Monday, May 23, 2016 2:48:07 PM
WHAT BUYOUT MAN.THIS IS A TOTAL POS.CHECK THIS OUT.THESE SCAMBAGS.WOW
1)CONSULTING 946,000$ OMG FOR THE Q ALONE.
2)General and administrative FOR THE Q 525,060 $
3)Payroll FOR THE Q $187,439
EXCELSIS INVESTMENTS, INC.
Consolidated Statements of Operations
(unaudited)
Three months
ended March 31,
2016
$
Three months
ended March 31,
2015
$
Revenue of goods
1,303,290
17,686
Revenue of services
–
23,862
Revenue of services – related party
119,494
285,000
Cost of goods sold
(491,949
)
(4,733
)
Cost of services – related party
–
(100,000
)
Gross Margin
930,835
221,815
Operating Expenses
Amortization
36,689
36,286
Consulting
949,841
17,640
General and administrative
525,069
113,319
Payroll
187,439
67,352
Professional fees
51,293
42,147
Total Operating Expenses
1,750,331
276,744
Loss Before Other Income (Expense)
(819,496
)
(54,929
)
Other Income (Expense)
Gain on change in fair value of derivative liabilities
350,986
107,289
Gain on forgiveness of debt
–
3,061
Interest expense
(28,196
)
(232,570
)
Make whole expense
(389,144
)
51,082
Total Other Income (Expense)
(66,354
)
(71,138
)
Net Loss
(885,850
)
(126,067
)
Net Loss per Share – Basic and Diluted
(0.01
)
(0.00
)
Weighted Average Shares Outstanding – Basic and Diluted
63,979,657
28,356,711
(The accompanying notes are an integral part of these unaudited consolidated financial statements)
F-3
EXCELSIS INVESTMENTS, INC.
Consolidated Statements of Cashflows
(unaudited)
Three months
ended March 31,
2016
$
Three months
ended March 31,
2015
$
Operating Activities
Net loss for the period
(885,850
)
(126,067
)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Amortization of discount on convertible debenture
–
161,363
Amortization of customer list
36,689
36,286
Amortization of deferred financing costs
–
1,289
Change in fair value of make whole expense
389,144
–
Default penalty on convertible debenture
–
53,000
Gain on change in fair value of derivative liabilities
(350,986
)
(107,289
)
Gain on forgiveness of debt
–
(3,061
)
Imputed interest
1,496
1,480
Liability for shares issuable – related party
–
(51,082
)
Share-based compensation
919,392
–
Changes in operating assets and liabilities:
Accounts receivable
373,221
(17,500
)
Accounts receivable – related party
(106,994
)
30,000
Prepaid expenses
(15,000
)
–
Inventory
(152,332
)
(4,717
)
Prepaid inventory
297,305
–
Accounts payable and accrued liabilities
160,563
9,272
Accounts payable – related party
(195,980
)
(2,490
)
Due to related parties
(17,200
)
(40,438
)
Net cash provided by (used) in operating activities
453,468
(59,954
)
Financing Activities
Repayments of loans payable
(19,491
)
–
Repayments of convertible debentures
(90,000
)
–
Net cash used in financing activities
(109,491
)
–
Increase (decrease) in cash
343,977
(59,954
)
Cash, beginning of period
388,183
189,104
Cash, end of period
732,160
129,150
Non-cash transactions
Common shares issued for convertible notes and accrued interest
–
21,500
Reclassification of derivative liability to APIC
–
19,380
Supplemental Disclosures
Interest paid
–
–
Income tax paid
–
–
(The accompanying notes are an integral part of these unaudited consolidated financial statements)
F-4
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
1. Nature of Operations and Continuance of Business
Excelsis Investments, Inc. (the "Company") was incorporated in the state of Nevada on May 27, 2010 under the name "Pub Crawl Holdings, Inc". On March 11, 2014, the Company announced its name change from Pub Crawl Holdings to Excelsis Investments, Inc.
The Company's operations are focused on product development and sales in the Personal Financial Protection and Data Protection businesses through the development and retail of Stealth Cards, a product meant to block RFID (Radio Frequency Identifier Signal) chipped cards from being read when placed in the correct orientation to help users secure their personal information. The Company, utilizing its technologies, plans to expand in this market with additional consumer products and business technologies that provide businesses and individuals with new information protection solutions. The Company has received a Notice of Allowance in regards to provisional and non-provisional patent applications filed in the identity theft and data protection markets, with a trademark based off the Stealth logo and brand in the identity theft space.
On September 1, 2014, the Company entered into a purchase agreement with a non-related party to purchase intangible assets by issuing 30% of the outstanding common shares of the Company as determined on an as-converted, fully-diluted basis, which shall not be subject to dilution by any future issuances for the purchase of 3,000 customer accounts The Company is recognizing the revenue generated from the intangible asset on a net basis.
On March 14, 2016, the Company incorporated a new wholly owned subsidiary, Safety Technologies Inc., a Nevada company. The Company's intention is to sell additional security related products other than the stealth cards, through the subsidiary. As at March 31, 2016, there has been no activity within the subsidiary.
A reverse split has been approved by the shareholders and an information statement has been filed with the SEC. The completion of the necessary steps to finalize the reverse split have not been completed and we do not expect them to be completed for at least 20 days.
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at March 31, 2016, the Company has a working capital deficit of $1,535,899 and an accumulated deficit of $3,840,223. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company's future operations. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies
a) Basis of Presentation and Principles of Consolidation
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") and are expressed in U.S. dollars. These consolidated financial statements comprise the accounts of the Company and its wholly-owned subsidiary, Safety Technologies Inc., a Nevada company. All intercompany transactions have been eliminated on consolidation. The Company's fiscal year end is December 31.
b) Interim Consolidated Financial Statements
These interim unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's consolidated financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. These unaudited condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
F-5
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
2. Summary of Significant Accounting Policies (continued)
c) Accounts Receivable
Accounts receivable represents amounts owed from customers for the sale of product. Amounts are presented net of the allowance for doubtful accounts, which represents the Company's best estimate of the amount of probable credit losses in the existing accounts receivable balance. The Company determines allowance for doubtful accounts based upon historical experience and current economic conditions. The Company reviews the adequacy of its allowance for doubtful accounts on a regular basis. As of March 31, 2016 and December 31, 2015, the Company had no allowances for doubtful accounts.
d) Inventory
Inventory is comprised of stealth cards purchased for resell, and is recorded at the lower of cost or net realizable value on a first-in first-out basis. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future and market conditions.
e)
Intangible Assets
Intangible assets are stated at cost less accumulated amortization and are comprised of customer accounts acquired with an useful life of three years and amortized straight line over three years and patent and trademark development costs, which are currently being developed and has not been placed in use. During the quarter ended March 31, 2016, the Company incurred $36,689 (2015 - $36,286) in amortization expense.
f)
Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260, Earnings per Share . ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As at March 31, 2016, the Company had 28,750,735 (December 31, 2015 – 28,280,185) potentially dilutive common shares.
g)
Revenue Recognition
The Company recognizes and accounts for revenue in accordance with ASC 605 as a principal on the sale of goods. Pursuant to ASC 605, Revenue Recognition, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the amount is fixed and determinable, risk of ownership has passed to the customer and collection is reasonably assured. The Company considered ASC 605-45, Principal Agent Considerations, and determined that the Company acts as a principal in its revenue-earnings activities as they are responsible for the production of goods purchased by the customer, can determine the pricing costs, goods purchased are paid directly by the Company, and has a credit risk with respect to collection of amounts owed by its customers.
The Company considered ASC 605-45, Principal Agent Considerations, and determined that the Company does not act as the principal in its revenue-earnings activities related to certain service revenues where the Company does not bear enough of the risks in the transaction to record them on the gross basis . Revenues for these activities are recorded based on the net amount earned by the Company.
h)
Cost of Revenue
For the Company's product sales, cost of revenue consists of inventory sold in each transaction. For the Company's service sales, cost of revenue consists of engineering services provided by a related party.
