Item 1. Business
Company History
On November 20, 2019, the Company changed its name from Advanced Credit Technologies, Inc. to CyberloQ Technologies, Inc.
CyberloQ Technologies Inc. (“CLOQ”, ‘We” or the “Company”) was incorporated in Nevada on February 5, 2008. The Company has never been the subject of any bankruptcy, receivership or similar proceeding. The Company has never been involved in any material reclassification, merger, or consolidation.
On June 15, 2017, the Company created a private limited company in the United Kingdom named CyberloQ Technologies LTD. CyberloQ Technologies LTD is a wholly-owned subsidiary of the Company, and any business that the Company has in the United Kingdom will be transacted through CyberloQ Technologies LTD. However, to date CyberloQ Technologies LTD has had no activity, operational or otherwise.
Current Overview of the Company
The Company is a development-stage technology company focused on fraud prevention and credit management.
The Company offers a proprietary software platform branded as CyberloQ® . While previously the Company licensed CyberloQ, in the third quarter of 2017, the Company acquired the CyberloQ technology and is now the exclusive owner of CyberloQ.
CyberloQ is a banking fraud prevention technology that is offered to institutional clients in order to combat fraudulent transactions and unauthorized access to customer accounts. Through the use of a customer’s smart-phone, CyberloQ uses a multi-factor authentication system to control access to a bank card, transaction type or amount, website, database or digital service. The mobile applications for CyberloQ have been built, and have been successfully integrated into the banking ecosystem.
In addition to CyberloQ, the Company offers a web-based proprietary software platform under the brand name TurnScor® which allows customers to monitor and manage their credit from the privacy of their own homes. Although individuals can sign-up for TurnScor on their own, the Company also intends to market TurnScor to certain institutional clients, where appropriate, in conjunction with CyberloQ as a value-added benefit to offer their customers.
Furthermore, in 2018 the Company introduced CyberloQ Vault, a secure cloud-based storage solution which allows users to store, retrieve and share content securely.
Finally, the Company is able to develop secure databases for clients by developing and attaching a private blockchain to the SQL database and further securing the database through use of the Company’s CyberloQ® technology. The blockchain being developed by the Company is a private blockchain and is an invitation-only network governed by a single entity. Entrants to the network require permission to read, write or audit the blockchain.
The Company currently has three full-time employees - its President, Vice-President and Chief Technology Officer. There are no other employees of the Company at this time.
Item 1A.
Item 1A. Risk Factors
The Company qualifies as a smaller reporting company as defined by §229.10(f)(1) and therefore is not required to provide the information required by this Item. However, the Company does acknowledge that there are risks associated with the business of the Company.
We will be competing with a variety of companies, many of which have significantly greater financial, technical, marketing and other resources than us. If we fail to attract and retain a large base of customers for our products, or if our competitors establish a more prominent market position relative to ours, this will inhibit our ability to grow and successfully execute our business plan. For example, Wells Fargo has introduced an “on/off” feature for their customers, Discover Card has “Freeze It” functionality, and Ondot Systems has already been operating in the mobile card security space for quite some time. However, the Company believes that the multi-purpose functionality of CyberloQ, along with its multi-purpose applications will give the Company a distinct advantage by comparison. CyberloQ can be used in the banking system to protect debit/credit cards, in the Health Care industry to protect PII (Personal Identifying Information) now that medical records are kept digitally, and can protect corporate data bases in any industry from outside intrusion via geo-fencing. The Company believes that these distinct features, along with the ability to “White Label” the technology for marketing partners, give the Company a distinction in the marketplace. However, there can be no assurance that we will be able to successfully compete with other companies in the marketplace.
In addition, the Company could incur increased costs, decreased revenue, or suffer reputational damage in the event of a cyber-attack. The Company’s business involves the collection, storage, processing and transmission of customers’ personal data, including financial information. In the event that the Company’s security measures are breached due to human error, malfeasance, system errors or vulnerabilities, or other irregularities, such breach could adversely affect our business through possible interruption of the Company’s operations, improper disclosure of data, damage to the Company’s reputation, and/or legal exposure.
Item 1B.
Item 1B. Unresolved Staff CommentS
The Company qualifies as a smaller reporting company as defined by §229.10(f)(1) and therefore is not required to provide the information required by this Item.
Item 2.
Item 2. Properties
The Company’s corporate office is located in the Gulf Coast Executive Business Center at 871 Venetia Bay Blvd Suite #202 Venice, FL 34285, and our telephone number is 612-961-4536. Rent is $50 per month including phone and internet.
The Company does not presently hold any investments or interests in real estate, investments in real estate mortgages or securities of or interests in persons primarily engaged in real estate activities.
Item 3.
Item 3. Legal Proceedings
The Company is not currently a party to any legal proceedings. Nor is the Company a party to any administrative proceedings.
In addition, the Company’s officers and directors have not been convicted in any criminal proceedings nor have they been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of securities or banking activities.
Item 4.
Item 4. Mine Safety Disclosures
None.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock currently trades on the OTC Bulletin Board under the symbol “CLOQ.” The following table states the range of the high and low bid-prices per share of our common stock for each of the calendar quarters for fiscal years 2019 and 2018, as reported by the OTC Bulletin Board. These quotations represent inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions. The last price of our common stock as reported on the OTC Bulletin Board on December 31, 2019 was $0.09 per share. As of December 31, 2019, there were 115 shareholders of record of our common stock. This number does not include beneficial owners from whom shares are held by nominees in street name.
Dividend Policy and Holders
No dividends have been paid to date on our common stock and no change of this policy is under consideration by our board of directors. Our board of directors is not required to declare or pay dividends on our securities. The payment of dividends in the future will be determined by our board of directors in light of conditions then existing, including our earnings, financial requirements, general business conditions, reinvestment opportunities, and other factors. There are otherwise no restrictions on the payment of dividends existing at this time. We had 115 stockholders of record of our common stock on December 31, 2019.
Item 6.
