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

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

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

As of August ~~14, 2019,~~11, 2020, the registrant had ~~75,747,718~~116,073,931 shares of its common stock, par value $0.001 per share, outstanding.

See accompanying notes to the unaudited condensed consolidated financial statements

See accompanying notes to the unaudited condensed consolidated financial statements.

	Common Stock				Preferred Stock (Class A)				Preferred Stock (Class B)				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Shareholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Income			Deficit			Equity
Balance at December 31, 2019		93,608,619	$	93,608		1,000,000	$	1,000		13,784,201	$	13,784	$	100,906,143	$	(79,901	)	$	(35,787,679	)	$	65,146,955
Issuance of common stock per investment unit agreements		11,433,790		11,434										1,260,345								1,271,779
Issuance of common stock resulting from convertible note conversion		8,909,831		8,910										2,371,820								2,380,730
Share-based compensation expense		503,800		504										1,071,100								1,071,604
Issuance of common stock resulting from exercise of stock options		700,000		700										90,300								91,000
Issuance of common stock resulting from convertible note PIK interest (paid)		167,891		168										56,076								56,244
Foreign currency translation																48,195						48,195
Net loss																			(6,191,369	)		(6,191,369	)
Balance at June 30, 2020		115,323,931	$	115,324		1,000,000	$	1,000		13,784,201	$	13,784	$	105,755,784	$	(31,706	)	$	(41,979,048	)	$	63,875,138

See accompanying notes to the unaudited condensed consolidated financial statements.

Helix ~~TCS,~~Technologies, Inc. (the “Company” or “Helix”) was incorporated in Delaware on March 13, 2014. Pursuant to the acquisition of the assets of Helix TCS, LLC, as discussed below, wethe Company changed ~~our~~its name from Jubilee4 Gold, Inc. to Helix TCS, Inc. effective October 25, 2015. Effective June 5, 2020, the Company changed its name from Helix TCS, Inc. to Helix Technologies, Inc.

Effective October 25, 2015, wethe Company entered into an acquisition and exchange agreement with Helix TCS, LLC. WeThe Company closed the transaction contemplated under the acquisition and exchange agreement on December 23, 2015 and Helix TCS, LLC was merged into and with Helix.

Effective October 1, 2015, for accounting purposes, as part of an acquisition amounting to a reorganization dated December 21, 2015, Helix Opportunities LLC exchanged 100% of Helix TCS, LLC and its wholly-owned subsidiaries, Security Consultants Group, LLC and Boss Security Solutions, Inc. to the Company in exchange for 20 million common shares and 1 million convertible preferred shares of the Company.

The acquisition of Helix was treated as a recapitalization for financial accounting purposes. Jubilee4 Gold, Inc. is considered the acquiree for accounting purposes and their historical financial statements before the Acquisition Agreement were replaced with the historical financial statements of the Company. The common stock account of the Company continues post-merger, while the retained earnings of the acquiree is eliminated. Furthermore, on April 11, 2016, the Company acquired the assets of Revolutionary Software, LLC (“Revolutionary”).

On March 3, 2018, Helix TCS, Inc. and its wholly owned subsidiary, Helix Acquisition Sub, Inc. (“BioTrackTHC Merger Sub”), entered into an Agreement and Plan of Merger (the ~~“Merger~~“BioTrackTHC Merger Agreement”) with Bio-Tech Medical Software, Inc. (“BioTrackTHC”) and Terence J. Ferraro, as the representative of the BioTrackTHC ~~shareholders,~~stockholders, pursuant to which BioTrackTHC Merger Sub merged with and into BioTrackTHC (the ~~“Merger”~~“BioTrackTHC Merger”).

On June 1, 2018 (the “BioTrackTHC Closing Date”), in connection with closing the BioTrackTHC Merger, the Company issued 38,184,985 unregistered shares of its common stock to BioTrackTHC stockholders, of which 1,852,677 shares were held back to satisfy indemnification obligations in the BioTrackTHC Merger Agreement, if necessary. The Company also assumed the Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan (“BioTrackTHC Stock Plan”), pursuant to which options exercisable in the amount of 8,132,410 shares of common stock are outstanding. As a result, BioTrackTHC stockholders ~~will own~~owned approximately 48% of the Company on a fully diluted basis onas of the BioTrackTHC Closing Date.

On August 3, 2018 (the “Engeni Closing Date”), the Company and its wholly owned subsidiary, Engeni Merger Sub, LLC (“Engeni Merger Sub”), entered into an Agreement and Plan of Merger (the “Engeni Merger Agreement”) with Engeni LLC (“Engeni US”), Engeni S.A (“Engeni SA”), Scott Zienkewicz, Nicolas Heller and Alberto Pardo Saleme (the Engeni US members), and Scott Zienkewicz, as the representative of the Engeni US members. Pursuant to the Engeni Merger Agreement, Engeni Merger Sub merged with and into Engeni US, with Engeni US surviving the merger as a wholly-owned subsidiary of the Company (the “Engeni Merger”).

On the Engeni Closing Date, in connection with closing the Engeni Merger Agreement, the Company issued 366,700 shares of Company common stock to Engeni US members. Furthermore, the Company subsequently issued Engeni US members 733,300 shares of Company common stock on April 2, 2019.

On February 5, 2019, the Company and its wholly owned subsidiary, Merger Sub, entered into an Agreement and Plan of Merger (the “Amercanex Merger Agreement”) with Green Tree International, Inc., a corporation incorporated under the laws of the state of Colorado operating under the tradename “Amercanex International Exchange” (“Amercanex”). Pursuant to the Amercanex Merger Agreement, subject to the satisfaction or waiver of specified conditions, Merger Sub will merge with and into Amercanex, with Amercanex surviving the merger as a wholly-owned subsidiary of the Company. The Merger is expected to close during the third quarter of 2019.

On April 1, 2019 (“Tan Security Closing Date”), the Company entered into a Membership Interest and Stock Purchase Agreement (the “Tan Security Acquisition Agreement”) with Tan’s International Security and Tan’s International LLC (collectively, “Tan Security”). Pursuant to the Tan Security Acquisition Agreement, the Company purchased all membership interests and capital stock of Tan Security and collectively holds 100% of the interests of Tan Security (the “Tan Security Acquisition”).

On February 5, 2019, the Company and its wholly owned subsidiary, Merger Sub, entered into an Agreement and Plan of Merger (the “Amercanex Merger Agreement”) with Green Tree International, Inc. (“GTI”) and Steve Janjic, as the representative of the GTI shareholders, pursuant to which Merger Sub merged with and into GTI (the “GTI Merger”).

On September 10, 2019 (the “GTI Closing Date”), the Company closed the GTI Merger and entered into an Addendum No. 1 to the Amercanex Merger Agreement acknowledging and approving certain events that occurred since signing as well as implementing various related amendments to the Amercanex Merger Agreement. In connection with closing the GTI Merger, the Company issued 16,765,727 unregistered shares of Company common stock to GTI shareholders, of which 4,140,274 shares were held back to satisfy indemnification obligations in the Amercanex Merger Agreement, if necessary.

On July 31, 2020, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Invicta Security CA Corporation (“Invicta”), whereby the Company sold, assigned, transferred, and delivered to Invicta the Assets (as defined in the Agreement) and Invicta paid aggregate consideration of $1,750,000 and assumed the Assumed Liabilities (as defined in the Agreement). The Assets included, but were not limited to, the right, title and interest in and to all assets and property, tangible and intangible, of every kind and description, used in, related to or necessary for the security guarding and protective guarding services business conducted by the Company. See Subsequent Events (Note 20).

The Company believes that there is substantial doubt about the Company’s ability to continue as a going concern. The Company believes that its available cash balance as of the date of this filing will not be sufficient to fund its anticipated level of operations for at least the next 12 months. The Company believes that its ability to continue operations depends on its ability to sustain and grow revenue and results of operations as well as its ability to access capital markets when necessary to accomplish the Company’s strategic objectives. The Company believes that it will continue to incur losses for the immediate future. The Company expects to finance future cash needs from its results of operations and, depending on the results of operations, the Company may need additional equity or debt financing until it can achieve profitability and positive cash flows from operating activities, if ever.

At June 30, ~~2019,~~2020, the Company had a working capital deficit of ~~$3,715,022,~~$1,400,761 as compared to a working capital deficit of ~~$2,233,652~~$3,416,501 at December 31, ~~2018.~~2019. The ~~increase~~decrease of ~~$1,481,370~~$2,015,740 in the Company’s working capital deficit from December 31, ~~2018~~2019 to June 30, ~~2019~~2020 was primarily the result of proceeds received from the sale of common stock, a reduction in accounts receivable, and non-cash ~~increase~~decreases in the fair market value of the Company’s convertible notes ~~payable, net of discount – related party~~ and ~~an increase~~warrant liability.

On March 11, 2020, the World Health Organization (“WHO”) recognized COVID-19 as a global pandemic, prompting many national, regional, and local governments, including in the ~~warrant liability, partially offset~~markets that the Company operates in, to implement preventative or protective measures, such as travel and business restrictions, wide-sweeping quarantines and stay-at-home orders. While the Company is actively working to successfully navigate the financial, operational, and personnel challenges presented by ~~a decrease in contingent consideration.~~the COVID-19 pandemic, the full extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain, out of the Company’s control and cannot be predicted at this time.

The Company’s future capital requirements for its operations will depend on many factors, including the profitability of its businesses, the number and cash requirements of other acquisition candidates that the Company pursues, and the costs of operations. The Company has been investing in ~~expanding its operation in new states, its security service in Colorado and California, and~~ upgrading the capabilities of ~~BioTrackTHC.~~its software business. The Company’s management has taken several actions to ensure that it will have sufficient liquidity to meet its obligations for the next twelve months, including growing and diversifying its revenue streams, selectively reducing expenses, and considering additional funding. Additionally, if the Company’s actual revenues are less than forecasted, the Company anticipates that variable expenses will also decline, and the Company’s management can implement expense reduction as necessary. The Company is evaluating other measures to further improve its liquidity, including the sale of equity or debt securities. Lastly, the Company may elect to reduce certain related-party and third-party debt by converting such debt into common shares. The Company’s management believes that these actions will enable the Company to meet its liquidity requirements ~~through August 16, 2020.~~for the next twelve months. There is no assurance that the Company will be successful in any capital-raising efforts that it may undertake to fund operations during ~~2019~~2020 and beyond.

On May 31, 2019 the Company filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the securities being offered. The Company is working with an investment bank to identify investors in anticipation of raising up to $5 million in new equity capital.

The Company plans to generate positive cash flow from ~~its Colorado and California security operations,~~ BioTrackTHC ~~and Engeni software operations~~ to address some of the liquidity concerns. However, to execute the Company’s business plan, service existing indebtedness and implement its business strategy, the Company anticipates that it will need to obtain additional financing from time to time and may choose to raise additional funds through public or private equity or debt financings, borrowings from affiliates or other arrangements. The Company cannot be sure that any additional funding, if needed, will be available on terms favorable to the Company or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities may dilute the Company’s current stockholders’ ownership and could also result in a decrease in the market price of the Company’s common stock. The terms of those securities issued by the Company in future capital transactions may be more favorable to new investors and may include the issuance of warrants or other derivative securities, which may have a further dilutive effect. The Company also may be required to recognize non-cash expenses in connection with certain securities it issues, such as convertible notes and warrants, which may adversely impact the Company’s operating results and financial condition. Furthermore, any debt financing, if available, may subject the Company to restrictive covenants and significant interest costs. There can be no assurance that the Company will be able to raise additional capital, when needed, to continue operations in their current form.

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which include Helix TCS, LLC (“Helix TCS”), Security Consultants Group, LLC (“Security Consultants”), Boss Security Solutions, Inc. (“Boss Security”), Security ~~Consultants Group Oregon, LLC (“Security Oregon”), Security~~ Grade, BioTrackTHC (since June 1, ~~2018,~~2018), Engeni US (since August 3, 2018), ~~and~~ Tan Security (since April 1, 2019) and Green Tree International, Inc. (since September 10, 2019). These interim statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2019.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. ~~Significant~~Use of estimates ~~made by management include, but are not limited to~~includes the following: 1) allowance for doubtful accounts, ~~purchase accounting allocations, recoverability and~~2) estimated useful lives of property, equipment and intangible assets, 3) intangibles impairment, 4) valuation of convertible notes payable ~~contingencies, warrant liabilities, equity compensation~~ and 5) revenue recognition. Actual results could differ from estimates.

Cash consists of checking accounts. The Company considers all highly liquid investments purchased with a maturity of three months or less at the time of purchase to be cash equivalents. The Company has no cash equivalents as of June 30, ~~2019~~2020 or December 31, ~~2018.~~2019.

From time to time, the Company’s cash balances may exceed FDIC-insured limits. As of June 30, 2020 and December 31, 2019, the Company’s cash balances exceeded FDIC-insured limits by approximately $967,000 and $120,000, respectively. The Company’s cash accounts have been placed with high credit quality financial institutions. The Company has not experienced, nor does it anticipate, any losses with respect to such accounts.

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions.

Management charges balances off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company determines when receivables are past due, or delinquent based on how recently payments have been received.

Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Allowance for doubtful accounts was ~~$77,046~~$333,535 and ~~$76,156~~$273,138 at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Definite-lived intangible assets primarily consist of non-compete agreements and customer relationships. For long-lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.

Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. Helix reviews goodwill for possible impairment annually during the fourth quarter, or whenever events or circumstances indicate that the carrying amount may not be recoverable.

The impairment model prescribes a two-step method for determining goodwill impairment. However, an entity is permitted to first assess qualitative factors to determine whether the two-step goodwill impairment test is necessary. The qualitative factors considered by Helix may include, but are not limited to, general economic conditions, Helix’s outlook, market performance of Helix’s industry and recent and forecasted financial performance. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. In the first step, Helix determines the fair value of its reporting unit using a discounted cash flow analysis. If the net book value of the reporting unit exceeds its fair value, Helix then performs the second step of the impairment test, which requires allocation of the reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations with any residual fair value being allocated to goodwill. An impairment charge is recognized when the implied fair value of Helix’s goodwill is less than its carrying amount.

Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods. Such assumptions include projections of future cash flows and the current fair value of the ~~asset~~asset.

In accordance with the guidance for business combinations, the Company determines whether a transaction or other event is a business combination, which requires that the assets acquired, and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions and immediately expenses acquisition-related costs and fees associated with business combinations.

The Company accounts for its business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10,Business Combinations(“ASC 805-10”), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective fair values. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred. If the business combination provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date and any changes in fair value after the acquisition date are accounted for as measurement-period adjustments. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows: 1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or 2) if the contingent consideration is classified as a liability, the changes in fair value are recognized in earnings.

Business Combinations

The Company accounts for its business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 805-10”), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective fair values. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred. If the business combination provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date and any changes in fair value after the acquisition date are accounted for as measurement-period adjustments. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows: 1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or 2) if the contingent consideration is classified as a liability, the changes in fair value are recognized in earnings.

The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using established valuation techniques. The estimated fair value of the net assets acquired was determined using the income approach to valuation based on the discounted cash flow method. Under this method, expected future cash flows of the business on a stand-alone basis are discounted back to a present value. The estimated fair value of identifiable intangible assets, consisting of software and trade name acquired were determined using the relief from royalty method.

The most significant assumptions under the relief from royalty method used to value software and trade names include: estimated remaining useful life, expected revenue, royalty rate, tax rate, discount rate and tax amortization benefit. The discounted cash flow method used to value non-compete agreements includes assumptions such as: expected revenue, term of the non-compete agreements, probability and ability to compete, operating margin, tax rate and discount rate. Management has developed these assumptions on the basis of historical knowledge of the business and projected financial information of the Company. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values.

Revenue Recognition

Under ~~Financial Accounting Standards Board (“FASB”)~~FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation.

The security services revenue is generated from performing armed and unarmed guarding which is contracted for on an hourly basis. Revenues associated with these contracted services are recognized under time-based arrangements as services are provided.

Additionally, the Company provides transportation security services, which are generally contracted for on a per-run basis and sometimes additional fees and surcharges are also billed to the client depending on the length of the run. Revenues associated with these services are recognized as the transportation service is provided.

The Company also generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector (government agencies) businesses that are involved in cannabis related operations. The Company also generates revenue from on-going training, support and software customization services.

Occasionally, the Company will enter into systems installation arrangements. Installation jobs are estimated based on the cost of equipment to be installed, the number of hours expected to be incurred to complete the job and other ancillary costs. Revenue associated with these services are recognized over the arrangement period.

Lastly, the Company generates ~~advertising~~monthly recurring revenues from ~~consumer advertising on~~Cannalytics, its ~~Cannabase platform.~~business intelligence and data tool for commercial customers. Revenue is recognized ~~over the contract period associated with each specific advertising campaign.~~ monthly.

Segment Information

~~FASB ASC~~Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting,, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating ~~decision maker~~decision-making group is composed of the Chief Executive Officer ~~who~~and the Chief Financial Officer, which reviews the financial performance and the results of operations of the segments prepared in accordance with GAAP when making decisions about allocating resources and assessing performance of the Company.

Asset information by operating segment is not presented since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s ~~condensed unaudited~~ consolidated financial statements.

Expenses

Cost of ~~Revenues~~Revenue

The cost of revenues is the total cost incurred to obtain a sale and the cost of the goods or services sold. Cost of revenues primarily consisted of hourly compensation for security personnel and employees involved in the creation and development of licensing software.

Operating Expenses

Operating expenses encompass selling general and administrative expenses, salaries and wages, professional and legal fees and depreciation and ~~amortization, and loss on impairment of Goodwill.~~amortization. Selling, general and administrative expenses consist primarily of rent/moving expenses, advertising and travel expenses. Salaries and wages is composed of non-revenue generating employees. Professional services are principally comprised of outside legal, audit, information technology consulting, marketing and outsourcing services as well as the costs related to being a publicly traded company.

Other Income ~~(Expense), net~~

Other income ~~(expense), net~~ consisted of a gain on the change in fair value of convertible ~~note,~~notes, gain on the change in the fair value of warrant liability, loss on the change in fair value of convertible ~~note~~notes – related party, loss on the change in fair value of contingent consideration, ~~change in fair value of warrant liability,~~ loss on issuance of warrants ~~gain on reduction of obligation pursuant to acquisition~~ and interest ~~(expense) income.~~expense.

Property and Equipment

Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives. Useful lives are 3 years for vehicles and 5 years for furniture and equipment. Maintenance and repairs are expensed as incurred and major improvements are capitalized. When assets are sold, or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in ~~other income.~~loss from operations.

Contingencies

Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.

Advertising

Advertising costs are expensed as incurred and included in selling, general and administrative expenses and amounted to ~~$178,219~~$2,327 and ~~$34,963~~$178,219 for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$247,490~~$7,747 and ~~$61,737~~$247,490 for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Foreign Currency

The local currency is the functional currency for one entity’s operations outside the United States. Assets and liabilities of these operations are translated to U.S. dollars at the exchange rate in effect at the end of each period. Income statement accounts are translated at the average exchange rate prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of other comprehensive ~~income~~loss within shareholders’ equity. Gains and losses from foreign currency transactions are included in net loss for the period.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating loss for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the six months ended June 30, 2020 and 2019.

Comprehensive ~~Income (Loss)~~Loss

Comprehensive ~~income (loss)~~loss consists of consolidated net ~~income (loss)~~loss and foreign currency translation adjustments. Foreign currency translation adjustments included in comprehensive ~~income (loss)~~loss were not tax-effected as investments in international affiliates are deemed to be permanent.

Distinguishing Liabilities from Equity

The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.

Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.

Initial Measurement

The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.

Subsequent Measurement – Financial instruments classified as liabilities

The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other expense/income.

~~Beneficial Conversion Feature~~

If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value, this feature is characterized as a Beneficial Conversion Feature (“BCF”). A beneficial conversion feature is recorded by the Company as a debt discount pursuant to ASC 470-20,~~Debt with Conversion and Other Options~~. In those circumstances, the convertible debt is recorded net of the discount related to the beneficial conversion feature and the Company amortizes the discount to interest expense over the life of the debt.

~~The Company accounts for the beneficial conversion feature on its convertible preferred stock in accordance with ASC 470-20,~~~~Debt with Conversion and Other Options~~. The BCF of convertible preferred stock is normally characterized as the convertible portion or feature that provides a rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of convertible preferred stock when issued. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is resolved.

