PeerLogix, Inc. - Annual Report: 2018 (Form 10-K)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the Fiscal Year Ended December 31, 2018

or

For the transition period from _____ to _____

Commission File Number: 333-191175

PEERLOGIX, INC.

(Exact name of registrant as specified in its charter)

480 Sixth Ave., #351, New York, NY 10011

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (914) 550-9993

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐   No ☒

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rue 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐   

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

(Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐   

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based on the closing sales price, or the average bid and asked price on such stock, as June 30, 2018 was $1,129,263.

The number of shares of the registrant’s common stock outstanding as of December 15, 2020 was 67,744,953.

PEERLOGIX, INC.

TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information contained in this Annual Report on Form 10-K for year ended December 31, 2018 (the “Report”), including in documents that may be incorporated by reference into this Report, includes some statements that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding the Company and its management’s expectations, hopes, beliefs, intentions or strategies regarding the future, including its financial condition and results of operations. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this Report are based on current expectations and beliefs concerning future developments. There can be no assurance that future developments actually affecting the Company will be those anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the Company’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements, some of which are described in the section of this Report entitled “Risk Factors”.

Should one or more of these risks or uncertainties materialize, or should any of the Company’s assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Unless specifically set forth to the contrary, when used in this Report the terms “PeerLogix,” "we"", "our", the "Company" and similar terms refer to PeerLogix, Inc., a Nevada corporation and where the context is applicable, to our business operations, inclusive of those undertaken by our operating subsidiary, PeerLogix Delaware. “PeerLogix Delaware” refers solely to our wholly-owned subsidiary, PeerLogix Technologies, Inc., a Delaware corporation.

PART I

Item 1. Business.

OVERVIEW

PeerLogix, Inc. is an advertising technology and data aggregation company. The Company provides a platform which enables the tracking and cataloguing of over-the-top viewership in order to determine consumer trends and preferences based upon media consumption. Its platform collects over-the-top data, including Internet Protocol (IP) addresses of the streaming and downloading parties (location), the name, media type and genre of media watched, listened or downloaded, and utilizes licensed and publicly available demographic and other databases to further filter the collected data to provide insights into consumer preferences to digital advertising firms, product and media companies, entertainment studios and others.

The Company was incorporated on February 14, 2014 in Nevada under the name of Realco International, Inc. The Company previously offered real estate marketing and sales services to individuals and businesses seeking to purchase international real estate, with a particular focus on the European and Middle Eastern markets.

Effective May 1, 2018, the Company executed a services agreement with Oracle America, Inc., whereas, certain portions of the Company’s data assets and materials will be used for the purpose of testing, analyzing, and evaluating their use with Oracle systems, services and product offers. The initial term of the agreement is 6-months.

On July 6, 2018, the Board of Directors of the Company, resolved to offer to the holders of warrants (the “Warrants”) of the Company (the “Holders”), and approve the execution of, a warrant repricing and exercise agreement (the “Agreement”) with each of the consenting Holders, whereby the exercise price of the Warrants shall be reduced from $0.10 to $0.06 per share of common stock of the Company (the “Common Stock”). Furthermore, the Board of Directors resolved to offer to the Holders, as outlined in the Agreement, an additional Series B Warrant (the “Series B”) for every four (4) Warrants exercised pursuant to the Agreement. The Series B have an exercise price of $0.25 per share of the Common Stock. A total of 11,274,500 warrants were exercised for gross proceeds of $676,470 and 2,818,625 Series B warrants were issued.

Effective August 16, 2018, the Company executed an additional services agreement with Oracle America, Inc., whereas, certain services including aggregation, analysis, segmentation, reporting, marketing, sales and distribution of data segments from the Company are licensed for use via Oracle’s proprietary electronic platform. Revenue payouts to the company are to occur within sixty (45) days after the end of each calendar month. The initial term of the agreement is 1-year and automatically renews for successive 1-year terms unless either party provides written notice of intent to not renew at least ninety days prior to the end of a term. The agreement is active as of the date of this report.

Industry Background

Brand advertisers and consumer product companies utilize a broad array of consumer data on which to base advertising decisions. They have traditionally relied upon information collected from legacy media distribution providers to base their research (e.g., Comcast and other cable providers). These traditional methods are inherently inefficient by today’s standards and are often cost-prohibitive due to their fragmented nature, relying upon separate, non-integrated legacy providers for television and music research related to consumer preferences.

Digital surveying methods provide a solution to many of the inefficiencies present with traditional methods. Thus, advertisers, agencies, entertainment studios and others are rapidly adopting digital methodologies to augment their traditional practices. One such digital surveying method yet to be widely implemented is Over-the-Top (“OTT”) measurement, which the Company believes is a significant market opportunity.

In today’s digital world, consumers have access to media, television shows, music, movies, video games and software through a number of growing and fragmented methods and providers. This change in behavior and habits is an evolution resulting from technological innovation, and has resulted in greater choice and democratization amongst consumers. The resulting digital empowerment has directly lead to the birth of platforms providing consumers direct access to media, which often times circumvents legacy providers previously relied upon for distribution (such as traditional cable providers).

One of the more prominent digital platforms to arise has been Over-the-Top (e.g., Popcorn Time, Netflix, Hulu, HBOGO). Over-the-Top broadcast is entertainment content (e.g., audio, video, and other media) transmitted via the Internet without an operator of multiple cable or direct-broadcast satellite television systems controlling or distributing the content (i.e., cable television service providers). Consumers can access Over-the-Top content through Internet-connected devices such as phones (including Android, iPhone, and Windows-type mobile devices), smart TVs (such as Google TV and LG Electronic's Channel Plus), set-top boxes (such as the Fire TV and Roku), gaming consoles (such as the PlayStation 4, Wii U, and Xbox One), and desktop and laptop computers and tablets.

According to MarketsandMarkets, the Over-the-Top market is estimated to grow from USD 28.04 Billion in 2015 to USD 62.03 Billion by 2020 with a CAGR of 17.2%. Thus, because Over-the-Top is so widely used and being rapidly adopted for digital media consumption, demographic data related to its use can provide digital agencies and consumer product companies with a wide variety of critical and yet untapped information about consumers enabling them to target their messages and offerings to such consumers.  

Marketing and Advertising Industry Implications

The Company believes data collected from Over-the-Top viewership and listenership represents a substantial improvement over search and other tracking data utilized to obtain marketing insights, as Over-the-Top data reflects actual consumption of media with respect to which the viewing party has taken an affirmative effort to obtain, as opposed to search data, such as Google, which can reflect pure curiosity.

Through rigorous testing and analysis, the Company has been able to show that on a general basis, the domestic Over-the-Top audiences most commonly reside in middle to upper-middle class households, possessing greater than average levels of discretionary income. The Company sees this demographic skew as a significant opportunity in the marketplace, as the Company’s prospective core client base, digital agencies and consumer product companies, proactively seek new audiences deemed financially worthy of sales and advertising efforts.

PeerLogix Over-The-top Opportunity

Over-the-Top (“OTT”) Adoption and Activity

Over-the-top media viewership represents up to 22% of all worldwide internet traffic and is used by approximately 765 million people worldwide to consume TV shows, movies, music, pictures, video games, e-books and software online. Representing 10.2% of the global population and 32.1% of digital video viewers worldwide, the global subscription OTT market will grow by 24.0% this year thanks to increasing internet penetration, faster speeds and a broader shift toward internet entertainment, according to eMarketer.

All major entertainment and media content are available to consumers tuning in via OTT media platforms – with the category representing one of the most significant percentages of global internet bandwidth. The Company measures, tracks and archives OTT viewership data of premium television shows and movies from approximately 170 million households and stores all such data in a fully scalable database which has been accumulating since approximately January 1, 2014, providing distinctive ability to provide trend analysis on the basis of worldwide entertainment viewing habits.

The Company’s proprietary platform operates on an automatic basis with little human interaction and continually acquires and catalogues data on OTT media activity in real time, obtaining millions of data points daily.

PeerLogix Platform

The Company’s proprietary platform enables the tracking and cataloging of OTT media in order to determine consumer trends and preferences based upon media consumption. PeerLogix’s patented platform collects over-the-top data, including IP addresses of the uploading and downloading parties (e.g., location), the name, file type, media type (whether movie, television, documentary, music, e-books, software, etc.), and genre of media downloaded, and utilizes licensed and publicly available demographic and other databases to further filter the collected data to provide insights into consumer preferences to digital advertising firms, product and media companies, entertainment studios and others.

PeerLogix Application

Market

Understanding customer and target audience information is of the upmost importance for organizations undertaking media planning activities. As marketing becomes increasingly data-centric, the ability to obtain rich insights about consumers’ media preferences is expected to represent a significant competitive advantage for the Company’s clients.

According to International Data Corporation (IDC), the big data technology and services market will grow at a compound annual growth rate (CAGR) of 23.1% over the 2014-2019 forecast period with annual spending reaching $48.6 billion in 2019. This is the market targeted by the Company.

The Company’s platform consists of a Media Library with over 3 billion records of streaming activity and media downloads of entertainment programming (i.e., television shows, movies, etc.). The data is leverageable by clients of the Company to advertise to, and test assumptions about who their customers really are and the specific media (i.e., television shows, movies, etc.) those customers truly value through proprietary media pattern identification and tracking.

Services Offered

The services offered by the Company are two-fold:

1) Advertising services that provide marketers, publishers and networks custom digital audience segments that match specific advertiser criteria (e.g., specific sporting interests, television show, media genre, actor/actress, etc.). This enables media planners to buy qualified audiences directly and execute digital campaigns either through the client's ad server or an existing DSP or SSP relationship.