F-6
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
2. Summary of Significant Accounting Policies (continued)
i) Financial Instruments
The following table represents assets and liabilities that are measured and recognized in fair value as of March 31, 2016, on a recurring basis:
Level 1
$
Level 2
$
Level 3
$
Total gains
and (losses)
Cash
732,160
–
–
–
Liabilities for shares issuable – related party
(1,220,377
)
–
–
(389,144
)
Derivative liabilities
–
–
(140,263
)
350,986
Total
(488,217
)
–
(140,263
)
(38,158
)
The following table represents assets and liabilities that are measured and recognized in fair value as of December 31, 2015, on a recurring basis:
Level 1
$
Level 2
$
Level 3
$
Total gains
and (losses)
Cash
388,183
–
–
–
Liabilities for shares issuable – related party
(831,233
)
–
–
(318,132
)
Derivative liabilities
–
–
(491,249
)
(341,192
)
Total
(443,050
)
–
(491,249
)
(659,324
)
As of March 31, 2016, the Company had a derivative liability amount of $140,263 (December 31, 2015 – $491,249) which was classified as a Level 3 financial instrument, and a loss on change in fair value of derivative liabilities of $350,986 (December 31, 2015 – $341,192).
3.
Convertible Debenture
a)
On June 20, 2014, the Company entered into a consulting agreement for consulting services. Pursuant to the agreement, the Company is to pay the consultant a commencement fee of $250,000. On June 23, 2014, the Company issued a $250,000 convertible note which is unsecured, non-bearing interest and due on June 22, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (December 17, 2014) at a conversion rate of 90% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $54,296 (December 31, 2015 - $36,416) has been recorded in accounts payable and accrued liabilities.
On December 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $94,188 with a corresponding adjustment to loss on change in fair value of derivative liabilities of $1,050 as accretion expense. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $125,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $20,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $88,357) of the debt discount to interest expense. During the period ended March 31, 2016, the Company repaid $60,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As March 31, 2016, the carrying value of the debenture was $315,000 (December 31, 2015 - $375,000) and the fair value of the derivative liability was $113,608 (December 31, 2015 - $304,860).
F-7
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
3. Convertible Debentures (continued)
b)
On June 23, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 22, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 20, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $12,283 (December 31, 2015 - $10,267) has been recorded in accounts payable and accrued liabilities.
On December 20, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,618 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During year ended December 31, 2015, the Company included a penalty of $12,753 in interest expense for the additional amount payable due to defaulting on the loan. During the year ended December 31, 2015, the Company issued 2,001,225 common shares for the conversion of $24,495. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $46,652) of the debt discount to interest expense. During the period ended March 31, 2016, the Company repaid $15,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at March 31, 2016, the carrying value of the debenture was $23,258 (December 31, 2015 - $38,258) and the fair value of the derivative liability was $6,441 (December 31, 2015 - $65,853). During the period ended March 31, 2016, the Company amortized $nil (December 31, 2015 - $285) in financing costs.
c)
On June 25, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 24, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 22, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $17,686 (December 31, 2015 - $13,854) has been recorded in accounts payable and accrued liabilities.
On December 22, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,464 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 24, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $25,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $47,044) of the debt discount to interest expense. During the period ended March 31, 2016, the Company repaid $15,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at March 31, 2016, the carrying value of the debenture was $60,000 (December 31, 2015 - $75,000) and the fair value of the derivative liability was $20,214 (December 31, 2015 - $120,536). During the period ended March 31, 2016, the Company amortized $nil (December 31, 2015 - $288) in financing costs.
4. Derivative Liabilities
The Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 3 in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model performed by an independent qualified business valuator. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. During the period March 31, 2016, the Company recorded a gain on the change in fair value of derivative liability of $350,986 (December 31, 2015 – loss of $341,192). As at March 31, 2016, the Company recorded a derivative liability of $140,263 (December 31, 2015 - $491,249).
F-8
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
4. Derivative Liabilities (continued)
The following inputs and assumptions were used to value the convertible debentures outstanding during the period ended March 31, 2016:
·
The range of stock prices for the valuation of the derivative instruments at March 31, 2016 ranged from $0.0144 to $0.0285 per share of common stock.
·
The debtholder would redeem (with penalties of 0% to 50% depending on the date and full-partial redemption) based on availability of alternative financing of 70%, 80%, and 90%.
·
The debtholder would automatically convert note at maturity if the registration was effective and the Company is not in default.
·
The projected annual volatility for each valuation period based on the historic volatility of the Company 482 - 485%
·
Capital raising events of $100,000 would occur in each quarter at 75% of market generating dilutive reset events at prices below $0.014 (rounded) for the convertible debentures.
A summary of the activity of the derivative liability is shown below:
$
Balance, December 31, 2015
491,249
Gain in change in fair value of the derivative
(350,986
)
Balance, March 31, 2016
140,263
5. Related Party Transactions
a)
As at March 31, 2016, the Company was owed $111,994 (December 31, 2015 - $5,000) from a significant shareholder which is non-interest bearing, unsecured, and due on demand.
b)
As at March 31, 2016, the Company owed $16,581 (December 31, 2015 - $25,150) to the President of the Company, which is non-interest bearing, unsecured, and due on demand.
c)
As at March 31, 2016, the Company owed $14,367 (December 31, 2015 - $22,998) to the Chief Financial Officer of the Company, which is non-interest bearing, unsecured, and due on demand.
d)
As at March 31, 2016, the Company recorded a liability for shares issuable of $1,220,377 (December 31, 2015 - $831,233) relating to 42,081,984 common shares to be issued to a significant shareholder pursuant to the acquisition agreement for the intangible assets. During the period ended March 31, 2016, the Company recorded $389,144 (December 31, 2015 – $318,132) as a loss in the fair value of the shares issuable to the significant shareholder
e)
As at March 31, 2016, the Company owed $75,000 (December 31, 2015 - $75,000) to a significant shareholder for a loan payable. The loan is unsecured, non-interest bearing, and due on July 25, 2017.
f)
During the period ended March 31, 2016, the Company generated revenues of $119,494 (December 31, 2015 - $837,100) from a significant shareholder.
g)
During the period ended March 31, 2016, the Company incurred payroll expense of $187,439 (December 31, 2015 - $267,495) to management and officers of the Company.
h)
During the period ended March 31, 2016, the Company incurred engineering expense of $nil (December 31, 2015 - $132,550) to company owned by the mother of the President of the Company, which was included in cost of goods sold. As at March 31, 2016, the Company owed $49,290 (December 31, 2015 - $245,270) to the company owned by the mother of the President of the Company, which is non-interest bearing, unsecured, and due on demand. The amount owing has been recorded as accounts payable – related party.
F-9
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
6. Loans Payable
a)
On July 25, 2014, the Company entered into a loan agreement with a related party for a loan of $175,000. Under the terms of the note, the amount is unsecured, non-interest bearing, and due on July 25, 2017. The unpaid principal is to be repaid in installments defined as the collected sum of 10% of the unadjusted gross sales revenue (net of returns and chargebacks) with the installments to begin once the Company has received the gross proceeds of $175,000. As at March 31, 2016, the Company had received loan proceeds of $75,000 (December 31, 2015 - $75,000). During the period ended March 31, 2016, the Company recorded imputed interest of $1,496 (December 31, 2015 - $6,000).
b)
At March 31, 2016, the Company owes $nil (December 31, 2015 - $19,491) pursuant to a future receivable sales agreement with a non-related party. Under the terms of the agreement, the amount is secured by $73,639 of the Company's accounts receivable, bears interest at 30%, and due in installments of $792 payable on each business day.
c)
At March 31, 2016, the Company owes $120,000 (December 31, 2015 - $120,000) in a note payable to a non-related party. Under the terms of the note, the amount is unsecured, bears interest at 10% per annum, and due on demand.
7. Common Shares
a)
On January 1, 2016, the Company issued 500,000 common shares with a fair value of $14,250 to unrelated parties for consulting services.
b)
On January 8, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to unrelated parties for consulting services.
c)
On March 26, 2016, the Company issued 13,166,555 common shares with a fair value of $381,830 to the President of the Company for employee bonuses.
d)
On March 26, 2016, the Company issued 10,000,000 common shares with a fair value of $290,000 to the Chief Financial Officer of the Company for employee bonuses.
e)
On March 26, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to a non-related party for consulting services.
f)
As at March 31, 2016, the Company had 2,965,558 common shares issuable with a fair value of $59,311 to unrelated parties for consulting services.
8. Commitment and Contingencies
a)
On February 16, 2015, the Company entered into a lease agreement for a six month term commencing on March 1, 2015. The Company will have three consecutive options to renew the lease for an additional six months each. Pursuant to the agreement the Company has agreed to pay monthly amounts of $1,092 plus applicable sales taxes and pay a deposit of $2,668 consisting of the first month's rent and a $1,500 security deposit.