To determine the effective conversion price, the Company first allocates the proceeds received to the convertible preferred stock and then uses those allocated proceeds to determine the effective conversion price. If the convertible instrument is issued in a basket transaction (i.e., issued along with other freestanding financial instruments), the proceeds should first be allocated to the various instruments in the basket. Any amounts paid to the investor when the transaction is consummated (e.g., origination fees, due diligence costs) represent a reduction in the proceeds received by the issuer. The intrinsic value of the conversion option should be measured using the effective conversion price for the convertible preferred stock on the proceeds allocated to that instrument. The effective conversion price represents proceeds allocable to the convertible preferred stock divided by the number of shares into which it is convertible. The effective conversion price is then compared to the per share fair value of the underlying shares on the commitment date.

The accounting for a BCF requires that the BCF be recognized by allocating the intrinsic value of the conversion option to additional paid-in capital, resulting in a discount on the convertible preferred stock. This discount should be accreted from the date on which the BCF is first recognized through the earliest conversion date for instruments that do not have a stated redemption date. The intrinsic value of the BCF is recognized as a deemed dividend on convertible preferred stock over a period specified in the guidance.

Share-based Compensation

The Company accounts for stock-based compensation to employees in conformity with the provisions of ASC Topic 718,Stock Based Compensation. Stock-based compensation to employees consist of stock ~~options~~option grants and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant.

The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC Topic 718, based upon the fair-value of the underlying instrument. The equity instruments are valued using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period which services are received.

The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model and estimates the fair value of the stock based upon the estimated fair value of the common stock. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.

The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight- line basis over the requisite service period of the award.

Fair Value of Financial Instruments

ASC Topic 820,Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles.

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows:

	●	Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.

	●	Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

	●	Level 3 – Inputs that are unobservable for the asset or liability.

Certain assets and liabilities of the Company are required to be recorded at fair value either on a recurring or non-recurring basis. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction based on market participants. The following section describes the valuation methodologies that the Company used to measure, for disclosure purposes, its financial instruments at fair value.

Convertible notes payable

The fair value of the Company’s convertible notes payable, approximated the carrying value as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. Factors that the Company considered when estimating the fair value of its debt included market conditions and the term of the debt. The level of the debt would be considered as Level 2.

Warrant liabilities

The fair value of the Company’s warrant liabilities approximated the carrying value as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. Factors that the Company considered when estimating the fair value of its warrants included market conditions and the term of the warrants. The level of the warrant liabilities would be considered as Level 3.

Additional Disclosures Regarding Fair Value Measurements

The carrying value of cash, accounts receivable, prepaid expenses and other current assets, deposits and other assets, accounts payable and accrued liabilities, advances from related parties and obligation pursuant to acquisition approximate their fair value due to the short-term maturity of those items.

Earnings (Loss) per Share

The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Basic EPS is computed by dividing net income (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 including stock options and warrants, using the treasury stock method, and convertible debt and convertible securities, using the if-converted method.

For the three months ended June 30, ~~2018~~2020 and the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, potential common shares includable in the computation of fully-diluted per share results are not presented in the condensed consolidated financial statements as their effect would be anti-dilutive. For the three months ended June 30, 2019, dilutive earnings per share are calculated by dividing net income attributable to common shareholders less the change in fair value of warrant liability, the change in fair value of convertible notes, interest expense on convertible notes, and the debt discount amortized on convertible notes. The calculation of diluted EPS excludes 24,571,582 shares for securities which have been deemed to be anti-dilutive.

Earnings per share for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 were calculated as follows:

For the Three Months
Ended June 30, For the Six Months
Ended June 30,
2019 2018 2019 2018
Numerator
Net income attributable to common shareholders $ 4,811,718 $ (9,032,037 ) $ (6,025,736 ) $ (24,469,219 )
Effect of dilutive instruments on net loss (7,024,580 ) - - -
Net income (loss) attributable to common shareholders - diluted $ (2,212,862 ) $ (9,032,037 ) $ (6,025,736 ) $ (24,469,219 )

Denominator
Weighted average shares of common stock outstanding - basic 75,470,238 42,673,528 74,324,689 35,907,118

Dilutive effect of warrants and convertible securities
5,766,440
- - -

Weighted average shares of common stock outstanding - diluted
81,236,678
42,673,528 74,324,689 35,907,118

Net income (loss) per share
Basic $ 0.06 $ (0.21 ) $ (0.08 ) $ (0.68 )
Diluted $ (0.03 ) $ (0.21 ) $ (0.08 ) $ (0.68 )

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
Numerator
Net income attributable to common shareholders	$	(3,098,027	)	$	4,811,718		$	(6,143,174	)	$	(6,025,736	)
Effect of dilutive instruments on net loss		-			(7,024,580	)		-			-
Net income (loss) attributable to common shareholders - diluted	$	(3,098,027	)	$	(2,212,862	)	$	(6,143,174	)	$	(6,025,736	)

Denominator
Weighted average shares of common stock outstanding - basic		103,813,740			75,470,238			99,236,470			74,324,689

Dilutive effect of warrants and convertible securities		-			5,766,440			-			-

Weighted average shares of common stock outstanding - diluted		103,813,740			81,236,678			99,234,470			74,324,689

Net income (loss) per share
Basic	$	(0.03	)	$	0.06		$	(0.06	)	$	(0.08	)
Diluted	$	(0.03	)	$	(0.03	)	$	(0.06	)	$	(0.08	)

The anti-dilutive shares of common stock outstanding for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Potentially dilutive securities:
Convertible notes payable		-		135,634		2,704,577		135,634		15,520,651		-		15,520,651		2,704,577
Convertible Preferred A Stock		1,000,000		1,000,000		1,000,000		1,000,000		1,045,970		1,000,000		1,045,970		1,000,000
Convertible Preferred B Stock		13,784,201		13,784,201		13,784,201		13,784,201		14,417,856		13,784,201		14,417,856		13,784,201
Warrants		-		3,307,073		4,925,558		3,307,073		4,985,998		-		4,985,998		4,925,558
Stock options		9,787,381		8,704,345		9,787,381		8,704,345		11,744,266		9,787,381		11,744,266		9,787,381

Reclassifications

Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-.02,Leases (Topic 842) (“Topic 842”) which requires the recognition of right-of-use assets and lease liabilities on the balance sheet. The most prominent of the changes in the standard is the recognition of right-of-use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases.

The Company adopted the new standard on January 1, 2019 and used the modified retrospective approach with the effective date as the date of initial application. Consequently, prior period balances and disclosures have not been restated. The Company elected certain practical expedients, which among other things, allowed us to carry forward prior conclusions about lease identification and classification.

Adoption of the standard resulted in the balance sheet recognition of additional lease assets and lease liabilities of approximately $1,500,000. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company currently has elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in separate lease and non-lease components for all our leases. For additional information regarding the Company’s leases, see Note 18 in the notes to condensed consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11,Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02,Income Statement – Reporting Comprehensive Income (Topic 220); Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the ASU. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07,Compensation-Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees and applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. ASC 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. This update is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13,Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the effect that this update will have on its financial statements and related disclosures.

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements and related disclosures.

4.	Revenue Recognition

Disaggregation of revenue

	For the Three Months Ended June 30,				For the Six Months Ended June 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Types of Revenues:
Security and Guarding	$	1,347,529	$	1,197,201	$	2,552,240	$	2,290,975	$	2,009,294	$	1,347,529	$	3,602,743	$	2,552,240
Systems Installation		174,067		100,699		202,608		135,263		140,959		174,067		315,905		202,608
Software		2,377,277		576,142		4,515,132		576,142		2,612,458		2,377,277		5,396,494		4,515,132
Total revenues	$	3,898,873	$	1,874,042	$	7,269,980	$	3,002,380	$	4,762,711	$	3,898,873	$	9,315,142	$	7,269,980

The following is a description of the principal activities from which we generate our revenue.

Security and Guarding Revenue

Helix provides armed and unarmed guards, monitoring of security alarms and cameras, as well as armed transportation services. The guards are charged out at an hourly rate, as are the monitoring services, with invoices typically sent to clients shortly after each month-end for the previous month, with revenue being recognized over time. The customer simultaneously receives and consumes benefits provided by the Helix performance. Transportation services are typically invoiced on a per-run basis, with revenue being recognized at a point in time once the service has been completed.

Systems Installation Revenue

Security systems, including Internet Protocol camera, intrusion alarm systems, perimeter alarm systems, and access controls are installed for clients. Installation jobs are estimated based on the cost of the equipment, the number of man hours expected to complete the work, supplies, travel, and any other ancillary costs. The installation is typically invoiced with 60% of the total price immediately after signing and the balance upon completion of the installation service. The timing of these contracts ~~are~~is short-term in nature and ~~are~~ less than 12 months in duration, and revenue is recognized over the term of the contracts, utilizing the cost-to-cost method.

Software

The Company generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector (government agencies) clients that are involved in cannabis related operations. The Company also generates revenue from on-going training, support and software customization services.

The private-sector software entails cultivation tracking, inventory management, point of sale and analytic reporting to assist businesses in meeting their compliance requirements and effectively managing their businesses. Customers within the private sector business are charged an initial one-time installation fee and the revenues associated with these services are recognized upon completion of installation and configuration at a point in time. After the installation and configuration of the software is completed, the customer is invoiced monthly and revenues associated with these services are recognized monthly over a period of time in which the customer continues to use the software and related services.

The public-sector software assists government agencies in efficient oversight of cannabis related business under their jurisdiction. Revenues associated with governmental contracts are longer-term in nature and recognized upon completion of certain milestones over a period of time or on a completed-contract basis at a point in time. The Company considers the contract to be complete when all significant costs have been incurred and the customer accepts the project. Costs incurred prior to the customer accepting the project are deferred and reflected on the condensed consolidated balance sheets as prepaid expenses and other current assets.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in accordance with ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Generally, the Company’s contracts include a single performance obligation that is separately identifiable, and therefore, distinct. Under ASC 606, the allocation of transaction price is not necessary if only one performance obligation is identified.

Significant Judgments

Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue, costs and satisfaction of performance obligation. The Company satisfies its performance obligations and subsequently recognizes revenue, over time, as security and installation services are performed. There were no changes to the significant judgments used by the Company to determine the timing of satisfaction of the performance obligations under ASC 606.

Costs to Obtain or Fulfill Contract

The Company’s costs to fulfill or obtain contracts with customers primarily consist of commissions and legal costs. The Company provides sales team members with commissions at 0-6%. Although sales commissions are incremental in nature and are only incurred when a contract is obtained, there is no up-front commission paid on the satisfactory obtainment of a contract, resulting in no sales commissions being capitalized at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The Company also incurs legal costs relating to the drafting and negotiating of contracts with select customers. Because legal costs are not incremental in nature and are incurred regardless of whether a contract is ultimately obtained, there were no legal costs capitalized as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The Company did not record amortization of costs incurred to obtain the contract or any impairment losses for the period ending June 30, ~~2019~~2020 and ~~2018.~~2019.

5.	Business Combinations

~~Security Grade Acquisition~~

On June 2, 2017 (the “Security Grade Closing Date”), the Company entered into a Membership Interest Purchase Agreement (the “Security Grade Acquisition Agreement”) in which the Company purchased all issued and outstanding units of Security Grade Protective Services, Ltd. (“Security Grade”), which consisted of 800,000 Class A Units and 200,000 Class B Units. On the Security Grade Closing Date, the Company delivered $800,000 in cash and 207,427 non-qualified stock options (the “Initial Stock Options”). Furthermore, provided that, within the first 60 days following the Security Grade Closing Date, no material customer identified in the Security Grade Acquisition Agreement terminates its contractual relationship with the Company and that all contracts with such material customers are in full force and effect without default or cancellation as of the 60th day following the Security Grade Closing Date, on the 61st day following the Security Grade Closing Date, the Company shall issue an additional $800,000 in cash and issue 207,427 additional stock options (the “Additional Stock Options”). In the event of termination, cancellation or default of any contract with one or more material customer identified in the Security Grade Acquisition Agreement within the first 60 days following the Security Grade Closing Date, the stock options received by the acquiree shall be reduced and/or forfeited to the extent necessary (pro rata based upon their ownership interest in the Company immediately preceding the closing) by a percentage equal to the revenue received by the Company from the terminating customer(s) in the 180 days immediately preceding such termination divided by the revenue received by the Company from all material customers identified in the Security Grade Acquisition Agreement in the 180 days immediately preceding such termination. The Company subsequently issued the 207,427 Additional Stock Options on August 1, 2017 as well as a second cash payment of $800,000 pursuant to the original terms of the Security Grade Acquisition Agreement.

In the first quarter of 2018, the Company notified the selling members of Security Grade of their intent to exercise their right of setoff noted in the Security Grade Acquisition Agreement after discovering misrepresentations made by one of the selling members of Security Grade. The Company has settled with all of the six selling members. As of June 30, 2019 and December 31, 2018, the Company has a liability pursuant to the Security Grade Acquisition Agreement of $0 and $101,667, respectively, payable following the closing.

~~The merger is being accounted for as a business combination in accordance with ASC 805. The Company’s allocation of the purchase price was calculated as follows:~~

Base Price – Cash $ 2,100,373
Base Price - Stock Options 916,643
Contingent Consideration - Stock Options 916,643
Total Purchase Price $ 3,933,659

Weighted
Average
Useful Life
Description Fair Value (in years)
Assets acquired:
Cash $ 14,137
Accounts receivable 53,792
Costs & earnings in excess of billings 96,898
Property, plant and equipment, net 27,775
Trademarks 25,000 10
Customer lists 3,154,578 5
Web address 5,000 5
Goodwill 664,329
Other assets 3,880
Total assets acquired $ 4,045,389
Liabilities assumed:
Billings in excess of costs $ 23,967
Loans payable 18,414
Credit card payable and other liabilities 69,349
Total liabilities assumed 111,730
Estimated fair value of net assets acquired $ 3,933,659

The Initial Stock Options are included as part of the purchase price. The Company determined the fair value of the contingent consideration to be $916,643 at June 2, 2017 and recorded it as a liability in its unaudited condensed consolidated balance sheet. The Company satisfied their contingent consideration liability during the third quarter of 2017. During the year ended December 31, 2018, the Company reached settlement agreements with all six selling members. As a result of these settlements, 79,486 options previously issued as part of the acquisition were cancelled (see Note 14).

~~BioTrackTHC Acquisition~~

On March 3, 2018, the Company and its wholly owned subsidiary, Merger Sub, entered into the Merger Agreement with BioTrackTHC and Terence J. Ferraro, as the representative of the BioTrackTHC shareholders, pursuant to which Merger Sub merged with and into BioTrackTHC. On the BioTrackTHC Closing Date, the Company closed the Merger. In connection with closing the Merger, the Company issued 38,184,985 unregistered shares of Company common stock to BioTrackTHC stockholders, of which 1,852,677 shares were held back to satisfy indemnification obligations in the Merger Agreement, if necessary. The Company also assumed the BioTrackTHC Stock Plan, pursuant to which options exercisable for 8,132,410 shares of Company common stock are outstanding so that the BioTrackTHC stockholders will own 48% of the Company on a fully diluted basis at closing.

~~The Merger is being accounted for as a business combination in accordance with ASC 805. The Company’s allocation of the purchase price was calculated as follows:~~

Base Price - Common Stock $ 44,905,542
Base Price - Stock Options 12,646,491
Total Purchase Price $ 57,552,033

Weighted
Average
Useful Life
Description Fair Value (in years)
Assets acquired:
Cash $ 448,697
Accounts receivable 128,427
Prepaid expenses 351,615
Property, plant and equipment, net 72,252
Goodwill 39,135,007
Customer list 8,304,449 5
Software 9,321,627 4.5
Tradename 466,081 4.5
Total assets acquired $ 58,228,155
Liabilities assumed:
Accounts payable $ 223,581
Other liabilities 452,541
Total liabilities assumed 676,122
Estimated fair value of net assets acquired $ 57,552,033

~~Engeni SA Acquisition~~

On the Engeni Closing Date, the Company and its wholly owned subsidiary, Engeni Merger Sub, entered into the Engeni Merger Agreement with Engeni US, Engeni SA, the members of Engeni US, and Scott Zienkewicz as the representative of the Engeni US members. Pursuant to the Engeni Merger Agreement, Engeni Merger Sub merged with and into Engeni US, with Engeni US surviving the merger as a wholly-owned subsidiary of the Company. On the Engeni Closing Date, in connection with closing the Engeni Merger Agreement, the Company issued 366,700 shares of Company common stock to Engeni US members. Furthermore, the Company may also issue Engeni US members 366,700 and 366,600 shares of Parent common stock upon the achievement of specific objectives. If applicable, the Company will pay Engeni US members the aggregate amount of $100,000, on a pro rata basis, if Engeni SA reaches financial breakeven on or before December 31, 2018, as determined by the Company’s Chief Financial Officer and Scott Zienkewicz.

The Engeni Merger is being accounted for as a business combination in accordance with ASC 805. The Company has determined fair values of the assets acquired and liabilities assumed in the Engeni Merger. These values are subject to change as we perform additional reviews of our assumptions utilized.

During the first quarter of 2019, it was determined Engeni SA did not reach financial breakeven and therefore the contingent consideration of $100,000 was deemed by the Company not to be payable and was reduced to zero. In accordance with ASC 805-30-35-1, the Company recognized the change in the fair value of contingent consideration subsequent to the acquisition date in general and administrative expenses. The Company’s allocation of the purchase price was calculated as follows:

As Adjusted
Base Price - Common Stock $ 388,702
Contingent Consideration - Common Stock 777,298
Contingent Consideration - Cash -
Total Purchase Price $ 1,166,000

Weighted
Average
Useful Life
Description Fair Value (in years)
Assets acquired:
Cash $ 5,609
Accounts receivable and other assets 30,479
Property, plant and equipment, net 57,830
Software 449,568 3.3
Goodwill 778,552
Total assets acquired $ 1,322,038
Liabilities assumed:
Accounts payable $ 56,038
Total liabilities assumed 56,038
Estimated fair value of net assets acquired $ 1,266,000

The Company determined the fair value of the contingent consideration to be $777,298 at August 3, 2018 and recorded it as a liability in its unaudited condensed consolidated balance sheets. On April 2, 2019, the Company satisfied their contingent consideration liability and issued 733,300 shares of the Company’s common stock to Engeni US members.

Tan’s International Security

On April 1, 2019, the Tan Security Closing Date, the Company entered into the Tan Security Acquisition Agreement. Pursuant to the Tan Security Acquisition Agreement, Helix purchased all membership interests and capital stock of Tan Security and collectively holds 100% of the interests of Tan Security. The purchase price of $100,000 in cash plus 250,000 shares of the Company’s restricted common stock will be paid to Rocky Tan as follows:

	●	250,000 shares of Helix Stock at ~~closing.~~closing

	●	$25,000 at closing

	●	$25,000 on the 4-month anniversary of the Tan Security Closing Date

	●	$25,000 on the 8-month anniversary of the Tan Security Closing Date

	●	$25,000 on the 12-month anniversary of the Tan Security Closing Date

The Tan Security Acquisition is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the Tan Security Acquisition. These values are subject to change as we perform additional reviews of our assumptions utilized.

The Company has made a provisional allocation of the purchase price of the Tan Security transaction to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the provisional purchase price allocations relating to the Tan Security Acquisition:

Base Price – Cash at closing	$	25,000
Base Price – Deferred cash payment (including $25,000 to be made on the 4,8 and 12-month anniversaries of closing)		75,000
Base Price – Common Stock		710,000
Total Purchase Price	$	810,000

Description	Fair Value
Assets acquired:
Cash	$	2,940
Accounts receivable		7,635
Goodwill		821,807
Total assets acquired	$	832,382
Liabilities assumed:
Accounts payable	$	12,526
Other liabilities		9,856
Total liabilities assumed		22,382
Estimated fair value of net assets acquired	$	810,000

Green Tree International, Inc.

On February 5, 2019, the Company and its wholly owned subsidiary, Merger Sub, entered into the Amercanex Merger Agreement with GTI and Steve Janjic, as the representative of the GTI shareholders, pursuant to which Merger Sub merged with and into GTI (the “Merger”).

Pursuant to the Amercanex Merger Agreement, at the effective time of the Merger (the “Effective Time”), the Company will issue to the GTI stockholders an amount of unregistered shares of the Company’s common stock equal to $15 million, based on the average closing price of the Company’s common stock over the forty-five (45) trading day period ending three (3) trading days prior to the Closing Date. If the Closing occurs and revenues of GTI in the second 12 month period following the Closing Date exceed $5 million and are less than or equal to $10 million, Parent shall issue to the Company Shareholders a number of unregistered Parent Shares (whether issued or reserved for issuance) equal to the quotient of (a) $5 million divided by (b) the Parent Share Price multiplied by the quotient of (c) the revenues of the Company in the second 12 month period following the Closing Date less $5 million divided by (d) $5 million.