2) Data licensing services that provide networks, studios and content creators unfettered analysis of the Company’s OTT data. Macro-level viewership analysis of millions of households can increase licensing efficiency for both networks and studios by better understanding the popularity of specific med content (i.e., television shows and movies) in markets around the world.

Product Architecture

Architecture

The client-server cloud-based architecture provides several key advantages for the security, scalability and redundancy of the infrastructure.

Client Security 

The Company’s application is a “thin client”, meaning all requests, proprietary data and algorithms reside on the server side. All communications between servers are through encrypted channels.

Server Scalability and Redundancy

All of the Company’s web services are hosted on the Amazon EC2 cloud, which is a web service that provides resizable compute capacity in the cloud. The Company’s current architecture allows it to further scale out (add more servers) and/or scale up (add more capacity to an existing server) within minutes, and its current architecture has been tested successfully under heavy stress tests. Additionally, the Company’s load balancers enable updates and maintenance without any downtime and all of its data is backed up and mirrored between two SQL servers (An SQL server is a Microsoft product used to manage and store information. The aforementioned data stored inside an SQL server will be housed in an archived database).

Server Security

The Company’s web services on Amazon EC2 have gone through a hardening process to enhance their security according to known practices, and all algorithms and data servers are isolated from the internet. Only requests originating from the Company’s Dashboard are delivered to its data servers, with all other connection requests ignored.

Proprietary Peer-to-Peer Monitoring System 

The peer-to-peer protocol is a communications protocol that enables computers to share Media Files (e.g., TV shows, movies, music, video games and commercial software). Rather than making a single TCP connection (TCP enables two hosts to establish a connection and exchange streams of data), peer-to-peer enables a single user to download Media Files over many small data requests over different IP connections from a multitude of distributing computers simultaneously, resulting in quicker and more reliable download speeds for the user. A peer-to-peer client utilized by an individual coordinates Media File distribution by locating other computers in any geography of the world sharing part or the entirety of the contents of said Media File. To accomplish this series of actions, the peer-to-peer client running on the distributing/sharing individual’s computer breaks the Media File into a number of smaller but identically sized pieces. Pieces are typically downloaded non-sequentially by the peer-to-peer client on the downloading individual’s computer and are rearranged into the correct order by the peer-to-peer client on the downloading individual’s computer (see below). Typical Media File sharing architecture utilizing a peer-to-peer protocol (the Company’s technology is not depicted):

Search Scraper

The Company’s Search Scraper scans websites and message forums to find media files of major entertainment interests (e.g., television shows, movies, music and video games), extracts their web addresses, and subsequently downloads the location of the media files found into a MySQL database (MySQL is an open source relational database management system. Information in a MySQL database is stored in the form of related tables). This process mimics the behavior a person would undertake to obtain Over-the-Top media files on their own. The Company believes its proprietary search technology is capable of finding the vast majority of freely available Over-the-Top files in existence on the internet.

Accuracy & Geo-location

The Company incorporates a third-party geo-location service provided to determine authenticity of IP Addresses as well as their physical geographic location to an accuracy of a few hundred yards. IP Addresses deemed to be virtual private networks (VPNs) or using an alternative masking service are flagged, giving the Company the ability to filter them out during later analysis steps, if deemed necessary. Information the Company is able to directly conclude about Over-the-Top households as a result of their IP Address are: Country, Region/State, City, ZIP/Postal Code, Internet Connection Type & Speed, Mobile Carrier (if applicable), Latitude/Longitude (approximate), Internet Service Provider, Home/Business, and Company Name (if applicable).

Consumer Privacy

The Company’s data meets anonymity standards necessary to be classified as non-personally identifiable information (Non-PII), and all contributors have taken an affirmative effort to download, stream, participate in, or contribute to the respective Over-the-Top network containing media files of interest. As a result, the Company’s data collection methods meet or exceed the current accountability and data collection standards of domestic and many international government and regulatory agencies.

Market Positioning & Product Expansion

Worldwide Solution

The Company sees its large swath of international data as a significant competitive advantage compared to alternative data offerings. Its data is contributed to by individuals from the vast majority of countries in the world. As a result, the Company has the ability to offer clients information giving them a strategic advantage when entering new markets, such as understanding the cultural preferences of local populations, consequently better positioning products with locally preferred music artists, television or movie content.

Competitive Advantages

The Company, and the data it collects possess three significant competitive advantages to other data sources.

Revenue Model

Revenue from Clients

The Company’s audience data is sold most frequently on a Cost Per Mile basis (“CPM”, i.e., the predetermined price of advertising sold, typically in units of 1000 ad impressions), with a revenue split between the Company and one or more channel partners. The Company offers various pricing modules to accommodate Agencies, Entertainment Studios, Trading Desks, and others. As with most usage-based services, the Company offers different pricing packages for ongoing support, such as custom advertising segments based on media affinities. Over time, the Company intends to apply optimization techniques to determine different pricing schemes. Revenues are invoiced on a per-client basis, and the Company is either engaged with, or is negotiating proposals with clients whom are now deemed recurring.

Foundational Marketing Efforts

Public Relations. The Company intends to generate both international and local media coverage for its services, through a variety of channels, including media articles and interviews with management. To date, we have been approached by representatives of several international media companies expressing interest in covering the Company’s developments through earned media, such as news announcements and content creation. The Company’s proactive efforts will be supported by local public relations agencies. It will attempt to focus its efforts on media channels and publications that target advertising and marketing issues, as well as small cap financial industry publications.

Online Marketing. The Company intends to utilize online campaigns that are designed to direct additional potential customers to its services. Rigorous social media profiles on top platforms will assist in bolstering the Company’s value proposition to the market; top platforms include: Facebook, LinkedIn, Twitter, Wikipedia.

The Company believes in utilizing Earned Media to bolster its value proposition to both client and investor markets. Core areas of concentration will include: publishing company news and industry news via distribution channels, including 1^st party blogs and investor relations webpages; social media feeds, including: Facebook, LinkedIn and Twitter; weekly and quarterly newsletters intended to provide proprietary value to companies in the industry (e.g., ADP Quarterly Jobs Report vs PeerLogix Quarterly Media Report).

Thought Leadership. Management intends to develop periodic thought leadership pieces on advertising data and the current and future state of media trends. By participating in industry events and conferences, the Company plans to position itself as a source of imminent and forthcoming insight for emerging trends in media and consumer data sciences. The Company intends to originate much of this messaging from events, both hosted by and participated in by the Company, to then continue the topics and conversation through aforementioned social media channels. These “Community Building” efforts are intended to organically build interest in the Company both in its industry and in the financial markets.

Acquisition Costs

Because the Company offers a software solution, its primary variables in respect to expenses are sales efforts, customer acquisition costs and customer churn.

Customer Acquisition Costs.

The Company continually evaluates its customer acquisition costs with the intent of optimizing its marketing channels and marketing messages. The Company anticipates Investor and Public Relations costs to comprise a noteworthy percentage of its overall budget. Management intends to implement a broadly inclusive plan, with the intention of drawing a significant amount of attention to the Company’s value proposition for client industries, as well as the Company’s compelling investment thesis to the public markets. Specific efforts include, but are not limited to: public relations strategy, media relations, news announcements, content creation, thought leadership development and traditional and digital advertising. As the Company has experienced and continues to have insufficient working capital to effect its business plan, while it planned on allocating approximately $350,000 to customer acquisition, marketing, sales, public relations and investor relations efforts over an initial 12 month period, with further budgeting to be determined thereafter, to date the Company has allocated only approximately $120,000.

Customer Support

To ensure customer satisfaction, the Company’s customer support efforts include both proactive and responsive models.

Proactive

The Company has developed an event-driven automatic system that notifies its support to errors faced by clients. Errors that could potentially be present in new releases of the Company’s platform are able to be detected by its support staff immediately after a client experiences them.

Responsive Model

The Company intends to offer online and telephone support for clients to support its products and services.

Intellectual Property

The Company has filed a patent application, including a secondary continuation-in-part (CIP) patent, on its proprietary Over-the-Top tracking technology and business applications. On May 22, 2018 the Company was granted its first patent application (US20140289860A1). The Company’s CIP patent application was filed on March 19, 2014 and is currently pending.

In addition to the Company’s patent portfolio, the Company’s proprietary database contains 48 months of Over-the-Top media consumption that cannot be acquired or recreated by new market entrants, as Over-the-Top data is ephemeral and is therefore lost if not captured. By possessing this historical information, the Company is afforded the unique ability to analyze historical trends that a potential future competitor would not be capable of upon entrance to the market.

Competition

The Company’s primary competitors are TruOptik, Muzit, Nielsen, Kantar (a subsidiary of WPP Group) and Rentrak. Secondary competitors include Google’s Trends products and Facebook’s suite of advertising tools. Most of these companies have significantly greater resources than the Company. Nielsen’s and Rentrak’s services are largely based on sampling methodologies with a small sample in each market used to measure television and movie viewing behaviors. These are the standards currently employed for the measurement of television and movie behavior for advertising purposes, referred to often times as the “sample currency.” Facebook’s and Google’s services are based on sampling of their users’ posts and search activity which is used to determine present and emerging curiosity of people who participate on their platforms. TruOptik and Muzit also employ a Over-the-Top sampling methodology, each respectively stating they track Over-the-Top users. TruOptik’s service is principally a Data Management Platform, built for advertisers, and Muzit focuses on providing services to music artists. It is unknown as to the extent or depth of either of their respective technology’s tracking and cataloguing capabilities.