Item 6. Selected Financial Data
The Company qualifies as a smaller reporting company as defined by §229.10(f)(1) and therefore is not required to provide the information required by this Item.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity, Capital Resources and Material Changes in Financial Condition
As of December 31, 2019, our total assets were $485,346 compared to $580,688 in assets as of December 31, 2018. This decrease in the total assets is primarily attributed to depreciation on the CyberloQ® technology and a decrease in cash, offset by an increase in accounts receivable. As a result of the depreciation recognized, the value of the Company’s long-lived assets decreased from $550,679 as of December 31, 2018 to $444,410 as of December 31, 2019.
As of December 31, 2019, our liabilities were $144,904 compared to $94,436 in liabilities as of December 31, 2018. This change in the Company’s financial condition was due to increases in accounts payable and accrued expenses of $55,464 and an increase of $30,000 in loans from related parties, These increases were partially offset by decreases of $24,996 in customer prepayments and $10,000 in loans payable to stockholders.
Net cash used in operating activities for the year ending December 31, 2019 was $339,623 compared to net cash used in operating activities for the year ended December 31, 2018 of $413,790. Cash provided by or used by operating activities is driven by our net loss and adjusted by non-cash items as well as changes in operating assets and liabilities. Non-cash adjustments for the year ended December 31, 2019 include depreciation of $122,019 and stock compensation of $60,570.
Net Cash used by investing activities for the year ended December 31, 2019 was $15,750 as a result of software development.
Net cash provided by financing activities of $335,000 for the year ended December 31, 2019 was due to $315,000 raised by issuing stock and $30,000 raised from a note, offset by repayment of note principal of $10,000.
The Company had operating revenue of $77,185 in 2019 and is currently reliant on its ability to raise additional capital to continue execution of its business plan to move the Company forward towards profitability. The Company does not anticipate any significant decrease in its operating expenses for 2020. Unless the Company begins to generate operation revenue, it will be reliant on its ability to raise additional capital in order to continue its operations.
Results of Operations for the Years Ended December 31, 2019 and 2018
The Company experienced a net loss of $521,380 for the year ended December 31, 2019 compared to net loss of $1,040,459 for the year ended December 31, 2018.
This majority of this decrease in the Company’s net loss was due to a significant decrease in operating expenses coupled with an increase in service revenue. More specifically, stock compensation expense decreased from $442,311 for 2018 to $60,570 for 2019. This $381,741 decrease was the result of a one-time accrual adjustment for prior period issuances of stock options to an independent contractor that was issued in the third quarter of 2018. The Company also experienced reductions in most expense categories as noted below.
Service revenue was $77,185 for 2019 in comparison to $10,415 for 2018. This increase in revenue was due to the Company earning service revenue of $2,849 from its TurnScor platform along with $24,996 in recognition of revenue from a customer’s non-refundable two-year (beginning August 28, 2018) service contract and $50,000 in conjunction with developing and securing a customer’s data with a private blockchain and CyberloQ. During the year ended December 31, 2019, over 70% revenue was attributable to this one customer.
Research and development expenses were $6,193 for 2019, compared to $30,642 for 2018. This decrease in research and development costs is primarily due to the fact that the initial development of the Company’s CyberloQ® technology is complete, and the Company is no longer incurring certain one-time costs associated with the build-out of the mobile applications for the CyberloQ® technology.
Office supplies and expenses were $5,076 for 2019, compared to $8,025 for 2018.
Travel and entertainment expenses were $25,235 for 2019, compared to $32,717 for 2018. This decrease in travel and entertainment expenses was due to decreased business travel during the year.
Compensation to officers was $270,000 for 2019, compared to $295,489 for 2018. This decrease was due to the Company not issuing bonuses to its officers in 2019, as compared to bonuses having been issued to the officers in 2018.
Sales commissions were $8,259 for 2019, compared to $0 for 2018. This increase in sales commissions was due to the revenue generated from the CyberloQ platform.
Computer and internet expenses were $18,605 for 2019 as compared to $5,018 for 2018. This increase was primarily due to the development of its blockchain technology which requires increased data storage.
Other operating expenses were $18,172 for 2019 as compared to $36,652 for 2018. This decrease was due to the write-off of $17,646 of uncollectable advanced commissions in 2018.
For 2019, there were no material changes in professional fees, rent, or depreciation expense as compared to 2018.
In summary, total revenue was $77,185 for 2019. The Company is currently reliant on its ability to raise additional capital to continue execution of its business plan to move forward towards profitability. Whether or not there are any material changes in operational revenues or expenses in 2020 will be highly-dependent upon the Company’s ability to enter into material revenue contracts with customers.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company qualifies as a smaller reporting company as defined by §229.10(f)(1) and therefore is not required to provide the information required by this Item.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Company’s Financial Statements are set forth below beginning on page of this Form 10-K.
Item 9.
Item 9. CHANGES in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2019 in accordance with Committee of Sponsoring Organizations of the Treadway Commission’s 2013 Integrated Framework. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. In addition, due to its current size, the Company currently does not have sufficient staff to maintain appropriate segregation of duties, as it pertains to application and oversight of internal control processes. Material weaknesses have previously been identified, including lack of segregation of duties and lack of formal written policies and procedures surrounding financial close and reporting. However, the Company anticipates that as it grows and formalizes its internal control processes and procedures, it will add sufficient staff to perform internal control processes, as well as adequately provided oversight to ensure processes are working as designed. Such officer also confirmed that there was no change in our internal control over financial reporting during the three-month period ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
There exists no information required to be disclosed in a report on Form 8-K during the three-month period ended December 31, 2019, but not reported.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our directors and officers, as of the date of this filing, are set forth below. The directors hold office for their respective term and until their successors are duly elected and qualified. Vacancies in the existing Board are filled by a majority vote of the remaining directors. The officers serve at the will of the Board of Directors.
(a) & (b) Directors and executive officers:
Name
Age
Position
Director Since
Frederick Andreini
Director
October
Mark Carten
CTO & Director
April
Enrico Giordano
Vice President & Director
Inception
Leon Hurst
Director
February
Christopher Jackson
President, Sec., Treas. & Director
Inception
Rex Schuette
Director
September
The directors of the Company are elected to serve until the next annual shareholders’ meeting or until their respective successors are elected and qualified. Officers of the Company hold office until the meeting of the Board of Directors immediately following the next annual shareholders’ meeting or until removal by the Board of Directors.