To secure the indemnification obligations of the GTI shareholders to the Company under the Merger Agreement, 4,140,274 of the Company shares to be issued to the GTI shareholders will be held back and the Company will be entitled to retain such number of the holdback shares as necessary to satisfy those indemnification obligations. 50% of the holdback shares that remain after satisfaction of any indemnification obligations will be released 12 months after the closing date of the merger, and the remainder 24 months after the closing date of the merger. Additionally, if in the first 12 months following the closing GTI generates less than $1.5 million of revenues, 100% of the holdback shares shall be returned to the Company.

In connection with closing the Merger on September 10, 2019, the Company issued 16,765,727 unregistered shares of its common stock to GTI stockholders. In connection with the Merger, Steve Janjic joined the board of directors of the Company.

The Merger is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the GTI merger. These values are subject to change as we perform additional reviews of our assumptions utilized.

The Company has made a provisional allocation of the purchase price of the GTI transaction to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the provisional purchase price allocations relating to the GTI transaction:

Base Price - Common Stock		$	12,909,611
Total Purchase Price		$	12,909,611

Description	Fair Value		Weighted Average Useful Life (Years)
Assets acquired:
Note Receivable, net	$	135,000
Property, Plant and Equipment, Net		12,142
Software		452,002		4.5
Goodwill		12,980,840
Total assets acquired	$	13,579,984

Liabilities assumed:
Accounts Payable		43,717
Notes Payable		400,000
Other Liabilities		226,656
Total liabilities assumed:		670,373
Estimated fair value of net assets acquired:	$	12,909,611

The Company has not completed the ~~assessment~~valuation studies necessary to finalize the acquisition fair values of the assets acquired and liabilities assumed and related allocation of purchase price for ~~Tan Security.~~GTI. Accordingly, the type and value of the intangible assets amounts set forth above are preliminary. Once the valuation process is finalized for ~~Tan Security,~~GTI, there could be changes to the reported values of the assets acquired and liabilities assumed, including goodwill and intangible assets and those changes could differ materially from what is presented above.

6.	Property and Equipment, Net

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, property and equipment consisted of the following:

	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Furniture and equipment	$	139,782		$	264,659		$	240,984		$	262,167
Software equipment		352,505			-			983,698			561,964
Vehicles		201,066			202,700			202,175			201,066
Total		693,353			467,359			1,426,857			1,025,197
Less: Accumulated depreciation		(147,535	)		(117,841	)		(240,634	)		(219,518	)
Property and equipment, net	$	545,818		$	349,518		$	1,186,223		$	805,679

Depreciation expense for the three months ended June 30, 2020 and 2019 was $25,206 and ~~2018 was~~ $29,509, ~~and $32,893,~~ respectively, and ~~$47,222~~$54,978 and ~~$35,893~~$47,222 for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

7.	Intangible Assets, Net and Goodwill

The following table summarizes the Company’s intangible assets as of June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

				June 30, 2019							Estimated	Gross		June 30, 2020 (1)
	Estimated Useful Life (Years)	Gross Carrying Amount		Assets Acquired		Accumulated Amortization			Net Book Value		Useful Life (Years)	Carrying Amount		Assets Acquired		Accumulated Amortization			Net Book Value
Database	5	$	93,427	$	-	$	(60,119	)	$	33,308	5	$	93,427	$	-	$	(78,845	)	$	14,582
Trade names and trademarks	5 - 10		591,081		-		(149,063	)		442,018	5 - 10		591,081		-		(265,563	)		325,518
Web addresses	5		130,000		-		(82,511	)		47,489	5		130,000		-		(108,568	)		21,432
Customer list	5		11,459,027		-		(3,101,382	)		8,357,645	5		8,304,449		-		(3,459,272	)		4,845,177
Software	4.5		9,771,195		-		(2,356,189	)		7,415,006	4.5		10,224,822		-		(4,646,129	)		5,578,693
Domain Name	5		-		17,383		(143	)		17,240	5		20,231		-		(4,052	)		16,179
		$	22,044,730	$	17,383	$	(5,749,407	)	$	16,312,706		$	19,364,010	$	-	$	(8,562,429	)	$	10,801,581

				December 31, 2018										December 31, 2019
	Estimated Useful Life (Years)	Gross Carrying Amount at December 31, 2017		Assets Acquired Pursuant to Business Combination (1) (2)		Accumulated Amortization			Net Book Value		Estimated Useful Life (Years)	Gross Carrying Amount at December 31, 2018		Assets Acquired Pursuant to Business Combination (2)		Accumulated Amortization			Net Book Value
Database	5	$	93,427	$	-	$	(50,858	)	$	42,569	5	$	93,427	$	-	$	(69,533	)	$	23,894
Trade names and trademarks	5 - 10		125,000		466,081		(91,554	)		499,527	5 - 10		591,081		-		(207,525	)		383,556
Web addresses	5		130,000		-		(69,625	)		60,375	5		130,000		-		(95,611	)		34,389
Customer list	5		3,154,578		8,304,449		(1,965,520	)		9,493,507	5		11,459,027		-		(4,256,070	)		7,202,957
Software	4.5		-		9,771,195		(1,263,095	)		8,508,100	4.5		9,771,195		453,627		(3,492,525	)		6,732,297
Domain Name											5		-		20,231		(2,037	)		18,194
		$	3,503,005	$	18,541,725	$	(3,440,652	)	$	18,604,078		$	22,044,730	$	473,858	$	(8,123,301	)	$	14,395,287

	(1)	The Company wrote off the remaining unamortized balance of $1,369,978 related to the customer list intangible asset from the Security Grade Protective Services transaction as of March 31, 2020.
	(2)	On ~~June 1, 2018,~~September 10, 2019 the Company acquired various assets of ~~BioTrackTHC (See~~GTI (see Note 5)
~~(2)~~	~~On August 3, 2018, the Company acquired various assets of Engeni (See Note 5)~~.

The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets. Amortization expense related to the purchased intangible assets was ~~$1,160,827~~$1,030,909 and ~~$476,003~~$1,160,827 for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$2,308,755~~$2,223,729 and ~~$645,579~~$2,308,755 for the six months ended June 30, 2020 and 2019, ~~and 2018,~~ respectively.

The following table summarizes the Company’s Goodwill as of June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

Total Goodwill
Balance at December 31, 2017 $ 664,329
Impairment of goodwill (664,329 )
Goodwill attributable to BiotrackTHC acquisition 39,135,007
Goodwill attributable to Engeni acquisition 778,552
Balance at December 31, 2018 $ 39,913,559
Goodwill attributable to Tan Security acquisition 821,807
Balance at June 30, 2019 $ 40,735,366

During the period ended March 31, 2018, the Company came to a settlement agreement with multiple Security Grade employees resulting from a misrepresentation of revenue and customer list information provided as part of the acquisition. Therefore, the Company considers the settlement to be an indicator for goodwill impairment testing. Accordingly, at March 31, 2018, goodwill was tested for potential impairment. As a result of the goodwill impairment test performed, it was determined that the carrying value for each reporting unit was higher than its fair value and therefore goodwill was fully impaired, which resulted in a write-off of $664,329 for the three months ended March 31, 2018.

	Total Goodwill
Balance at December 31, 2018	$	39,913,559
Goodwill attributable to Tan Security acquisition		821,807
Goodwill attributable to Green Tree acquisition		12,980,840
Balance at December 31, 2019	$	53,716,206

Balance at June 30, 2020	$	53,716,206

8.	Costs, Estimated Earnings and Billings

Costs, estimated earnings and billings on uncompleted contracts are summarized as follows as of June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Costs incurred on uncompleted contracts	$	140,289		$	89,700		$	468,124		$	444,344
Estimated earnings		49,366			50,512			166,208			150,355
Cost and estimated earnings earned on uncompleted contracts		189,655			140,212			634,332			594,699
Billings to date		304,500			252,535			424,696			501,543
Billings in excess of costs on uncompleted contracts		(114,845	)		(112,323	)		209,636			93,156

Costs in excess of billings	$	12,017		$	42,869		$	278,178		$	257,819
Billings in excess of cost		(126,862	)		(155,192	)		(68,542	)		(164,663	)
	$	(114,845	)	$	(112,323	)	$	209,636		$	93,156

9.	Accounts Payable and Accrued Liabilities

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, accounts payable and accrued liabilities consisted of the following:

June 30,
2019 December 31,
2018
Accounts payable $ 857,610 $ 842,389
Accrued compensation and related expenses 56,332 33,869
Accrued expenses 1,138,368 826,455
Lease obligation - current 410,826 -
Total $ 2,463,136 $ 1,702,713

	June 30, 2020		December 31, 2019
Accounts payable	$	466,175	$	895,785
Accrued compensation and related expenses		445,886		260,280
Accrued expenses		2,028,847		1,733,371
Lease obligation - current		293,673		373,710
Total	$	3,234,581	$	3,263,146

On May 5, 2020, under the Payroll Protection Program, Tan Security received a forgivable loan of $83,950, which is included in Accrued expenses. The loan was provided by the Small Business Administration to help support employees of companies, as financial aid, in order to sustain businesses during the mandatory COVID-19 lockdown.

10.	Convertible ~~Note~~Notes Payable, net of discount

June 30,
2019 December 31,
2018
Note Five, 5% interest, convertible promissory note, fixed secured, maturing November 16, 2019 $ - $ 187,177
Note Ten, 25% interest, convertible promissory note, fixed secured, maturing March 1, 2020, net of debt discount for warrants 423,700 -
423,700 187,177
Less: Current portion (423,700 ) (187,177 )
Long-term portion $ - $ -

On February 13, 2017, the Company entered into a $183,333 10% Fixed Secured Convertible Promissory Note (“Note Five”) with an investor (the “First Investor”). The First Investor provided the Company with $166,666 in cash, which was received by the Company during the period ended March 31, 2017. The additional $16,666 was retained by the First Investor for due diligence and legal bills for the transaction.

The Company evaluated the embedded conversion feature within the above convertible note under ASC 815 and determined the conversion feature did not meet the definition of a derivative and therefore should not be bifurcated. Then the Company evaluated the conversion feature for a beneficial conversion feature at inception. The Company accounted for the intrinsic value of a Beneficial Conversion Feature inherent to the convertible note payable and a total debt discount of $183,333 was recorded.

The Company recorded a debt discount relating to the warrants issued in the amount of $22,000 based on the relative fair values of Note Five without the warrants and the warrants themselves at the effective date of Note Five. The additional $16,666 retained by the First Investor for due diligence and legal bills for the transaction will be recorded as a debt discount. The calculated value of the beneficial conversion feature and the combined value of the debt discount resulted in a value greater than the value of the debt and as such, the total discount was limited to the value of the debt balance of $183,333. Therefore, the debt discount related to the beneficial conversion feature was in the amount of $144,666.

On November 16, 2017, the Company amended Note Five (the “First Amendment”) with the First Investor. The First Amendment has a maturity date that is six months from November 16, 2017, converts at a 40% discount to the lowest one-day Volume Average Weighted Price (“VWAP”) during the 30 trading days preceding such conversion, incurs interest at an annual rate of 5%, and is prepayable at any time at 110% of the unpaid principal and accrued interest balance. At November 16, 2017, the principal amount of Note Five was $281,900.

On May 16, 2018, the Company amended Note Five (“Second Amendment”) with the First Investor. The Second Amendment states that Note Five shall have a maturity of November 16, 2018 and shall be pre-payable at any time at 120% of the unpaid principal and accrued interest balance. The principal amount as of the date of the Second Amendment was $112,305.

In November 2018, the Company amended Note Five (“Third Amendment”) with a second investor. The Third Amendment states that Note Five shall have a maturity of November 16, 2019. The principal amount as of the date of the Third Amendment was $115,136. During March 2019, the remaining principal of $112,305 was converted into 155,421 shares of common stock. The interest expense associated with Note Five was $0 and $5,839 for the three months ended June 30, 2019 and 2018, respectively, and $0 and $7,878 for the six months ended June 30, 2019 and 2018, respectively.

	June 30, 2020			December 31, 2019
Note Ten, 25% convertible promissory note, fixed secured, maturing March 1, 2020, net of debt discount for warrants		-			143,630
Note Eleven, 10% convertible promissory note, fixed secured, maturing May 15, 2020, net of debt discount for warrants and legal fees		-			185,313
Note Twelve, 10% convertible promissory note, fixed secured, maturing June 16, 2020, net of debt discount for warrants and legal fees		86,832			205,363
Note Thirteen, 10% convertible promissory note, fixed secured, maturing July 11, 2020, net of debt discount for warrants and legal fees		485,050			206,091
Note Fourteen, 12% convertible promissory note, fixed secured, maturing September 26, 2020, net of debt discount for warrants and legal fees		222,506			92,095
Note Fifteen, 12% convertible promissory note, fixed secured, maturing November 15, 2021		385,000			385,000
		1,179,388			1,217,492
Less: Current portion		(794,388	)		(832,492	)
Long-term portion	$	385,000		$	385,000

On March 1, 2019, the Company entered into a $450,000 Secured Convertible Promissory Note (“Note Ten”) with ~~a third investor.~~an independent investor (the “investor”). The ~~third~~ investor provided the Company with $450,000 in cash proceeds, which was received by the Company during the period ended June 30, 2019. Note Ten will mature on March 1, 2020 and bear interest at a rate of 25% per annum, payable by the Company half in cash and half in kind on a quarterly basis. The principal balance of Note Ten is convertible at the election of the ~~third~~ investor, in whole or in part, at any time or from time to time, into the Company’s common stock at the lower of $0.90 per share or a 30% discount to the Company’s 30-day weighted average listed price per share immediately before the date of conversion. In conjunction with Note Ten, the Company issued a warrant to the ~~third~~ investor to purchase 160,715 shares of the Company’s common stock at $1.40 per share.

The Company evaluated Note Ten in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Ten will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. During 2019, the investor elected their option to partially convert $280,000 in principal of Note Ten into 875,894 shares of the Company’s common stock. As of ~~June 30,~~December 31, 2019, the fair value of Note Ten was ~~$661,581.~~$202,125. Accordingly, the Company recorded a change in fair value of ~~($845,622) and $211,581~~$32,125 related to Note Ten for the year ended December 31, 2019. During the three ~~and six~~ months ended March 31, 2020 the investor converted the remaining $170,000 in principal of Note ten into 564,420 shares of the Company’s common stock. As of June 30, ~~2019, respectively.~~2020, Note Ten had been fully repaid via the conversion into shares of the Company’s common stock.

In addition, the company recorded a debt discount relating to the warrants issued in the amount of $355,847 based on the ~~residual~~relative fair value of the warrants ~~themselves~~ at inception of Note Ten. Debt discounts amortized to interest expense ~~were $88,718 and $117,966~~was $297,352 for the ~~three and six months~~year ended ~~June 30, 2019, respectively.~~December 31, 2019. The unamortized discount balance at ~~June 30,~~December 31, 2019 was ~~$237,881. On~~$58,495. In May, ~~31,~~September, and December 2019, the Company issued 15,625, 16,568 and 19,401 restricted shares of common stock as paid-in-kind (“PIK”) interest payments in the amount of ~~$14,062.~~$14,062, $14,063, and $12,029, respectively. Accrued interest expense associated with Note Ten was ~~$9,247~~$3,542 as of ~~June 30,~~December 31, 2019, which includes PIK interest payable.

~~11.~~

~~Related Party Transactions~~

~~Advances from Related Parties~~

~~The Company had a loan outstanding from a former Company executive. The loan balance~~ Debt discount amortized to interest expense was ~~$0 and $45,250 as of~~$58,496 for the six months ended June 30, ~~2019 and December 31, 2018, respectively.~~

~~Convertible Note Payable~~2020.

On ~~March 11, 2016,~~August 15, 2019, the Company entered into ~~an Unsecured~~a $400,000 Fixed Convertible Promissory Note (“Note ~~Eight”~~Eleven”) with ~~Paul Hodges, a Director of~~ the ~~Company (the “Related Party Holder”).~~investor. The ~~Related Party Holder~~investor provided the Company with ~~$150,000~~$380,000 in cash ~~and~~proceeds, which was received by the Company ~~promised to pay~~during the ~~principal amount, together with~~period ended September 30, 2019. The additional $20,000 was retained by the investor for due diligence and legal bills for the transaction and recorded as a debt discount. Note Eleven will mature on May 15, 2020 and bear interest at ~~an annual~~a rate of ~~7%, with principal and accrued interest on Note Eight due and~~10% per annum, payable ~~on December 31, 2017 (unless converted under terms and provisions as set forth below).~~by the Company in cash. The principal balance of Note ~~Eight was~~Eleven is convertible at the election of the ~~Related Party Holder,~~investor, in whole or in part, at any time or from time to time, into the Company’s common stock at ~~a forty percent (40%) discount~~$0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the ~~average market closing price for~~date on which the ~~previous five (5) trading days, preceding~~investor elects to convert all or part of Note Eleven. In conjunction with Note Eleven, the ~~date~~Company issued a warrant to the investor to purchase 25,000 shares of ~~conversion election.~~ the Company’s common stock at $1.00 per share.

The Company evaluated Note ~~Eight~~Eleven in accordance with ASC 480,Distinguishing Liabilities from Equity and determined ~~that~~ Note ~~Eight~~Eleven will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings.

~~On February 20, 2018, the Company entered into an agreement to amend Note Eight (the “Amendment”) with the Related Party Holder. The Company and Holder desired to extend the maturity date~~ As of ~~Note Eight to August 20, 2018 (the “Maturity Date”). Note Eight was amended as follows. The Company promises to pay (i) all accrued interest on the unpaid principal amount through~~ December 31, 2017 and (ii) $25,000 in principal within 5 business days of the date of the Amendment. The Company agrees to issue 15,000 shares of restricted Company common stock as an inducement for the Amendment within 10 business days of the date of the Amendment. The principal amount of Note Eight will be reduced to $125,000. Unless extended by the Company, converted or prepaid earlier, all unpaid principal and unpaid accrued interest on Note Eight shall be due and payable on the Maturity Date. All provisions related to conversion of Note Eight into equity securities of the Company were terminated as part of the Amendment.

~~As of February 20, 2018,~~2019, the fair value of ~~the liability~~Note Eleven was ~~$239,343, however due to termination of the conversion of the note into equity securities, Note Eight will be valued in its principal amount of $125,000 and accordingly~~$204,444. Accordingly, the Company recorded a ~~credit regarding the~~ change in fair value of $0$195,556 related to Note Eleven for the year ended December 31, 2019. During the three months ended March 31, 2020, the investor elected their option to partially convert $120,000 in principal of Note Eleven into 1,084,186 shares of the Company’s common stock. During the three months ended June 30, 2020, the investor elected their option to convert the remaining $280,000 in principal of Note Eleven into 3,336,225 shares of the Company’s common stock.

In addition, the company recorded a debt discount of $38,543 relating to the warrants issued in the amount of $18,543 based on the relative fair value of the warrants themselves at inception of Note Eleven and $20,000 relating to legal fees. Debt discounts amortized to interest expense were $19,412 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 ~~and 2018, respectively, and $0 and $118,506~~was $19,131. Accrued interest expense associated with Note Eleven was $17,460 as of December 31, 2019. Debt discounts amortized to interest expense were $19,131 for the six months ended June 30, ~~2019 and 2018, respectively. The~~2020 fully amortizing the remaining debt discount. Accrued interest expense associated with Note ~~Eight~~Eleven was $0$48,000 as of June 30, 2020. See Subsequent Events (Note 20) for the ~~three~~Second Amendment to Note Eleven extending the maturity date to April 11, 2021 and changes to the interest due on the note.

On September 16, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Twelve”) with the investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Twelve will mature on June 16, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Twelve is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Twelve. In conjunction with Note Twelve, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share.

The Company evaluated Note Twelve in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Twelve will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Twelve was $230,000. Accordingly, the Company recorded a change in fair value of ($220,000) related to Note Twelve for the year ended December 31, 2019. During the six months ended June 30, ~~2019 and 2018, respectively, and $0 and $2,402~~2020, the investor elected their option to partially convert $350,110 in principal of Note Eleven into 3,925,000 shares of the Company’s common stock. As of June 30, 2020, the fair value of the remaining principal of Note Twelve was $86,832. Accordingly, the Company recorded a change in fair value of $241,797 related to Note Twelve for the six months ended June 30, ~~2019 and 2018, respectively. Note Eight was paid~~2020.