The Company expects to enjoy a unique competitive position, derived from the scale, granularity and the transactional nature of its data. Its services and systems differ from a sampling service (e.g., Nielsen) in that the Company possesses a measurement system based on a massive amount of passively-collected viewing and listening activity. This results in far more granular, reliable and predictable determination of consumers’ actual preferences as compared to either a small, compensated sample approach (e.g., Nielsen) or search engine data which is merely an expression of interest and not listening or viewing intent.

Although the Company believes that it is currently able to compete effectively in the market, it may not be able to do so in the future or be capable of maintaining or further increasing its market share. A failure to compete successfully in its market could adversely affect its business and financial condition.

Employees

The Company currently has one employee and one independent contractor in the United States as of the date of this report. The Company also has three independent contractors located in New Zealand, Greece, and India, respectively. Domestically, the independent contractor and employee focus on marketing, research, and development. Internationally, the independent contractors focus on technical development.

None of the Company’s employees are represented by a labor union, and the Company considers its employee relations to be good. The Company also utilizes a number of consultants to assist with research and development and commercialization activities, generally on a monthly retainer basis.

The Company intends to hire additional personnel to focus on account management, development, marketing, customer support and technological support.

AVAILABLE INFORMATION

The Company is subject to the reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act”). Reports filed with the Securities and Exchange Commission (the “SEC”) pursuant to the Exchange Act, including annual and quarterly reports, and other reports it files, can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Investors may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Investors can request copies of these documents upon payment of a duplicating fee by writing to the SEC. The reports we file with the SEC are also available on the SEC’s website (http://www.sec.gov).

Item 1A. Risk Factors

Emerging growth companies are not required to provide the information required by this Item 1A.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

Our executive offices are located in leased premises, under a month-to-month agreement, at 119 West 24^th Street, 4^th Floor, New York, NY 10011 and our phone number is 646-825-8549.

Item 3. Legal Proceedings.

From time to time we may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, government actions, administrative actions, investigations or claims are pending against us or involve us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business and financial condition.

We anticipate that we will expend significant financial and managerial resources in the defense of our intellectual property rights in the future if we believe that our rights have been violated. We also anticipate that we will expend significant financial and managerial resources to defend against claims that our products and services infringe upon the intellectual property rights of third parties.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock was traded on the OTCQB marketplace under the symbol RLQT from June 10, 2015 through September 22, 2015. Our common stock now trades on the OTCQB marketplace under the symbol “LOGX.” The following table sets forth the range of high and low bid prices for our common stock for each of the periods indicated as reported by such marketplaces. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. On February 25, 2019, the closing price of our common stock as reported on the OTC Pink marketplace was $0.15 per share.

We consider our common stock to be thinly traded and, accordingly, reported sales prices or quotations may not be a true market-based valuation of our common stock.

Holders

As of December 18, 2020, 67,744,953 shares of Common Stock were issued and outstanding, which were held by approximately 70 holders of record. We also believe there are more owners of our common stock whose shares are held by nominees or in street name.

Dividends

We have not paid any dividends and we do not anticipate paying any cash dividends in the foreseeable future and we intend to retain all of our earnings, if any, to finance our growth and operations and to fund the expansion of our business. Payment of any dividends will be made in the discretion of our Board of Directors, after our taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion.

2020 Amended and Restated Equity Incentive Plan

The Board of Directors and stockholders of the Company adopted the 2015 Equity Incentive Plan, which was amended and restated in 2016, 2018 and 2020, which reserves a total of 90,000,000 shares of Common Stock for issuance under the 2020 Plan. If an incentive award granted under the 2020 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2020 Plan.

Shares issued under the 2020 Plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future awards as a condition of acquiring another entity are not expected to reduce the maximum number of shares available under the 2020 Plan. In addition, the number of shares of common stock subject to the 2020 Plan, any number of shares subject to any numerical limit in the 2020 Plan, and the number of shares and terms of any incentive award are expected to be adjusted in the event of any change in our outstanding common stock by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.

Administration

It is expected that the Board will administer the 2020 Plan. Subject to the terms of the 2020 Plan, the Board would have complete authority and discretion to determine the terms of awards under the 2020 Plan.

Grants

The 2020 Plan is expected to authorize the grant to 2020 Plan participants of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code (as amended, the “Code”) and stock appreciation rights, as described below:

Duration, Amendment, and Termination

The Board is expected to have the power to amend, suspend or terminate the 2020 Plan without stockholder approval or ratification at any time or from time to time. Unless sooner terminated, the 2020 Plan would terminate ten years after it is adopted.

The table below sets forth information as of December 31, 2018 with respect to compensation plans under which our common stock or options are authorized for issuance.

Item 6. Selected Financial Data.

This item is not required for an emerging growth company.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following management’s discussion and analysis should be read in conjunction with our historical financial statements and the related notes. The management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Report. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report.

As the result of the transactions of which PeerLogix Technologies, Inc. became a wholly-owned subsidiary of the Company and the change in business and operations of the Company from a shell company to a technology company, a discussion of our financial results prior to the Share Exchange is not pertinent, and the financial results of PeerLogix Technologies, Inc., the accounting acquirer, are considered the financial results of the Company on a historical and going-forward basis.

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Results of Operations for the Years ended December 31, 2018 and 2017

The following table sets forth the summary income statement for the years ended December 31, 2018 and 2017:

Revenues: From inception, the Company has generated minimum revenues due to being in the development stage with regard to its technology and channel partner relationships.

Operating Expenses: Operating expenses consist primarily of compensation and related costs for personnel and facilities, and include costs related to our facilities, finance, human resources, information technology and fees for professional services. Professional services are principally comprised of outside legal, audit, information technology consulting, marketing, investor relations and outsourcing services.

Operating expenses increased by 143% during the year ended December 31, 2018, as compared to the year ended December 31, 2017. The overall $2,841,988 increase in operating expenses is primarily attributable to the following approximate net increases (decreases) in operating expenses:

Other expenses, net: Other expense, net consists primarily of interest expense primarily related to the Company’s convertible promissory notes and notes payable and includes non-cash amortization of debt discounts of $703,544 and $1,766,925 and non-cash interest of $111,606 and $1,442,654 for the years ended December 31, 2018 and 2017, respectively.

In addition, the Company incurred an aggregate of $140,022 loss on extinguishment of debt in fiscal 2018, primarily from settlement of an outstanding convertible note as compared to a loss on settlement of debt of $913,562 in fiscal 2017 primarily from note extensions.

During 2018, the Company reduced previously issued warrants exercisable at $0.10 per share to $0.06 per share as an inducement to exercise. In addition, as part of the exercise of the warrant, the holder would receive one Series B warrant (exercisable at $0.25 per share, expiring four years from issuance -see above) for every four warrants exercised. The Company accounted for the transaction under inducement accounting and accounted for the price reduction of $0.04 per share and the fair value of the Series B warrants as inducement expense in the amount of $734,273.

In 2018, the Company issued convertible notes payable with variable conversion features which included embedded derivatives. As such, the Company is required to bifurcate the fair value of the derivative and mark-to-market each reporting period. During the year ended December 31, 2018, the Company recorded a $1,547,402 loss on change in fair value of derivative liabilities as compared to a $1,741,441 gain for 2017.

Overall, other expense, net - increased by $1,730,190 to $4,745,439 during the year ended December 31, 2018 as compared to $3,015,249 during the year ended December 31, 2017.

Liquidity and Capital Resources

The following table summarizes total current assets, liabilities and working capital at December 31, 2018 compared to December 31, 2017:

As of December 31, 2018, we had a working capital deficit of $6,325,645, as compared to a working capital deficit of $3,492,378 as of December 31, 2017, an increase of $2,833,267. During the year ended December 31, 2018 we received net proceeds of $362,887 from the issuance of convertible notes and warrants and $670,270 from exercise of warrants, net with repayments of $39,941 of convertible notes and officer loans. The Company used the proceeds to fund operations during the year. The increase in our working capital deficit is primarily attributable to our negative cash flow from operations resulting in our growing accounts payable, accrued liabilities and outstanding debt.

We have incurred net operating losses and operating cash flow deficits since inception. We have been funded primarily by debt, to execute on our business plan and for working capital. Our principal source of liquidity is our cash. At December 31, 2018, we had cash totaling approximately $26,000. We believe our existing available cash is insufficient to enable the Company to meet the working capital requirements for the near future. Consequently, we will be required to raise additional capital to complete the development and commercialization of our current product. However, there can be no assurance that we will be able to raise additional capital on terms acceptable to us, or at all. In order to boost sales, we continue to explore potential expansion opportunities in the industry through mergers and acquisitions, enhancement of our existing products, development of new products and expansion into other international markets. We will incur increased costs as a result of being a public company, which could affect our profitability and operating results.

We are obligated to file annual, quarterly and current reports with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the rules subsequently implemented by the SEC and the Public Company Accounting Oversight Board have imposed various requirements on public companies, including requiring changes in corporate governance practices. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities of ours more time-consuming and costly. We expect to spend between $200,000 and $250,000 in legal and accounting expenses annually to comply with our reporting obligations and Sarbanes-Oxley. These costs could affect profitability and our results of operations.

Management has determined that additional capital will be required in the form of equity or debt securities. In addition, if we cannot raise additional short term capital we will be forced to continue to further accrue liabilities due to our limited cash reserves. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy.