(c) Identification of certain significant employees.
As of December 31, 2019, there were no persons who were not directors and/or executive officers that were expected to make significant contributions to the business of the Company.
(d) Family relationships.
There are no family relationships between any directors and/or executive officers.
(e) The business experience of the directors and executive officers.
Frederick Andreini. Mr. Andreini is the founder of Andreini & Associates, LLC; a private equity firm through which he made strategic equity investments, led technology based investments and served as strategic consultant, board member and CEO in numerous companies in their investment portfolio. Fred has over 30 years’ experience in refining concepts and visions into a viable direction for start-up companies. Prior to Andreini & Associates, LLC, Mr. Andreini was founder of High Pointe Custom Homes, LLC (high-end custom home builder); Endotec, LLC, (the first laparoscopic surgical device company), EnviroTec, (tire recycling process that utilized pyrolysis technology), Diagnostic Medical Instruments (DMI); and Microvations, Inc. (the first touch-screen information terminal). Mr. Andreini honed his keen interest in technology at the start of his career as Director of Fields Sales and Marketing Eastern Division for Anheuser-Busch, Inc. where he managed a task force that was specifically focused on marketing new products. Mr. Andreini is also an owner of Magnum Health Management LLC, the parent company of Diabetic Help Centers, LLC, who is a customer of the Company.
Mark Carten. Mr. Carten is an owner of CartenTech, LLC and has been the driving force behind his company which has: developed communication kiosks for airports and military bases in Europe; developed photographic, computer hardware and software systems for counter intelligence uses in multiple countries for various government agencies, developed 3D laser measuring systems for the fiber optic and plastic injection molding industries; and developed over one-hundred websites and on-line database systems for various clients in the both the United States and Europe. Mr. Carten is the developer of the Company’s CyberloQ™ technology as well.
Enrico Giordano. Mr. Giordano is a founder and holds a BA degree in Mass Communications from the University of South Florida and has excelled in Mass Communication Law as his elective studies. Mr. Giordano has been a consultant for over 20 years and has worked with various types of deal structures, from helping structure the proposed sale and relocation of an NBA franchise to working with a structure on e-business companies and the web integration field that included associations with executives of corporations such as Compaq, Digital Equipment Corp., Apple Computer, VisiCorp, Fortress Technologies and IBM. From 2006 through 2007, Mr. Giordano worked on a consulting basis for SellaVision, Inc., a company involved with the infomercial and electronic retailing industry. From 2008 until present, has also been instrumental in structuring and negotiating on behalf of the Company. Mr. Giordano has already been successful in creating alliances that can be significant to the Company’s future growth potential. Mr. Giordano will devote most of his time to this effort, thus helping ensure the success of ACT. For the past two years all of Mr. Giordano’s time and efforts have been solely concentrated on the Company. From price point to structure as well as the marketing of the product to affiliate programs which are now ready to be rolled out. These are all part of the vision along with Mr. Jackson in order to bring to market a product that is reliable, affordable and one that can help thousands upon thousands of people in today’s economy.
Leon Hurst. Mr. Hurst owns and operates a tire distribution, installation and repair business. He also owns a towing and asset recovery business. Mr. Hurst has been a Gideon member of the Lancaster northeast camp for over twenty years, serving as President, Vice-President and Treasurer over that time. He is currently serving as the Treasurer of ROFM drug and alcohol treatment ministry as well.
Chris Jackson. Mr. Jackson is a founder and has served as the President and Chief Operating Officer since inception. Mr. Jackson attended Texas Lutheran University while seeking a degree in Marketing. He has been in sales management for the better part of 15 years. Mr. Jackson ran several automotive dealerships sales departments and has a keen awareness of the credit markets importance. During the past four years, Mr. Jackson has been involved with all aspects of the credit management software industry. From 2006 to 2007, Mr. Jackson worked for Mortgage Credit Specialists and since that time, has overseen the development and implementation of company’s technology platform. His personal hands on experience in the industry is key to the Company’s long-term success and growth strategies. Mr. Jackson’s main focus will be the implementation of sales strategies for growing the Company’s revenues. Mr. Jackson devotes 100% of his time to revenue generation and sales support within the Company.
Rex Schuette. Mr. Schuette’s vast experience and knowledge in the financial services sector will be instrumental in guiding the Company forward with its banking relationships. Mr. Schuette was an Executive Vice President and Chief Financial Officer of United Community Banks, Inc. (“United”) for 16 years until his recent retirement in May of 2017. United is one of the largest full-service banks in the Southeast region of the United States, with over 168 offices and over $11 billion in assets. While at United, Mr. Schuette managed and directed all accounting, financial and reporting activities for the bank, and was also responsible for mergers and acquisitions, investor relations, strategic and capital planning. Prior to his time at United, Mr. Schuette spent 16 years at State Street Corporation, a global financial services company, where he served as the company’s Senior Vice President and Chief Accounting Officer. Mr. Schuette has also served as the Chief Financial Officer of Bank One (Lead Bank), Deputy Comptroller of Harris Trust Savings Bank, and Assistant Controller of the National Bank of Detroit. The knowledge and experience that Mr. Schuette brings to the Board will be an important and strategic component of the Company’s continued growth in the banking industry, both domestically and abroad.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
None.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and furnish us with copies of all Section 16(a) forms they file. Based on our review of the EDGAR database, we believe that there are no persons that are delinquent in filing the required forms for the year ended December 31, 2019.
Code of Ethics
We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Our Code of Ethics is designed to deter wrongdoing and promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in our other public communications; (iii) compliance with applicable governmental laws, rules and regulations; (iv) the prompt internal reporting of violations of our Code of Ethics to an appropriate person or persons identified in the code; and (v) accountability for adherence to our Code of Ethics. We will provide any person without charge a copy of our code of ethics upon receiving a written request which may be mailed to our office at 871 Venetia Bay Boulevard, #202, Venice, Florida 34285.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation of Officers
The following table sets forth certain information with respect to compensation paid to the Company’s executive officers.