In addition, the company recorded a debt discount of $40,183 relating to the warrants issued in ~~full~~the amount of $17,683 based on the ~~Maturity Date.~~residual fair value of the warrants themselves at inception of Note Twelve and $22,500 relating to legal fees. Debt discounts amortized to interest expense were $15,545 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $24,638. Accrued interest expense associated with Note Twelve was $18,285 as of December 31, 2019. Debt discounts amortized to interest expense were $24,638 for the six months ended June 30, 2020. The unamortized discount balance at June 30, 2020 was $0. Accrued interest expense associated with Note Twelve was $54,000 as of June 30, 2020. See Subsequent Events (Note 20) for the Second Amendment to Note Twelve extending the maturity date to April 11, 2021 and changes to the interest due on the note.

On October 11, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Thirteen”) with the investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Thirteen will mature on July 11, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Thirteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Thirteen. In conjunction with Note Thirteen, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share.

The Company evaluated Note Thirteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Thirteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Thirteen was $230,000. Accordingly, the Company recorded a change in fair value of ($220,000) related to Note Thirteen for the year ended December 31, 2019. As of June 30, 2020, the fair value of Note Thirteen was $486,412. Accordingly, the Company recorded a change in fair value of $256,412 related to Note Thirteen for the six months ended June 30, 2020.

In addition, the company recorded a debt discount of $33,943 relating to the warrants issued in the amount of $11,443 based on the residual fair value of the warrants themselves at inception of Note Thirteen and $22,500 relating to legal fees. Debt discounts amortized to interest expense were $10,034 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $23,909. Accrued interest expense associated with Note Thirteen was $16,022 as of December 31, 2019. Debt discounts amortized to interest expense were $22,546 for the six months ended June 30, 2020. The unamortized discount balance at June 30, 2020 was $1,363. Accrued interest expense associated with Note Thirteen was $51,891 as of June 30, 2020. See Subsequent Events (Note 20) for the First Amendment to Note Thirteen extending the maturity date to June 26, 2021 and changes to the interest due on the note.

On December 26, 2019, the Company entered into a $210,526 Fixed Convertible Promissory Note (“Note Fourteen”) with the investor. The investor provided the Company with $200,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $10,526 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Fourteen will mature on September 26, 2020 and bear interest at a rate of 12% per annum, payable by the Company in cash. The principal balance of Note Fourteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Fourteen. In conjunction with Note Fourteen, the Company issued a warrant to the investor to purchase 12,500 shares of the Company’s common stock at $1.00 per share.

The Company evaluated Note Fourteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Fourteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Fourteen was $107,602. Accordingly, the Company recorded a change in fair value of $102,924 related to Note Fourteen for the year ended December 31, 2019. As of June 30, 2020, the fair value of Note Fourteen was $227,561. Accordingly, the Company recorded a change in fair value of $119,958 related to Note Fourteen for the six months ended June 30, 2020.

In addition, the company recorded a debt discount of $15,794 relating to the warrants issued in the amount of $5,268 based on the residual fair value of the warrants themselves at inception of Note Fourteen and $10,526 relating to legal fees. Debt discounts amortized to interest expense were $287 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $15,507. Accrued interest expense associated with Note Fourteen was $463 as of December 31, 2019. Debt discounts amortized to interest expense were $10,453 for the six months ended June 30, 2020. The unamortized discount balance at June 30, 2020 was $5,054. Accrued interest expense associated with Note Fourteen was $17,305 as of June 30, 2020. See Subsequent Events (Note 20) for the First Amendment to Note Fourteen extending the maturity date to June 26, 2021 and changes to the interest due on the note.

On November 15, 2019, the Company entered into a $5,000,000 Unsecured Convertible Promissory Note (“Note Fifteen”) with the investor. The investor provided the Company with $385,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. Note Fifteen will mature on November 15, 2021 and bear interest at a rate of 12% per annum, payable by the Company in cash. The principal balance of Note Fifteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Fifteen. As of June 30, 2020, and December 31, 2019, the balance of Note Fifteen was $385,000. Accrued interest expense associated with Note Fifteen was $16,966 and $5,239 as of June 30, 2020 and December 31, 2019, respectively.

11.	Related Party Transactions

On March 1, 2019, the Company entered into a $1,500,000 Secured Convertible Promissory Note (“Note Nine”) with ~~a related party entity~~Rose Capital Fund I, LP (the ~~Second~~ Related Party Holder”). A Managing Member of the ~~Second~~ Related Party Holder is also a Director of the Company. The ~~Second~~ Related Party Holder provided the Company with $1,475,000 in cash proceeds, which was received by the Company during the period ended ~~June~~September 30, 2019. The additional $25,000 was retained by the ~~fourth investor~~Related Party Holder for legal bills for the transaction. Note Nine will mature on March 1, 2020 and bear interest at a rate of 25% per annum, payable by the Company half in cash and half in kind on a quarterly basis. The principal balance of Note Nine is convertible at the election of the ~~fourth investor,~~Related Party Holder, in whole or in part, at any time or from time to time, into the Company’s common stock at the lower of $0.90 per share or a 30% discount to the Company’s 30-day weighted average listed price per share immediately before the date of conversion. In conjunction with Note Nine, the Company issued a warrant to the ~~fourth investor~~Related Party Holder to purchase 535,715 shares of the Company’s common stock at $1.40 per share.

The Company evaluated Note Nine in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Nine will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of June 30, ~~2019,~~2020, the fair value of Note Nine was ~~$2,205,270.~~$1,285,221. Accordingly, the Company recorded a change in fair value of ~~($2,818,739) and $705,270~~$498,233 related to Note Nine for the ~~three and~~ six months ended June 30, ~~2019,~~2020, respectively.

In addition, the company recorded a debt discount relating to the warrants issued in the amount of $1,186,153 based on the ~~residual~~relative fair value of the warrants at inception of Note Nine. The additional $25,000 retained by the fourth investor for legal bills for the transaction will be recorded as a debt discount. Debt ~~discounts~~discount amortized to interest expense ~~were $301,959 and $401,506~~was $199,094 for the ~~three and~~ six months ended June 30, ~~2019, respectively.~~2020. The unamortized discount balance at June 30, ~~2019~~2020 was ~~$809,647.~~$0. On May 31, 2019, the Company issued 52,083 restricted shares of common stock as PIK interest payments in the amount of $46,875. On February 24, 2020, the Company issued 167,891 restricted shares of common stock as PIK interest payments in the amount of $93,750. Accrued interest expense associated with Note Nine was ~~$30,822~~$29,795 as of June 30, ~~2019,~~2020, which includes PIK interest payable. ~~As of June 30, 2019, the balance of Note Nine, net of debt discount for warrants~~The Company and ~~legal bills was $1,395,623.~~

~~Warrants~~

~~In March 2016, the Company issued 960,000 shares of restricted common stock to~~ the Related Party Holder ~~per~~are negotiating a ~~subscription agreement for total proceeds~~potential extension of $150,000. In conjunction with the subscription agreement, the Company issued a warrant to the Related Party Holder to purchase 1,920,000 restricted shares of the Company’s common stock at $0.16 per share. The Warrant Exercise Date is the later of the following to occur (i) March 9, 2017, (ii) ten (10) days after the Company’s notice to the holder of the warrant that the Company shall have an effective S-1 registration with the SEC; or (iii) ten (10) days after Company’s notice to the holder of the warrants that the Company has entered into an agreement for the sale of substantially all the assets or Common Stock of the Company. As of June 30, 2019, the warrants granted are not exercisable. Note Nine.

Warrants

On March 1, 2019, in connection with the issuance of Note Nine, the Company issued warrants, of which the value was derived and based off the fair value of Note Nine, to the investor to purchase 535,715 shares of the Company’s common stock at $1.40 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after March 1, 2019 and on or before March 1, 2024, by delivery to the Company of the Notice of Exercise.

The Company determined that the warrants associated with Note Nine are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. ~~At inception, March 1,~~As of December 31, 2019, the fair value of the warrant liability was ~~$1,186,153~~$182,065 while as of June 30, ~~2019,~~2020, the fair value of the warrant liability was ~~$471,346.~~$138. Accordingly, the Company recorded a change in fair value of ~~$(857,730) and $(714,807)~~approximately $181,927 during the ~~three and~~ six months ended June 30, ~~2019, respectively,~~2020, which is reflected in the unaudited condensed consolidated statements of operations.

Promissory Note

On January 3, 2019, the Company entered into an unsecured promissory note with the Related Party Holder in the amount of $280,000. The unsecured promissory note has a fixed interest rate of 10% and is due and payable on March 31, 2019. On March 2, 2019, the unsecured promissory note was paid off in full.

On July 29, 2019, the Company entered into an unsecured promissory note with the Related Party Holder in the amount of $300,000. The unsecured promissory note has a fixed interest rate of 12% and is due and payable on January 29, 2020. The Company and the Related Party Holder mutually agreed to defer payment of interest and repayment of principal until July 29, 2020. On July 29, 2020, the Company repaid the $300,000 promissory note outstanding, along with $36,000 of interest payable associate with the promissory note (See Note 20).

12.	Notes Payable and Financing Arrangements

~~Notes~~As of June 30, 2020 and December 31, 2019 notes payable consisted of the following:

	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Vehicle financing loans payable, between 4.7% and 7.0% interest and maturing between June 2022 and July 2022	$	58,910		$	71,284		$	45,669		$	52,507
Loans Payable - Credit Union		6,127			5,075			4,332			5,385
Notes Payable and financing arrangements								686,429			400,000
Less: Current portion of loans payable		(24,805	)		(24,805	)		(310,406	)		(24,805	)
Long-term portion of loans payable	$	40,232		$	51,554		$	426,024		$	433,087

The interest expense associated with the notes payable was ~~$890~~$70,135 and ~~$720~~$890 for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$2,681~~$128,475 and ~~$1,420~~$2,681 for the six months ended June 30, 2020 and 2019, respectively.

In connection with the GTI Merger, the Company assumed a $400,000 Senior Secured Convertible Debenture (the “Convertible Debenture”) (See Note 5). The Convertible Debenture will mature on July 31, 2021 and ~~2018, respectively.~~bears interest at a rate of 10% per annum, payable by the Company to the Lender. In the event that Lender elects to convert the Convertible Debenture into Helix Common Stock or in the event Helix required the Lender to convert the Convertible Debenture into its Common Stock, the number of shares that shall be issuable upon full Conversion of the Convertible Debenture at any time shall be equal to the outstanding principal of the Convertible Debenture divided by $1.00. Pursuant to the terms of the Convertible Debenture, Helix Common Stock can be transferred to the Lender from Steve Janjic, as a shareholder of the Company who receives shares of Helix Common Stock at the Closing, instead of via a new issuance of shares of Helix Common Stock by Helix to Lender, and Lender agrees to accept such transfer of shares from Mr. Janjic as the issuance of Helix Common Stock.

In addition, the Company shall have the right to require the Lender to convert the Convertible Debenture into Helix Common Stock at any time provided its Common Stock is listed on a stock exchange other than the U.S. OTCQB, the Common Stock would be fully traded up on conversion and the trading price of its Common Stock closes above $1.15 for 20 consecutive trading days on such exchange. The Convertible Debenture will be secured by a general security interest over all of the assets of the GTI, however does not apply to those assets owned by Helix or Merger Sub prior to the closing of the Merger.

On February 7, 2020, the Company and its subsidiary Bio-Tech Medical Software Inc. entered into an agreement for the purchase and sale of future receipts with Advantage Capital Funding. $485,000 was actually funded to the Company with a promise to pay $15,000 per week for 8 weeks and $20,000 per week for the next 27 weeks until a total of $660,000 is paid. $286,429 of principal remained outstanding as of June 30, 2020.

13.	Shareholders’ Equity

Common Stock

~~Subscription Agreements~~

~~The table below reflects shares of restricted common stock issued in relation to subscription agreements during the period ended June 30, 2018:~~

Date of Sale Number
of Shares
Sold Total
Proceeds
February 2018 222,222 $ 200,000
March 2018 500,000 450,000
April 2018 500,000 450,000
May 2018 244,444 219,999
1,466,666 $ 1,319,999

Other Common Stock Issuances

In ~~June 2018,~~January 2020, the Company issued ~~38,184,985~~270,270 shares of common stock as part of ~~the BioTrackTHC acquisition.~~an investment unit purchase agreement.

~~On June 7, 2018, two selling shareholders of Security Grade exercised their right to purchase 212,633~~During the three months ended March 31, 2020, the Company issued 167,891 restricted shares of common stock as PIK interest payment in the ~~Company’s~~amount of $93,750 (see Note 10).

In May and June 2020, the Company issued 11,163,520 shares of common ~~stock.~~stock as part of subscription purchase agreements.

In May 2020 an option holder exercised 700,000 options and was issued 700,000 shares of common stock for total proceeds of $91,000.

During the six months ended June 30, 2020 the Company issued 503,800 restricted shares to employees and former employees and recorded stock-based compensation expense of $1,071,604.

In January 2019, the Company issued 20,000 shares of restricted common stock to a consultant per a consulting agreement and recorded shared based compensation expense of $27,400.

In March and June 2019, the Company issued 1,255,222 and 166,667 shares of common stock as part of investment unit purchase agreements (see Note 15).

In March and June 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 62,847 and 47,084 shares of common stock, respectively, for no cash proceeds.

In March and April 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 6,082 and 57,461 shares of common stock for total proceeds of $4,805 and $21,808, respectively.

In April 2019, the Company issued 250,000 shares of common stock as part of the Tan Security acquisition.

In April 2019, a selling shareholder of Security Grade exercised their right to purchase 15,101 shares of the Company’s common stock.

In April 2019, the Company issued 733,300 shares of common stock in satisfaction of the Engeni contingent consideration (see Note 5).

In May 2019, the Company issued 15,625 and 52,083 restricted shares of common stock as PIK interest payments in the amount of $14,062 and $46,875, respectively (see Notes 10 and 11).

Conversion of Convertible Note to Common Stock

~~On February 15, 2018, March 12, 2018~~During the six months ended June 30, 2020, the holders of Note Ten, Note Eleven and ~~March 21, 2018, the holder of a 10% fixed secured convertible promissory note issued by the Company~~Note Twelve elected ~~its option~~ to ~~partially~~ convert ~~$50,000, $50,000~~$170,000, $400,000 and ~~$75,000~~$350,110 in principal of the respective convertible ~~note~~notes into ~~46,066, 63,963,~~564,420, 4,420,411 and ~~95,945~~3,925,000 shares of the Company’s common ~~stock.~~stock, respectively (See Note 10).

On March 7, 2019 and March 28, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $75,882 and $42,055 in principal of the convertible note into 100,000 and 55,421 shares of the Company’s common ~~stock.~~stock, respectively.

~~2017 Omnibus Incentive Plan~~

~~The table below reflects shares issued under the 2017 Omnibus Incentive Plan during the period ended June 30, 2019:~~

Date of Issuance Number
of Shares
Issued Total Share
Based
Compensation
March 2019 250,000 $ 320,000
250,000 $ 320,000

~~The table below reflects shares issued under the 2017 Omnibus Incentive Plan during the period ended June 30, 2018:~~

Date of Issuance Number
of Shares
Issued Total Share
Based
Compensation
January 2018 42,850 $ 173,014
March 2018 100,000 250,000
May 2018 133,900 223,774
276,750 $ 646,788

Series A convertible preferred stock

In October 2015, the Company issued a total of 1,000,000 shares of its Class A Preferred Stock as part of a reorganization in which Helix Opportunities LLC contributed 100% of itself and its wholly-owned subsidiaries, Security Consultants Group, LLC and Boss Security Solutions, Inc. to the Company in exchange for 1,000,000 convertible preferred shares of the Company.Stock. The Class A Preferred Stock included super majority voting rights and were convertible into 60% of the Company’s common stock. During the third quarter of 2017, the Company modified the conversion rate on the Class A Preferred Stock to a 1:1 ratio. This modification reduced the amount of potentially dilutive Convertible Series A Stock by 15,746,127 shares to a total of 1,000,000 at September 30, 2017.

As a result of the Company’s financing at $.11 per share during May and June 2020 the number of shares of common stock the Series A Preferred Stock is convertible into increased from 1,000,000 to 1,045,970.

Series B convertible preferred stock

Series B Preferred Stock Purchase Agreement

On May 17, 2017, the Company sold to accredited investors an aggregate of 5,781,426 Series B Preferred Shares for gross proceeds of $1,875,000 and converted a $500,000 Unsecured Convertible Promissory Note into 1,536,658 Series B Preferred Shares. This tranche of Series B Preferred Shares are convertible into 7,318,084 shares of common stock based on the current conversion price, at a purchase price of $0.325 per share. ~~Net proceeds were approximately $1,772,500 after legal and placement agent fees listed below and the satisfaction of the promissory notes discussed in Note 11.~~

In connection with the Series B Preferred Stock Purchase Agreement, the Company is obligated to issue warrants to a third-party for services to purchase 462,195 shares of common stock at $0.325 per ~~share (see Note 18).~~share. These warrants have been accounted for as an obligation to issue because as of the balance sheet date the Company did not deliver the warrants though incurred the obligation; accordingly, they were recognized as a liability on the unaudited condensed consolidated balance sheet and cost of issuance of Series B preferred shares on the unaudited condensed consolidated statement of shareholders’ equity.

The table below reflects the shares issued under the Series B Preferred Purchase Agreement of the initial tranche, Second Series B Purchase Agreement and the various issuances under the Third Series B Purchase Agreement during the year-ended December 31, 2017:

Date of Sale Number of
Shares
Sold Total
Proceeds
Initial
May 2017 7,318,084 $ 1,875,000
Second
July 2017 1,680,000 840,000
Third
August 2017 369,756 120,000
September 2017 462,195 150,000
October 2017 462,195 150,000
October 2017 1,042,337 557,500
December 2017 2,449,634 795,000
Ending Balance 13,784,201 $ 4,487,500

In accordance with the Certificate of Incorporation, there were 9,000,000 authorized Series B Preferred Stock at a par value of $ 0.001. In connection with the Series B Preferred Stock Purchase Agreement, on May 12, 2017, the Company filed a Certificate of Designation (the “Certificate of Designations”) with the Secretary of State of the State of Delaware to designate the preferences, rights and limitations of the Series B Preferred Shares. On August 23, 2017 the Certificate of Designations was amended and restated to increase the number of shares of Series B Preferred Stock authorized to be 17,000,000.

Conversion:

Each Series B Preferred Share is convertible at the option of the holder into such number of shares of the Company’s common stock equal to the number of Series B Preferred Shares to be converted, multiplied by the Preferred Conversation Rate. The Preferred Conversion Rate shall be the quotient obtained by dividing the Preferred Stock ~~Original~~Adjusted Issue Price ($~~0.3253815)~~0.3110812) by the Preferred Stock Conversation Price in effect at the time of the conversion (the initial conversion price will be equal to the Preferred Stock Original Issue Price, subject to adjustment in the event of stock splits, stock dividends, and fundamental transactions). Based on the current conversion price, the Series B Preferred Shares are convertible into ~~13,784,201~~14,417,856 shares of common stock. A fundamental transaction means: (i) our merger or consolidation with or into another entity, (ii) any sale of all or substantially all of our assets in one transaction or a series of related transactions, (iii) any reclassification of our Common Stock or any compulsory share exchange by which Common Stock is effectively converted into or exchanged for other securities, cash or property; or (iv) sale of shares below the preferred stock conversion price. Each Series B Preferred Share will automatically convert into common stock upon the earlier of (i) notice by the Company to the holders that the Company has elected to convert all outstanding Series B Preferred Shares at any time on or after May 12, 2018; or (ii) immediately prior to the closing of a firmly underwritten initial public offering (involving the listing of the Company’s Common Stock on an Approved Stock Exchange) pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of the Common Stock for the account of the Company in which the net cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least fifty million dollars ($50,000,000).

~~Beneficial Conversion Feature – Series B Preferred Stock (deemed dividend):~~

~~Each~~As a result of the Company’s financing at $.11 per share during May and June 2020 the number of shares of common stock the Series B Preferred Stock is convertible into shares of common stock, at any time at the option of the holder at any time on or after May 12, 2018. On May 17, 2017, the date of issuances of the Series B, the publicly traded common stock price was $3.98.increased from 13,784,201 to 14,417,856.

Based on the guidance in ASC 470-20-20, the Company determined that a beneficial conversion feature exists, as the effective conversion price for the Series B preferred shares at issuance was less than the fair value of the common stock into which the preferred shares are convertible. A beneficial conversion feature based on the intrinsic value at the date of issuances for the Series B preferred shares is scheduled below. For the three and six months ended June 30, 2018, the beneficial conversion amount of $14,998,505 and $22,202,194, respectively was accreted back to the preferred stock as a deemed dividend and charged to additional paid in capital in the absence of earning as the beneficial conversion feature is amortized over time through the earliest conversion date, May 12, 2018. Provided below is a schedule of the issuances of Series B preferred shares and the amount accredited to deemed dividend at June 30, 2018. As of June 30, 2019 and 2018, the beneficial conversion feature was fully amortized.