Going Concern and Management’s Liquidity Plans

As reflected in the consolidated financial statements, the Company had an accumulated deficit at December 31, 2018, a net loss and net cash used in operating activities for the year then ended and has generated only minimal revenues since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance date of the consolidated financial statements.

The ability of the Company to continue its operations is dependent on management’s plans, which include the raising of capital through debt and/or equity markets, with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence. There can be no assurance that the Company will be able to raise any additional capital.

The Company may also require additional funding to finance the growth of our anticipated future operations as well as to achieve its strategic objectives. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. In that event, the Company would be required to change its growth strategy and seek funding on that basis, if at all.

The Company’s plan regarding these matters is to raise additional debt and/or equity financing to allow the Company the ability to cover its current cash flow requirements and meet its obligations as they become due. There can be no assurances that financing will be available or if available, that such financing will be available under favorable terms. In the event that the Company is unable to generate adequate revenues to cover expenses and cannot obtain additional financing in the near future, the Company may seek protection under bankruptcy laws. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

The spread of a novel strain of coronavirus (COVID-19) around the world in the first half of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. The outbreak and any preventative or protective actions that governments or we may take in respect of this COVID-19 may result in a period of business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business, financial condition, and results of operations. The extent to which the COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 and the actions to contain the COVID-19 or treat its impact, among others.

Financing Transactions

During the year ended December 31, 2018, we sold $425,900 Units to investors. Each Unit was sold at a price of $10,000 per Unit and consisted of one (1) six (6) month, 18% convertible promissory note (36% on an annual basis) with a face value of $10,000 and four year warrants exercisable for an aggregate number of shares of common stock equal to 50% of the shares of common stock into which the Note is initially convertible, exercisable at a price of $0.10 per share. The Offerings Notes are due six months after the issuance of each note, as amended.

Each of the Notes is convertible at an initial price equal to $0.06 per share. In addition, during the two month period commencing on each issuance of the Offering 3 Notes, as amended, the Notes will contain a look-back provision pursuant to which the Notes will be convertible at the lower of $0.06 per share or the lowest volume weighted average price of the Company’s common stock (the “VWAP”) during any 10 day period during such two (2) month period, provided however, in the event that the VWAP during any such ten (10) day period is less than $0.06 per share, then the reset conversion price of the Notes shall be no lower than $0.03. The Notes also contain a reset provision to the same price as any future offering over the lifetime of the Notes in the event that the conversion or offering price of securities offered in such subsequent offering is less the Conversion Price of the Notes in this Offering. Notwithstanding the foregoing, in no event shall the Conversion Price be lower than $0.03 per share.

Summary Cash flows for the years ended December 31, 2018 and 2017:

Cash Used in Operating Activities

Our primary uses of cash from operating activities include payments to consultants for research and development, compensation and related costs, legal and professional fees, computer and internet expenses and other general corporate expenditures.

Cash used in operating activities in 2018 consisted of net loss adjusted for certain non-cash items such as equity-based compensation expense of $2,606,982, fair value of warrants issued in connection with note extensions, inducement expense of $734,273, fair value of warrants for services, amortization of debt discounts of $703,544, non-cash interest of $111,606, loss on extinguishment of debt of $140,022, loss on change in fair value of derivative liabilities of $1,547,402, as well as the effect of changes in working capital and other activities.

Cash Used in Investing Activities

No cash used in investing activities for the year ended December 31, 2018 as compared to $37,500 for 2017.

Cash Provided by Financing Activities

Cash provided by financing activities consists primarily of net proceeds from issuance or repayments of notes payable, convertible promissory notes and warrant exercises for the year ended December 31, 2018.

Cash provided by financing activities increased from the year ended December 31, 2017 to the year ended December 31, 2018, primarily driven by an increase in proceeds from the issuance of convertible notes and warrants exercises offset by the repayment of notes payable and related party loans.

Recent Accounting Pronouncements

See Note 3 to the consolidated financial statements included elsewhere in this Filing.

Critical Accounting Policies

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“U.S. GAAP”). U.S. GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to U.S. GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 3 of our consolidated financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from these estimates. The Company’s significant estimates and assumptions include the fair value of the Company’s equity instruments, convertible debt, stock-based compensation, and the valuation allowance relating to the Company’s deferred tax assets.

Accounting for Warrants

The Company accounts for the issuance of common stock purchase warrants issued in connection with debt and equity offerings in accordance with the provisions of ASC 815, Derivative Instruments and Hedging Activities (“ASC 815”). The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

The Company assessed the classification of its common stock purchase warrants as of the date of each equity offering and determined that such instruments met the criteria for equity classification, as the settlement terms indicate that the instruments are indexed to the entity’s underlying stock.

Derivative Instrument Liability

The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At December 31, 2018 and 2017, the Company did not have any derivative instruments that were designated as hedges.

Off Balance Sheet Arrangements:

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

This item is not required for a smaller reporting company.

Item 8. Financial Statements and Supplementary Data.

Our consolidated financial statements and corresponding notes thereto called for by this item appear at the end of this document commencing on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

(a) Evaluation of Disclosure and Control Procedures

Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective to ensure that the material information required to be included in our Securities and Exchange Commission reports is accumulated and communicated to our management, including our principal executive and financial officer, recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms relating to our company, particularly during the period when this report was being prepared.

(b) Management's Report on Internal Control Over Financial Reporting

This Company’s management is responsible for establishing and maintaining internal controls over financial reporting and disclosure controls. Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive officer and principal financial officer, or persons performing similar functions, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is appropriately recorded, processed, summarized and reported within the specified time periods.

Management has conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018, based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (“COSO”).

Based on this assessment, management concluded that as of the period covered by this Annual Report on Form 10-K, it had material weaknesses in its internal control procedures.

As of period covered by this Annual Report on Form 10-K, we have concluded that our internal control over financial reporting was ineffective. The Company’s assessment identified certain material weaknesses which are set forth below:

Based on this assessment, management concluded that as of the period covered by this Annual Report on Form 10-K, it had material weaknesses in its ability to file timely due to limited financial and personnel resources .

Functional Controls and Segregation of Duties

Because of the Company’s limited resources, there are limited controls over information processing.

There is an inadequate segregation of duties consistent with control objectives. Our Company’s management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation, we would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will reassess this matter in the following year to determine whether improvement in segregation of duty is feasible. 

Accordingly, as the result of identifying the above material weakness we have concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.

Management believes that the material weaknesses set forth above were the result of the scale of our operations and are intrinsic to our small size. Management believes these weaknesses did not have a material effect on our financial results and intends to take remedial actions upon receiving funding for the Company’s business operations. The Company intends to hire additional members of upper management to traditionally segregate duties upon receiving sufficient funding to do so.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report herein.

(c) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

As of December 31, 2018, our executive officers and directors were as follows:

Ray Colwell – CEO

On February 21, 2017, the Company entered into an employment agreement with Ray Colwell (“Colwell”), pursuant to which, commencing March 6, 2017, Colwell will serve as the Chief Executive Officer of the Company through March 5, 2019, subject to extension as provided in the employment agreement, and be appointed to the Board of Directors.

Prior to joining PeerLogix, Colwell served as a member of successful executive teams, most recently as VP of Partner Sales at AOL responsible for $100+ million of mobile demand revenue following the AOL acquisition of Millennial Media, where he was then head of Global Business Development, and prior to the acquisition of Nexage by Millennial Media in the same capacity. Colwell has deep experience generating digital media revenue in new businesses in the digital ecosystem, including his role as Chief Revenue Officer at Adelphic, recently acquired by Time Inc., and as Chief Revenue Officer of 4INFO, as well as SVP of Sales and BD for Third Screen Media, a pioneer in the mobile ad serving space acquired by AOL in 2007.

On November 26, 2019, Colwell resigned as Chief Executive Officer (“CEO”) of PeerLogix, Inc. (the “Company”). Mr. Colwell’s resignation as the CEO was not a result of any disagreements with the Company regarding its the operations, policies or practices. On November 26, 2019 Mr. Gorfein assumed the role of CEO.

William Gorfein – Founder of PeerLogix and Director

Mr. Gorfein’s leadership has spanned multiple organizations as he has provided services to companies and clients while functioning in both information technology and financially based roles. Most recently before cofounding PeerLogix, he was the lead solutions engineer for BreezeIT, a subsidiary of Core 3 Technologies in Orange County, CA. While in this capacity, Mr. Gorfein was responsible for overseeing the budget and managing the technical and implementation requirements for the majority of datacenter equipment and architectures sold to customers from the small business to the enterprise level. With over a decade of software and hardware development experience, Mr. Gorfein has developed extensive expertise in the areas of platform development, life-cycle management and server architecture.

Previously the technical lead of two major software initiatives, Mr. Gorfein oversaw the development and implementation of content monitoring software for a rights management group based in Los Angeles, and he has worked on independent software projects relating to O.C.R. (optical character recognition) and employee time management. Mr. Gorfein has hand-picked and managed multiple development teams and has led cross continent collaborations in Egypt, India and China.

Mr. Gorfein’s is experienced in understanding the underlying macro-conditions driving enterprises to adopt Information Technology, and successfully taking advantage of these trends through foresight, creativity and resource management abilities. He received his Bachelor’s degree with a focus on Economy and Industry from the University of Arizona in Tucson, AZ.