(1) The employment contracts for Mark Carten, Enrico Giordano and Christopher Jackson all provide that so long as they are in continuous service to the Company, on each annual anniversary date of their employment agreements they shall be issued 100,000 shares of the Company’s common stock as an annual bonus.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information with respect to outstanding equity awards for the Company’s executive officers as of December 31, 2019.
* at 110% of the average of the closing bid price for the ten days preceding the Company’s achievement of each performance goal.
# All of the options set forth in the above table are performance based and must be exercised within five(5) years of the date that they vest with the executive.
(1) The employment contracts for Mark Carten, Enrico Giordano and Christopher Jackson all include performance incentive stock options based upon the Company meeting certain performance conditions that can potentially result in the issuance of stock option awards of up to 5,000,000 shares each in the event that the Company reaches certain performance goals. Specifically, Mark Carten, Enrico Giordano and Christopher Jackson each shall be entitled to receive ten (10) stock option awards of 500,000 shares of the Company’s common stock each, upon the Company achieving certain milestones (the “ISO Awards”). The first ISO Award will vest upon the Company achieving (cumulatively) $1,000,000 in Gross Revenues, and each additional ISO Award will vest upon the Company achieving the next $1,000,000 increment in cumulative Gross Revenue up to a total of 5,000,000 shares each.
Compensation of Directors
The Company has not compensated any Board members for their participation on the Board and does not have any standard or other arrangements for compensating them for such services. The Company may issue shares of common stock or options to acquire shares of the Company’s common stock to members of the Board in consideration for their services as members of the Board. The Company reimburses Directors for expenses incurred in connection with their attendance at meetings of the Board.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Management and Certain Beneficial Owners
The following table indicates the number of shares of both our common and preferred stock that were beneficially owned as of December 31, 2019, by (1) each person known by us to be the owner of more than 5% of our outstanding shares of preferred stock, (2) our directors, (3) our executive officers, and (4) our directors and executive officers as a group. In general, “beneficial ownership” includes those shares a director or executive officer has sole or shared power to vote or transfer (whether or not owned directly) and rights to acquire common stock through the exercise of stock options or warrants exercisable currently or that become exercisable within 60 days. Except as indicated otherwise, the persons named in the table below have sole voting and investment power with respect to all shares shown as beneficially owned by them. We based our calculation of the percentage owned on 68,130,515 beneficially owned shares of common stock outstanding as of December 31, 2019, and 30,000 beneficially owned shares of preferred stock outstanding on December 31, 2019. The address of each director and executive officer listed below is c/o CyberloQ Technologies, Inc., 5871 Venetia Bay Boulevard, #202, Venice, Florida 34285.
The preferred shareholders vote together with the common stock as a single class and the holders of the preferred stock are entitled to 5,000 votes per share.
(1) Includes 4,000,000 shares of Common Stock held by Carten Tech LLC, of which Mark Carten has voting and dispositive control.
(2) The employment contracts for Mark Carten, Enrico Giordano and Christopher Jackson all include performance incentive stock options based upon the Company meeting certain performance conditions that can potentially result in the issuance of stock option awards of up to 5,000,000 shares each in the event that the Company reaches certain performance goals. Specifically, Mark Carten, Enrico Giordano and Christopher Jackson each shall be entitled to receive ten (10) stock option awards of 500,000 shares of the Company’s common stock each, upon the Company achieving certain milestones (the “ISO Awards”). The first ISO Award will vest upon the Company achieving (cumulatively) $1,000,000 in Gross Revenues, and each additional ISO Award will vest upon the Company achieving the next $1,000,000 increment in cumulative Gross Revenue up to a total of 5,000,000 shares each. The shares vest at 110% of the average closing bid price and must be exercised within five(5) years of the vesting date.
(3) Fred Andreini also holds a warrant to potentially acquire an additional 250,000 shares of common stock that expires on November 30, 2020.
Securities Authorized for Issuance Under Executive Compensation Plans
As of December 31, 2018, the Company had equity compensation plans with Mark Carten, Enrico Giordano and Christopher Jackson. A summary table of the potential share issuances based upon these plans is set forth below:
* The 15,000,000 in options set forth in the above table are exercisable at 110% of the average of the closing bid price for the ten days preceding the Company’s achievement of each performance goal and must be exercised within five(5) years of the vesting date.
The employment contracts for Mark Carten, Enrico Giordano and Christopher Jackson all include performance incentive stock options based upon the Company meeting certain performance conditions. These performance incentive stock options were approved by the Company’s Shareholders. The Company did not meet the requisite performance conditions in 2019, and it is unknown whether or not the Company will meet the requisite performance conditions in 2020. The options are exercisable in 500,000 increments upon the Company initially achieving (cumulatively) $1,000,000 in Gross Revenues, and each additional incentive stock option award will vest upon the Company achieving the next $1,000,000 increment in cumulative Gross Revenue.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
On October 29, 2019, the Company approved a loan of $30,000 from a director to the Company. The interest rate was 0% and the maturity date was December 2, 2019. The Company paid this loan in full in February of 2020.
In addition, there is one unexercised warrant with a related person that remains outstanding. Fred Andreini, a director of the Company, holds a warrant to potentially acquire an additional 250,000 shares of common stock that expires on November 30, 2020 and the exercise price is $0.20 per share.
Further, since Fred Andreini, who recently became one of the Company’s directors, is also an owner of Magnum Health Management LLC, the parent company of Diabetic Help Centers, LLC, the Company’s existing contract with Diabetic Help Centers is now being disclosed as a related-party transaction. On January 31, 2019, the Company entered into a software development to create an interactive database incorporating a private blockchain and the Company’s CyberloQ® technology. The agreement states that Diabetic Help Centers will pay the Company $50,000 for the development of the database, along with monthly user fees once the database is being utilized by Diabetic Help Centers to store patient records.