For the Six Months Ended June 30, 2018
Issuance Date Beneficial
Conversion
Feature
Term
(months) Number of
shares Fair
Value of
Beneficial
Conversion
Feature Amount
accreted as a
deemed
dividend at
December 31,
2017 Amount
accreted as
a deemed
dividend for
the Six
Months
Ended June 30,
2018 Unamortized
Beneficial
Conversion
Feature
May 17, 2017 12 7,318,084 $ 25,247,098 $ (15,779,436 ) $ (9,467,661 ) $ -
July 29, 2017 9.5 1,680,000 6,804,000 (3,674,634 ) (3,129,366 ) -
August 29, 2017 8.5 369,756 1,148,263 (556,190 ) (592,073 ) -
September 15, 2017 8 462,195 1,435,329 (648,601 ) (786,728 ) -
October 11, 2017 7 462,195 1,121,036 (426,309 ) (694,727 ) -
October 31, 2017 6.5 1,042,337 1,735,641 (548,570 ) (1,187,071 ) -
December 19, 2017 5 2,449,634 6,921,348 (576,780 ) (6,344,568 ) -
Total 13,784,201 $ 44,412,715 $ (22,210,520 ) $ (22,202,194 ) $ -

Dividends, Voting Rights and Liquidity Value:

Pursuant to the Certificate of Designations, the Series B Preferred Shares shall bear no dividends, except that if the Board shall declare a dividend payable upon the then-outstanding shares of the Company’s common stock. The Series B Preferred Shares vote together with the common stock and all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company including, but not limited to, actions amending the certificate of incorporation of the Company to increase the number of authorized shares of the common stock. Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series B Preferred Shares are entitled to (i) first receive distributions out of our assets in an amount per share equal to the Stated Value plus all accrued and unpaid dividends, whether capital or surplus before any distributions shall be made on any shares of common stock and (ii) second, on an as-converted basis alongside the common stock.

Classification:

These Series B Preferred Shares are classified within permanent equity on the Company’s consolidated balance sheet as they do not meet the criteria that would require presentation outside of permanent equity under ASC 480,Distinguishing Liabilities from Equity.

14.	Stock Options

On ~~March 15, 2018~~February 21, 2020 the Company awarded ~~Zachary Venegas~~the Chief Financial Officer, an option to purchase a total of 200,000 shares of the Company’s common stock at a price of $0.385 per share. These options vested immediately upon grant and expire on February 21, 2025.

On March 31, 2020 the Company awarded an employee (who is also a board member), two options to purchase a total of ~~490,000~~800,000 shares of the Company’s common stock at a price of $0.115 per share. Out of the 800,000 total, 100,000 options vested immediately upon grant, 100,000 vest on 8/15/2020 and the remaining 600,000 vest based on achievement of certain milestones through December 31 2020. As of June 30, 2020, none of the milestone performance awards had vested. These options expire on March 31, 2025.

During the three months ended March 31, 2020 the Company awarded certain consultants options to purchase 165,000 shares of the Company’s common stock at prices ranging from ~~$1.90~~$0.20 to ~~$2.09~~$0.46 per share. These options vested ~~on June 28, 2018~~immediately and ~~have expiration dates ranging~~expire three years from ~~March 2023 to March 2028.~~issuance.

~~As part of the Membership Interest Purchase Agreement entered into between~~On April 1, 2020 the Company ~~and Security Grade, on June 2, 2017 (see Note 5), the Company granted to the selling Members the~~awarded a consultant an option to purchase ~~up to 414,854~~a total of 65,000 shares of the Company’s common stock at a price of ~~$0.001~~$0.115 per share. OfThe options vested immediately upon grant and expire 4/1/2023.

In May 2020 the ~~414,854 options granted, 207,427 were vested at closing and equity classified. The vesting~~Company awarded a consultant an option to purchase 700,000 shares of the ~~remaining 207,427 shares were subject to certain milestones being achieved and was initially recognized as contingent consideration, both~~Company’s common stock at a ~~component~~price of ~~purchase price. As a result of the milestones being met during the third quarter of 2017, the remaining 207,427 shares have also vested.~~$.13 per share. The options ~~have an expiration date of 36 months from the closing date. The exercise price will be based on the fair market value of the share on the date of~~vested immediately and were fully exercised shortly after grant.

On ~~March 6, 2018,~~June 8, 2020 the Company ~~filed~~awarded certain employees an option to purchase a ~~lawsuit in the United States Court for the District~~total of ~~Colorado alleging violations in previously disclosed representations and warranties by the plaintiff as part~~200,000 shares of the ~~Acquisition. Following the appointment of~~Company’s common stock at a registered Public Company Accounting Oversight Board (“PCAOB”) auditor, certain misrepresentations, primarily surrounding the misclassification of certain revenues as being recurring, were discovered, artificially inflating the price of $0.23 per share. 50% of these options vest on 12/8/2020 and 50% vest on 6/8/2020 and all expire June 8, 2025.

On June 19, 2020 the ~~membership interest in Security Grade. As~~Company awarded the Chief Executive Officer, an option to purchase a total of 500,000 shares of the Company’s common stock at a price of $0.167 per share. These options vest over a three-year period from June 19, 2021 to June 19, 2023 and expire June 19, 2025.

On February 29, 2020, the former President of the Company’s BioTrackTHC subsidiary forfeited 1,430,306 BioTrackTHC Management Awards and 204,364 Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan stock options as a result of ~~certain settlements with~~his termination (See Note 16).

During the ~~selling shareholder,~~three months ended March 31, 2020, 75,000 employee options grants were forfeited as ~~of June 30, 2018, 70,151 options previously issued as part of~~they had not yet vested prior to the ~~acquisition were cancelled. Subsequently, as of December 31, 2018,~~employees’ separation from the ~~remaining settlements with the selling shareholders were settled and a total of 79,486 options previously issued as part of the acquisition were cancelled.~~Company.

On February 6, 2019 the Company awarded an executive an option to purchase a total of 100,000 shares of the Company’s common stock at an exercise price $1.51 per share. These options vested on May 6, 2019 and have an expiration date of February 6, 2024.

On March 19, 2019 the Company awarded the Chief Financial Officer, two options to purchase a total of 300,000 shares of the Company’s common stock at prices ranging from $2.35 to $2.59 per share. These options shall vest over a three-year period from March 2020 to March 2022 and have expiration dates ranging from March 2024 to March 2029.

On March 19, 2019 the Company awarded the Chief Executive Officer, two options to purchase a total of 500,000 shares of the Company’s common stock at prices ranging from $2.35 to $2.59 per share. These options shall vest over a three-year period from March 2020 to March 2022 and have expiration dates ranging from March 2024 to March 2029.

On May 2, 2019, the Company awarded an investor an option to purchase a total of 125,000 shares of the Company’s common stock at an exercise price of $2.03 per share. 62,500 of the options shall vest immediately and 62,500 of the options shall vest on August 2, 2019 provided the marketing agreement between the Company and grantee has not been terminated. These options shall expire on May 1, 2024.

In May and June 2019, the Company awarded five employees, an option to purchase a total of 50,000, 40,000, 50,000, 50,000, and 30,000 shares of the Company’s common stock at prices ranging from $1.05 to $2.03 per share. These options shall vest over a period ranging from September 2019 to June 2020 and have expiration dates ranging from May 2024 to June 2024.

Stock option activity for the period ended June 30, ~~2019~~2020 is as follows:

	Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Outstanding at January 1, 2019		8,730,956		$	0.671		2.44
Outstanding at January 1, 2020									11,617,381		$	0.807		3.21
Granted		1,245,000		$	2.106		7.06		2,630,000		$	0.169		4.12
Exercised		(188,575	)	$	0.261		1.08		(700,000	)	$	0.13		3.00
Forfeited and expired									(1,803,115	)	$	0.702		0.42
Outstanding at June 30, 2019		9,787,381		$	0.862		2.98
Vested options at June 30, 2019		8,900,021		$	0.749		2.13
Outstanding at June 30, 2020									11,744,266		$	0.721		3.76
Vested options at June 30, 2020									8,780,932		$	0.726		1.90

15.	Warrant Liability

On March 1, 2019, in connection with the issuance of Note Ten, the Company issued warrants, of which the value was derived and based off the fair value of Note Ten, to the investor to purchase 160,715 shares of the Company’s common stock at $1.40 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after March 1, 2019 and on or before March 1, 2024, by delivery to the Company of the Notice of Exercise.

The Company determined that the warrants associated with Note Ten are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At ~~inception, March 1,~~December 31, 2019, the fair value of the warrant liability was ~~$355,847~~$54,620 while as of June 30, ~~2019,~~2020, the fair value of the warrant liability was ~~$141,404.~~$42,479. Accordingly, the Company recorded a change in fair value of the warrant liability of ~~$(257,320) and $(214,443)~~$(12,141) related to Note Ten for the ~~three and~~ six months ended June 30, ~~2019, respectively.~~2020.

On January 10, 2019, the Company entered into an Investment Unit Purchase Agreement (the “First Investment Agreement”) to issue and sell investment units to an investor, in which the investment units consist of one share of the common stock of the Company, and a warrant exercisable for one half share of common stock of the Company at an Exercise Price of $1.25 per share for cash at a price per investment unit of $0.90.

On March 5, 2019, the Company sold an aggregate of 1,255,222 units of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $1,129,700. In connection with the First Investment Agreement, the investor is entitled to purchase from the Company, at the Exercise Price, at any time on or after 90 days from the issuance date, 627,611 shares of the Company’s common stock (the “March Warrant Shares”).

The fair value of the March Warrant Shares at issuance on January 10, 2019 is in excess of the proceeds received, the warrant liability is required to be recorded at fair value with the excess of the fair value over the proceeds received recognized as a loss in earnings. The gross proceeds from the 1,255,222 investment units at $0.90 was $1,129,700. The fair value of the March Warrant Shares at issuance was $1,717,506. The amount to be recognized as a loss in earnings is calculated as follows:

Proceeds from January investment units	$	1,129,700
Par value of common stock issues	$	(1,255	)
Fair value of warrants	$	(1,717,506	)
Loss on issuance of warrants (January 10, 2019 issuance)	$	(589,061	)
Loss on issuance of warrants (March 11, 2019 issuance)	$	(198,148	)
Total loss on issuance of warrants	$	(787,209	)

As of June 30, ~~2019,~~2020, the fair value of the warrant liability was ~~$538,847~~$327 and the Company recorded a change in fair value of the warrant liability of ~~$(1,046,606) and $(1,178,659)~~$(193,426) for the ~~three and~~ six months ended June 30, ~~2019, respectively.~~2020.

On March 11, 2019, the Company issued warrants to an investment bank to purchase a total of 100,000 restricted shares of the Company’s common stock at a per share purchase price of $0.90. The warrants are exercisable at any time six months after the issuance date within three years of issuance.

The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the condensed consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the condensed consolidated statement of operations. At ~~inception, March 11,~~December 31, 2019, the fair value of the warrant liability was ~~$198,148~~$24,504 while as of June 30, ~~2019,~~2020, the fair value of the warrant liability was ~~$82,162.~~$63,523. Accordingly, the Company recorded a change in fair value of the warrant liability of ~~$(168,380) and $(115,986)~~$39,019 related to the warrants for the ~~three and~~ six months ended June 30, ~~2019, respectively.~~2020.

On June 14, 2019, the Company entered into another Investment Unit Purchase Agreement (the “Second Investment Agreement”) to issue and sell investment units to an investor (the “investor”), in which the investment units consist of one share of the common stock of the Company, and a warrant exercisable for one half share of common stock of the Company at an exercise price of $1.25 per share for cash at a price per investment unit of $0.90.

On June 24, 2019, the Company sold an aggregate of 166,667 units of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $150,000. In connection with the Second Investment Agreement, the investor is entitled to purchase from the Company, at the exercise price, at any time on or after 90 days from the issuance date, 83,333 shares of the Company’s common stock (the “June Warrant Shares”).

The gross proceeds from the 166,667 investment units at $0.90 was $150,000. The fair value of the June Warrant Shares at issuance was $83,586, ~~while~~at December 31, 2019 was $26,881, and as of June 30, ~~2019,~~2020, the fair value of the warrant liability was ~~$73,073.~~$6,552. Accordingly, the Company recorded a change in fair value of the warrant liability of ~~($10,513)~~$(20,329) related to the warrants for the ~~three and~~ six months ended June 30, ~~2019.~~2020.

On August 15, 2019, in connection with the issuance of Note Eleven, the Company issued warrants, of which the value was derived and based off the fair value of Note Eleven, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after August 15, 2019 and on or before August 15, 2024, by delivery to the Company of the Notice of Exercise.

The Company determined that the warrants associated with Note Eleven are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At December 31, 2019, the fair value of the warrant liability was $9,130 while as of June 30, 2020, the fair value of the warrant liability was $2,664. Accordingly, the Company recorded a change in fair value of the warrant liability of $(6,466) related to Note Eleven for the six months ended June 30, 2020.

On September 16, 2019, in connection with the issuance of Note Twelve, the Company issued warrants, of which the value was derived and based off the fair value of Note Twelve, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after September 16, 2019 and on or before September 16, 2024, by delivery to the Company of the Notice of Exercise.

The Company determined that the warrants associated with Note Twelve are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At December 31, 2019, the fair value of the warrant liability was $9,194 while as of June 30, 2020, the fair value of the warrant liability was $2,692. Accordingly, the Company recorded a change in fair value of the warrant liability of $(6,502) related to Note Twelve for the six months ended June 30, 2020.

On October 11, 2019, in connection with the issuance of Note Thirteen, the Company issued warrants, of which the value was derived and based off the fair value of Note Thirteen, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after October 11, 2019 and on or before October 11, 2024, by delivery to the Company of the Notice of Exercise.

The Company determined that the warrants associated with Note Thirteen are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At December 31, 2019, the fair value of the warrant liability was $9,236 while as of June 30, 2020, the fair value of the warrant liability was $2,710. Accordingly, the Company recorded a change in fair value of the warrant liability of $(6,526) related to Note Thirteen for the six months ended June 30, 2020.

On November 1, 2019, the Company issued warrants to an institution to purchase a total of 100,000 restricted shares of the Company’s common stock at a per share purchase price of $0.435. The warrants are exercisable at any time after the issuance date within five years of issuance.

The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the consolidated statement of operations. At December 31, 2019, the fair value of the warrant liability was $40,063. As of June 30, 2020, the fair value of the warrant liability was $11,880 and the Company recorded a change in fair value of the warrant liability of $(28,183) related to the warrants for the six months ended June 30, 2020.

On December 26, 2019, in connection with the issuance of Note Fourteen, the Company issued warrants, of which the value was derived and based off the fair value of Note Fourteen, to the investor to purchase 12,500 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after December 26, 2019 and on or before December 26, 2024, by delivery to the Company of the Notice of Exercise.

The Company determined that the warrants associated with Note Fourteen are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At December 31, 2019, the fair value of the warrant liability was $4,687 while as of June 30, 2020, the fair value of the warrant liability was $1,386. Accordingly, the Company recorded a change in fair value of the warrant liability of $(3,301) related to Note Fourteen for the six months ended June 30, 2020.

On January 28, 2020, the Company entered into a subscription agreement with an investor for the purchase of 270,270 shares of the Company’s common stock and 135,135 warrants to purchase shares of the Company’s common stock at $0.40 per share for total gross proceeds of $100,000.

The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the condensed consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the condensed consolidated statement of operations. At inception, January 28, 2020, the fair value of the warrant liability was $56,208 while as of June 30, 2020, the fair value of the warrant liability was $15,524. Accordingly, the Company recorded a change in fair value of the warrant liability of $(40,684) and related to the warrants for the six months ended June 30, 2020.

A summary of warrant activity is as follows:

For the Six Months Ended June 30, 2019
Warrant
Shares Weighted Average Exercise Price
Balance at January 1, 2019 3,418,184 $ 0.23

Warrants granted 1,507,374 $ 1.23

Balance at June 30, 2019 4,925,558 $ 0.55

For the Six Months Ended June 30, 2020
	Warrant Shares			Weighted Average Exercise Price
Balance at January 1, 2020		5,113,058		$	0.23

Warrants expired		(462,195	)	$	0.32

Warrants granted		335,135		$	0.16

Balance at June 30, 2020		4,985,998		$	0.52

The fair value of the Company’s warrant liability was calculated using the Black-Scholes model and the following assumptions:

	As of June 30, 2019			As of December 31, 2018			As of June 30, 2020			As of December 31, 2019
Fair value of company’s common stock	$	1.06		$	0.90		$	0.143		$	0.60
Dividend yield		0	%		0	%		0	%		0	%
Expected volatility		135% - 140%			175.0	%		53% - 153%			45% - 140	%
Risk Free interest rate		1.72% - 2.56%			2.49	%		0.16% - 0.26%			1.55% - 1.79	%
Expected life (years)		3.19			1.65			2.89			2.83
Fair value of financial instruments - warrants	$	2,199,266		$	896,171		$	155,789		$	715,259

The change in fair value of the financial instruments – warrants is as follows:

	Amount			Amount
Balance as of January 1, 2019	$	896,171
Balance as of January 1, 2020				$	715,259

Fair value of warrants issued		3,541,240			56,208

Change in fair value of liability to issue warrants		(2,238,145	)		(615,678	)

Balance as of June 30, 2019	$	2,199,266
Balance as of June 30, 2020				$	155,789

	Amount			Amount
Balance as of April 1, 2019	$	5,986,781
Balance as of April 1, 2020				$	113,942

Fair value of warrants issued		83,586			-

Change in fair value of liability to issue warrants		(3,871,101	)		41,847

Balance as of June 30, 2019	$	2,199,266
Balance as of June 30, 2020				$	155,789

16.	Stock-Based Compensation

2017 Omnibus Incentive Plan

The Company’s 2017 Omnibus Incentive Plan (the “2017 Plan”) was adopted by our Board of Directors and a majority of our voting securities on October 17, 2017. On April 13, 2020 our Board of Directors approved an amendment to the 2017 Plan and a majority of our voting securityholders approved the amendment on April 22, 2020. The 2017 Plan permits the granting of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and dividend equivalent rights to eligible employees, directors and consultants. We grant options to purchase shares of common stock under the 2017 Plan at no less than the fair value of the underlying common stock as of the date of grant. Options granted under the Plan have a maximum term of ten years. Under the Plan, a total of ~~5,000,000~~11,000,000 shares of common stock are reserved for issuance, of which options to purchase ~~1,735,000~~4,465,000 and ~~490,000~~1,835,000 shares of common stock and ~~764,945~~1,268,745 and ~~514,945~~764,945 shares of common stock were granted as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan

On October 22, 2014, BioTrackTHC approved and adopted the BioTrackTHC Stock Plan. The BioTrackTHC Stock Plan set aside and reserved 600,000 shares of BioTrackTHC’s common stock for grant and issuance in accordance with its terms and conditions. Persons eligible to receive awards from the BioTrackTHC Stock Plan include employees (including officers and directors) of BioTrackTHC or its affiliates and consultants who provide significant services to BioTrackTHC or its affiliates (the “Grantees”). The BioTrackTHC Stock Plan permits BioTrackTHC to issue to Grantees qualified and/or non-qualified options to purchase BioTrackTHC’s common stock, restricted common stock, performance units, and performance shares. The term of each award under the BioTrackTHC Stock Plan shall be no more than ten years from the date of grant thereof. BioTrackTHC’s Board of Directors or a committee designated by the Board of Directors is responsible for administration of the BioTrackTHC Stock Plan and has the sole discretion to determine which Grantees will be granted awards and the terms and conditions of the awards granted. On February 29, 2020, the former Chief Executive Officer of the Company’s BioTrackTHC subsidiary forfeited 204,364 Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan stock options as a result of his termination (See Note 14).

BioTrackTHC Management Awards

On September 1, 2015 and November 1, 2015, BioTrackTHC’s Board approved individual employee option grants (the “Executive Grants”) for three executives (the “Executives”). Pursuant to the Executive Grants, the Executives were each granted stock options to purchase 146,507 shares (totaling 439,521 shares) of BioTrackTHC’s common stock (the “Option”) at an exercise price equal to approximately $7.67. The options vest as to 25% of the shares subject to the Options, one year after the date of grant and then in equal quarterly installments for the three years thereafter, subject to the Executive’s continued employment with BioTrackTHC (see ~~Notes 1 and 5)~~Note 1). On February 29, 2020, the former President of the Company’s BioTrackTHC subsidiary forfeited 1,430,306 BioTrackTHC Management Awards (See Note 14).