Kevin Richardson – Director

Mr. Richardson, age 48, is currently Chairman of the board of directors of SANUWAVE Health, Inc. since August 2005. Mr. Richardson founded Prides Capital LLC and Prides Capital Partners LLC in January 2004 where he is Managing Director. Prides Capital LLC and Prides Capital Partners LLC specialize in strategic block, active investing in small-cap and micro-cap public and private companies. From April 1999 until the end of 2003, Mr. Richardson was a partner at Blum Capital Partners, a $2.5 billion investment firm. Between May 1999 and September 2003, Mr. Richardson was the lead public partner on 18 investments. Prior to joining Blum Capital, Mr. Richardson was an analyst at Tudor Investment Corporation, an investment management firm.

Previously, Mr. Richardson spent four years at Fidelity Management and Research where he was the assistant portfolio manager of the Fidelity Contra Fund, a registered investment company. Mr. Richardson also managed Fidelity Airline Fund, the Fidelity Aerospace and Defense Fund, and performed research and analysis in a variety of industry sectors (computer services, business services, media, financial services, and healthcare information technology). Mr. Richardson is also a member of the board of directors of As Seen On TV, Inc., a publicly traded multichannel distributor of As Seen On TV products and Pegasus Solutions, Inc., a travel technology company and was previously a board member of Healthtronics, Inc. and QC Holdings, Inc. Mr. Richardson received an undergraduate degree from Babson College and an M.B.A. from Kenan-Flagler Business School at the University of North Carolina.

Board Committees

The Company does not intend to maintain a board of directors that is composed of a majority of “independent” directors. The Company does not expect to appoint an audit committee, nominating committee and/or compensation committee, or to adopt charters relative to each such committees as at the date of this Report, but may adopt such charters and appoint such committees in the future.

Item 11. Executive Compensation

The following table sets forth information regarding each element of compensation that was paid or awarded to the named executive officers of the Company for the periods indicated.

Outstanding Equity Awards at Fiscal Year-End

The following table presents the outstanding equity awards held by each of the named executive officers as of the end of the fiscal year ended December 31, 2018.

Employment Agreements

On February 21, 2017, the Company entered into an employment agreement with Ray Colwell, pursuant to which, commencing March 6, 2017, Mr. Colwell will serve as the Chief Executive Officer of the Company through March 5, 2019. Mr. Colwell’s employment agreement will thereafter be extended for additional one-year periods unless the Company or the Executive gives six (6) months’ notice of the intention to terminate this Agreement. Mr. Colwell’s employment was subsequently extended to March 5, 2020 pursuant to the terms of the employment agreement. Mr. Colwell resigned as Chief Executive Officer on November 26, 2019. Mr. Colwell’s resignation was not a result of any disagreements with the Company regarding its operations, policies or practices.

Each of the other named executive officers executed employment agreements with the Company in August 2015, which was adopted by us upon closing of the Share Exchange.

Mr. Gorfein’s employment agreement is for a period of three (3) years, after which the agreement is renewable for one (1) year periods, unless the Company or Mr. Gorfein gives six (6) months’ notice of the intention to terminate the agreement. Mr. Gorfein receives a salary of $120,000 per year with annual increases of 10% per year. Mr. Gorfein may also receive an annual cash bonus in an amount to be determined by the Board of Directors.

The Company agrees to promptly reimburse Mr. Gorfein for all reasonable and necessary business expenses, including without limitation, telephone and other charges incurred by them on behalf of the Company. In addition, the Company has agreed to provide Mr. Gorfein with health insurance. 

Limits on Liability and Indemnification

Through August 14, 2019, we provided directors and officers insurance for our current directors and officers.

Our certificate of incorporation eliminates the personal liability of our directors to the fullest extent permitted by law. The certificate of incorporation further provides that the Company will indemnify its officers and directors to the fullest extent permitted by law. This indemnification covers at least negligence on the part of the indemnified parties. Insofar as indemnification for liabilities under the Securities Act may be permitted to our directors, officers, and controlling persons under the foregoing provisions or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.

Corporate Governance

The business and affairs of the Company are managed under the direction of our Board of Directors, which as of December 31, 2018, is comprised of Kevin Richardson, William Gorfein and Ray Colwell.

There have been no changes in any state law or other procedures by which security holders may recommend nominees to our board of directors.

Our Board of Directors does not currently have any committees, such as an audit committee or a compensation committee. However, the Board of Directors may establish such committees in the future, and will establish an audit committee and a compensation committee (and any other committees that are required) if the Company seeks to be listed on a national securities exchange.

Term of Office

Directors are appointed to hold office until the next annual general meeting of stockholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board and hold office until removed by our Board.

All officers and directors listed above will remain in office until the next annual meeting of our stockholders, and until their successors have been duly elected and qualified. Our bylaws provide that officers are appointed annually by our Board and each executive officer serves at the discretion of our Board.

Director Compensation

The following table sets forth summary information concerning the total compensation paid to our non-employee directors during the fiscal year ended December 31, 2018 for services to our company.

Director Independence

We use the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship, which, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:

Under such definitions, Mr. Richardson is considered our independent director.

Code of Business Conduct and Ethics Policy

We have not yet adopted a Code of Business Conduct and Ethics that applies to, among other persons, our principal executive officers, principal financial officer, principal accounting officer or controller, and persons performing similar functions.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table shows the beneficial ownership of our Common Stock as of December 18, 2020 held by (i) each person known to us to be the beneficial owner of more than five percent (5%) of our Common Stock; (ii) each director; (iii) each executive officer; and (iv) all directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC, and generally includes voting power and/or investment power with respect to the securities held. Shares of Common Stock subject to options and warrants currently exercisable or which may become exercisable within 60 days of August 21, 2020 are deemed outstanding and beneficially owned by the person holding such options or warrants for purposes of computing the number of shares and percentage beneficially owned by such person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as indicated in the footnotes to this table, the persons or entities named have sole voting and investment power with respect to all shares of our Common Stock shown as beneficially owned by them.

The following table assumes 67,744,953 shares are outstanding as of December 18, 2020.

Unless otherwise indicated, the address of each beneficial holder of our Common Stock is our corporate address.

__________

* Less than 1%

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Procedures and Policies

We consider “related party transactions” to be transactions between our Company and (i) a director, officer, director nominee or beneficial owner of greater than five percent of our stock; (ii) the spouse, parents, children, siblings or in-laws of any person named in (i); or (iii) an entity in which one of our directors or officers is also a director or officer or has a material financial interest.

Our Board of Directors is vested with the responsibility of evaluating and approving any potential related party transaction, unless a special committee consisting solely of independent directors is appointed by the Board of Directors. We do not have any formal policies or procedures for related party transactions.

Transactions with Related Parties

During the current and prior periods, one of the Company’s officers made non-interest bearing loans to the Company in the form of cash and payments to vendors on behalf of the Company. The loans are due on demand and unsecured. As of December 31, 2018 and 2017, the Company is reflecting a liability of $0 and $9,941, respectively. The Company did not impute interest on the loan as it was deemed to be de minimis to the consolidated financial statements.

Item 14. Principal Accounting Fees and Services.

The aggregate fees billed for professional services rendered by Marcum LLP (“Marcum”) for the audit of our annual financial statements and review of financial statements included in the Annual Report on Form 10-K for the years ended December 31, 2018 and 2017 were approximately $119,748 and $146,513.

The following table shows the fees for professional services rendered by Marcum during those periods:

Audit fees consist of fees billed for professional services rendered for the audit of our financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by the above auditors in connection with statutory and regulatory fillings or engagements. Audit-related fees consist of fees billed for professional services rendered for the review of SEC filings or other reports containing the audited financial statements. Tax fees consist of fees to prepare the Company’s federal and state income tax returns. Other fees relate to advisory services related research on accounting or other regulatory matters.

Pre-Approval Policies and Procedures

Our board of directors is in the process of adopting a policy on pre-approval of audit and permissible non-audit services.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Financial Statements

Our financial statements as set forth in the Index to Consolidated Financial Statements attached hereto commencing on page F-1 and are included herein.

(b) Exhibits

The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by reference herein:

__________

* Filed herewith

Peerlogix, Inc.

December 31, 2018 and 2017

Index to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Peerlogix, Inc.

New York, NY

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Peerlogix, Inc. (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, stockholders’ deficiency, and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Marcum llp

We have served as the Company's auditor since 2015.

Houston, Texas

December 18, 2020

PEERLOGIX, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2018 AND 2017

See the accompanying notes to the consolidated financial statements

PEERLOGIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to the consolidated financial statements

PEERLOGIX, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

See accompanying notes to the consolidated financial statements

PEERLOGIX, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

See accompanying notes to the consolidated financial statements

PEERLOGIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to the consolidated financial statements

PEERLOGIX, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND OPERATIONS

Peerlogix, Inc. (“Peerlogix” or the “Company”) was incorporated in Nevada on February 14, 2014. The Company is an advertising technology and data aggregation company. The Company provides software as a service (SAAS) platform, which enables the tracking and cataloguing of over-the-top viewership and listenership in order to determine consumer trends and preferences based upon media consumption. Its platform collects over-the-top data, including Internet Protocol (IP) addresses of the streaming and downloading parties (location), the name, media type and genre of media watched, listened or downloaded, and utilizes licensed and publicly available demographic and other databases to further filter the collected data to provide insights into consumer preferences to digital advertising firms, product and media companies, entertainment studios and others.

NOTE 2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS

The Company has generated minimal revenues since inception and continues to incur recurring losses from operations and has an accumulated deficit. Accordingly, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred a net loss of approximately $9.5 million and net cash used in operations of approximately $981,000 for the year ended December 31, 2018. In addition, the Company has notes payable in default (see Note 6). These conditions indicate that there is substantial doubt about the Company's ability to continue as a going concern within one year from the issuance date of the consolidated financial statements.