Promoters and Certain Control Persons
The Company has not had a promoter at any time during the last five fiscal years.
In addition, there are no parents of the Company.
Director Independence
The directors of the Company are also the executive officers of the Company as well as direct and/or beneficial shareholders of the Company and therefore are not independent directors. Members of the Company’s management may become associated with other firms involved in a range of business activities. Consequently, there are potential inherent conflicts of interest in their acting as officers and directors of the Company. Insofar as the officers and directors are engaged in other business activities, management anticipates they will devote as much time to the Company’s affairs as is reasonably needed.
The officers and directors are, so long as they are officers or directors of the Company, subject to the restriction that all opportunities contemplated by the Company’s plan of operation which come to their attention, either in the performance of their duties or in any other manner, will be considered opportunities of, and be made available to the Company and the companies that they are affiliated with on an equal basis. A breach of this requirement will be a breach of the fiduciary duties of the officer or director. If the Company or the companies in which the officers and directors are affiliated with both desire to take advantage of an opportunity, then said officers and directors would abstain from negotiating and voting upon the opportunity. However, all directors may still individually take advantage of opportunities if the Company should decline to do so.
In addition, on November 2, 2017, the Company formally adopted a Related-Party Transactions Policy whereby the officers and directors of the Company are required to report to the Board of Directors any activity that would cause or appear to cause a conflict of interest on his or her part. All related-party transactions are subject to review, approval or ratification in accordance with the Related-Party Transactions Policy.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following table sets forth fees billed to us for principal accountant fees and services during the years ended December 31, 2018 and December 31, 2019. All services provided by the Company’s independent registered accounting firm have been reviewed and approved by the Company’s Board of Directors.
PART IV
ITEM 15.
ITEM 15. EXHIBITS
Exhibits have been filed separately with the United States Securities and Exchange Commission in connection with the Annual Report on Form 10-K or have been incorporated into the report by reference.
Exhibit
Description
3.1(i)
Articles of Incorporation*
3.2(i)
Amended Articles of Incorporation dated May 4, 2010*
3.3(i)
Amended Articles of Incorporation dated May 5, 2017**
3.4(i)
Amended Articles of Incorporation dated November 20, 2019***
3.4(ii)
By-Laws****
14.1
Code of Ethics****
14.2
Related-Party Transactions Policy****
14.3
Anti-Corruption Policy****
16.1
Letter re Change in Certifying Accountant *****
31.1
Rule 13a-14(a) / 15d-14(a) Certification of Principal Executive Officer & Principal Financial Officer.******
32.1
Section 1350 Certification of the Principal Executive Officer & Principal Financial Officer.******
101.1
Interactive data files pursuant to Rule 405 of Regulation S-T.*******
*
Incorporated by reference through the Registration Statement on form S-1 filed with the Commission on October 26, 2010. (101141203)
**
Incorporated by reference through the Quarterly Report on form 10-Q filed with the Commission on May 11, 2017. (17832815)
***
Incorporated by reference through the Current Report on form 8-K filed with the Commission on November 1, 2019.
****
Incorporated by reference through the Current Report on form 8-K filed with the Commission on November 6, 2017.
*****
Incorporated by reference through the Current Report on form 8-K filed with the Commission on May 19, 2017.
******
Filed herewith. In addition, in accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
*******
Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CYBERLOQ TECHNOLOGIES, INC.
By: /s/ Christopher Jackson
Christopher Jackson
Date: April 7, 2020
President, Secretary, Treasurer and Director
Principal Executive Officer
Principal Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this report has been signed by the following persons in the capacities and on the dates indicated.
Item 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Cyberloq Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cyberloq Technologies, Inc. (“the Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has incurred losses since its inception, expects to incur further losses for future business development, and is dependent upon outside investments. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The 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 audit 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.
CyberloQ Technologies, Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
See accompanying notes to financial statements
CyberloQ Technologies, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
See accompanying notes to financial statements
CyberloQ Technologies, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the Years Ended December 31, 2019 and December 31, 2018
See accompanying notes to financial statements
CyberloQ Technologies, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2019 and December 31, 2018
See accompanying notes to financial statements
CyberloQ Technologies, Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
CyberloQ Technologies Inc. (“CLOQ”, ‘We” or the “Company”) is a development-stage technology company focused on fraud prevention and credit management. The Company was originally incorporated as Advanced Credit Technologies, Inc. in the State of Nevada on February 25, 2008. On November 20, 2019, the Company changed its name from Advanced Credit Technologies, Inc. to CyberloQ Technologies, Inc.
The Company offers a proprietary software platform branded as CyberloQ® . While previously the Company licensed CyberloQ, in the third quarter of 2017, the Company acquired the CyberloQ technology and is now the exclusive owner of CyberloQ.
CyberloQ is a banking fraud prevention technology that is offered to institutional clients in order to combat fraudulent transactions and unauthorized access to customer accounts. Through the use of a customer’s smart-phone, CyberloQ uses a multi-factor authentication system to control access to a bank card, transaction type or amount, website, database or digital service. The mobile applications for CyberloQ have been built, and have been successfully integrated into the banking ecosystem.
The CyberloQ Vault is a “cloud based’ security protocol that allows clients the ability to send/receive secure data without having to use traditional e-mail which is prone to a breach. This CyberloQ service uses cloud-based encryption and a secure web portal to send/receive confidential data, the sender and receiver both must have authenticated their position within the prescribed geo coordinates as well as authenticate their mobile devices prior to sending/receiving any data. Thus, rendering a hack or breach utterly useless for the encrypted data is unusable without the CyberloQ authentication component.
In addition to CyberloQ, the Company offers a web-based proprietary software platform under the brand name TurnScor® which allows customers to monitor and manage their credit from the privacy of their own homes. Although individuals can sign-up for TurnScor on their own, the Company also intends to market TurnScor to certain institutional clients, where appropriate, in conjunction with CyberloQ as a value-added benefit to offer their customers.