On August 13, 2015, the Company entered into an amendment agreement to renew the lease agreement. Pursuant to the amendment, the expiry date is extended to February 28, 2016. On January 29, 2016, the lease was further amended to have an expiry date of August 31, 2016, and the Company has agreed to pay monthly amounts of $1,135 plus applicable sales taxes
F-10
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
8. Commitment and Contingencies (continued)
b)
On December 22, 2015, the Company was served notice by an individual claiming that he had received electronic emails recommending the purchase of the Company's common stock. The plantiff claims that during the period of December 3, 2012 to December 7, 2012, he had received eighteen unsolicited electronic mails in regards to the purchase of the Company's common stock and is seeking damages of $1,000 for each electronic mail he has received, plus $1,700 in attorney fees for a total claim of $19,700. Per the plaintiff's claim, he has served notice to the Company since 2013. However, the Company asserts that they have not received any notices in regards to these claims until December of 2015. The plaintiff presented his case in court on February 19, 2016 and the court ruled in favor of the plaintiff for the full amount of $19,700. As at March 31, 2016, the Company accrued the expense as other loss and has included the liability in accounts payables and accrued liabilities.
c)
On February 2, 2016, the Company and three debt holders entered into a settlement agreement, where the Company agrees to pay $30,000 to the debt holders on or before the third day of each subsequent month until the entire balance is repaid by the Company. Refer to Note 3(a), (b), and (c).
d)
On February 1, 2016, the Company received notice that a third party was seeking compensation for damages as a result of false advertisements made by the Company in regards to the Company's stealth cards. The plaintiff is a manufacturer and distributor of radio frequency identification (RFID) chip protection cards which are in competition with the Company's stealth cards. The Company has filed an answer to the plaintiff's complaint, with denials and affirmative defenses, and is unable to estimate the likelihood of any outcome as at March 31, 2016.
e)
On February 22, 2016, the Company received notice that a consultant was seeking compensation for breach of agreement. Pursuant to the agreement, the parties agreed to equally split any net profits generated from the sale of Stealth cards made by the consultant. The Company asserts that historical sales generated from the sale of the Stealth Cards were not as a result of the consultant's services, and therefore the Company should not be liable for any compensation due to the consultant. The Company has filed a motion to dismiss, and is awaiting the hearing which is scheduled to be on June 22, 2016.
F-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
RESULTS OF OPERATIONS
Working Capital
March 31, 2016
$
December 31, 2015
$
Current Assets
1,141,389
1,193,612
Current Liabilities
2,677,288
2,801,238
Working Capital (Deficit)
(1,535,899)
(1,607,626)
Cash Flows
March 31, 2016
$
March 31, 2015
$
Cash Flows used in Operating Activities
453,468
(59,954)
Cash Flows provided from Investing Activities
Nil
Nil
Cash Flows provided from Financing Activities
(109,491)
Nil
Net Decrease in Cash During Period
343,977
(59,954)
Operating Revenues
During the three months ended March 31, 2016, the Company earned revenues from continuing operations of $930,835 compared with revenues of $221,815 during the three months ended March 31, 2015. The increase in revenues and gross profit margin is due to the fact that the Company earned increased revenues from the sale of Stealth cards, and also earned revenue from a new product introduced in the current quarter, which is an emergency two way voice system that connects the user to 911. The increase in total revenue is net of a decrease in revenue from services during the month period ended March 31, 2016 compared to the same period in 2015. For the period ended March 31, 2016, the Company recorded a gross margin of $930,835 or 65.42% compared to $221,815 or 67.93% during the period ended March 31, 2015. During the period ended March 31, 2016, the Company incurred less cost of services relating to engineering costs in comparison to prior year.
Operating Expenses and Net Loss
Continuing Operations
During the three months ended March 31, 2016, the Company incurred operating expenses from continuing operations of $1,750,331 compared with $276,744 during the three months ended March 31, 2015. The increase is due to an increase of $932,201 in consulting fees incurred to new consultants for business and financial consulting services as per new consulting agreements, as well as share-based compensation to the President and Chief Financial Officer of the Company for business consulting services which were not incurred in the prior year, $120,087 in payroll costs as the Company increased salaries and benefits incurred to the President and Chief Financial Officer of the Company in comparison to prior year, and $9,146 in professional fees for legal services relating to legal disputes which only arose during the prior and current quarters, and $411,750 of general and administrative fees due to increased overall office costs as compared to prior year.
4
Net Income (Loss)
For the three months ended March 31, 2016, the Company had a net loss of $885,850 and basic and diluted net loss per share of $0.01. In addition to operating expenses from continuing operations, the Company also incurred a gain of $350,986 for the change in fair value of derivative liabilities relating to the floating conversion price of its convertible debenture, offset by a make whole expense of $389,144 and interest expense of $28,196 relating to interest charges incurred on its convertible debentures. For the three months ended March 31, 2015, the Company had a net loss of $126,067 and basic and diluted net loss per share of $0.00. In addition to operating expenses from continuing operations, the Company also incurred a gain of $107,289 for the change in fair value of derivative liabilities relating to the floating conversion price of its' convertible debenture, $3,061 gain related to the forgiveness of debt, and a make whole gain of $51,082, offset by interest expense of $232,570 relating to interest charges incurred on its' convertible debentures.
Liquidity and Capital Resources
As at March 31, 2016, the Company had cash of $732,160 and total current assets of $1,141,389 compared with cash of $388,183 and total current assets of $1,193,612 at December 31, 2015. The increase in cash is attributed to increase in revenue. The overall decrease in total current assets is due to decrease of $373,221 in receivables from revenue generated by the Company and $297,305 in prepaid inventory, net of an increase of $106,994 in accounts receivables – related party, $15,000 in prepaid expense, and $152,332 in inventory.
The overall working capital deficit decreased from $1,607,626 at December 31, 2015 to $1,535,899 at March 31, 2016 due in part to decreases in accounts payable – related party, due to related parties, convertible debentures, and derivative liability relating to the fair value of the floating conversion price of the convertible debenture. These decreases were offset by an increase in accounts payable and accrued liabilities and liability for shares issuable – related party.
Cashflow from Operating Activities
During the three months ended March 31, 2016, the Company received $453,468 of cash for operating activities, which is reflective of the cash earned from operating activities, net of cash used for day-to-day business operations. Comparatively, the Company used cash of $59,954 during the three months ended March 31, 2015. The increase of cash provided by operating activities is largely due to the Company earning higher revenue from the sale of its Stealth products in comparison to its prior period.
Cashflow from Investing Activities
During the three months ended March 31, 2016 and March 31, 2015, the Company received no cash from investing activities.
Cashflow from Financing Activities
During the three months ended March 31, 2016, the Company used $109,491 of cash for financing activities, compared with $nil used during the three months ended March 31, 2015. The increase in cash used for financing activities relate to repayments made towards loans payable and convertible debentures outstanding.
Convertible Promissory Note
On June 20, 2014, the Company entered into a consulting agreement for consulting services. Pursuant to the agreement, the Company is to pay the consultant a commencement fee of $250,000. On June 23, 2014, the Company issued a $250,000 convertible note which is unsecured, non-bearing interest and due on June 22, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (December 17, 2014) at a conversion rate of 90% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $54,296 (December 31, 2015 - $36,416) has been recorded in accounts payable and accrued liabilities.
On December 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $94,188 with a corresponding adjustment to loss on change in fair value of derivative liabilities of $1,050 as accretion expense. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $125,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $20,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $88,357) of the debt discount
5
to interest expense. During the period ended March 31, 2016, the Company repaid $60,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As March 31, 2016, the carrying value of the debenture was $315,000 (December 31, 2015 - $375,000) and the fair value of the derivative liability was $113,608 (December 31, 2015 - $304,860).
On June 23, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 22, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 20, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $12,283 (December 31, 2015 - $10,267) has been recorded in accounts payable and accrued liabilities.
On December 20, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,618 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During year ended December 31, 2015, the Company included a penalty of $12,753 in interest expense for the additional amount payable due to defaulting on the loan. During the year ended December 31, 2015, the Company issued 2,001,225 common shares for the conversion of $24,495. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $46,652) of the debt discount to interest expense. During the period ended March 31, 2016, the Company repaid $15,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at March 31, 2016, the carrying value of the debenture was $23,258 (December 31, 2015 - $38,258) and the fair value of the derivative liability was $6,441 (December 31, 2015 - $65,853). During the period ended March 31, 2016, the Company amortized $nil (December 31, 2015 - $285) in financing costs.
On June 25, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 24, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 22, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $17,686 (December 31, 2015 - $13,854) has been recorded in accounts payable and accrued liabilities.