The Company's primary source of operating funds since inception has been cash proceeds from debt and equity financing. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering. (See Note 11)

The Company requires immediate capital to remain viable. The Company can give no assurance that such financing will be available on terms advantageous to the Company, or at all. Should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all of its operational activities. There can be no assurance that such a plan will be successful. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

Accordingly, the accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which contemplates continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

On November 1, 2019, the Company retained Bankers Capital International to explore strategic alternatives in order to maximize shareholder value. The Company has not set a formal timetable for this exploration, nor has it made any decisions related to the form or structure of strategic alternatives at this time. The Company can not make assurances that the process will result in a transaction.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Peerlogix Technologies, Inc. and IP Squared Technologies Holdings, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from these estimates. The Company’s significant estimates and assumptions include the fair value of the Company’s equity instruments, convertible debt, derivative liabilities, stock-based compensation, and the valuation allowance relating to the Company’s deferred tax assets.

Reclassifications

Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the current year presentation. These reclassifications did not affect the prior period total assets, total liabilities, stockholders’ deficit, net loss or net cash used in operating activities.

Revenue Recognition

The Company recognizes revenue when delivery of the promised goods or services is transferred to its customers, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services.

Effective January 1, 2018, the Company adopted Accounting Standard Codification(“ASU”) 2014-09  “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. The Company adopted the standard using the modified retrospective approach effective January 1, 2018. There was no significant impact from adoption of Topic 606.

At the time of each transaction, management assesses whether the fee associated with the transaction is fixed or determinable and whether or not collection is reasonably assured. The assessment of whether the fee is fixed or determinable is based upon the payment terms of the transaction. Collectability is assessed based on a number of factors, including past transaction history with the client and the creditworthiness of the client.

The Company generates revenue primarily by licensing our Over-the-Top audience dataset to platforms and channel partners.  As such, the Company predominantly contracts with Data Management Platforms (DMPs) and Demand Side Platforms (DSPs) (collectively, “Demand Partners”) who license the Company’s solution to use in conjunction with other solutions offered to their advertiser clients, including brands and advertising agencies. When the Company contracts with a Demand Partner, it acts as an agent for a disclosed or undisclosed principal, which is the advertiser.

The Company contracts with Demand Partners, including DMPs and DSPs representing advertisers, are generally in the form of a revenue share between the Demand Partner and the Company. Revenue payouts to the Company typically occur within sixty (60) days after the end of each calendar month, and the contracts typically have an initial term of a year. Due to the uncertainty of amount of revenue earned during the process, it is recognized upon payout and receipt of payment. Revenue through December 31, 2018 had been de minimis to the consolidated financial statements.

The Company had three major customers including their affiliates which generated approximately 91% (60.0%, 16% and 15%) of its revenue in the year ended December 31, 2018. 

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2018 and 2017, the Company does not have any cash equivalents.

Convertible Instruments

The Company bifurcates conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule when the host instrument is deemed to be conventional as that term is described under applicable U.S. GAAP.

When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

Accounting for Warrants

The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

The Company assessed the classification of its common stock purchase warrants as of the date of each equity offering and determined that such instruments met the criteria for equity classification, as the settlement terms indicate that the instruments are indexed to the entity’s underlying stock.

Concentrations of Credit Risk

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limit.

Derivative Liabilities

In connection with the issuance of certain convertible promissory notes, the terms of the convertible notes included an embedded conversion feature which provided for the settlement of certain convertible promissory notes into shares of common stock at a rate which was determined to be variable with no floor. The Company determined that the conversion feature was an embedded derivative instrument pursuant to Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging”

The accounting treatment of derivative financial instruments requires that the Company record the conversion option, if applicable, at their fair values as of the inception date of the agreements and at fair value as of each subsequent balance sheet date. Any change in fair value was recorded as a change in the fair value of derivative liabilities for each reporting period at each balance sheet date. The Company reassesses the classification at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

The fair values of conversion options that are convertible at a variable conversion price are valued using a Black-Scholes Valuation Model and the assumptions used in the calculation would produce substantially the same results if valued through a lattice model.

The Black-Scholes Valuation Model includes subjective input assumptions that can materially affect the fair value estimates. The model was developed for use in estimating the fair value of traded options or warrants. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the instrument granted.

The principal assumptions used in applying the Black-Scholes model were as follows:

At any given time, certain of the Company’s embedded conversion features on debt and outstanding warrants may be treated as derivative liabilities for accounting purposes under ASC 815-40 due to insufficient authorized shares to settle these outstanding contracts. Pursuant to SEC staff guidance that permits a sequencing approach based on the use of ASC 815-15-25 which provides guidance for contracts that permit partial net share settlement. The sequencing approach may be applied in one of two ways: contracts may be evaluated based on (1) earliest issuance date or (2) latest maturity date. Pursuant to the sequencing approach, the Company evaluates its contracts based upon the latest maturity date.

Net Loss Per Share

Basic loss per share was computed using the weighted average number of outstanding common shares. Diluted earnings per share, when presented, includes the effect of dilutive common stock equivalents from the assumed exercise of options, warrants, convertible preferred stock and convertible notes. Common stock equivalents are excluded in the computation of diluted earnings per share since their inclusion would be anti-dilutive.

Total shares issuable upon the exercise of warrants, exercise of stock options and conversion of convertible promissory notes for the year ended December 31, 2018 and 2017 were as follows:

For the year ended December 31, 2018 and 2017, 14,124,453 and 4,269,941 warrants were included in basic and diluted loss per share as their exercise price was determined to be nominal.

Income Taxes

Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.

The Company follows a recognition threshold and measurement process for consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also prescribes direction on the recognition, classification, interest and penalties in interim periods, disclosure and transition.

The Company classifies interest expense and any related penalties, if any, related to income tax uncertainties as a component of income tax expense. No interest or penalties have been recognized as of December 31, 2018 and 2017.

Management has evaluated and concluded that there was no material uncertain tax positions requiring recognition in the Company’s financial statements for the years ended December 31, 2018 and 2017. The Company does not expect any significant changes in the unrecognized tax benefits within twelve months of the reporting date.

Research and development costs

All research and development costs are charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred minimal research and development expenses for the years ended December 31, 2018 and 2017.

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $26,625 and $6,453 as advertising costs for the years ended December 31, 2018 and 2017, respectively.

Stock based compensation

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based compensation expense is recorded by the Company in the same expense classifications in the statements of operations, as if such amounts were paid in cash.

Fair Value of Financial Instruments

The carrying amounts of cash and accounts payable approximate fair value due to the short-term nature of these instruments.

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the warrant liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s Principal Financial Officer determines its valuation policies and procedures.

The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s Principal Financial Officer.

Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheets as follows:

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the year ended December 31, 2018:

Changes in the unobservable input values could potentially cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant unobservable inputs used in the fair value measurements are the expected volatility assumption. A significant increase (decrease) in the expected volatility assumption could potentially result in a higher (lower) fair value measurement.

Recently Issued Accounting Guidance

We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

Subsequent Events

The Company evaluates events that have occurred after the balance sheet date but before the consolidated financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements, except as disclosed (see note 11).

NOTE 4 – LOAN RECEIVABLE

During February 2017, the Company loaned $37,500 to a potential merger candidate, for working capital purposes. In March 2017, the Company withdrew its plan of merger and recorded an allowance for loan losses of $37,500 due to the loan deemed uncollectible.

NOTE 5 – SETTLEMENT PAYABLE

On April 8, 2016, the Company entered into a Securities Purchase Agreement (the “SPA”) with Attia Investments, LLC, a related party (the “Investor”). A shareholder of the Company who previously owned in-excess of 5% of the Company’s common stock is the managing member of Attia Investments, LLC. Under the Agreement, we issued and sold to the Investor, and the Investor purchased from us, Debentures in the principal amount of $87,500 for a purchase price of $70,000, bearing interest at a rate of 0% per annum, with an original maturity on October 8, 2016, further extended to April 8, 2017.

Amendment

On March 16, 2017, the Company entered into an amendment to the SPA. The SPA was modified as follows:

As consideration for the amendment, the Company increased the principal amount on the Debentures from $65,000 to $86,875 and issued the Investor 218,750 shares of common stock with a fair value of $13,125. All remaining terms of the Debentures remained the same.

In accordance with ASC 470, since the present value of the cash flows under the new debt instrument was at least ten percent different from the present value of the remaining cash flows under the terms of the original debt instrument, the Company accounted for the amendment to SPA as a debt extinguishment. Accordingly, the Company wrote off the remaining debt discount on the original Debentures of $17,312. The Company recorded a loss on extinguishment of debt of $52,312 on the amendment date.

During the year ended December 31, 2017, the Company repaid $50,018 in principal and $2,982 in accrued interest on certain convertible notes to related parties. Upon repayment, derivative liabilities in the amount of $48,093 were reclassified to equity. The outstanding principal balance on the Debentures at December 31, 2017 was $41,857.

The Debentures are secured by all assets of the Company. The Company was in default of the SPA, making the entire unpaid principal and interest due and payable. The Investor has initiated a claim against the Company for payment of a loan in default with a principal sum of $109,375. On April 27, 2018, the Company accepted a settlement offer totaling approximately $115,375 in cash and 800,000 shares of stock. As such, the Company has reclassified the note payable-related party to settlement payable and accrued the estimated fair value of the settlement of $164,875. In connection with the settlement, the Company recorded a loss on settlement of debt of $119,653 in current period operations.

During year ended December 31, 2018, the Company issued 800,000 shares of its common stock and paid $115,375 towards the Attia Investments, LLC settlement. As of December 31, 2018, the outstanding balance was $0.