On June 15, 2017, the Company created a private limited company in the United Kingdom named CyberloQ Technologies LTD. CyberloQ Technologies LTD is a wholly-owned subsidiary of the Company, and any business that the Company has in the United Kingdom will be transacted through CyberloQ Technologies LTD. However, to date CyberloQ Technologies LTD has not had any operating activity or generated any revenue for the Company.
Basis of Presentation
The financial statements of the Company have been prepared using the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America and the rules of the Securities and Exchange Commission. All amounts are presented in U.S. dollars. The Company has adopted a December 31 fiscal year end.
Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned or controlled operating subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates
In preparing these financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the year reported. Actual results may differ from these estimates. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
Cash equivalents are comprised of certain highly liquid investments with maturities of three months or less when purchased. The Company maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. As of December 31, 2019, and December 31, 2018, the Company had no deposits in excess of federally-insured limits.
Research and Development, Software Development Costs, and Internal Use Software Development Costs
Software development costs are accounted for in accordance with ASC Topic No. 985. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. For products where proven technology exists, this may occur very early in the development cycle. Factors we consider in determining when technological feasibility has been established include (i) whether a proven technology exists; (ii) the quality and experience levels of the individuals developing the software; (iii) whether the software is similar to previously developed software which has used the same or similar technology; and (iv) whether the software is being developed with a proven underlying engine. Technological feasibility is evaluated on a product-by-product basis. Capitalized costs for those products that are canceled or abandoned are charged immediately to cost of sales. The recoverability of capitalized software development costs is evaluated on the expected performance of the specific products for which the costs relate.
Internal use software development costs are accounted for in accordance with ASC Topic No. 350 which requires the capitalization of certain external and internal computer software costs incurred during the application development stage. The application development stage is characterized by software design and configuration activities, coding, testing and installation. Training costs and maintenance are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality.
In accounting for website software development costs, we have adopted the provisions of ASC Topic No. 350. ASC Topic No. 350 provides that certain planning and training costs incurred in the development of website software be expensed as incurred, while application development stage costs are to be capitalized. During the periods ended December 31, 2019 and 2018, we expensed $6,193 and $30,642, respectively, for expenditures on research and development. None was paid to related parties.
Fixed Assets, Intangibles and Long-Lived Assets
The Company records its fixed assets at historical cost. The Company expenses maintenance and repairs as incurred. Upon disposition of fixed assets, the gross cost and accumulated depreciation are written off and the difference between the proceeds and the net book value is recorded as a gain or loss on sale of assets. The Company depreciates its fixed assets over their respective estimated useful lives ranging from three to fifteen years.
The Company follows FASB ASC 360-10, “Property, Plant, and Equipment,” which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. As of December 31, 2019 and December 31, 2018, the Company had not experienced impairment losses on its long-lived assets.
Revenue Recognition
Effective January 1, 2018, the Company adopted the requirements of ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09 or ASC 606). The adoption of ASC 606 resulted in changes to the Company’s accounting policies for revenue recognition previously recognized under ASC 605 (Legacy GAAP), as detailed below. However, since the Company had not earned any revenue prior to adopting ASC 606, this policy change had no effect on any financial statements from prior periods, thus no adjustments have been made to any prior periods related to the adoption of ASC 606.
Revenue Recognition Policy
Under ASC 606, the Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. To achieve the core principle of ASC 606, the Company performs the following steps:
1) Identify the contract(s) with a customer;
2) Identify the performance obligations in the contract;
3) Determine the transaction price;
4) Allocate the transaction price to the performance obligations in the contract; and
5) Recognize revenue when (or as) we satisfy a performance obligation.
The Company derives its revenue from development, customization and user fees for the CyberloQ banking fraud technology products, including CyberloQ Vault, and from licensing fees for the TurnScor product.
The revenue derived from the CyberloQ banking fraud technology products are comprised of two components. First, there is a development and customization fee paid to the Company to integrate CyberloQ with the banking institution or program manager’s ecosystem in order to add the CyberloQ authentication to the bank’s payment cards, website or digital service. This fee is customarily paid in multiple payments based upon the Company reaching certain milestones as set forth in the scope of work for each customer. Since completion of a milestone is subject to each customer’s approval, there are significant judgments involved in the determination of timing and satisfaction of performance obligations and the payments are recognized as revenue upon the completion of each milestone. Second, revenue from user fees are accrued monthly based over the number of individual card users each month.
The revenue derived from CyberloQ Vault is also comprised of two components. First, there is a development and customization fee paid to the Company to build a customized cloud-based encryption and a secure web portal to send/receive confidential data. This fee is customarily paid in multiple payments based upon the Company reaching certain milestones as set forth in the scope of work for each customer. Since completion of a milestone is subject to each customer’s approval, there are significant judgments involved in the determination of timing and satisfaction of performance obligations and the payments are recognized as revenue over the completion of each milestone. Second, revenue from a monthly user fee is accrued monthly based upon the number of individual users of the product each month.
License fees generated by the nonexclusive licensing of the Company’s TurnScor product are accrued monthly.
As of December 31, 2019, the Company had $0 in contract assets, as well as a contract liability of $14,589 to perform on contracts. As of December 31, 2018, the Company has $0 in contract assets, however there was a commitment receivable of $9,000 from a customer’s non-refundable two-year (beginning August 28, 2018) service contract, as well as a contract liability of $39,585 to perform on that contract as of December 31, 2018. The contract liability will be reduced by $2,083 per month as the Company provides a non-exclusive, non-transferable license to use the CyberloQ Vault Services for the customer’s internal purposes and earns and recognizes related revenue.
Fair Value Measurements
For certain financial instruments, including accounts receivable, accounts payable, accrued expenses, interest payable, advances payable and notes payable, the carrying amounts approximate fair value due to their relatively short maturities.
The Company has adopted FASB ASC 820-10, “Fair Value Measurements and Disclosures.” FASB ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
● Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
● Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
● Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company did not identify any other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value in accordance with FASB ASC 815.
In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” now known as ASC Topic 825-10 “Financial Instruments.” ASC Topic 825-10 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. FASB ASC 825-10 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company has adopted FASB ASC 825-10. The Company chose not to elect the option to measure the fair value of eligible financial assets and liabilities.