On December 22, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,464 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 24, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $25,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $47,044) of the debt discount to interest expense. During the period ended March 31, 2016, the Company repaid $15,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at March 31, 2016, the carrying value of the debenture was $60,000 (December 31, 2015 - $75,000) and the fair value of the derivative liability was $20,214 (December 31, 2015 - $120,536). During the period ended March 31, 2016, the Company amortized $nil (December 31, 2015 - $288) in financing costs.
Critical Accounting Policies and Estimates
We prepared our financial statements and the accompanying notes in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes. We identified certain accounting policies as critical based on, among other things, their impact on the portrayal of our financial condition, results of operations, or liquidity and the degree of difficulty, subjectivity, and complexity in their deployment. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. Management routinely discusses the development, selection, and disclosure of each of the critical accounting policies. The following is a discussion of our most critical accounting policies:
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable
6
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.
Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures , an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company's financial instruments consist principally of cash, accounts receivable, accounts receivable – related party, accounts payable and accrued liabilities, accounts payable – related party, loans payable, amount due to related parties, convertible debenture, and loan payable – related party. Pursuant to ASC 820, the fair value of our cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that these disclosure controls and procedures are not effective.
Management's assessment identified several material weaknesses in our internal control over financial reporting. These material weaknesses include the following:
-
Insufficient number of qualified accounting personnel governing the financial close and reporting process
-
Lack of proper segregation of duties
There was no change in our internal control over financial reporting during the three months ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
7
PART II - OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The foregoing shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended and no Form 8-K was filed in conjunction therewith.
a)
On January 1, 2016, the Company issued 500,000 common shares with a fair value of $14,250 to unrelated parties for consulting services.
b)
On January 8, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to unrelated parties for consulting services.
c)
On March 26, 2016, the Company issued 13,166,555 common shares with a fair value of $381,830 to the President of the Company for employee bonuses.
d)
On March 26, 2016, the Company issued 10,000,000 common shares with a fair value of $290,000 to the Chief Financial Officer of the Company for employee bonuses.
e)
On March 26, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to a non-related party for consulting services.
f)
As at March 31, 2016, the Company had 2,965,558 common shares issuable with a fair value of $59,311 to unrelated parties for consulting services.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
The foregoing shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended and no Form 8-K was filed in conjunction therewith.
a)
On January 1, 2016, the Company issued 500,000 common shares with a fair value of $14,250 to unrelated parties for consulting services.
b)
On January 8, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to unrelated parties for consulting services.
c)
On March 26, 2016, the Company issued 13,166,555 common shares with a fair value of $381,830 to the President of the Company for employee bonuses.
d)
On March 26, 2016, the Company issued 10,000,000 common shares with a fair value of $290,000 to the Chief Financial Officer of the Company for employee bonuses.
e)
On March 26, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to a non-related party for consulting services.
f)
As at March 31, 2016, the Company had 2,965,558 common shares issuable with a fair value of $59,311 to unrelated parties for consulting services.
8
ITEM 6. EXHIBITS.
Exhibit
Incorporated by reference
Filed
Number
Document Description
Form
Date
Number
Herewith
2.1
Exchange Agreement between Pub Crawl Holdings, Inc. and Mobile
Dynamic Marketing, Inc.
8-K
1/31/13
2.1
2.2
Exchange Agreement between Pub Crawl Holdings, Inc. and Career
Start, Inc.
10-Q
11/19/13
2.2
3.1
Articles of Incorporation - Pub Crawl.
S-1
10/07/10
3.1
3.2
Articles of Incorporation - Mobile Dynamic Marketing, Inc.
10-K/A
4/16/13
3.2
3.3
Articles of Incorporation – Career Start, Inc.
10-K
4-15-14
3.3
3.4
Bylaws - Pub Crawl Holdings, Inc.
S-1
10/07/10
3.2
3.5
Bylaws - Mobile Dynamic Marketing, Inc.
S-1
6/14/13
3.4
3.6
Bylaws – Career Start, Inc.
10-K
4-15-14
3.6
3.7
Amended Articles of Incorporation – March 26, 2013.
10-K
4-15-14
3.7
3.8
Amended Articles of Incorporation – October 24, 2013.
10-K
4-15-14
3.8
10.1
Assignment Agreement between the Company, Peter Kremer, and
PBPubCrawl.com, LLC dated June 14, 2010.
S-1
10/07/10
10.1
10.2
Form of Management Agreement between the Company and Peter
Kremer dated June 22, 2010.
S-1
10/07/10
10.2
10.3
Promissory Note between the Company and Sun Valley Investments
dated August 5, 2010.
S-1
10/07/10
10.3
10.4
Consulting Agreement between the Company and Voltaire Gomez dated
September 23, 2010.
S-1
10/07/10
10.4
10.5
Settlement Agreement between the Company and Sun Valley
Investments dated May 25, 2012.
8-K
08/11/12
10.1
10.6
Promissory Note between the Company and Deville Enterprises, Inc.
dated June 1, 2012.
8-K
08/11/12
10.2
10.7
Debt Forgiveness Agreement with Hermaytar SA.
10-K/A-2
07/21/14
10.7
14.1
Code of Ethics.
S-1
10/07/10
14.1
21.1
List of Subsidiaries.
S-1
10/07/10
21.1
31.1
Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of Principal Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
X
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
X
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
X
101.INS
XBRL Instance Document.
X
101.SCH
XBRL Taxonomy Extension – Schema.
X
101.CAL
XBRL Taxonomy Extension – Calculations.
X
101.DEF
XBRL Taxonomy Extension – Definitions.
X
101.LAB
XBRL Taxonomy Extension – Labels.
X
101.PRE
XBRL Taxonomy Extension – Presentation.
X
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 20 th day of May, 2016.
EXCELSIS INVESTMENTS, INC.
BY:
BRIAN McFADDEN
Brian McFadden
Principal Executive Officer and Director
BY:
MICHELLE PANNONI
Michelle Pannoni
Principal Financial Officer, Principal Accounting Officer
and Treasurer
10
EXHIBIT INDEX
Exhibit
Incorporated by reference
Filed
Number
Document Description
Form
Date
Number
Herewith
2.1
Exchange Agreement between Pub Crawl Holdings, Inc. and Mobile
Dynamic Marketing, Inc.
8-K
1/31/13
2.1
2.2
Exchange Agreement between Pub Crawl Holdings, Inc. and Career
Start, Inc.
10-Q
11/19/13
2.2
3.1
Articles of Incorporation - Pub Crawl.
S-1
10/07/10
3.1
3.2
Articles of Incorporation - Mobile Dynamic Marketing, Inc.
10-K/A
4/16/13
3.2
3.3
Articles of Incorporation – Career Start, Inc.
10-K
4-15-14
3.3
3.4
Bylaws - Pub Crawl Holdings, Inc.
S-1
10/07/10
3.2
3.5
Bylaws - Mobile Dynamic Marketing, Inc.
S-1
6/14/13
3.4
3.6
Bylaws – Career Start, Inc.
10-K
4-15-14
3.6
3.7
Amended Articles of Incorporation – March 26, 2013.
10-K
4-15-14
3.7
3.8
Amended Articles of Incorporation – October 24, 2013.
10-K
4-15-14
3.8
10.1
Assignment Agreement between the Company, Peter Kremer, and
PBPubCrawl.com, LLC dated June 14, 2010.
S-1
10/07/10
10.1
10.2
Form of Management Agreement between the Company and Peter
Kremer dated June 22, 2010.
S-1
10/07/10
10.2
10.3
Promissory Note between the Company and Sun Valley Investments
dated August 5, 2010.
S-1
10/07/10
10.3
10.4
Consulting Agreement between the Company and Voltaire Gomez dated
September 23, 2010.
S-1
10/07/10
10.4
10.5
Settlement Agreement between the Company and Sun Valley
Investments dated May 25, 2012.
8-K
08/11/12
10.1
10.6
Promissory Note between the Company and Deville Enterprises, Inc.
dated June 1, 2012.
8-K
08/11/12
10.2
10.7
Debt Forgiveness Agreement with Hermaytar SA.
10-K/A-2
07/21/14
10.7
14.1
Code of Ethics.
S-1
10/07/10
14.1
21.1
List of Subsidiaries.
S-1
10/07/10
21.1
31.1
Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of Principal Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
X
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
X
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
X
101.INS
XBRL Instance Document.
X
101.SCH
XBRL Taxonomy Extension – Schema.
X
101.CAL
XBRL Taxonomy Extension – Calculations.
X
101.DEF
XBRL Taxonomy Extension – Definitions.
X
101.LAB
XBRL Taxonomy Extension – Labels.
X
101.PRE
XBRL Taxonomy Extension – Presentation.