17.	Income Taxes

No provision for U.S. federal or state income taxes has been recorded as the Company has incurred net operating losses since inception. Significant components of the Company’s net deferred income tax assets for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 consist of income tax loss carryforwards. These amounts are available for carryforward for use in offsetting taxable income of future years through 2035. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry-forward period. Utilization of the net operating loss carry-forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. Due to the Company’s history of operating losses, these deferred tax assets arising from the future tax benefits are currently not likely to be realized and are thus reduced to zero by an offsetting valuation allowance. As a result, there is no provision for income taxes.

For the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company has a net operating loss carry forward of approximately ~~$15,098,000~~$19,278,000 and ~~$8,365,000,~~$15,098,000, respectively. Utilization of these net loss carry forwards is subject to the limitations of Internal Revenue Code Section 382. The Company applied a 100% valuation reserve against the deferred tax benefit as the realization of the benefit is not certain.

18.	Commitments and Contingencies

Under Topic 842, operating lease expense is generally recognized evenly on a straight-line basis. The Company has operating leases primarily consisting of facilities with remaining lease terms of one year to five years. The lease term represents the period up to the early termination date unless it is reasonably certain that the Company will not exercise the early termination option. Certain leases include rental payments that are adjusted periodically based on changes in consumer price and other indices.

Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company combines the lease and non-lease components in determining the lease liabilities and ROU assets.

Activity related to the Company’s leases was as follows:

	Six Months Ended June 30, 2019		Six Months Ended June 30, 2020
Operating lease expense	$	297,566	$	94,612
Cash paid for amounts included in the measurement of operating lease liabilities	$	150,696	$	100,681
ROU assets obtained in exchange for operating lease obligations	$	1,499,752	$	301,396

The Company’s lease agreements generally do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. The Company used the incremental borrowing rate on December 31, 2018 for all leases that commenced prior to that date.

ROU lease assets and lease liabilities for the Company’s operating leases were recorded in the condensed consolidated balance sheet as follows:

	As of June 30, 2019			As of June 30, 2020
Other assets	$	1,293,245		$	1,246,471

Accounts payable and accrued liabilities	$	410,826		$	293,671
Other long-term liabilities		962,716			1,000,948
Total lease liabilities	$	1,373,542		$	1,294,619

Weighted average remaining lease term (in years)		3.05			3.92
Weighted average discount rate		6.00	%		7.92	%

Future lease payments included in the measurement of lease liabilities on the condensed consolidated balance sheet as of June 30, ~~2019,~~2020, for the following five fiscal years and thereafter were as follows:

	As of June 30, 2019			As of June 30, 2020
2019 - Remaining		238,684
2020		393,413
2020 – Remaining					174,774
2021		248,223			337,346
2022		195,144			307,280
2023		200,944			287,578
2024					294,185
Thereafter		205,434			106,075
Total future minimum lease payments	$	1,481,842		$	1,507,238
Less imputed interest		(108,300	)		(212,619	)
Total	$	1,373,542		$	1,294,619

As of June 30, ~~2019,~~2020, the Company had additional operating lease obligations for a lease with a future effective date of approximately $600,000. This operating lease will commence during the first quarter of fiscal 2022 with a lease term of three years.

As of December 31, 2018, future minimum lease payments, as defined under the previous lease accounting guidance of ASC Topic 840, under noncancelable operating leases for the following five fiscal years and thereafter were as follows:

Operating
leases
2019 $ 473,495
2020 420,291
2021 275,223
2022 198,144
2023 199,144
Thereafter 205,135
Total lease payments $ 1,771,432

19.	Segment Results

FASB ASC 280-10-50 requires use of the “management approach” model for segment reporting. The management approach is based on the way a company’s management organized segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision–making group is composed of the Chief Executive Officer and the Chief Financial Officer. The Company operates in three segments, Security and guarding, Systems installation and Software.

Asset information by operating segment is not presented below since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s unaudited condensed consolidated financial statements.

The following represents selected information for the Company’s reportable segments:

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	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Security and guarding
Revenue	$	1,347,529		$	1,197,201		$	2,552,240		$	2,290,975		$	2,009,294		$	1,347,529		$	3,602,743		$	2,552,240
Cost of revenue		797,944			1,273,693			1,738,530			2,064,398			1,579,970			797,944			2,895,714			1,738,530
Gross margin		549,585			(76,492	)		813,710			226,577			429,324			549,585			707,029			813,710
Total operating expenses		1,903,371			2,455,685			3,637,078			5,152,876			1,155,687			1,903,371			4,463,811			3,637,078
Loss from operations		(1,353,786	)		(2,532,177	)		(2,823,368	)		(4,926,299	)		(726,363	)		(1,353,786	)		(3,756,782	)		(2,823,368	)
Total other income (expense)		7,265,540			735,239			(979,410	)		2,656,120			(2,012,689	)		7,265,540			(1,605,696	)		(979,410	)
Total net income (loss)	$	5,911,754		$	(1,796,938	)	$	(3,802,778	)	$	(2,270,179	)	$	(2,739,052	)	$	5,911,754		$	(5,362,478	)	$	(3,802,778	)

Adjusted EBITDA													$	(375,519	)	($	700,988	)	$	(1,102,353	)	$	(1,579,134	)
Systems installation
Revenue	$	174,067		$	100,699		$	202,608		$	135,263		$	140,959		$	174,067		$	315,905		$	202,608
Cost of revenue		337,852			-			499,610			-			136,398			337,852			264,099			499,610
Gross margin		(163,785	)		100,699			(297,002	)		135,263			4,561			(163,785	)		51,806			(297,002	)
Total operating expenses		154,822			-			187,453			-			88,919			154,822			269,007			187,453
Loss from operations		(318,607	)		100,699			(484,455	)		135,263			(84,358	)		(318,607	)		(217,201	)		(484,455	)
Total other income		513			-			433			-			(98	)		513			(283	)		433
Total net (loss) income	$	(318,094	)	$	100,699		$	(484,022	)	$	135,263		$	(84,456	)	$	(318,094	)	$	(217,484	)	$	(484,022	)

Adjusted EBITDA													$	(84,358	)	$	(317,365	)	$	(217,201	)	$	(483,483	)
Software
Revenue	$	2,377,277		$	576,142		$	4,515,132		$	576,142		$	2,612,458		$	2,377,277		$	5,396,494		$	4,515,132
Cost of revenue		860,903			286,694			1,683,778			286,694			669,300			860,903			1,492,534			1,683,778
Gross margin		1,516,374			289,448			2,831,354			289,448			1,943,158			1,516,374			3,903,960			2,831,354
Total operating expenses		2,309,704			421,566			4,585,917			421,566			2,177,744			2,309,704			4,391,311			4,585,917
Loss from operations		(793,330	)		(132,118	)		(1,754,563	)		(132,118	)		(234,586	)		(793,330	)		(487,351	)		(1,754,563	)
Total other income		11,978			9			11,970			9			(67,051	)		11,978			(124,056	)		11,970
Total net loss	$	(781,352	)	$	(132,109	)	$	(1,742,593	)	$	(132,109	)	$	(301,637	)	$	(781,352	)	$	(611,407	)	$	(1,742,593	)

Adjusted EBITDA													$	798,627		$	223,701		$	1,578,509		$	245,608

The chief operating decision making group uses net loss before interest, taxes and depreciation and amortization and adjusted for non-core or certain items that have a disproportionate impact on our results for a particular period (“Adjusted EBITDA”) as a non-GAAP measure to evaluate the Company’s operating performance. Adjusted EBITDA does not represent, and should not be considered an alternative to, net loss, loss from operations, or cash flow from operations as those terms are defined by GAAP, and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. From time to time, we may exclude from Adjusted EBITDA the impact of certain events, gains, losses or other charges that affect the period-to-period comparability of the Company’s operating performance. The Company believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our chief operating decision maker. Net loss is reconciled to Adjusted EBITDA as follows:

		For the Six Months Ended June 30						For the Three Months Ended June 30
		2020			2019			2020			2019
Net Loss		$	(6,191,369	)	$	(6,029,393	)	$	(3,125,145	)	$	4,812,308
Interest expense	��		676,090			690,282			172,248			514,081
Depreciation and amortization			2,278,707			2,355,977			1,056,115			1,190,336
Loss on impairment of intangible assets			1,369,978			-			-			-
Share based compensation expense			1,071,604			889,400			327,542			480,465
Change in fair value of convertible note			782,941			142,341			443,321			(845,622	)
Change in fair value of convertible note - related party			(498,233	)		705,270			-			(2,818,739	)
Change in fair value of warrant liability			(615,678	)		(2,238,145	)		41,847			(3,871,101	)
Change in fair value of contingent consideration			1,424,422			880,050			1,424,422			(256,650	)
Loss on issuance of warrants			(2,000	)		787,209			(2,000	)		-
Other income			(37,507	)		-			-			-
Adjusted EBITDA ⁽¹⁾		$	258,955		$	(1,817,009	)	$	338,351		$	(794,922	)

⁽¹⁾

See “Non-GAAP Financial Measures” within Part I, Item 2, Management’s Discussion and Analysis.

20.	Subsequent Events

On July 9, 2020, the Company entered into a First Amendment to 10% Fixed Convertible Promissory Note to the note dated December 26, 2019 (Note Fourteen). The amendment changed the conversion price to the lesser of $0.11 or 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the holder elects to convert all or part of the note and the maturity date was extended to June 26, 2021, with additional guaranteed interest accruing from the original maturity to the amended maturity date at 9%.

On July 9, 2020, the Company entered into a First Amendment to 10% Fixed Convertible Promissory Note to the note dated October 11, 2019 (Note Thirteen). The amendment changed the conversion price to the lesser of $0.11 or 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the holder elects to convert all or part of the note and the maturity date was extended to June 26, 2021, with additional guaranteed interest accruing from the original maturity to the amended maturity date at 9%.

On July 9, 2020, the Company entered into a Second Amendment to September 16, 2019 Fixed Convertible Promissory Note (Note Twelve). The amendment changed the conversion price to the lesser of $0.11 or 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the holder elects to convert all or part of the note and the maturity date was extended to April 11, 2021, with additional guaranteed interest accruing from the original maturity to the amended maturity date at 9%.

On July 9, 2020, the Company entered into a Second Amendment to August 15, 2019 Fixed Convertible Promissory Note (Note Eleven). The amendment changed the conversion price to the lesser of $0.11 or 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the holder elects to convert all or part of the note and the maturity date was extended to April 11, 2021, with additional guaranteed interest accruing from the original maturity to the amended maturity date at 9%.

On July 29, ~~2019,~~2020, the Company repaid the $300,000 promissory note outstanding, along with $36,000 of interest payable associate with the promissory note.

On July 31, 2020, the Company entered into an ~~unsecured promissory note~~Asset Purchase Agreement (the “Agreement”) with Invicta Security CA Corporation, a Delaware corporation (“Buyer”), Invicta Services LLC, a Delaware limited liability company (“Invicta”), Boss Security Solutions, Inc., a Colorado corporation (“Boss”), Security Consultants Group, LLC, a Colorado limited liability company (“SCG”), Tan’s International LLC, a California limited liability company (“Tan LLC”), and Tan’s International Security, Inc., a California corporation (“Tan Security”, collectively with Boss, SCG and Tan LLC, the “Sellers” or individually a “Seller”). Pursuant to the terms and conditions of the Agreement, the Sellers sold, assigned, transferred, and delivered to Buyer the Assets (as defined in the ~~amount~~Agreement) and Buyer paid aggregate consideration of ~~$300,000.~~$1,750,000 and assumed the Assumed Liabilities (as defined in the Agreement). The ~~unsecured promissory note has a fixed~~Assets included but were not limited to the right, title and interest ~~rate~~in and to all assets and property, tangible and intangible, of ~~12% per annum~~every kind and ~~is due~~description, used in, related to or necessary for the security guarding and ~~payable upon~~protective guarding services business conducted by the ~~maturity date~~Sellers. The Agreement contained certain customary representations and warranties made by the parties. The Sellers and Helix agreed to various customary covenants, including, among others, covenants regarding non-competition, the use and disclosure of ~~January 29, 2020.~~

~~In August 2019,~~confidential information, and the ~~Company paid $25,000 in cash as part~~non-solicitation of business relationships. As collateral for Sellers’ indemnification obligations, Buyer held back $600,000 of the ~~original purchase price of Tan Security~~consideration pursuant to ~~the original terms~~Section 2.3 of the ~~Tan Security Acquisition~~ Agreement.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion of our financial condition and results of operations for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as filed on ~~April 1, 2019~~March 30, 2020 with the SEC. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Unless expressly indicated or the context requires otherwise, the terms “Helix”, the “Company”, “we”, “us”, and “our” refer to Helix ~~TCS,~~Technologies, Inc.

Overview

Helix ~~TCS,~~Technologies, Inc. provides critical infrastructure solutions to the legal cannabis industry. Our mission is to provide clients with the best-in-class critical infrastructure services through a single integrated platform which enables them to run their businesses more safely, efficiently, and profitably. As we increase our platform’s scale and scope, clients will be able to realize greater cost savings and operating advantages.

Our team is composed of former military, ~~law enforcement,~~financial services, and technology professionals with deep experience in ~~security and law enforcement, intelligence,~~ technology design and development, ~~partner relations,~~strategic partnerships, data aggregation, venture capital, private equity, risk-management, security and law enforcement, intelligence, banking, and finance.

Technology is a cornerstone of Helix’s service offering. Our technology platform allows clients to manage their business in a compliant manner with BioTrackTHC’s seed-to-sale software, as well as managing inventory and supply costs through Cannabase. We also provide bespoke monitoring and transport solutions. We focus on utilizing technology as an operations multiplier, bringing in and managing unique partnerships across the ~~tech~~technology and operations spectrum to tailor and ~~guarantee~~create desired outcomes for our clients.

Within the cannabis industry, no other activity carries as much potential for unforeseen negative impact as a lapse in compliance operations. Helix brings a broad range of compliance services to firms in the cannabis industry, safeguarding their ability to operate while increasing their access to services that offer them a competitive edge.

We have ~~greatly enhanced our core operations with~~largely completed the financial and operational integrations of the previous 24 months, namely the acquisitions of ~~Security Grade,~~ BioTrackTHC, Engeni, Tan Security and Tan Security. Security Grade is a market leader in the security profession and provides a broad range of services, from security consulting to installation of surveillance technology. Consistent with our team of professionals, Security Grade employs specialists with extensive experience and exposure to all areas of security related services.Amercanex. BioTrackTHC specializes in providing cannabis software services, ranging from monitoring of plant inventory to point-of-sale solutions. BioTrackTHC’s software is used by 9 government entities and more than 2,000 commercial client locations across 34 U.S. states and 6 countries. Engeni provides a turnkey and comprehensive digital presence solution for small businesses. The Engeni Growth solution includes an optimized web page, a ~~fully-paid~~fully paid Google pay-per-click campaign, lead capture, & lead delivery and ubiquitous directory/map listings. Engeni has also become the Company’s organic offshore software development platform, and ~~is currently working on~~has delivered the second generation of the BioTrackTHC software. These strategic acquisitions will help field the growing demand in the Legal Cannabis Industry. Tan Security, a licensed security company, provided the Company a platform with which to expand security operations in the state of California. Amercanex is a business to business wholesale marketplace that leverages blockchain technology and is capable of facilitating wholesale cannabis and hemp transactions between licensed businesses on a global scale. The Company has integrated Amercanex’s technology with BioTrackTHC’s software platforms. Integration of the previously announced acquisitions has already yielded the operational and financial results that the management team sought, evidenced by strongly improved cash flows from operations, growing market share, and a greatly accelerated software development time with increased market responsiveness. These integrations still have room to yield more financial and operational leverage, which will be welcome in the unprecedented operating environment that now confronts the industry. Further, the turnaround of the BioTrackTHC unit is well advanced, with strategic restructuring in operations and personnel nearly complete, having been initiated in 2019. The transition of BioTrackTHC from an operation with negative $800,000 of Adjusted EBITDA in 2018 (while still better than competitors) into an operation that generated nearly $800,000 in Adjusted EBITDA in Q1 2020 and Q2 2020 is a transformational success.

Today, the leadership team is focused on keeping our employees and clients as safe as possible as we continue to execute our strategy in the face of the emergence of the Covid-19 pandemic. As a former military officer with training in Nuclear, Biological, and Chemical operations, Helix’s CEO is focused on not only the Company’s strategic and operational results, but on the evolution of the pandemic threat to the business and our lives.

On March 11, 2020, the World Health Organization (“WHO”) recognized COVID-19 as a global pandemic, prompting many national, regional, and local governments, including in the markets that the Company operates in, to implement preventative or protective measures, such as travel and business restrictions, wide-sweeping quarantines and stay-at-home orders. As a result, COVID-19 has significantly curtailed global economic activity, including in the industries in which the Company operates.

The COVID-19 pandemic has created significant disruption and volatility in the capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future. If we need to raise additional capital to support operations in the future, we may be unable to access the capital markets.

In response to the health and safety risks and challenges presented by the COVID-19 pandemic, the Company has been proactively and regularly implementing measures to protect its employees. These measures include, but are not limited to, the following:

●

Abiding by national, state, and local recommendations to require the wearing of protective face masks and practicing of social distancing.

●

Adopting remote working protocols, systems, and processes.

While the Company is actively working to successfully navigate the financial, operational, and personnel challenges presented by the COVID-19 pandemic, the full extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain, out of our control and cannot be predicted at this time. We believe that the economic impacts of the pandemic are not well understood in terms of scope, scale and duration, and so we continue to focus on accelerating our execution timeline while using our technology and data resources to deliver greater reliability and profitability to our customers.

Results of Operations for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019

The following table shows our results of operations for the three months ended June 30, ~~2019~~2020 and ~~2018.~~2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

	For the Three Months Ended June 30,						Change						For the Three Months Ended June 30,						Change
	2019			2018			Dollars			Percentage			2020			2019			Dollars			Percentage
Revenue	$	3,898,873		$	1,874,042		$	2,024,831			108	%	$	4,762,711		$	3,898,873		$	863,838			22	%
Cost of revenue		1,996,699			1,560,387			436,312			28	%		2,385,668			1,996,699			388,969			19	%
Gross margin		1,902,174			313,655			1,588,519			506	%		2,377,043			1,902,174			474,869			25	%

Operating expenses		4,367,897			2,877,251			1,490,646			52	%		3,422,350			4,367,897			(945,547	)		-22	%

Loss from operations		(2,465,723	)		(2,563,596	)		97,873			-4	%		(1,045,307	)		(2,465,723	)		1,420,416			-58	%

Other income (expense), net		7,278,031			735,248			6,542,783			890	%		(2,079,838	)		7,278,031			(9,357,869	)		-129	%

Net income (loss)	$	4,812,308		$	(1,828,348	)	$	6,640,646			-363	%	$	(3,125,145	)	$	4,812,308		$	(7,937,453	)		-165	%

Changes in foreign currency translation adjustment	$	(590	)	$	-		$	(590	)		100	%	$	27,118		$	(590	)	$	27,708			-4,696	%

Convertible preferred stock beneficial conversion feature accreted as a deemed dividend		-			(7,203,689	)		7,203,689			-100	%

Net income (loss) attributable to common shareholders	$	4,811,718		$	(9,032,037	)	$	13,843,755			-153	%	$	(3,098,027	)	$	4,811,718		$	(7,909,745	)		-164	%

Revenue

Total revenue for the three-month period ended June 30, ~~2019~~2020 was ~~$3,898,873,~~$4,762,711, which represented an increase of ~~$2,024,831~~$863,838 compared to total revenue of ~~$1,874,042~~$3,898,873 for the three months ended June 30, ~~2018.~~2019. The increase primarily resulted from additional revenue resulting from ~~the BioTrackTHC acquisition~~continued growth in our software client based, and an increase in the number of clients serviced by our security operations.

Cost of Revenues

Cost of revenues for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 primarily consisted of hourly compensation for security personnel and employees involved in the creation and development of licensing software. Cost of revenues increased by ~~$436,312~~$388,969 for the three months ended June 30, ~~2019,~~2020, to ~~$1,996,699~~$2,385,668 as compared to ~~$1,560,387~~$1,996,699 for the three months ended June 30, ~~2018.~~2019. The increase ~~primarily~~ resulted entirely from the ~~acquisition of BioTrackTHC and a~~ substantial increase in the number of clients serviced by Helix security, which required the hiring of additional employees. Despite growing software revenues, our cost of revenues in that business unit declined year over year.

