began a transition into its business model. Through our subsidiaries, we engage in use of certain licensed technology to provide innovative telecommunications, mobility, and remittance solutions to unserved, unbanked, and emerging markets.

Our subsidiaries are Next Mobile 360 LLC (100%), a limited liability company formed under the laws of Florida (“Next Mobile”), Meimoun & Mammon, LLC (100%), a limited liability company formed under the laws of Florida (“M&M”), NxtGn, Inc. (65%), a corporation formed under the laws of Florida (“NxtGn”), and Next CALA, Inc. (94%), a corporation formed under the laws of Florida (“Next CALA”) and Transaction Processing Products, LLC (100%). Further, Transaction Processing Products, LLC owns a 64% interest in Accent InterMedia and Meimoun & Mammon, LLC owns an 100% interest in Tel3.

Item 2. Business Description

Item 2.01. Business Description

Next Group Holdings through its operating subsidiaries, engages in the business of using proprietary technology and certain licensed technology to provide innovative telecommunications and telecommunications mobility and remittance solutions in emerging markets.

Principal Products

Through its subsidiaries, the Company offers telecommunication services, prepaid and reloadable general purpose debit cards, commercial gift cards and high definition telepresence products.

Operations

The Company is engaged in the business of using proprietary technology and certain licensed technology to provide innovative telecommunications and telecommunications mobility and remittance solutions in emerging markets.

Transitioning of Operations

Prior to the reverse recapitalization, we operated primarily as a manufacturing, marketing and distribution company focused on juice based beverages. These operations were phased out following the reverse recapitalization.

Results of operations for the three months ended September 30, 2016 and 2015.

Revenue

Total revenue for the three months ended September 30, 2016, were $515,230, compared to revenue of $41,527 for the three month period ended September 30, 2015. During the three months ended September 30, 2016, revenues from non-related parties totaled $502,472 and revenues from related parties totaled $12,758 compared to $42,146 from non-related parties and ($619) from related parties during the three months ended September 30, 2015. The increase in revenue was due to the acquisitions of TPP and Tel3 which contributed revenues of $113,812 and $387,703, respectively, representing total revenues of $501,515 from acquisitions during the three months ended September 30, 2016.

Cost of Goods Sold

The Company incurred total cost of goods sold of $441,907 for the three months ended September 30, 2016, compared to $164,002 for the three months ended September 30, 2015 resulting in gross margins of $73,322 and negative $122,475. The increase in gross margins was due to the elimination of variable costs of revenue from the decline in services being provided during the three months ended September 30, 2016 as compared to the same period in 2015. These services have been discontinued given the losses incurred on the service. Additionally, the Company experienced improved gross margins from its acquisitions of each TPP and Tel3 as each business has a history of profitability.

Operating Expenses

Operating expenses for the three months ended September 30, 2016, were $1,868,409 compared to $101,669 for the three months ended September 30, 2015. Operating expenses were greater in the three months ended September 30, 2016 due mainly to an increase in professional services of $1,296,012 due to common shares valued at $1,065,039 being issued for professional fees and the reverse recapitalization transaction and incremental costs associated with operating as a public company. Additionally, officer and director compensation increased $139,146 during the three months ended September 30, 2016 as compared to the three months ended September 30, 2015 due to increased management and board costs associated with operating as a public company and stock based compensation to directors totaling $7,083 during the three months ended September 30, 2016.

Loss from Operations

Loss from operations was $1,795,087 during the three months ended September 30, 2016, compared to $224,144 for the three months ended September 30, 2015. The increase in losses from operations is the result of decreased revenue, higher cost of revenue and higher operating expenses as discussed previously.

Other Income (Expense)

Total other income (expense) during the three months ended September 30, 2016 was a net gain of $779,222 compared to $25,000 for the same period in 2015. Interest expense for the three months ended September 30, 2016, was $412,017, and is the result of the recognition of debt discounts associated with convertible notes payable, excess fair market value of derivative liabilities being charged to interest upon initial measurement, imputed interest on related party loans and interest accruals on outstanding debt. The Company did not incur interest expense during the three months ended September 30, 2015 as there was not outstanding debt at that time. Additionally, the Company recorded a gain on the change in fair market values of derivative liabilities of $1,191,239 during the three months ended September 30, 2016 compared to $0 during the three months ended September 30, 2015 as the liabilities did not exist during the 2015 calendar year. The Company cannot predict the losses or gains from the changes in the fair market values of outstanding derivative liabilities due the variables involved but does not anticipate recording the same amount of gains in future periods.