X
11
Excelsis Investments Inc. (OTCBB:EXSL)
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1)CONSULTING 946,000$ OMG FOR THE Q ALONE.
2)General and administrative FOR THE Q 525,060 $
3)Payroll FOR THE Q $187,439
EXCELSIS INVESTMENTS, INC.
Consolidated Statements of Operations
(unaudited)
Three months
ended March 31,
2016
$
Three months
ended March 31,
2015
$
Revenue of goods
1,303,290
17,686
Revenue of services
–
23,862
Revenue of services – related party
119,494
285,000
Cost of goods sold
(491,949
)
(4,733
)
Cost of services – related party
–
(100,000
)
Gross Margin
930,835
221,815
Operating Expenses
Amortization
36,689
36,286
Consulting
949,841
17,640
General and administrative
525,069
113,319
Payroll
187,439
67,352
Professional fees
51,293
42,147
Total Operating Expenses
1,750,331
276,744
Loss Before Other Income (Expense)
(819,496
)
(54,929
)
Other Income (Expense)
Gain on change in fair value of derivative liabilities
350,986
107,289
Gain on forgiveness of debt
–
3,061
Interest expense
(28,196
)
(232,570
)
Make whole expense
(389,144
)
51,082
Total Other Income (Expense)
(66,354
)
(71,138
)
Net Loss
(885,850
)
(126,067
)
Net Loss per Share – Basic and Diluted
(0.01
)
(0.00
)
Weighted Average Shares Outstanding – Basic and Diluted
63,979,657
28,356,711
(The accompanying notes are an integral part of these unaudited consolidated financial statements)
F-3
EXCELSIS INVESTMENTS, INC.
Consolidated Statements of Cashflows
(unaudited)
Three months
ended March 31,
2016
$
Three months
ended March 31,
2015
$
Operating Activities
Net loss for the period
(885,850
)
(126,067
)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Amortization of discount on convertible debenture
–
161,363
Amortization of customer list
36,689
36,286
Amortization of deferred financing costs
–
1,289
Change in fair value of make whole expense
389,144
–
Default penalty on convertible debenture
–
53,000
Gain on change in fair value of derivative liabilities
(350,986
)
(107,289
)
Gain on forgiveness of debt
–
(3,061
)
Imputed interest
1,496
1,480
Liability for shares issuable – related party
–
(51,082
)
Share-based compensation
919,392
–
Changes in operating assets and liabilities:
Accounts receivable
373,221
(17,500
)
Accounts receivable – related party
(106,994
)
30,000
Prepaid expenses
(15,000
)
–
Inventory
(152,332
)
(4,717
)
Prepaid inventory
297,305
–
Accounts payable and accrued liabilities
160,563
9,272
Accounts payable – related party
(195,980
)
(2,490
)
Due to related parties
(17,200
)
(40,438
)
Net cash provided by (used) in operating activities
453,468
(59,954
)
Financing Activities
Repayments of loans payable
(19,491
)
–
Repayments of convertible debentures
(90,000
)
–
Net cash used in financing activities
(109,491
)
–
Increase (decrease) in cash
343,977
(59,954
)
Cash, beginning of period
388,183
189,104
Cash, end of period
732,160
129,150
Non-cash transactions
Common shares issued for convertible notes and accrued interest
–
21,500
Reclassification of derivative liability to APIC
–
19,380
Supplemental Disclosures
Interest paid
–
–
Income tax paid
–
–
(The accompanying notes are an integral part of these unaudited consolidated financial statements)
F-4
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
1. Nature of Operations and Continuance of Business
Excelsis Investments, Inc. (the "Company") was incorporated in the state of Nevada on May 27, 2010 under the name "Pub Crawl Holdings, Inc". On March 11, 2014, the Company announced its name change from Pub Crawl Holdings to Excelsis Investments, Inc.
The Company's operations are focused on product development and sales in the Personal Financial Protection and Data Protection businesses through the development and retail of Stealth Cards, a product meant to block RFID (Radio Frequency Identifier Signal) chipped cards from being read when placed in the correct orientation to help users secure their personal information. The Company, utilizing its technologies, plans to expand in this market with additional consumer products and business technologies that provide businesses and individuals with new information protection solutions. The Company has received a Notice of Allowance in regards to provisional and non-provisional patent applications filed in the identity theft and data protection markets, with a trademark based off the Stealth logo and brand in the identity theft space.
On September 1, 2014, the Company entered into a purchase agreement with a non-related party to purchase intangible assets by issuing 30% of the outstanding common shares of the Company as determined on an as-converted, fully-diluted basis, which shall not be subject to dilution by any future issuances for the purchase of 3,000 customer accounts The Company is recognizing the revenue generated from the intangible asset on a net basis.
On March 14, 2016, the Company incorporated a new wholly owned subsidiary, Safety Technologies Inc., a Nevada company. The Company's intention is to sell additional security related products other than the stealth cards, through the subsidiary. As at March 31, 2016, there has been no activity within the subsidiary.
A reverse split has been approved by the shareholders and an information statement has been filed with the SEC. The completion of the necessary steps to finalize the reverse split have not been completed and we do not expect them to be completed for at least 20 days.
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at March 31, 2016, the Company has a working capital deficit of $1,535,899 and an accumulated deficit of $3,840,223. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company's future operations. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies
a) Basis of Presentation and Principles of Consolidation
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") and are expressed in U.S. dollars. These consolidated financial statements comprise the accounts of the Company and its wholly-owned subsidiary, Safety Technologies Inc., a Nevada company. All intercompany transactions have been eliminated on consolidation. The Company's fiscal year end is December 31.
b) Interim Consolidated Financial Statements
These interim unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's consolidated financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. These unaudited condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
F-5
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
2. Summary of Significant Accounting Policies (continued)
c) Accounts Receivable
Accounts receivable represents amounts owed from customers for the sale of product. Amounts are presented net of the allowance for doubtful accounts, which represents the Company's best estimate of the amount of probable credit losses in the existing accounts receivable balance. The Company determines allowance for doubtful accounts based upon historical experience and current economic conditions. The Company reviews the adequacy of its allowance for doubtful accounts on a regular basis. As of March 31, 2016 and December 31, 2015, the Company had no allowances for doubtful accounts.
d) Inventory
Inventory is comprised of stealth cards purchased for resell, and is recorded at the lower of cost or net realizable value on a first-in first-out basis. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future and market conditions.
e)
Intangible Assets
Intangible assets are stated at cost less accumulated amortization and are comprised of customer accounts acquired with an useful life of three years and amortized straight line over three years and patent and trademark development costs, which are currently being developed and has not been placed in use. During the quarter ended March 31, 2016, the Company incurred $36,689 (2015 - $36,286) in amortization expense.
f)
Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260, Earnings per Share . ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As at March 31, 2016, the Company had 28,750,735 (December 31, 2015 – 28,280,185) potentially dilutive common shares.
g)
Revenue Recognition
The Company recognizes and accounts for revenue in accordance with ASC 605 as a principal on the sale of goods. Pursuant to ASC 605, Revenue Recognition, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the amount is fixed and determinable, risk of ownership has passed to the customer and collection is reasonably assured. The Company considered ASC 605-45, Principal Agent Considerations, and determined that the Company acts as a principal in its revenue-earnings activities as they are responsible for the production of goods purchased by the customer, can determine the pricing costs, goods purchased are paid directly by the Company, and has a credit risk with respect to collection of amounts owed by its customers.
The Company considered ASC 605-45, Principal Agent Considerations, and determined that the Company does not act as the principal in its revenue-earnings activities related to certain service revenues where the Company does not bear enough of the risks in the transaction to record them on the gross basis . Revenues for these activities are recorded based on the net amount earned by the Company.
h)
Cost of Revenue
For the Company's product sales, cost of revenue consists of inventory sold in each transaction. For the Company's service sales, cost of revenue consists of engineering services provided by a related party.
F-6
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
2. Summary of Significant Accounting Policies (continued)
i) Financial Instruments
The following table represents assets and liabilities that are measured and recognized in fair value as of March 31, 2016, on a recurring basis:
Level 1
$
Level 2
$
Level 3
$
Total gains
and (losses)
Cash
732,160
–
–
–
Liabilities for shares issuable – related party
(1,220,377
)
–
–
(389,144
)
Derivative liabilities
–
–
(140,263
)
350,986
Total
(488,217
)
–
(140,263
)
(38,158
)
The following table represents assets and liabilities that are measured and recognized in fair value as of December 31, 2015, on a recurring basis:
Level 1
$
Level 2
$
Level 3
$
Total gains
and (losses)
Cash
388,183
–
–
–
Liabilities for shares issuable – related party
(831,233
)
–
–
(318,132
)
Derivative liabilities
–
–
(491,249
)
(341,192
)
Total
(443,050
)
–
(491,249
)
(659,324
)
As of March 31, 2016, the Company had a derivative liability amount of $140,263 (December 31, 2015 – $491,249) which was classified as a Level 3 financial instrument, and a loss on change in fair value of derivative liabilities of $350,986 (December 31, 2015 – $341,192).