Segment Reporting
FASB ASC 280, “Segment Reporting” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company determined it has one operating segment.
Advertising
Advertising costs are expensed as incurred. Advertising expense for the year ended December 31, 2019 and 2018 was $0 and $13,192 respectively.
Income Taxes
Deferred income taxes are provided using the liability method (in accordance with ASC 740) whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all-of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Applicable interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statements of operations. The Company is not aware of uncertain tax positions.
Earnings (Loss) Per Share
Earnings per share is calculated in accordance with the FASB ASC 260-10, “Earnings Per Share.” Basic earnings (loss) per share is based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
At December 31, 2019 and December 31, 2018, the Company has 250,000 and 1,125,000 warrants as well as 0 and 1,200,000 options issued (respectively) that can be exercised and could be dilutive to the existing number of shares issued and outstanding. However, due to the Company’s periods of losses, the basic weighted average is equal to the diluted weighted average shares outstanding.
The computation of earnings per share of common stock is based on the weighted average number of shares outstanding at the date of the financial statements.
Stock Based Compensation
The Company adopted FASB ASC Topic 718 - Compensation - Stock Compensation (formerly SFAS 123R), which establishes the use of the fair value-based method of accounting for stock-based compensation arrangements under which compensation cost is determined using the fair value of stock-based compensation determined as of the date of grant and is recognized over the periods in which the related services are rendered. For stock-based compensation, the Company recognizes an expense in accordance with FASB ASC Topic 718 and values the equity securities based on the fair value of the security on the date of grant. Stock option and warrant awards are valued using the Black-Scholes option-pricing model, which according to ASC 820-10 is a level 3 value on the hierarchy. Black Scholes assumptions were calculated using stock price at grant date between $0.29 to $0.149; exercise prices between $0.15 to $0.20: life expectancy between ½ year to 5 years; and volatility ranging from 163% to 68%.
Recent Accounting Pronouncements
In July 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. The amendments expand the scope of ASC 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees and to supersede the guidance in ASC 505-50, Equity-Based Payments to Non-Employees. The accounting for nonemployee awards will now be substantially the same as current guidance for employee awards. ASU 2018-07 impacts all entities that issue awards to nonemployees in exchange for goods or services to be used or consumed in the grantor’s own operations, as well as to nonemployees of an equity method investee that provide goods or services to the investee that are used or consumed in the investee’s operations. ASU 2018-07 aligns the measurement-date guidance for employee and nonemployee awards using the current employee model, meaning that the measurement date for nonemployee equity-classified awards generally will be the grant date, while liability-classified awards generally will be the settlement date. ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company has determined that there is no retroactive effect on its financial reports from the adoption of this standard. The Company adopted ASU 2018-07 on January 1, 2019.
Reclassification
Certain reclassifications have been made to conform previously reported data to the current presentation. These reclassifications have no effect on our net income (loss) or financial position as previously reported.
NOTE 2 - FIXED ASSETS
Software and computer equipment, recorded at cost, consisted of the following:
Depreciation expense was $122,019 and $120,050for the years ended December 31, 2019 and 2018, respectively.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.
The Company has incurred losses since Inception resulting in an accumulated deficit of $4,183,091 as of December 31, 2019 that includes a loss of $521,380 for the year ended December 31, 2019. Further losses are anticipated in the development of its business. Accordingly, there is substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and, or, obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.
Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
NOTE 4 - STOCKHOLDERS’ EQUITY
Common Stock
The Company has 100,000,000 shares of $.001 par value common stock authorized as of December 31, 2019 and December 31, 2018.
The Company has an agreement to issue 3,333,333 common shares for $300,000. Currently, the Company has collected $265,000 towards that agreement, and is disclosing the full amount and the related 3,333,333 common shares as “To be Issued”. Once the remaining stock subscription of $35,000 is collected, the Company will issue the entire 3,333,333 common shares.
During 2019, the Company received $200,000 in payment for 2,000,000 shares of common stock and issued 300,000 shares to officers in conjunction with their 2018 service agreement, which were previously recorded as “Shares to be Issued” in the balance sheet. There were 68,130,515 shares of common stock issued and outstanding as of December 31, 2019. Additionally, there were 300,000 shares to officers for the current year portion of their service agreements, valued at $42,000.
During 2018, the Company received $322,000 in payment for 3,203,334 shares of common stock; received $83,300 in services for 435,000 shares of common stock. Also, during 2018: The Company issued 60,000 shares of common stock in payment of $6,000 of accrued legal fees, recognizing a loss on settlement of debt of $12,000; and the Company converted $12,000 of debt into 150,000 shares, these shares were previously recorded as “Shares to be Issued” in the Balance Sheet. There were 65,830,515 shares of common stock issued and outstanding as of December 31, 2018.
Preferred Stock
The Company did not have any preferred stock prior to 2017. In April of 2017, the Company amended its articles of incorporation to create a new class of stock designated Series A Super Voting Preferred Stock consisting of thirty-thousand (30,000) shares at par value of $0.001 per share. Certain rights, preferences, privileges and restrictions were established for the Series A Preferred Stock as follows: (a) the amount to be represented in stated capital at all times for each share of Series A Preferred Stock shall be its par value of $0.001 per share; (b) except as otherwise required by law, holders of shares of Series A Preferred Stock shall vote together with the common stock as a single class and the holders of Series A Preferred Stock shall be entitled to five-thousand (5,000) votes per share of Series A Preferred Stock; and (c) in the event of any liquidation, dissolution or winding-up of the Company, either voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of assets of the Corporation to the holders of the common stock, the original purchase price paid for the Series A Preferred Stock. All 30,000 shares of the Series A Super Voting Preferred Stock were issued in 2017.
NOTE 5 - COMMITMENTS
The Company rents office space on a month to month basis for its main office at 871 Venetia Bay Blvd Suite #202 Venice, FL 34285. Monthly rent for this space is $50. All conditions have been met and paid by the Company.