Operating Expenses

Our operating expenses encompass selling, general and administrative expenses, salaries and wages, professional and legal fees and depreciation. Selling, general and administrative expenses consist primarily of rent/moving expenses, advertising and travel expenses. Salaries and wages is composed of non-revenue generating employees. Professional services are principally comprised of outside legal, audit, information technology consulting, marketing and outsourcing services as well as the costs related to being a publicly traded company. Our operating expenses during the three months ended June 30, 2020 and 2019 were $3,422,350 and ~~2018 were~~ $4,367,897, ~~and $2,877,251,~~ respectively. The overall ~~$1,490,646 increase~~$945,547 decrease in operating expenses was attributable to intense cost management efforts, illustrated by the following increases/(decreases) in operating expenses of:

	●	Selling, general and administrative – ~~$642,492~~$(452,288)

	●	Salaries and wages – ~~$(1,113)~~$72,844

	●	Professional and legal fees – ~~$523,306~~$(431,882)

	●	Depreciation and amortization – ~~$325,961~~$(134,221)

The ~~$642,492 increase~~$452,288 decrease in selling, general and administrative expenses is a result of ~~increases~~decreases in rent expense, advertising and travel expenses resulting from ~~an expansion in our operations.~~cost containment measures. The ~~$1,113 decrease~~$72,844 increase in salaries and wages resulted from ~~a decrease~~an increase in stock compensation expense. The ~~$523,306 increase~~$431,221 decrease in professional and legal fees primarily resulted from ~~an increase~~a decrease in legal fees and costs associated with ~~fundraising.~~fundraising and acquisitions. The ~~$325,961 increase~~$134,221 decrease in depreciation and amortization was due to reduced amortization of intangible assets acquired in the ~~BioTrackTHC and Engeni acquisitions.~~Security Grade acquisition as we fully impaired certain intangible assets in the first quarter of 2020.

Other Income (Expense), net

Other income (expense), net consisted of a change in the fair value of convertible notes, change in the fair value of convertible notes – related party, change in fair value of warrant liability, change in fair value of contingent consideration, loss on issuance of warrants, gain on reduction of obligation pursuant to acquisition and interest (expense) income. Other income (expense), net during the ~~three~~six months ended June 30, 2020 and 2019 was $(1,730,035) and ~~2018 was $7,278,031 and $735,248,~~$(967,007), respectively. The ~~$6,542,783 increase~~$763,028 decrease in other income (expense), net was primarily attributable to a ~~gain~~loss on the change in fair value of convertible notes of ~~$845,622,~~$782,941 as compared with a loss of $142,341 in the prior period, and loss on conversion of convertible notes of $1,424,422, partially offset by gain on the change in fair value of convertible notes – related party of ~~$2,818,739,~~$498,233, gain on the change in fair value of warrant liability of ~~$3,871,101, partially offset by interest expense~~$615,678 as compared with a gain of ~~$514,081 during~~$2,238,145 in the ~~three months ended June 30, 2019.~~prior period, other income of $37,507, a loss on the change in fair value of warrant liability of 880,050 in the prior period, and a loss on issuance of warrants in the prior period of 787,209.

Net income (loss)

For the foregoing reasons, we had a net loss of $(3,125,145) for the three months ended June 30, 2020, or $(0.03) per basic share, compared to net income of $4,812,308 for the three months ended June 30, 2019, or $0.06 net income per basic ~~share, compared to a net loss of $1,828,348 for the three months ended June 30, 2018, or $0.04 net loss per common share – basic and diluted.~~

~~Convertible preferred stock beneficial conversion feature accreted as a deemed dividend~~

The convertible preferred stock beneficial conversion feature accreted as a deemed dividend resulted from the effective conversion price of the Series B preferred shares at issuance being less than the fair value of the common stock into which the preferred shares are convertible. The result was a non-cash charge in the amount of $0 for the three months ended June 30, 2019 compared to $7,203,689 for the three months ended June 30, 2018.share.

Net income (loss) Attributable to common shareholders

For the foregoing reasons, we had a net ~~gain~~loss attributable to common shareholders of $(3,098,027) for the three months ended June 30, 2020, or $(0.03) per basic share attributable to common shareholders, compared to net income attributable to common shareholders of $4,811,718 for the three months ended June 30, 2019, or ~~$.06~~$0.06 net income per basic share attributable to common shareholders, compared to net loss attributable to common shareholders of $9,032,037 for the three months ended June 30, 2018, or $0.21 net loss per share attributable to common shareholders – basic and diluted.

shareholders.

Results of Operations for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019

The following table shows our results of operations for the six months ended June 30, ~~2019~~2020 and ~~2018.~~2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

	For the Six Months Ended June 30,						Change						For the Six Months Ended June 30,						Change
	2019			2018			Dollars			Percentage			2020			2019			Dollars			Percentage
Revenue	$	7,269,980		$	3,002,380		$	4,267,600			142	%	$	9,315,142		$	7,269,980		$	2,045,162			28	%
Cost of revenue		3,921,918			2,351,092			1,570,826			67	%		4,652,347			3,921,918			730,429			19	%
Gross margin		3,348,062			651,288			2,696,774			414	%		4,662,795			3,348,062			1,314,733			39	%

Operating expenses		8,410,448			5,574,442			2,836,006			51	%		9,124,129			8,410,448			713,681			8	%

Loss from operations		(5,062,386	)		(4,923,154	)		(139,232	)		3	%		(4,461,334	)		(5,062,386	)		601,052			-12	%

Other income (expense), net		(967,007	)		2,656,129			(3,623,136	)		-136	%		(1,730,035	)		(967,007	)		(763,028	)		79	%

Net loss	$	(6,029,393	)	$	(2,267,025	)	$	(3,762,368	)		166	%	$	(6,191,369	)	$	(6,029,393	)	$	(161,976	)		3	%

Changes in foreign currency translation adjustment	$	3,657		$	-		$	3,657			100	%	$	48,195		$	3,657		$	44,538			1,218	%

Convertible preferred stock beneficial conversion feature accreted as a deemed dividend		-			(22,202,194	)		22,202,194			-100	%

Net loss attributable to common shareholders	$	(6,025,736	)	$	(24,469,219	)	$	18,443,483			-75	%	$	(6,143,174	)	$	(6,025,736	)	$	(117,438	)		2	%

Revenue

Total revenue for the six-month period ended June 30, ~~2019~~2020 was ~~$7,269,980,~~$9,315,142, which represented an increase of ~~$4,267,600~~$2,045,162 compared to total revenue of ~~$3,002,380~~$7,269,980 for the six months ended June 30, ~~2018.~~2019. The increase primarily resulted from additional revenue resulting from ~~the BioTrackTHC acquisition~~continued growth in our software client based, and an increase in the number of clients serviced by our security operations.

Cost of Revenues

Cost of revenues for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 primarily consisted of hourly compensation for security personnel and employees involved in the creation and development of licensing software. Cost of revenues increased by ~~$1,570,826~~$730,429 for the six months ended June 30, ~~2019,~~2020, to ~~$3,921,918~~$4,652,347 as compared to ~~$2,351,092~~$3,921,918 for the six months ended June 30, ~~2018.~~2019. The increase ~~primarily~~ resulted entirely from the ~~acquisition of BioTrackTHC and a~~ substantial increase in the number of clients serviced by Helix security, which required the hiring of additional employees. Despite growing software revenues, our cost of revenues in that business unit declined year over year.

Operating Expenses

Our operating expenses encompass selling, general and administrative expenses, salaries and wages, professional and legal fees and depreciation. Selling, general and administrative expenses consist primarily of rent/moving expenses, advertising and travel expenses. Salaries and wages is composed of non-revenue generating employees. Professional services are principally comprised of outside legal, audit, information technology consulting, marketing and outsourcing services as well as the costs related to being a publicly traded company. Our operating expenses during the six months ended June 30, 2020 and 2019 were $9,124,129 and ~~2018 were~~ $8,410,448, ~~and $5,574,442,~~ respectively. The overall ~~$2,836,006~~$713,681 increase in operating expenses was attributable to the following increases in operating expenses of:

	●	Selling, general and administrative – ~~$1,231,490~~$(485,435)

	●	Salaries and wages – ~~$384,144~~$552,328

	●	Professional and legal fees – ~~$592,002~~$(645,920)

	●	Depreciation and amortization – ~~$1,292,699~~$(77,270)

	●	Loss on impairment of intangible assets - $1,369,978

The ~~$1,231,490 increase~~$485,435 decrease in selling, general and administrative expenses is a result of ~~increases~~decreases in rent expense, advertising and travel ~~expenses resulting from an expansion in our operations.~~expenses. The ~~$384,144~~$552,328 increase in salaries and wages resulted from ~~a significant increase in headcount, including BioTrackTHC~~share-based compensation and ~~Engeni personnel.~~separation payments to terminated employees. The ~~$592,002 increase~~$645,920 decrease in professional and legal fees primarily resulted from ~~an increase~~a decrease in legal fees and costs associated with ~~fundraising.~~fundraising and acquisitions. The ~~$1,292,699~~$1,369,978 increase in ~~depreciation and amortization~~loss on impairment of intangible assets was due to ~~amortization~~the full impairment of ~~intangible assets acquired~~the Security Grade customer list in the ~~BioTrackTHC and Engeni acquisitions.~~first quarter of 2020.

Other Income (Expense), net

Other income (expense), net consisted of a change in the fair value of convertible notes, change in the fair value of convertible notes – related party, change in fair value of warrant liability, change in fair value of contingent consideration, loss on issuance of warrants, gain on reduction of obligation pursuant to acquisition and interest (expense) income. Other income (expense), net during the six months ended June 30, 2020 and 2019 was $(1,730,035) and ~~2018 was ($967,007) and $2,656,129,~~$(967,007), respectively. The ~~$3,623,136~~$763,028 decrease in other income (expense), net was primarily attributable to a loss on the change in fair value of convertible notes of $782,941 as compared with a loss of $142,341 in the prior period, and loss on conversion of convertible notes of $1,424,422, partially offset by gain on the change in fair value of convertible notes – related party of ~~$705,270, loss on the change in fair value of contingent consideration of $880,050, loss on issuance of warrants of $787,209, and interest expense of $690,282, partially offset by a~~$498,233, gain on the change in fair value of warrant liability of $615,678 as compared with a gain of $2,238,145 in the prior period, other income of $37,507, a loss on the change in fair value of warrant liability of 880.050 in the prior period, and a loss on issuance of warrants in the prior period of 787,209, during the six months ended June 30, ~~2019.~~2020.

Net income (loss)

For the foregoing reasons, we had a net loss of ~~$6,029,393~~$(6,191,369) for the six months ended June 30, ~~2019,~~2020, or ~~$0.08~~$(0.06) net loss per common share – basic and diluted, compared to a net loss of ~~$2,267,025~~$(6,029,393) for the six months ended June 30, ~~2018,~~2019, or ~~$0.06~~$(0.08) net loss per common share – basic and diluted.

~~Convertible preferred stock beneficial conversion feature accreted as a deemed dividend~~

The convertible preferred stock beneficial conversion feature accreted as a deemed dividend resulted from the effective conversion price of the Series B preferred shares at issuance being less than the fair value of the common stock into which the preferred shares are convertible. The result was a non-cash charge in the amount of $0 for the six months ended June 30, 2019 compared to $22,202,194 for the six months ended June 30, 2018.

Net income (loss) Attributable to common shareholders

For the foregoing reasons, we had a net loss attributable to common shareholders of ~~$6,025,736~~$(6,143,174) for the six months ended June 30, ~~2019,~~2020, or ~~$.08~~$(0.06) net loss per share attributable to common shareholders - basic and diluted, compared to net loss attributable to common shareholders of ~~$24,469,219~~$(6,025,736) for the six months ended June 30, ~~2018,~~2019, or ~~$0.68~~$(0.08) net loss per share attributable to common shareholders – basic and diluted.

4546

Liquidity, Capital Resources and Cash Flows

Going Concern

Management believes that we will continue to incur losses for the immediate future. Therefore, we may either need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern. Our condensed consolidated financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. For the six months ended June 30, ~~2019,~~2020, we have generated revenue and are trying to achieve positive cash flows from operations.

As of June 30, ~~2019,~~2020, we had a cash balance of ~~$800,015,~~$2,001,931, accounts receivable, net of ~~$1,640,996~~$1,350,513 and ~~$6,708,392~~$6,148,926 in current liabilities. At the current cash consumption rate, we may need to consider additional funding sources toward the end of fiscal ~~2019. We are taking~~2020. We’ve taken proactive measures to reduce operating expenses, drive growth in revenue and expeditiously resolve any remaining legal matters.

The successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operating results.

The condensed consolidated financial statements do not include any adjustments related to this uncertainty and as to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.

Capital Resources

The following table summarizes total current assets, liabilities and working capital for the periods indicated:

	June 30, 2019			December 31, 2018			Change			June 30, 2020			December 31, 2019			Change
Current assets	$	2,993,370		$	1,923,353		$	1,070,017		$	4,748,165		$	3,518,224		$	1,229,941
Current liabilities		6,708,392			4,157,005			2,551,387			6,148,926			6,934,725			(785,799	)
Working capital	$	(3,715,022	)	$	(2,233,652	)	$	(1,481,370	)	$	(1,400,761	)	$	(3,416,501	)	$	2,015,740

As of June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, we had a cash balance of ~~$800,015~~$2,001,931 and ~~$285,761,~~$652,524, respectively.

Summary of Cash Flows

	For the Six Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2020			2019

Net cash used in operating activities	$	(1,889,854	)	$	(1,623,613	)
Net cash provided by (used in) operating activities							$	83,653		$	(1,889,854	)
Net cash used in investing activities		(647,014	)		(94,871	)		(483,523	)		(647,014	)
Net cash provided by financing activities		3,099,741			1,294,457			1,697,524			3,099,741

Net cash used in operating activities.Net cash provided by operating activities for the six months ended June 30, 2020 was $83,653. This included a net loss of $6,191,369, non-cash charge related to depreciation and amortization of $2,278,707, non-cash charge related to amortization of debt discounts of $334,356, non-cash charge related to provision for doubtful account $326,165, non-cash charge related to share-based compensation of $1,071,604, non-cash losses (gains) due to changes in fair value of convertible notes, fair value of convertible notes – related party, fair value of warrant liability of $782,941, $(615,678), and $(498,233), loss on conversion of convertible note of 1,424,422, loss on impairment of intangible assets of $1,369,978, gain on reduction of contingent consideration of $(2,000), and changes in accounts receivable, deposits, costs in excess of billings, billings in excess of costs, deferred rent, accounts payable and accrued expenses, prepaid expenses, due from related party, and right of use assets and liabilities of $(197,240). Net cash used in operating activities for the six months ended June 30, 2019 was $(1,889,854). This included a net loss of $6,029,393, non-cash charge related to depreciation and amortization of $2,355,977, non-cash charge related to amortization of debt discounts of $519,472, non-cash charge from loss on issuance of warrants of $787,209, non-cash charge related to provision for doubtful account $104,288, non-cash charge related to share-based compensation of $889,400, non-cash losses (gains) due to changes in fair value of convertible notes, fair value of convertible notes – related party, fair value of warrant liability, fair value of contingent consideration of $142,341, $705,270, $(2,238,145) and $880,050, non-cash gains on reduction of contingent consideration of $100,000, and changes in accounts receivable, deposits, costs in excess of billings, billings in excess of costs, deferred rent, accounts payable and accrued expenses, prepaid expenses, due from related party, and right of use assets and liabilities of $93,677.

Net cash used in ~~operating~~investing activities. Net cash used in investing activities for the six months ended June 30, ~~2018~~2020 was ~~$(1,623,613). This included a net loss~~$483,523, which consisted of ~~$(2,267,025), non-cash charge related to depreciation and amortization~~capital expenditures of $1,063,278, non-cash charge related to share-based compensation of $1,619,753, non-cash gains due to changes in fair value of convertible notes, fair value of warrant obligations, and fair value of a related party note of $(522,646), $(1,297,840)$(435,523), and ~~$(118,506), respectively, non-cash charge from loss on impairment of goodwill of $664,329, non-cash gain on reduction of obligation~~payments pursuant to the Tan Security business acquisition of ~~$(557,054), and changes in accounts receivable, deposits, costs in excess of billings, billings in excess of costs, deferred rent, and accounts payable and accrued expenses of $(207,902)~~$(48,000).

~~Net cash used in investing activities.~~Net cash used in investing activities for the six months ended June 30, 2019 was $(647,014), which consisted of capital expenditures of $(505,904), purchase of domain names of $(17,383) and payments pursuant to the Tan Security business acquisition and Security Grade business acquisition of $(123,727).

Net cash ~~used in investing~~provided by financing activities. Net cash provided by financing activities for the six months ended June 30, ~~2018~~2020 was ~~$(94,871)~~$1,697,524, which resulted from repayment of notes payable of $(221,462), ~~which consisted~~proceeds from notes payable and financing arrangements of ~~capital expenditures~~$500,000, and proceeds from the issuance of ~~$(484,838), cash payment pursuant to the Revolutionary asset acquisition~~common stock of ~~$(58,730), and payments as part of the BioTrackTHC business combination, net of cash acquired in the amount of $448,697.~~

~~Net cash provided by financing activities.~~$1,418,987. Net cash provided by financing activities for the six months ended June 30, 2019 was $3,099,741, which resulted from issuance of a promissory note receivable of $(75,000), repayment of notes payable of $(11,322), proceeds and repayment of a promissory note of $(280,000), proceeds from the issuance of common stock of $1,306,313, proceeds from the issuance of convertible note payable of $1,925,000 and repayment of advances from related parties of $(45,250). Net cash provided by financing activities for the six months ended June 30, 2018 was $1,294,457, which resulted from proceeds from the issuance of common stock of $1,320,212, proceeds from notes payable of $33,745, and repayment of advances from related parties of $(59,500).

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are further discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC on ~~April 1, 2019.~~March 30, 2020.

Related Party Transactions

~~The Company had a loan outstanding from a former Company executive. The loan balance was $0 and $45,250 as of June 30, 2019 and December 31, 2018, respectively.~~

In March 2016, the Company issued 960,000 shares of restricted common stock to the Related Party Holder per a subscription agreement for total proceeds of $150,000. In conjunction with the subscription agreement, the Company issued a warrant to the Related Party Holder to purchase 1,920,000 restricted shares of the Company’s common stock at $0.16 per share. The Warrant Exercise Date is the later of the following to occur (i) March 9, 2017, (ii) ten (10) days after the Company’s notice to the holder of the warrant that the Company shall have an effective S-1 registration with the SEC; or (iii) ten (10) days after Company’s notice to the holder of the warrants that the Company has entered into an agreement for the sale of substantially all the assets or Common Stock of the Company. As of June 30, 2019, the warrants granted are not exercisable.

On March 11, 2016, the Company entered into an Unsecured Convertible Promissory Note (“Note Eight”) with Paul Hodges, a Director of the Company (the “Related Party Holder”). The Related Party Holder provided the Company with $150,000 in cash, and the Company promised to pay the principal amount, together with interest at an annual rate of 7%, with principal and accrued interest on Note Eight due and payable on December 31, 2017 (unless converted under terms and provisions as set forth below). The principal balance of Note Eight was convertible at the election of the Related Party Holder, in whole or in part, at any time or from time to time, into the Company’s common stock at a forty percent (40%) discount to the average market closing price for the previous five (5) trading days, preceding the date of conversion election. The Company evaluated Note Eight in accordance with ASC 480,~~Distinguishing Liabilities from Equity~~ ~~and determined that Note Eight will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings.~~

On February 20, 2018, the Company entered into an agreement to amend Note Eight (the “Amendment”) with the Related Party Holder. The Company and Holder desired to extend the maturity date of Note Eight to August 20, 2018 (the “Maturity Date”). Note Eight was amended as follows. The Company promises to pay (i) all accrued interest on the unpaid principal amount through December 31, 2017 and (ii) $25,000 in principal within 5 business days of the date of the Amendment. The Company agrees to issue 15,000 shares of restricted Company common stock as an inducement for the Amendment within 10 business days of the date of the Amendment. The principal amount of the Note Eight will be reduced to $125,000. Unless extended by the Company, converted or prepaid earlier, all unpaid principal and unpaid accrued interest on Note shall be due and payable on the Maturity Date. All provisions related to conversion of Note Eight into equity securities of the Company were terminated as part of the Amendment.