3.
Convertible Debenture
a)
On June 20, 2014, the Company entered into a consulting agreement for consulting services. Pursuant to the agreement, the Company is to pay the consultant a commencement fee of $250,000. On June 23, 2014, the Company issued a $250,000 convertible note which is unsecured, non-bearing interest and due on June 22, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (December 17, 2014) at a conversion rate of 90% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $54,296 (December 31, 2015 - $36,416) has been recorded in accounts payable and accrued liabilities.
On December 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $94,188 with a corresponding adjustment to loss on change in fair value of derivative liabilities of $1,050 as accretion expense. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $125,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $20,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $88,357) of the debt discount to interest expense. During the period ended March 31, 2016, the Company repaid $60,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As March 31, 2016, the carrying value of the debenture was $315,000 (December 31, 2015 - $375,000) and the fair value of the derivative liability was $113,608 (December 31, 2015 - $304,860).
F-7
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
3. Convertible Debentures (continued)
b)
On June 23, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 22, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 20, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $12,283 (December 31, 2015 - $10,267) has been recorded in accounts payable and accrued liabilities.
On December 20, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,618 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During year ended December 31, 2015, the Company included a penalty of $12,753 in interest expense for the additional amount payable due to defaulting on the loan. During the year ended December 31, 2015, the Company issued 2,001,225 common shares for the conversion of $24,495. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $46,652) of the debt discount to interest expense. During the period ended March 31, 2016, the Company repaid $15,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at March 31, 2016, the carrying value of the debenture was $23,258 (December 31, 2015 - $38,258) and the fair value of the derivative liability was $6,441 (December 31, 2015 - $65,853). During the period ended March 31, 2016, the Company amortized $nil (December 31, 2015 - $285) in financing costs.
c)
On June 25, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 24, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 22, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $17,686 (December 31, 2015 - $13,854) has been recorded in accounts payable and accrued liabilities.
On December 22, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,464 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 24, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $25,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $47,044) of the debt discount to interest expense. During the period ended March 31, 2016, the Company repaid $15,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at March 31, 2016, the carrying value of the debenture was $60,000 (December 31, 2015 - $75,000) and the fair value of the derivative liability was $20,214 (December 31, 2015 - $120,536). During the period ended March 31, 2016, the Company amortized $nil (December 31, 2015 - $288) in financing costs.
4. Derivative Liabilities
The Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 3 in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model performed by an independent qualified business valuator. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. During the period March 31, 2016, the Company recorded a gain on the change in fair value of derivative liability of $350,986 (December 31, 2015 – loss of $341,192). As at March 31, 2016, the Company recorded a derivative liability of $140,263 (December 31, 2015 - $491,249).
F-8
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
4. Derivative Liabilities (continued)
The following inputs and assumptions were used to value the convertible debentures outstanding during the period ended March 31, 2016:
·
The range of stock prices for the valuation of the derivative instruments at March 31, 2016 ranged from $0.0144 to $0.0285 per share of common stock.
·
The debtholder would redeem (with penalties of 0% to 50% depending on the date and full-partial redemption) based on availability of alternative financing of 70%, 80%, and 90%.
·
The debtholder would automatically convert note at maturity if the registration was effective and the Company is not in default.
·
The projected annual volatility for each valuation period based on the historic volatility of the Company 482 - 485%
·
Capital raising events of $100,000 would occur in each quarter at 75% of market generating dilutive reset events at prices below $0.014 (rounded) for the convertible debentures.
A summary of the activity of the derivative liability is shown below:
$
Balance, December 31, 2015
491,249
Gain in change in fair value of the derivative
(350,986
)
Balance, March 31, 2016
140,263
5. Related Party Transactions
a)
As at March 31, 2016, the Company was owed $111,994 (December 31, 2015 - $5,000) from a significant shareholder which is non-interest bearing, unsecured, and due on demand.
b)
As at March 31, 2016, the Company owed $16,581 (December 31, 2015 - $25,150) to the President of the Company, which is non-interest bearing, unsecured, and due on demand.
c)
As at March 31, 2016, the Company owed $14,367 (December 31, 2015 - $22,998) to the Chief Financial Officer of the Company, which is non-interest bearing, unsecured, and due on demand.
d)
As at March 31, 2016, the Company recorded a liability for shares issuable of $1,220,377 (December 31, 2015 - $831,233) relating to 42,081,984 common shares to be issued to a significant shareholder pursuant to the acquisition agreement for the intangible assets. During the period ended March 31, 2016, the Company recorded $389,144 (December 31, 2015 – $318,132) as a loss in the fair value of the shares issuable to the significant shareholder
e)
As at March 31, 2016, the Company owed $75,000 (December 31, 2015 - $75,000) to a significant shareholder for a loan payable. The loan is unsecured, non-interest bearing, and due on July 25, 2017.
f)
During the period ended March 31, 2016, the Company generated revenues of $119,494 (December 31, 2015 - $837,100) from a significant shareholder.
g)
During the period ended March 31, 2016, the Company incurred payroll expense of $187,439 (December 31, 2015 - $267,495) to management and officers of the Company.
h)
During the period ended March 31, 2016, the Company incurred engineering expense of $nil (December 31, 2015 - $132,550) to company owned by the mother of the President of the Company, which was included in cost of goods sold. As at March 31, 2016, the Company owed $49,290 (December 31, 2015 - $245,270) to the company owned by the mother of the President of the Company, which is non-interest bearing, unsecured, and due on demand. The amount owing has been recorded as accounts payable – related party.
F-9
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
6. Loans Payable
a)
On July 25, 2014, the Company entered into a loan agreement with a related party for a loan of $175,000. Under the terms of the note, the amount is unsecured, non-interest bearing, and due on July 25, 2017. The unpaid principal is to be repaid in installments defined as the collected sum of 10% of the unadjusted gross sales revenue (net of returns and chargebacks) with the installments to begin once the Company has received the gross proceeds of $175,000. As at March 31, 2016, the Company had received loan proceeds of $75,000 (December 31, 2015 - $75,000). During the period ended March 31, 2016, the Company recorded imputed interest of $1,496 (December 31, 2015 - $6,000).
b)
At March 31, 2016, the Company owes $nil (December 31, 2015 - $19,491) pursuant to a future receivable sales agreement with a non-related party. Under the terms of the agreement, the amount is secured by $73,639 of the Company's accounts receivable, bears interest at 30%, and due in installments of $792 payable on each business day.
c)
At March 31, 2016, the Company owes $120,000 (December 31, 2015 - $120,000) in a note payable to a non-related party. Under the terms of the note, the amount is unsecured, bears interest at 10% per annum, and due on demand.
7. Common Shares
a)
On January 1, 2016, the Company issued 500,000 common shares with a fair value of $14,250 to unrelated parties for consulting services.
b)
On January 8, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to unrelated parties for consulting services.
c)
On March 26, 2016, the Company issued 13,166,555 common shares with a fair value of $381,830 to the President of the Company for employee bonuses.
d)
On March 26, 2016, the Company issued 10,000,000 common shares with a fair value of $290,000 to the Chief Financial Officer of the Company for employee bonuses.
e)
On March 26, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to a non-related party for consulting services.
f)
As at March 31, 2016, the Company had 2,965,558 common shares issuable with a fair value of $59,311 to unrelated parties for consulting services.
8. Commitment and Contingencies
a)
On February 16, 2015, the Company entered into a lease agreement for a six month term commencing on March 1, 2015. The Company will have three consecutive options to renew the lease for an additional six months each. Pursuant to the agreement the Company has agreed to pay monthly amounts of $1,092 plus applicable sales taxes and pay a deposit of $2,668 consisting of the first month's rent and a $1,500 security deposit.
On August 13, 2015, the Company entered into an amendment agreement to renew the lease agreement. Pursuant to the amendment, the expiry date is extended to February 28, 2016. On January 29, 2016, the lease was further amended to have an expiry date of August 31, 2016, and the Company has agreed to pay monthly amounts of $1,135 plus applicable sales taxes
F-10
EXCELSIS INVESTMENTS, INC.