NOTE 6 – CONVERTIBLE NOTES PAYABLE

Convertible notes payable are comprised of the following:

Offering 3, 4,5,6 (collectively referred to as “Offerings”):

During the years ended December 31, 2018, 2017 and 2016, the Company sold $425,450, $1,110,000 and $600,500, respectively, of Units to investors. Each Unit was sold at a price of $10,000 per Unit and consisted of one (1) six (6) month, 18% convertible promissory note (36% on an annual basis) with a face value of $10,000 and four year warrants exercisable for an aggregate number of shares of common stock equal to 50% of the shares of common stock into which the Note is initially convertible, exercisable at a price of $0.10 per share. The Offerings Notes are due six months after the issuance of each note, as amended.

Each of the Notes is convertible at an initial price equal to $0.06 per share. In addition, during the two month period commencing on each issuance of the Offering 3 Notes, as amended, the Notes will contain a look-back provision pursuant to which the Notes will be convertible at the lower of $0.06 or the lowest volume weighted average price of the Company’s common stock (the “VWAP”) during any 10 day period during such two (2) month period, provided however, in the event that the VWAP during any such ten (10) day period is less than $0.06, then the reset conversion price of the Notes shall be no lower than $0.03. The Notes also contain a reset provision to the same price as any future offering over the lifetime of the Notes in the event that the conversion or offering price of securities offered in such subsequent offering is less the Conversion Price of the Notes in this Offering. Notwithstanding the foregoing, in no event shall the Conversion Price be lower than $0.03 per share.

The conversion feature of the Offerings Notes issued during 2016 was accounted for in the previous year initially as equity. The Company concluded the conversion feature of the Notes did not qualify as a derivative because there was no market mechanism for net settlement and they were not readily convertible to cash.

The Company reassessed the conversion feature of the Offerings Notes issued during 2016 for derivative treatment during January 2017 and concluded its shares were readily convertible to cash based on the current trading volume of the Company’s stock. Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The conversion feature was measured at fair value using a Black Scholes and Binomial model at the reassessment date and the period end. The conversion feature, when reassessed, gave rise to a derivative liability of $1,526,300. In accordance with ASC 815, $129,434 was charged to paid in-capital due to the fact a beneficial conversion feature was recorded on the original issue date. In addition the Company recorded a debt discount to the Notes of $90,153 relating to the fair value of the conversion option. The fair value of the conversion option on the date of issuance in excess of the face amount of the note was recorded to interest expense on the date of issuance.

The conversion feature has been measured at fair value using a Black Scholes model at the assessment date and the period end. The conversion feature, when assessed, gave rise to a derivative liability of $322,250. In 2018, the Company recorded an aggregate debt discount to the Notes of $425,900 comprised of i) $322,250 relating to the fair value of the conversion option, which was recorded as a derivative liability ii) $63,013 of incurred issuance costs and iii) $152,243 allocated fair value of the issued warrants. The excess of derivative liability over net proceeds of the notes of $111,606 was charged to interest expense. The debt discounts are amortized ratably to interest expense over the term of the notes.

The Company will have the ability to extend the Notes for an additional six (6) months (the “Extended Term”) and if so extended shall be referred to herein as the “Extended Notes”. The Extended Notes, upon maturity, will pay interest at a six (6) month rate of 18% (36% annualized) at the termination of the Extended Term. The Extended Notes, to the extent extended pursuant to their terms for the Extended Term, will carry an additional 50% warrant coverage (e.g. such warrant to be exercisable for an additional 50% of the number of shares into which the Extended Note is initially convertible (the “Extended Warrants”). The Extended Warrants shall be exercisable at a price equal to $0.10. The Extended Warrants will expire four (4) years from the Extended Term and shall contain customary anti-dilution rights (for stock splits, stock dividends and sales of substantially all the Company’s assets) and the shares underlying the Extended Warrants will contain registration rights.

At December 31, 2018, the Company remeasured the fair value of the conversion feature of the issued and outstanding notes and accrued interest and determined the estimated fair value of the derivative liability of $2,773,654. The Company recorded a loss on change in fair value of derivative liabilities of $1,547,402 for the year ended December 31, 2018.

During the year ended December 31, 2018, the Company issued an aggregate of 13,020,414 warrants to existing note holders at $0.10 per share for four years to extend the terms of maturing notes for six months. The fair value of the issued warrants, determined by the Black-Scholes model, of $1,109,829 was charged as a debt discount and amortized over the extended term up to the note’s initial net proceeds of $1,089,460 and the excess of $20,369 was charged as a loss on extinguishment of debt.

During the year ended December 31, 2017, the Company issued warrants to acquire an aggregate of 11,883,331 shares of the Company’s common stock at $0.10 per share for four years in connection with the extension of the above described notes. The determined fair value at the date of issuance of $890,372 was charged as loss on extinguishment of debt.

In addition, to the extent that any investor that acquires Units in these Offerings had previously acquired securities issued by the Company or its subsidiary in one of the two prior private offerings placed by the Placement Agent in 2015 (each a “Prior Offering”), which collectively raised gross proceeds of $1,510,000 (each an “Existing Investor”), the Company has agreed to provide additional consideration to each such Existing Investor as follows: (i) if the Existing Investor acquires Units in this Offering in an amount equal to fifty percent (50%) or greater than the amount the Existing Investor invested in a Prior Offering, such Existing Investor will receive (a) an additional 7.33 shares, as amended, (if the investor invested in the first Prior offering) or 9 shares, as amended, of the Company’s common stock (if the investor invested in the second Prior Offering) (each “Incentive Shares”); and (b) the exercise price of each of the warrants purchased by the Existing Investor will be reduced from $0.60 per share (if the investor invested in the first Prior Offering) or $0.72 per share (if the investor invested in the second Prior Offering) to $0.10 per share (the “Incentive Warrant Price Reduction”); and (ii) if the Existing Investor acquires Units in this Offering in an amount equal to less than fifty percent (50%) of the amount the Existing Investor invested in a Prior Offering, such Existing Investor will receive a pro-rata number of Incentive Shares and Incentive Warrant Price Reduction on only a pro-rata portion of the warrants acquired by the Existing Investor in the Prior Offering.

During the year ended December 31, 2017, the Company issued investors who invested in prior offerings 8,211,333 shares of common stock and reduced the exercise price of 954,083 warrants as per the terms above. The incentive shares were recorded as a debt discount of $5,972 on the date of issuance based on the relative fair value of the shares.

Upon modification, it is required to analyze the fair value of the instruments, before and after the modification, recognizing the increase as a charge to the statement of operations. The Company computed the fair value of the warrants directly preceding the modification and compared the fair value to that of the modified warrants with new terms. The Company recorded the increased value of the warrants of $37,329 to interest expense with an offsetting entry to additional paid in capital on the date of the modification.

As part of the transactions, the Company incurred placement agent fees based on the aggregate gross proceeds raised during the year ended December 31, 2017, or $208,862, which were recorded as debt discount for debt issuance costs. In addition, during the year ended December 31, 2017, the Company issued the placement agent warrants an aggregate of 3,219,106 common shares and was obligated to issue an additional 1,333,467 warrants (See Note 11). The placement agent warrants have an exercise price of $0.001 per share, have a seven (7) year term and vest immediately. In 2018, the Company issued placement agents warrants in aggregate of 9,854,512 with the same terms as 2017 for past advisory services. The fair value of $1,280,507 was charged to 2017 operations.

The Company was in default on convertible notes in the principle sum of $2,105,950 as of the date of this report. The convertible notes are secured by all assets of the Company. No defaults under the convertible notes have been called by any note holders.

NOTE 7 – LOANS PAYABLE - OFFICERS

During the current and prior periods, one of the Company’s officers made non-interest bearing loans to the Company in the form of cash and payments to vendors on behalf of the Company. The loans are due on demand and unsecured. As of December 31, 2018 and 2017, the Company is reflecting a liability of $0 and $9,941 respectively. The Company did not impute interest on the loan as it was deemed to be de minimis to the consolidated financial statements.

NOTE 8 – STOCKHOLDERS’ DEFICIT

Common stock issued for services

In August 2017, the Company entered into an agreement with a consulting firm to provide investor and public relations services. As compensation for the services, the Company was to pay the consultant $30,000 and issue 750,000 restricted common shares. The term of the agreement was for three months. During the three months ended September 30, 2017, the Company canceled the agreement without any payment or obligation.

During the year ended December 31, 2017, the Company issued an aggregate of 4,300,000 restricted common shares to consultants with a fair value of $304,830. These shares vested immediately on the date of issuance. The Company has recorded $304,830 in stock-based compensation expense for the year ended December 31, 2017, which is a component of professional fees in the consolidated statements of operations. The shares were valued based on the quoted closing trading price on the date of issuance.

During the year ended December 31, 2017, the Company issued an aggregate of 819,750 restricted common shares to a placement agent with a fair value of $126,287 (See Note 6). The shares were granted as compensation to the placement agent for Units sold in Offering 3 during the year ended December 31, 2017. The shares were valued based on the quoted closing trading price on the date of issuance.

Common stock issued with convertible notes

During the year ended December 31, 2017, the Company issued an aggregate of 8,211,333 restricted common shares to investors as part of a private placement of the Company’s debt and equity securities (See Note 6).

Common stock issued with convertible notes - related party

During the year ended December 31, 2017, the Company issued an aggregate of 218,750 restricted common shares to an investor related to the modification of the terms of an existing convertible note (See Note 5).