Net Loss

Net loss before non-controlling interest for the three months ended September 30, 2016, was $1,015,865 compared to a loss of $199,144 for the three months ended September 30, 2015. The increase in loss for the three months ended September 30, 2016 is due mainly to an increase in operating costs of $1,766,740 and an increase in interest expense of $412,017.

Results of operations for the nine months ended September 30, 2016 and 2015.

Revenue

Total revenue for the nine months ended September 30, 2016, were $600,300, compared to revenue of $269,578 for the nine month period ended September 30, 2015. During the nine months ended September 30, 2016, revenues from nonrelated parties totaled $587,482 and revenues from related parties totaled $12,818 compared to $184,340 from nonrelated parties and $85,238 from related parties during the nine months ended September 30, 2015. The increase in revenue was due to the acquisitions of TPP and Tel3 which contributed revenues of $113,812 and $387,703, respectively, representing total revenues of $501,515 from acquisitions during the nine months ended September 30, 2016.

Cost of Goods Sold

The Company incurred total cost of goods sold of $591,262 for the nine months ended September 30, 2016, compared to $343,620 for the nine months ended September 30, 2015 resulting in gross margins of $9,038 and negative $74,042. The decrease in gross margins was due to the decline in services being provided during the nine months ended September 30, 2016 as compared to the same period in 2015. These services have been discontinued given the losses incurred on the service. Additionally, the Company experienced improved gross margins from its acquisitions of each TPP and Tel3 as each business has a history of profitability.

Operating Expenses

Operating expenses for the nine months ended September 30, 2016, were $5,003,422 compared to $429,648 for the nine months ended September 30, 2015. Operating expenses were greater in the nine months ended September 30, 2016 due mainly to an increase in professional services of $2,751,858 due to common shares valued at $2,130,077 being issued for professional fees and the reverse recapitalization transaction and incremental costs associated with operating as a public company. Additionally, officer and director compensation increased $1,390,767during the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015 due to increased management and board costs associated with operating as a public company and stock based compensation to directors totaling $1,130,818 during the nine months ended September 30, 2016.

Loss from Operations

Loss from operations was $4,994,384 for the nine months ended September 30, 2016, compared to $503,690 for the nine months ended September 30, 2015. The increase in losses from operations is the result of decreased revenue, higher cost of revenue and higher operating expenses as discussed previously.

Other Income (Expense)

Total other income (expense) during the nine months ended September 30, 2016 was a net gain of $229,055 compared to $25,000 for the same period in 2015. Interest expense for the nine months ended September 30, 2016, was $1,302,199, and is the result of the recognition of debt discounts associated with convertible notes payable, the excess fair market value of derivatives being charged to interest expense, imputed interest on related party loans and interest accruals on outstanding debt. The Company did not incur interest expense during the nine months ended September 30, 2015 as there was not outstanding debt at that time. Additionally, the Company recorded a gain on the change in fair market values of derivative liabilities of $1,583,425 during the nine months ended September 30, 2016 compared to $0 during the nine months ended September 30, 2015 as the liabilities did not exist during the 2015 calendar year. The Company cannot predict the losses or gains from the changes in the fair market values of outstanding derivative liabilities due the variables involved but does not anticipate recording the same amount of gains in future periods.

Net Loss

Net loss before non-controlling interest for the nine months ended September 30, 2016, was $4,765,329 compared to a loss of $478,690 for the nine months ended September 30, 2015. The increase in loss for the nine months ended September 30, 2016 is due mainly to an increase in operating costs of $4,573,774 and an increase in interest expense of $1,302,199.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2016, the Company had net current assets of $569,016 and current liabilities of $9,043,900 compared to $205,781 and $4,223,871 as of December 31, 2015 creating a working capital deficit of $8,474,884 and $4,018,090 as of September 30, 2016 and December 31, 2015. The Company had cash on hand of $134,598 and $18,047 as of September 30, 2016 and December 31, 2015 as well as a bank overdraft of $2,792 and $0 as of September 30, 2016 and December 31, 2015.

Operational Activities

The Company used $967,736 of cash in operations during the nine months ended September 30, 2016, and $494,848 during the nine months ended September 30, 2015. The Company’s primary uses of cash have been for professional support, marketing expenses and working capital. Net cash used in operating activities during the nine months ended September 30, 2016 consisted of a net loss of $4,765,329, non-cash losses and gains totaling $3,069,163 and changes in working capital of $728,430. All cash received has been expended in the furtherance of growing future operations.