Notes to the consolidated Financial Statements
(unaudited)
8. Commitment and Contingencies (continued)
b)
On December 22, 2015, the Company was served notice by an individual claiming that he had received electronic emails recommending the purchase of the Company's common stock. The plantiff claims that during the period of December 3, 2012 to December 7, 2012, he had received eighteen unsolicited electronic mails in regards to the purchase of the Company's common stock and is seeking damages of $1,000 for each electronic mail he has received, plus $1,700 in attorney fees for a total claim of $19,700. Per the plaintiff's claim, he has served notice to the Company since 2013. However, the Company asserts that they have not received any notices in regards to these claims until December of 2015. The plaintiff presented his case in court on February 19, 2016 and the court ruled in favor of the plaintiff for the full amount of $19,700. As at March 31, 2016, the Company accrued the expense as other loss and has included the liability in accounts payables and accrued liabilities.
c)
On February 2, 2016, the Company and three debt holders entered into a settlement agreement, where the Company agrees to pay $30,000 to the debt holders on or before the third day of each subsequent month until the entire balance is repaid by the Company. Refer to Note 3(a), (b), and (c).
d)
On February 1, 2016, the Company received notice that a third party was seeking compensation for damages as a result of false advertisements made by the Company in regards to the Company's stealth cards. The plaintiff is a manufacturer and distributor of radio frequency identification (RFID) chip protection cards which are in competition with the Company's stealth cards. The Company has filed an answer to the plaintiff's complaint, with denials and affirmative defenses, and is unable to estimate the likelihood of any outcome as at March 31, 2016.
e)
On February 22, 2016, the Company received notice that a consultant was seeking compensation for breach of agreement. Pursuant to the agreement, the parties agreed to equally split any net profits generated from the sale of Stealth cards made by the consultant. The Company asserts that historical sales generated from the sale of the Stealth Cards were not as a result of the consultant's services, and therefore the Company should not be liable for any compensation due to the consultant. The Company has filed a motion to dismiss, and is awaiting the hearing which is scheduled to be on June 22, 2016.
F-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
RESULTS OF OPERATIONS
Working Capital
March 31, 2016
$
December 31, 2015
$
Current Assets
1,141,389
1,193,612
Current Liabilities
2,677,288
2,801,238
Working Capital (Deficit)
(1,535,899)
(1,607,626)
Cash Flows
March 31, 2016
$
March 31, 2015
$
Cash Flows used in Operating Activities
453,468
(59,954)
Cash Flows provided from Investing Activities
Nil
Nil
Cash Flows provided from Financing Activities
(109,491)
Nil
Net Decrease in Cash During Period
343,977
(59,954)
Operating Revenues
During the three months ended March 31, 2016, the Company earned revenues from continuing operations of $930,835 compared with revenues of $221,815 during the three months ended March 31, 2015. The increase in revenues and gross profit margin is due to the fact that the Company earned increased revenues from the sale of Stealth cards, and also earned revenue from a new product introduced in the current quarter, which is an emergency two way voice system that connects the user to 911. The increase in total revenue is net of a decrease in revenue from services during the month period ended March 31, 2016 compared to the same period in 2015. For the period ended March 31, 2016, the Company recorded a gross margin of $930,835 or 65.42% compared to $221,815 or 67.93% during the period ended March 31, 2015. During the period ended March 31, 2016, the Company incurred less cost of services relating to engineering costs in comparison to prior year.
Operating Expenses and Net Loss
Continuing Operations
During the three months ended March 31, 2016, the Company incurred operating expenses from continuing operations of $1,750,331 compared with $276,744 during the three months ended March 31, 2015. The increase is due to an increase of $932,201 in consulting fees incurred to new consultants for business and financial consulting services as per new consulting agreements, as well as share-based compensation to the President and Chief Financial Officer of the Company for business consulting services which were not incurred in the prior year, $120,087 in payroll costs as the Company increased salaries and benefits incurred to the President and Chief Financial Officer of the Company in comparison to prior year, and $9,146 in professional fees for legal services relating to legal disputes which only arose during the prior and current quarters, and $411,750 of general and administrative fees due to increased overall office costs as compared to prior year.
4
Net Income (Loss)
For the three months ended March 31, 2016, the Company had a net loss of $885,850 and basic and diluted net loss per share of $0.01. In addition to operating expenses from continuing operations, the Company also incurred a gain of $350,986 for the change in fair value of derivative liabilities relating to the floating conversion price of its convertible debenture, offset by a make whole expense of $389,144 and interest expense of $28,196 relating to interest charges incurred on its convertible debentures. For the three months ended March 31, 2015, the Company had a net loss of $126,067 and basic and diluted net loss per share of $0.00. In addition to operating expenses from continuing operations, the Company also incurred a gain of $107,289 for the change in fair value of derivative liabilities relating to the floating conversion price of its' convertible debenture, $3,061 gain related to the forgiveness of debt, and a make whole gain of $51,082, offset by interest expense of $232,570 relating to interest charges incurred on its' convertible debentures.
Liquidity and Capital Resources
As at March 31, 2016, the Company had cash of $732,160 and total current assets of $1,141,389 compared with cash of $388,183 and total current assets of $1,193,612 at December 31, 2015. The increase in cash is attributed to increase in revenue. The overall decrease in total current assets is due to decrease of $373,221 in receivables from revenue generated by the Company and $297,305 in prepaid inventory, net of an increase of $106,994 in accounts receivables – related party, $15,000 in prepaid expense, and $152,332 in inventory.
The overall working capital deficit decreased from $1,607,626 at December 31, 2015 to $1,535,899 at March 31, 2016 due in part to decreases in accounts payable – related party, due to related parties, convertible debentures, and derivative liability relating to the fair value of the floating conversion price of the convertible debenture. These decreases were offset by an increase in accounts payable and accrued liabilities and liability for shares issuable – related party.
Cashflow from Operating Activities
During the three months ended March 31, 2016, the Company received $453,468 of cash for operating activities, which is reflective of the cash earned from operating activities, net of cash used for day-to-day business operations. Comparatively, the Company used cash of $59,954 during the three months ended March 31, 2015. The increase of cash provided by operating activities is largely due to the Company earning higher revenue from the sale of its Stealth products in comparison to its prior period.
Cashflow from Investing Activities
During the three months ended March 31, 2016 and March 31, 2015, the Company received no cash from investing activities.
Cashflow from Financing Activities
During the three months ended March 31, 2016, the Company used $109,491 of cash for financing activities, compared with $nil used during the three months ended March 31, 2015. The increase in cash used for financing activities relate to repayments made towards loans payable and convertible debentures outstanding.
Convertible Promissory Note
On June 20, 2014, the Company entered into a consulting agreement for consulting services. Pursuant to the agreement, the Company is to pay the consultant a commencement fee of $250,000. On June 23, 2014, the Company issued a $250,000 convertible note which is unsecured, non-bearing interest and due on June 22, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (December 17, 2014) at a conversion rate of 90% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $54,296 (December 31, 2015 - $36,416) has been recorded in accounts payable and accrued liabilities.
On December 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $94,188 with a corresponding adjustment to loss on change in fair value of derivative liabilities of $1,050 as accretion expense. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $125,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $20,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $88,357) of the debt discount
5
to interest expense. During the period ended March 31, 2016, the Company repaid $60,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As March 31, 2016, the carrying value of the debenture was $315,000 (December 31, 2015 - $375,000) and the fair value of the derivative liability was $113,608 (December 31, 2015 - $304,860).
On June 23, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 22, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 20, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $12,283 (December 31, 2015 - $10,267) has been recorded in accounts payable and accrued liabilities.
On December 20, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,618 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During year ended December 31, 2015, the Company included a penalty of $12,753 in interest expense for the additional amount payable due to defaulting on the loan. During the year ended December 31, 2015, the Company issued 2,001,225 common shares for the conversion of $24,495. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $46,652) of the debt discount to interest expense. During the period ended March 31, 2016, the Company repaid $15,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at March 31, 2016, the carrying value of the debenture was $23,258 (December 31, 2015 - $38,258) and the fair value of the derivative liability was $6,441 (December 31, 2015 - $65,853). During the period ended March 31, 2016, the Company amortized $nil (December 31, 2015 - $285) in financing costs.
On June 25, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 24, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 22, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2016, accrued interest of $17,686 (December 31, 2015 - $13,854) has been recorded in accounts payable and accrued liabilities.