In 2015, in conjunction with a proposed TurnScor Card platform, the Company signed Investor Royalty and Warrant Agreements with four parties. In exchange for the funds contributed by the four parties, the Company agreed to:
1. Pay the investors monthly residuals of 2.0% to 5% per month on the gross revenue after expenses generated by the Company’s primary platform in conjunction with the Company’s TurnScor Card;
2. Pay the investors a residual in perpetuity on 2% to 5% of all TurnScor Card sub-platform revenue generated; and
3. Issue warrants to investors all of which have either been exercised or expired, except for one individual that has one unexercised warrant to purchase 250,000 shares of common stock at $0.20 per share that expires in November of 2020.
The Company does not plan to proceed with the TurnScor Card at this time.
During fiscal year 2018, the Company wrote off $17,646 in advanced commissions paid to a sales person who dissolved their contractor agreement with the Company.
The Company has commission agreements as follows:
An agreement with a shareholder and director of the Company stating that the executive will be entitled to a two-and-a half-percent (2.5%) commission of the gross revenue recorded by the Company for any customer contracts that are closed by the Company at the time of and during the duration of the agreement. These commissions are payable quarterly upon receipt of customer revenues.
An agreement with two sales managers granting each manager a 1% commission on the gross revenue of the Company. These commissions are payable quarterly upon receipt of customer revenues.
NOTE 6 - RELATED PARTY TRANSACTIONS
Issuance of Warrants/Options
All outstanding warrants and options are fully vested and exercisable.
The following is a summary of the warrants issued and outstanding in connection with common stock:
During 2016 and 2017, a director of the Company was issued two warrants to acquire a total of 1,250,000 shares of common stock. One warrant to acquire 625,000 shares of common stock expired on June 19, 2018, and the other warrant to acquire 625,000 shares of common stock expired on June 28, 2019. Both warrants were exercisable at $0.20 per share. During 2018, the Company revalued the warrants based on information that caused a recalculation of the 1,250,000 warrants value from $51,592, as disclosed in the December 31, 2017 footnote, to the corrected amount of $96,643. This re-valuation had no material impact on 2017, given that the majority of expense was recorded in 2018 and 2019. For 2019 and 2018, stock compensation expense for warrants was $18,570 and $78,073, respectively and all outstanding warrants have been fully expensed.
The following is a summary of the options issued in connection with common stock:
During 2018, the Company issued 1,200,000 non-qualified options to an independent contractor that were exercisable at $0.15 per share and had a term of five years. During 2019, the Company entered into an Option Amendment Agreement with the independent contractor reducing the term of the options that expired in November 2019. For 2019 and 2018, stock compensation expense for options was $0 and $232,938, respectively.
Related Party Loans Payable
The following is a summary of related party loans payable:
Loans Payable - Stockholders
On December 29, 2014, the Company entered into a partially-convertible promissory note with a stockholder in the amount of $35,000. In January of 2015, the shareholder partially-exercised its conversion option, and in May of 2016 the shareholder exercised the remainder of its conversion option. In December 2017, the remaining unpaid principal and interest due on the note was settled in full for a $50,000 note and the Company recognized $151,324 in gain on settlement of debt. The $50,000 note has a current principle balance of $35,000, a stated interest rate of 0%, required payments of $5,000 on or before June 10, 2019, $5,000 on or before August 10, 2019 and the remainder due by the extended due date of September 15, 2019. As of December 31, 2019, the payments due have not been extended, and the Company plans to repay the notes in 2020.
Loans from Related Parties
On November 7, 2019, the Company received a loan from a director in the amount of $30,000, with an interest rate of 0%. The loan was repaid in February 2020.
NOTE 7 - INCOME TAXES
At December 31, 2019, the Company had available federal net operating loss carry forwards to reduce future taxable income. The amount available was approximately $3,350,253 for federal purposes. The federal net operating loss carry forwards begin to expire in 2029. Given the Company’s history of net operating losses, management has determined that it is more likely than not that the Company will not be able to realize the tax benefit of the net operating loss carry forwards. Accordingly, the Company has recognized a valuation allowance that offsets the deferred tax asset for this benefit.
FASB ASC Topic 740 - Income Taxes (formerly SFAS 109) requires that the Company establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. Due to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with net operating loss carry forwards, the utilization of the Company’s net operating loss carry- forward will likely be limited as a result of cumulative changes in stock ownership. The Company has not recognized a deferred asset and, as a result, the change in stock ownership will not result in any change to the valuation allowances. Upon the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated with the use of the carry forwards and will recognize a deferred tax asset at that time.
The provision for Federal income tax consists of the following:
The Tax Cuts and Jobs Act of 2018 will reduce the dollar value of the net operating loss carry-forwards due to the corporate tax rate decrease to 21%. However, the actual benefit will remain because, if allowed, the losses from prior years will offset taxable income in future years regardless of the tax rate. The cumulative tax effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows:
The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is current on all income tax filings. The Company is subject to U.S. federal or state income tax examinations by tax authorities for three years following the filing of such returns. During the periods open to examination, the Company has net operating loss and tax credit carry forwards for U.S. federal and state tax purposes that have attributes from closed periods. Since these NOL’s and tax credit carry forwards may be utilized in future periods, they remain subject to examination.
NOTE 8 - SUBSEQUENT EVENTS
On January 6, 2020, the Company issued 512,000 shares of common stock to one of the Company’s directors at $0.065 per share, for a total of $33,333.
On January 22, 2020, the Company issued 512,000 shares of common stock at $0.065 per share, for a total of $33,333.
On March 18, 2020, the Company entered into a three month agreement with Smallcapvoice.com, Inc. for investor relations services in exchange for 80,000 shares of the Company’s common stock. At that time, the Company’s common shares were trading at $0.10. The shares are restricted from sale or transfer until September 14, 2020.
Other than the foregoing, the Company is not aware of any subsequent events through the date of this filing that require disclosure or recognition in these financial statements. In addition, there exists no information required to be disclosed by the Company in a report on Form 8-K during the three-month period ended December 31, 2019, but not already reported.
As described in Note 7, a loan from a director in the amount of $30,000, with an interest rate of 0% was repaid in February 2020.