Investing Activities

The Company generated $85,486 of cash from investing activities during the nine months ended September 30, 2016 compared to $75,247 used during the nine months ended September 30, 2015. The Company acquired cash net of cash paid totaling $43,573 through its acquisition of TPP completed during the nine months ended September 30, 2016. The Company also received advances from related parties of $41,913 during the nine months ended September 30, 2016 and made net repayments to related parties of $75,247 during the nine months ended September 30, 2015.

Financing Activities

The Company had net cash proceeds of $998,801 from financing activities during the nine months ended September 30, 2016 compared to $543,487 during the nine months ended September 30, 2015. The net cash provided by financing activities during the nine months ended September 30, 2016 included $969,130 of proceeds from convertible notes payable, repayments of related party loans of $47,481, repayments of loans payable of $20,961, proceeds from loans payable of $50,000, proceeds from bank overdrafts of $1,704; net cash contributed by a related party through the acquisition of Tel3 of $45,225 and cash acquired through the reverse recapitalization of $1,184. Net cash provided by financing activities during the nine months ended September 30, 2015 consisted of proceeds from bank overdrafts of $581, proceeds from loans payable of $30,000 and proceeds from related party loans of $512,906.

The Company may not have sufficient resources to fully develop any new products or expand our market area unless it is able to raise additional financing. The Company can make no assurances these required funds will be available on favorable terms, if at all. If additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in dilution to our existing stockholders. Additionally, these conditions may increase costs to raise capital and/or result in further dilution. The failure to raise capital when needed, will adversely affect our business, financial condition and results of operations, and could force the Company to reduce or cease operations.

The Company believes that it will be able to meet the costs of growth and public reporting with funds generated from operations and additional amounts generated through debt and equity financing, Although management believes that the required financing to fund product development and increasing inventory levels can be secured at terms satisfactory to the Company, there is no guarantee these funds will be made available, and if funds are available, that the terms will be satisfactory to the Company.

Impact of Inflation

The Company does not expect inflation to be a significant factor in operation of the business.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements between the Company and any other entity that have, or are reasonably likely to have, a current or future effect on financial conditions, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Going Concern

The Company has a working capital deficiency of $8,474,884 and accumulated deficit of $8,515,517 as of September 30, 2016. These factors raise substantial doubt about its ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon The Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition. Some of the critical accounting estimates are detailed below.

Critical Accounting Estimates and New Accounting Pronouncements

Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:

The Company base estimates and judgments on experience, current knowledge, and beliefs of what could occur in the future, observation of trends in the industry, information provided by customers and information available from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company has identified the following accounting policies and estimates as those that are believed to be the most critical to the financial condition and results of operations and that require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties: share-based compensation expense, income taxes, and derivative financial instruments.

Share-Based Compensation Expense

We calculate share-based compensation expense for option awards and warrant issuances (“Share-based Awards”) based on the estimated grant/issue-date fair value using the Black-Scholes-Merton option pricing model (“Black-Scholes Model”), and recognize the expense on a straight-line basis over the vesting period, net of estimated forfeitures. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the vesting period of the Share-based Award in determining the fair value of Share-based Awards. Although we believe our assumptions used to calculate share-based compensation expense are reasonable, these assumptions can involve complex judgments about future events, which are open to interpretation and inherent uncertainty. In addition, significant changes to our assumptions could significantly impact the amount of expense recorded in a given period.

New Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, and as discussed in greater detail below, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, disclosure controls and procedures are not effective: 

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On September 20, 2016, the Company received a notice it has been named as a defendant in a suit brought against Next Communications, an entity controlled by our CEO. In addition to being named a defendant, it was requested the Company provide certain documents for the discovery process. Due to the original suit being filed against a related party and not against the Company or its subsidiaries, we believe it likely the Company and its subsidiaries be dismissed as defendants 

ITEM 1A. RISK FACTORS

Not applicable.

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

During the nine months ended September 30, 2016, the Company has issued 6,692,633 shares of commons stock for the conversion of $449,940 of principal of convertible notes payable and 543,544 shares for the conversion of $35,956 of accrued interest. Additionally, the Company issued 450,000 common shares valued at $13,260 as repayment of a non-convertible loan; 10,703,530 common shares valued at $2,180,078 for services; 200,535 common shares for other expenses of $45,000; 10,000,000 shares for the actuation of TPP. There were 246,914,217 common shares issued and outstanding at September 30, 2016.

ITEM 3. DEFAULTS UPON SENIOR DEBT

None.

ITEM 4. [Removed and Reserved]

None.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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