During year ended December 31, 2018, the Company issued 800,000 shares of its common stock and paid $115,375 towards the Attia Investments, LLC debt settlement. As of December 31, 2018, the outstanding debt obligation to Attia was $0.

Common stock issued in connection with settlement of vendor liabilities

During the year ended December 31, 2017, the Company issued an aggregate of 878,710 restricted common shares to vendors to settle liabilities in the amount of $83,479. The shares were valued based on the quoted closing trading price on the grant date. In connection with the settlement, the Company recorded a gain on settlement of vendor debt of $29,122.

Common stock issued in payment of interest on convertible notes payable

During the year ended December 31, 2017, the Company issued an aggregate of 4,833,000 restricted common shares in settlement of accrued interest on convertible notes payable in the amount of $289,980. The shares were valued based on the quoted closing trading price on the vesting date of $419,180. In connection with the settlement, the Company recorded the excess of fair value of common stock and settled interest as a reduction in the derivative liability.

During the year ended December 31, 2018, the Company issued an aggregate of 666,000 restricted common shares in settlement of accrued interest on convertible notes payable in the amount of $39,294. The shares were valued based on the quoted closing trading price on the vesting date of $58,189. In connection with the settlement, the Company recorded the excess of fair value of common stock and settled interest as a reduction in the derivative liability.

Common stock issued upon exercise of warrants

During the year ended December 31, 2018, the Company issued an aggregate of 6,429,917 restricted common shares upon exercise of warrants with net proceeds of $382,695.

Preferred Stock

The Company is authorized to issue up to 10,000,000 shares of preferred stock, par value $0.001 per share. No shares of its preferred stock are issued or outstanding.

2018 Amended and Restated Equity Incentive Plan

The Board of Directors and stockholders of the Company adopted the 2018 Amended and Restated Equity Incentive Plan in December 2018, which was amended and restated from 2016, which reserves a total of 70,000,000 shares of Common Stock for issuance under the 2018 Plan. If an incentive award granted under the 2018 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2018 Plan.

Shares issued under the 2018 Plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future awards as a condition of acquiring another entity are not expected to reduce the maximum number of shares available under the 2018 Plan. In addition, the number of shares of common stock subject to the 2018 Plan, any number of shares subject to any numerical limit in the 2018 Plan, and the number of shares and terms of any incentive award are expected to be adjusted in the event of any change in outstanding common stock by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction. As of December 31, 2018, 50,000,000 shares remain available for future issuance under the 2018 Plan.

Stock options issued for services

During the year ended December 31, 2017, the Company granted its Chief Executive Officer an aggregate of 7,000,000 stock options with an exercise price of $0.11 for services rendered, having a total grant date fair value of approximately $409,000. See below cancellation on December 1, 2018. 1,000,000 options vested immediately and expire in 2027; 1,500,000 options vest in the event that the average volume weighted average price of the Company’s common stock over any 10 day period is greater than or equal to $0.25 and expire in 2027; 1,500,000 options vest in the event that the average volume weighted average price of the Company’s common stock over any 10 day period is greater than or equal to $0.50 and expire in 2027; 1,500,000 options vest in the event that the average volume weighted average price of the Company’s common stock over any 10 day period is greater than or equal to $0.75 and expire in 2027; and 1,500,000 options vest in the event that the average volume weighted average price of the Company’s common stock over any 10 day period is greater than or equal to $1.00 and expire in 2027. 1,000,000 of the options contain only service conditions and will be expensed on a straight-line basis over the service period of the agreement. The remaining options contain market conditions and are being expensed over the derived service period as computed by a Geometric Brownian pricing model. Stock compensation expense of $70,779 and $63,574 in 2018 and 2017, respectively, was recorded prior to cancellation.

During the year ended December 31, 2017, the Company granted its Chairman of the Board an aggregate of 5,250,000 stock options with an exercise price of $0.07 for services rendered, having a total grant date fair value of approximately $128,525. See below cancellation on December 1, 2018. 1,750,000 options vested immediately and expire in 2027; 1,750,000 options vest in the event that the average volume weighted average price of the Company’s common stock over any 10 day period is greater than or equal to $0.20 and expire in 2027; 1,750,000 options vest in the event that the average volume weighted average price of the Company’s common stock over any 10 day period is greater than or equal to $0.40 and expire in 2027; 1,750,000 of the options contain only service conditions and will be expensed on a straight-line basis over the service period of the agreement. The remaining options contain market conditions and are being expensed over the derived service period as computed by a Geometric Brownian pricing model. Stock compensation expense of $118,330 and $163,784 in 2018 and 2017, respectively, was recorded prior to cancellation.

On December 1, 2018, the Company cancelled an aggregate of 22,150,000 previously granted options to members of the Company’s Board of Directors, including options previously granted to the CEO and Chairman. Concurrently, the Company granted its Chairman of the Board, Chief Executive Officer and Board member 10,000,000, 20,000,000 and 20,000,000 (an aggregate of 50,000,000) stock options with an exercise price of $0.09 for services rendered.

The Company considered the concurrent cancellation and issuance of the 2018 options as a modification under the guidance of ASC 718, Compensation – Stock Compensation. In accordance with the guidance, the Company calculated the incremental increase of the fair value of the new 2018 options over the canceled options at the time of the modification, December 1, 2018. This incremental increase in fair value of the concurrent cancellation and issuance of the stock options amounted to $3,933,550 , which in accordance with the guidance is added to the original grant date fair value of the modified options in the amount of $273,457 (excluding previously recorded stock compensation expense). The aggregate fair value of the original grant date fair value and the incremental increase in fair value amounted to $4,207,007, which will be vested over the new terms of the 2018 options, with no adjustment to the stock compensation recorded just prior to the modification date.

The Company uses the Black-Scholes model to determine the fair value of awards granted that contain typical service conditions that affect vesting. The Company uses the Monte Carlo or Geometric Brownian model to determine the fair value of awards granted that contain complex features such as market conditions because the Company believes the method accounts for multiple embedded features and contingencies in a superior manner than a simple Black Scholes model. In other words, simple models such as Black-Scholes may not be appropriate in many situations given complex features and differing terms. In applying the Black-Scholes, Monte Carlo or Geometric Brownian option pricing models to options granted, the Company used the following assumptions:

Since the Company had limited trading history in 2017, volatility was determined by averaging volatilities of comparable companies in addition to its historical trading history. The Company determined in 2018 that it did have sufficient data to estimate the volatility using only the Company’s own historical stock prices as compared to comparable companies.

The Company uses the simplified method to calculate expected term of share options and similar instruments issued to employees as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The contractual term is used as the expected term for share options and similar instruments issued to non-employees and for options valued using the Monte Carlo or Geometric Brownian model.

The following is a summary of the Company’s stock option activity during the two years ended December 31, 2018:

At December 31, 2018, the aggregate intrinsic value of options outstanding and exercisable was $3,000.

Stock-based compensation for stock options has been recorded in the consolidated statements of operations and totaled $2,606,982 and $450,413, for the years ended December 31, 2018 and 2017, respectively.

As of December 31, 2018, stock-based compensation of $1,814,263 remains unamortized and is expected to be amortized over the weighted average remaining period of 4 months.

Warrants

The Company used the Black-Scholes model to determine the fair value of warrants granted during the years ended December 31, 2018 and 2017. In applying the Black-Scholes option pricing model to warrants granted, the Company used the following assumptions:

The following is a summary of the Company’s warrant activity during the two years ended December 31, 2018:

At December 31, 2018, the aggregate intrinsic value of warrants outstanding and exercisable was $1,286,626. 

The following is additional information with respect to the Company's warrants as of December 31, 2018:

In April 2017, in exchange for services rendered by a third party, the Company issued 1,000,000, 1,000,000 and 1,000,000 warrants to purchase shares of the Company’s common stock with exercise prices of $0.06 per share, $0.12 and $0.18 per share, respectively that vested immediately. The fair value on the grant date of the warrants was $112,717 was charged to operations as services.

During the year ended December 31, 2017, the Company issued an aggregate of 9,246,257 warrants to purchase the Company’s common stock at $0.10 per share, expiring four years from issuance, in connection with the issuance of convertible notes payable. In addition, the Company issued 3,219,106 warrants to purchase the Company’s common stock at $0.001 per share, expiring seven years from issuance for placement agent services.

During the year ended December 31, 2017, the Company issued an aggregate of 11,883,329 warrants to purchase the Company’s common stock at $0.10 per share, expiring four years from issuance, in connection with the six month extension of previously issued convertible notes payable. The fair value on the grant date of the warrants was $767,936 was charged to operations as loss on extinguishment of debt.

During the year ended December 31, 2018, the Company issued an aggregate of 3,549,166 warrants to purchase the Company’s common stock at $0.10 per share, expiring four years from issuance, in connection with the issuance of convertible notes payable. In addition, the Company issued 9,854,512 warrants to purchase the Company’s common stock at $0.001 per share, expiring seven years from issuance for placement agent services valued at $1,280,507.

During the year ended December 31, 2018, the Company issued an aggregate of 2,818,625 warrants to purchase the Company’s common stock at $0.25 per share, expiring four years from issuance, in connection with the exercise of warrants (see below).

During the year ended December 31, 2018, the Company issued an aggregate of 13,020,414 warrants to purchase the Company’s common stock at $0.10 per share, expiring four years from issuance, in connection with the six month extension of previously issued convertible notes payable. The fair value on the grant date of the warrants was $1,109,829 was charged as a debt discount up to the initial proceeds of the related notes and excess to operations as loss on extinguishment of debt.