On December 22, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,464 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 24, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $25,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended March 31, 2016, the Company had amortized $nil (December 31, 2015 - $47,044) of the debt discount to interest expense. During the period ended March 31, 2016, the Company repaid $15,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at March 31, 2016, the carrying value of the debenture was $60,000 (December 31, 2015 - $75,000) and the fair value of the derivative liability was $20,214 (December 31, 2015 - $120,536). During the period ended March 31, 2016, the Company amortized $nil (December 31, 2015 - $288) in financing costs.
Critical Accounting Policies and Estimates
We prepared our financial statements and the accompanying notes in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes. We identified certain accounting policies as critical based on, among other things, their impact on the portrayal of our financial condition, results of operations, or liquidity and the degree of difficulty, subjectivity, and complexity in their deployment. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. Management routinely discusses the development, selection, and disclosure of each of the critical accounting policies. The following is a discussion of our most critical accounting policies:
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable
6
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.
Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures , an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company's financial instruments consist principally of cash, accounts receivable, accounts receivable – related party, accounts payable and accrued liabilities, accounts payable – related party, loans payable, amount due to related parties, convertible debenture, and loan payable – related party. Pursuant to ASC 820, the fair value of our cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that these disclosure controls and procedures are not effective.
Management's assessment identified several material weaknesses in our internal control over financial reporting. These material weaknesses include the following:
-
Insufficient number of qualified accounting personnel governing the financial close and reporting process
-
Lack of proper segregation of duties
There was no change in our internal control over financial reporting during the three months ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
7
PART II - OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The foregoing shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended and no Form 8-K was filed in conjunction therewith.
a)
On January 1, 2016, the Company issued 500,000 common shares with a fair value of $14,250 to unrelated parties for consulting services.
b)
On January 8, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to unrelated parties for consulting services.
c)
On March 26, 2016, the Company issued 13,166,555 common shares with a fair value of $381,830 to the President of the Company for employee bonuses.
d)
On March 26, 2016, the Company issued 10,000,000 common shares with a fair value of $290,000 to the Chief Financial Officer of the Company for employee bonuses.
e)
On March 26, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to a non-related party for consulting services.
f)
As at March 31, 2016, the Company had 2,965,558 common shares issuable with a fair value of $59,311 to unrelated parties for consulting services.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
The foregoing shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended and no Form 8-K was filed in conjunction therewith.
a)
On January 1, 2016, the Company issued 500,000 common shares with a fair value of $14,250 to unrelated parties for consulting services.
b)
On January 8, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to unrelated parties for consulting services.
c)
On March 26, 2016, the Company issued 13,166,555 common shares with a fair value of $381,830 to the President of the Company for employee bonuses.
d)
On March 26, 2016, the Company issued 10,000,000 common shares with a fair value of $290,000 to the Chief Financial Officer of the Company for employee bonuses.
e)
On March 26, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to a non-related party for consulting services.
f)
As at March 31, 2016, the Company had 2,965,558 common shares issuable with a fair value of $59,311 to unrelated parties for consulting services.
8
ITEM 6. EXHIBITS.
Exhibit
Incorporated by reference
Filed
Number
Document Description
Form
Date
Number
Herewith
2.1
Exchange Agreement between Pub Crawl Holdings, Inc. and Mobile
Dynamic Marketing, Inc.
8-K
1/31/13
2.1
2.2
Exchange Agreement between Pub Crawl Holdings, Inc. and Career
Start, Inc.
10-Q
11/19/13
2.2
3.1
Articles of Incorporation - Pub Crawl.
S-1
10/07/10
3.1
3.2
Articles of Incorporation - Mobile Dynamic Marketing, Inc.
10-K/A
4/16/13
3.2
3.3
Articles of Incorporation – Career Start, Inc.
10-K
4-15-14
3.3
3.4
Bylaws - Pub Crawl Holdings, Inc.
S-1
10/07/10
3.2
3.5
Bylaws - Mobile Dynamic Marketing, Inc.
S-1
6/14/13
3.4
3.6
Bylaws – Career Start, Inc.
10-K
4-15-14
3.6
3.7
Amended Articles of Incorporation – March 26, 2013.
10-K
4-15-14
3.7
3.8
Amended Articles of Incorporation – October 24, 2013.
10-K
4-15-14
3.8
10.1
Assignment Agreement between the Company, Peter Kremer, and
PBPubCrawl.com, LLC dated June 14, 2010.
S-1
10/07/10
10.1
10.2
Form of Management Agreement between the Company and Peter
Kremer dated June 22, 2010.
S-1
10/07/10
10.2
10.3
Promissory Note between the Company and Sun Valley Investments
dated August 5, 2010.
S-1
10/07/10
10.3
10.4
Consulting Agreement between the Company and Voltaire Gomez dated
September 23, 2010.
S-1
10/07/10
10.4
10.5
Settlement Agreement between the Company and Sun Valley
Investments dated May 25, 2012.
8-K
08/11/12
10.1
10.6
Promissory Note between the Company and Deville Enterprises, Inc.
dated June 1, 2012.
8-K
08/11/12
10.2
10.7
Debt Forgiveness Agreement with Hermaytar SA.
10-K/A-2
07/21/14
10.7
14.1
Code of Ethics.
S-1
10/07/10
14.1
21.1
List of Subsidiaries.
S-1
10/07/10
21.1
31.1
Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of Principal Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
X
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
X
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
X
101.INS
XBRL Instance Document.
X
101.SCH
XBRL Taxonomy Extension – Schema.
X
101.CAL
XBRL Taxonomy Extension – Calculations.
X
101.DEF
XBRL Taxonomy Extension – Definitions.
X
101.LAB
XBRL Taxonomy Extension – Labels.
X
101.PRE
XBRL Taxonomy Extension – Presentation.
X
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 20 th day of May, 2016.
EXCELSIS INVESTMENTS, INC.
BY:
BRIAN McFADDEN
Brian McFadden
Principal Executive Officer and Director
BY:
MICHELLE PANNONI
Michelle Pannoni
Principal Financial Officer, Principal Accounting Officer
and Treasurer
10
EXHIBIT INDEX
Exhibit
Incorporated by reference
Filed
Number
Document Description
Form
Date
Number
Herewith
2.1
Exchange Agreement between Pub Crawl Holdings, Inc. and Mobile
Dynamic Marketing, Inc.
8-K
1/31/13
2.1
2.2
Exchange Agreement between Pub Crawl Holdings, Inc. and Career
Start, Inc.
10-Q
11/19/13
2.2
3.1
Articles of Incorporation - Pub Crawl.
S-1
10/07/10
3.1
3.2
Articles of Incorporation - Mobile Dynamic Marketing, Inc.
10-K/A
4/16/13
3.2
3.3
Articles of Incorporation – Career Start, Inc.
10-K
4-15-14
3.3
3.4
Bylaws - Pub Crawl Holdings, Inc.
S-1
10/07/10
3.2
3.5
Bylaws - Mobile Dynamic Marketing, Inc.
S-1
6/14/13
3.4
3.6
Bylaws – Career Start, Inc.
10-K
4-15-14
3.6
3.7
Amended Articles of Incorporation – March 26, 2013.
10-K
4-15-14
3.7
3.8
Amended Articles of Incorporation – October 24, 2013.
10-K
4-15-14
3.8
10.1
Assignment Agreement between the Company, Peter Kremer, and
PBPubCrawl.com, LLC dated June 14, 2010.
S-1
10/07/10
10.1
10.2
Form of Management Agreement between the Company and Peter
Kremer dated June 22, 2010.
S-1
10/07/10
10.2
10.3
Promissory Note between the Company and Sun Valley Investments
dated August 5, 2010.
S-1
10/07/10
10.3
10.4
Consulting Agreement between the Company and Voltaire Gomez dated
September 23, 2010.
S-1
10/07/10
10.4
10.5
Settlement Agreement between the Company and Sun Valley
Investments dated May 25, 2012.
8-K
08/11/12
10.1
10.6
Promissory Note between the Company and Deville Enterprises, Inc.
dated June 1, 2012.
8-K
08/11/12
10.2
10.7
Debt Forgiveness Agreement with Hermaytar SA.
10-K/A-2
07/21/14
10.7
14.1
Code of Ethics.
S-1
10/07/10
14.1
21.1
List of Subsidiaries.
S-1
10/07/10
21.1
31.1
Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of Principal Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
X
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
X
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
X
101.INS
XBRL Instance Document.
X
101.SCH
XBRL Taxonomy Extension – Schema.
X
101.CAL
XBRL Taxonomy Extension – Calculations.
X
101.DEF
XBRL Taxonomy Extension – Definitions.
X
101.LAB
XBRL Taxonomy Extension – Labels.
X
101.PRE
XBRL Taxonomy Extension – Presentation.
X
11
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