As of February 20, 2018, the fair value of the liability was $239,343, however due to termination of the conversion of the note into equity securities, Note Eight will be valued in its principal amount of $125,000 and accordingly the Company recorded a credit regarding the change in fair value of $0 for the three months ended June 30, 2019 and 2018, respectively, and $0 and $118,506 for the six months ended June 30, 2019 and 2018, respectively. The interest expense associated with Note Eight was $0 for the three months ended June 30, 2019 and 2018, respectively, and $0 and $2,402 for the six months ended June 30, 2019 and 2018, respectively. Note Eight was paid in full on the Maturity Date.

On March 1, 2019, ~~the Company~~we entered into a $1,500,000 Secured Convertible Promissory Note (“Note Nine”) with ~~a related party entity~~Rose Capital Fund I, LP (the ~~Second~~ Related Party Holder”). A Managing Member of the ~~Second~~ Related Party Holder is also ~~a Director of the Company.~~one our Directors. The ~~Second~~ Related Party Holder provided ~~the Company~~us with $1,475,000 in cash proceeds, which ~~was~~we received ~~by the Company~~ during the period ended ~~June~~September 30, 2019. The additional $25,000 was retained by the ~~fourth investor~~Related Party Holder for legal bills for the transaction. Note Nine will mature on March 1, 2020 and ~~bear~~bears interest at a rate of 25% per annum, payable by ~~the Company~~us half in cash and half in kind on a quarterly basis. The principal balance of Note Nine is convertible at the election of the ~~fourth investor,~~Related Party Holder, in whole or in part, at any time or from time to time, and at maturity based on the available cash balance of the Company, into ~~the Company’s~~our common stock at the lower of $0.90 per share or a 30% discount to ~~the Company’s~~our 30-day weighted average listed price per share immediately before the date of ~~conversion.~~conversion, or at the Maturity Date. The Company and the Related Party Holder are negotiating a potential extension of Note Nine. In conjunction with Note Nine, ~~the Company~~we issued a warrant to the ~~fourth investor~~Related Party Holder to purchase 535,715 shares of ~~the Company’s~~our common stock at $1.40 per share.

~~The Company~~We evaluated Note Nine in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Nine will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of June 30, ~~2019,~~2020, the fair value of Note Nine was ~~$2,205,270.~~$1,285,221. Accordingly, ~~the Company~~we recorded a change in fair value of ($~~2,818,739) and $705,270~~498,233) related to Note Nine for the ~~three and~~ six months ended June 30, ~~2019,~~2020, respectively.

In addition, ~~the company~~we recorded a debt discount relating to the warrants issued in the amount of $1,186,153 based on the ~~residual~~relative fair value of the warrants at inception of Note Nine. The additional $25,000 retained by the fourth investor for legal bills for the transaction will be recorded as a debt discount. Debt ~~discounts~~discount amortized to interest expense ~~were $301,959 and $401,506~~was $199,094 for the ~~three and~~ six months ended June 30, ~~2019, respectively.~~2020. The unamortized discount balance at June 30, ~~2019~~2020 was ~~$809,647.~~$0. On May 31, 2019, ~~the Company~~we issued 52,083 restricted shares of common stock as PIK interest payments in the amount of $46,875. On February 24, 2020, we issued 167,891 restricted shares of common stock as PIK interest payments in the amount of $93,750. Accrued interest expense associated with Note Nine was ~~$30,822~~$29,795 as of June 30, ~~2019,~~2020, which includes PIK interest payable. As of June 30, ~~2019,~~2020, the balance of Note Nine, net of debt discount for warrants and legal bills was ~~$1,395,623.~~$1,285,221.

On March 1, 2019, in connection with the issuance of Note Nine, ~~the Company~~we issued warrants, of which the value was derived and based off the fair value of Note Nine, to the investor to purchase 535,715 shares of ~~the Company’s~~our common stock at $1.40 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after March 1, 2019 and on or before March 1, 2024, by delivery to ~~the Company~~us of the Notice of Exercise.

~~The Company~~We determined that the warrants associated with Note Nine are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. ~~The Company has~~We have no plans to consummate a fundamental transaction and ~~does~~do not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, March 1, 2019, the fair value of the warrant liability was $1,186,153 while as of ~~June 30, 2019,~~March 31, 2020, the fair value of the warrant liability was ~~$471,346.~~$138. Accordingly, ~~the Company~~we recorded a change in fair value of ~~$(857,730) and $(714,807)~~approximately $181,927 during the ~~three and~~ six months ended June 30, ~~2019, respectively,~~2020, which is reflected in the unaudited condensed consolidated statements of operations.

On July 29, 2019, we entered into an unsecured promissory note with the Related Party Holder in the amount of $300,000. The unsecured promissory note has a fixed interest rate of 12% and is due and payable on January 29, 2020. We and the Related Party Holder mutually agreed to defer payment of interest and repayment of principal until July 29, 2020, at which time we repaid the note with all accrued interest.

Non-GAAP Financial Measures

Consolidated Adjusted EBITDA (“Adjusted EBITDA”) is a non-GAAP financial measure and is the primary basis used to measure the operational strength and performance of our businesses as well as to assist in the evaluation of underlying trends in our businesses. This measure eliminates the significant level of non-cash depreciation and amortization expense that results primarily from intangible assets recognized in business combinations and significant non-cash expense related to share based compensation. It is also unaffected by our capital and tax structures. Our management and Board of Directors use this financial measure to evaluate our consolidated operating performance and the operating performance of our operating segments and to allocate resources and capital to our operating segments. Additionally, we believe that Adjusted EBITDA is useful to investors because it is one of the bases for comparing our operating performance with that of other companies in our industries, although our measure of Adjusted EBITDA may not be directly comparable to similar measures used by other companies. We define Adjusted EBITDA as net loss before income tax expense, other income (loss), interest expense, depreciation and amortization expense, share based compensation expense, other operating gains and losses (such as impairment charges related to fixed and intangible assets and gains or losses on the sale of long-lived assets), if any, and other gains and losses associated with the mark to market of our convertible notes, contingent liabilities and warrant liabilities. From time to time, we may exclude from Adjusted EBITDA the impact of certain events, gains, losses or other charges that affect the period-to-period comparability of our operating performance. We reconcile consolidated Adjusted EBITDA to net loss. This measure should not be considered a substitute for operating loss, net loss, or net cash provided by operating activities that we have reported in accordance with GAAP.

	For the Six Months Ended June 30						For the Three Months Ended June 30
	2020			2019			2020			2019
Net Loss	$	(6,191,369	)	$	(6,029,393	)	$	(3,125,145	)	$	4,812,308
Interest expense		676,090			690,282			172,248			514,081
Depreciation and amortization		2,278,707			2,355,977			1,056,115			1,190,336
Loss on impairment of intangible assets		1,369,978			-			-			-
Share based compensation expense		1,071,604			889,400			327,542			480,465
Change in fair value of convertible note		782,941			142,341			443,321			(845,622	)
Change in fair value of convertible note - related party		(498,233	)		705,270			-			(2,818,739	)
Change in fair value of warrant liability		(615,678	)		(2,238,145	)		41,847			(3,871,101	)
Change in fair value of contingent consideration		1,424,422			880,050			1,424,422			(256,650	)
Loss on issuance of warrants		(2,000	)		787,209			(2,000	)		-
Other income		(37,507	)		-			-			-
Adjusted EBITDA	$	258,955		$	(1,817,009	)	$	338,351		$	(794,922	)

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable for a smaller reporting company.

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer (who is our Principal Financial Officer), to allow timely decisions regarding required disclosures. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control problems or acts of fraud, if any, within the Company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that as of June 30, ~~2019,~~2020, our disclosure controls and procedures were effective.

~~Management’s Report on Internal Controls Over Financial Reporting~~

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our internal controls over financial reporting as of June 30, 2019, the end of the interim period covered by this report established in ~~Internal Control – Integrated Framework~~, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. The evaluation of our internal controls over financial reporting included a review of the internal control objectives, design, implementation and the effect of the controls and procedures on the information generated for use in this report.

In the course of our evaluation, we sought to identify errors, control problems or acts of fraud and to confirm the appropriate corrective actions, including process improvements, were being undertaken. Based on that evaluation, management, including our Chief Executive Officer and Chief Financial Officer, concluded that the Company did not maintain effective internal control over financial reporting as of the six months ended June 30, 2019 due to the existence of material weaknesses in the internal control over financial reporting described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management has determined that we did not maintain effective internal controls over financial reporting as of June 30, 2019 due to the existence of the following material weaknesses identified by management:

●

The Company did not maintain effective controls over certain aspects of the financial reporting process because we lacked personnel with accounting expertise and an adequate supervisory review structure that is commensurate with our financial reporting requirements.

●

~~Inadequate segregation of duties.~~

This quarterly report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting because we are a “smaller reporting company.” Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this quarterly report.

Changes in internal control over financial reporting

During the six months ended June 30, ~~2019,~~2020, there was no change in our internal control over financial reporting or in other factors that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

Occasionally, we may be involved in claims and legal proceedings arising from the ordinary course of our business. We record a provision for a liability when we believe that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on our consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.

There is currently no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self- regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material effect on the Company, with the exception of:

Baker, et al. v. Helix TCS, Inc.

On March 8, 2017, two former employees filed a lawsuit in the United States District Court for the District of Colorado alleging violations of the Fair Labor Standards Act and the Colorado Wage Act on behalf of themselves and other employees. The plaintiffs seek damages for our alleged failure to compensate them appropriately for the overtime hours they worked as purported “non-exempt” employees. As of ~~June 30, 2019,~~March 31, 2020, the ~~claim is currently~~parties have outlined a settlement agreement pending the outcome of ~~certain matters in~~ the Kenney, ~~et al v. Helix TCS, Inc.~~et. al. case. The parties executed the settlement agreement in April 2020 and are awaiting court approval. The Company previously accrued a $440,000 liability related to this matter.

Kenney, et al. v. Helix TCS, Inc.

On July 20, 2017 one former employee filed a lawsuit in the United States District Court for the District of Colorado alleging violations of the Fair Labor Standards Act on behalf of themselves and other employees. The plaintiffs seek damages for our alleged failure to compensate them appropriately for the overtime hours they worked as purported “non-exempt” employees. As of June 30, ~~2019,~~2020, the claim is currently in the process of ~~discovery.~~appeal.

~~At this time, the Company is not able to predict the outcome~~Audet v. Green Tree International, et. al.

On February 14, 2020 John Audet filed a complaint in 15th Judicial Circuit in and for Palm Beach County, Florida against multiple parties, including Green Tree International (“GTI”), claiming that he owned 10% of ~~the lawsuits, any possible loss or possible range of loss associated with the lawsuits or any potential effect on the Company’s business, results of operations or financial condition. However, the~~GTI. The Company believes the ~~lawsuits are~~lawsuit is wholly without merit and will defend itself from these claims vigorously.

ITEM 1A. Risk Factors

Smaller reporting companies such as us are not required to provide the information required by this item.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the six months ended June 30, ~~2019,~~2020, we issued ~~3,086,893~~21,715,312 shares of common stock. 11,433,790 shares were issued under a subscription agreement for gross proceeds of $1,271,779, 8,909,831 shares of common stock ~~with proceeds received totaling $1,306,313.~~were issued upon the conversion of convertible notes, 700,000 were issued upon the exercise of stock options, 503,800 shares were issued as stock compensation expense, and 167,891 shares were issued as PIK interest of $93,750.

ITEM 3. Defaults upon Senior Securities

None.

ITEM 4. Mine Safety Disclosure

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

Exhibit No.		Description

~~10.43~~2.1		~~Form~~Reorganization Agreement dated as of ~~Management Consulting Services Agreement~~December 21, 2015 by and between ~~the Company~~Helix Opportunities, LLC and ~~Rose Management Group LLC (incorporated~~its members and Helix TCS, Inc. (Incorporated by reference to Exhibit ~~10.43~~2.1 of the Company’s Registration Statement on Form 10 filed with the U.S. Securities and Exchange Commission on December 9, 2016).

2.2		Agreement and Plan of Merger by and among Helix TCS, Inc., Helix Acquisition Sub, Inc., Bio-Tech Medical Software, Inc. and Terence J. Ferraro, as the Securityholder Representative, dated March 3, 2018 (Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on ~~April 18, 2019)~~June 5, 2018).

2.3		Agreement and Plan of Merger, dated February 5, 2019, by and among Helix TCS, Inc., Helix Acquisition Sub, Inc., Green Tree International, Inc. and the Securityholder Representative (Incorporated by reference to Exhibit 2.3 of the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on September 16, 2019).

2.4		Addendum No. 1, dated as of September 10, 2019, to the Agreement and Plan of Merger, dated February 5, 2019, by and among Helix TCS, Inc., Helix Acquisition Sub, Inc., Green Tree International, Inc. and the Securityholder Representative (Incorporated by reference to Exhibit 2.4 of the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on September 16, 2019).

3.1		Certificate of Incorporation of Jubilee4 Gold, Inc. (Incorporated by reference to Exhibit 3(i).1 of the Company’s Registration Statement on Form 10 filed with the U.S. Securities and Exchange Commission on December 9, 2016).

3.2		Certificate of Amendment to Articles of Incorporation of Helix TCS, Inc. (Incorporated by reference to Exhibit 3(i).2 of the Company’s Registration Statement on Form 10 filed with the U.S. Securities and Exchange Commission on December 9, 2016).

3.3		Certificate of Amendment to Articles of Incorporation of Helix TCS, Inc. - Designation of Rights and Privileges Class A Preferred Stock (Incorporated by reference to Exhibit 3(i).3 of the Company’s Registration Statement on Form 10 filed with the U.S. Securities and Exchange Commission on December 9, 2016).

3.4		Bylaws of Jubilee4 Gold, Inc. (Incorporated by reference to Exhibit 3(ii).1 of the Company’s Registration Statement on Form 10 filed with the U.S. Securities and Exchange Commission on December 9, 2016).

3.5		Certificate of Amendment No. 2 to the Articles of Incorporation of Helix TCS, Inc. *

10.55		Form of Subscription Agreement. (Incorporated by reference to Exhibit 10.55 of the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on June 5, 2020).

10.56		First Amendment to 10% Fixed Convertible Promissory Note to the note dated October 11, 2019 (Incorporated by reference to Exhibit 10.56 of the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on July 13, 2020).

10.57		First Amendment to 10% Fixed Convertible Promissory Note to the note dated December 26, 2019 (Incorporated by reference to Exhibit 10.57 of the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on July 13, 2020).

10.58		Second Amendment to September 16, 2019 Fixed Convertible Promissory Note (Incorporated by reference to Exhibit 10.58 of the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on July 13, 2020).

10.59		Second Amendment to August 15, 2019 Fixed Convertible Promissory Note (Incorporated by reference to Exhibit 10.59 of the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on July 13, 2020).

10.60		Asset Purchase Agreement by and between the Company and Invicta Security CA Corporation, Invicta Services LLC, Boss Security Solutions, Inc., Security Consultants Group, LLC, Tan’s International LLC, and Tan’s International Security, Inc. (Incorporated by reference to Exhibit 2.04 of the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on August 4, 2020).

31.1		Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *

31.2		Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *

32.1		Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2		Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

101.INS		XBRL Instance Document *

101.SCH		XBRL Taxonomy Extension Schema *

101.CAL		XBRL Taxonomy Extension Calculation Linkbase *

101.DEF		XBRL Taxonomy Extension Definition Linkbase *

101.LAB		XBRL Taxonomy Extension Label Linkbase *

101.PRE		XBRL Taxonomy Extension Presentation Linkbase *

Filed herewith

Management contract or compensatory plan.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:

By:

/s/Zachary L. Venegas

Zachary L. Venegas

Chief Executive Officer

(Principal Executive ~~Officer~~Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/Zachary L. Venegas	Chief Executive Officer	August 14, ~~2019~~2020
Zachary L. Venegas*	(Principal Executive Officer)

/s/Scott Ogur	Chief Financial Officer	August 14, ~~2019~~2020
Scott Ogur	(Principal Financial Officer)

/s/Paul Hodges	Director	August 14, ~~2019~~2020
Paul Hodges*

/s/~~Patrick Vo~~Steve Janjic	Director	August 14, ~~2019~~2020
Patrick VoSteve Janjic

/s/~~Terence Ferraro~~Garvis Toler III	Director	August 14, ~~2019~~2020
Terence FerraroGarvis Toler III

/s/Andrew Schweibold	Director	August 14, ~~2019~~2020
Andrew Schweibold*

/s/Satyavrat Joshi	Director	August 14, ~~2019~~2020
Satyavrat Joshi*

* By:

By: Scott Ogur, as Attorney in Fact, pursuant to the
Power of Attorney dated August 14, ~~2019~~2020 and filed herewith.

5354

Delaware		81-4046024
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		HLIX		OTCQB

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

		PAGE
PART I	FINANCIAL INFORMATION	1

ITEM 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets ~~(unaudited)~~ as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (unaudited)	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 ~~and 2018~~ (unaudited)	2
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 ~~and 2018~~ (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 ~~and 2018~~ (unaudited)	7
	Notes to the Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4142
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	4950
ITEM 4.	Controls and Procedures	4950

PART II	OTHER INFORMATION	51

ITEM 1.	Legal Proceedings	51
ITEM 1A.	Risk Factors	51
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
ITEM 3	Defaults upon Senior Securities	51
ITEM 4.	Mine Safety Disclosures	51
ITEM 5.	Other Information	51
ITEM 6.	Exhibits	52

SIGNATURES		5354

	June 30,			December 31,			June 30,			December 31,
	2019			2018			2020			2019
ASSETS
Current assets:
Cash	$	800,015		$	285,761		$	2,001,931		$	652,524
Accounts receivable, net		1,640,996			1,184,923			1,350,513			1,870,722
Prepaid expenses and other current assets		540,342			409,800			1,117,543			737,159
Costs & earnings in excess of billings		12,017			42,869			278,178			257,819
Total current assets		2,993,370			1,923,353			4,748,165			3,518,224

Property and equipment, net		545,818			349,518			1,186,223			805,679
Intangible assets, net		16,312,706			18,604,078			10,801,581			14,395,287
Goodwill		40,735,366			39,913,559			53,716,206			53,716,207
Deposits and other assets		1,413,493			146,990			1,308,861			1,172,600
Promissory note receivable		75,000			-			75,000			75,000
Total assets	$	62,075,753		$	60,937,498		$	71,836,036		$	73,682,997

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued liabilities	$	2,463,136		$	1,702,713		$	3,234,581		$	3,263,146
Advances from related parties		-			45,250
Billings in excess of costs		126,862			155,192			68,542			164,663
Deferred rent		-			2,937
Notes payable, current portion		24,805			24,805
Notes payable and financing arrangements, current portion								310,406			24,805
Obligation pursuant to acquisition		75,000			201,667			-			50,000
Convertible notes payable, net of discount		423,700			187,177			794,388			832,492
Convertible notes payable, net of discount - related party		1,395,623			-			1,285,220			1,584,360
Due to related party		-			32,489
Contingent consideration		-			908,604
Promissory Notes								300,000			300,000
Warrant liability		2,199,266			896,171			155,789			715,259
Total current liabilities		6,708,392			4,157,005			6,148,926			6,934,725

Long-term liabilities:
Notes payable, net of current portion		40,232			51,554
Notes payable and financing arrangements, net of current portion								426,024			433,087
Convertible notes payable, net of discount								385,000			385,000
Other long-term liabilities		962,716			-			1,000,948			783,230
Total long-term liabilities		1,002,948			51,554			1,811,972			1,601,317

Total liabilities		7,711,340			4,208,559			7,960,898			8,536,042

Shareholders’ equity:
Preferred stock (Class A), $0.001 par value, 3,000,000 shares authorized; 1,000,000 issued and outstanding as of June 30, 2019 and December 31, 2018		1,000			1,000	��
Preferred stock (Class B), $0.001 par value, 17,000,000 shares authorized; 13,784,201 issued and outstanding as of June 30, 2019 and December 31, 2018		13,784			13,784
Common stock; par value $0.001; 200,000,000 shares authorized; 75,747,718 shares issued and outstanding as of June 30, 2019; 72,660,825 shares issued and outstanding as of December 31, 2018		75,748			72,660
Preferred stock (Class A), $0.001 par value, 3,000,000 shares authorized; 1,000,000 issued and outstanding; liquidation preference of $325,382 as of June 30, 2020 and December 31, 2019,								1,000			1,000
Preferred stock (Class B), $0.001 par value, 17,000,000 shares authorized; 13,784,201 issued and outstanding; liquidation preference of $4,485,124 as of June 30, 2020 and December 31, 2019								13,784			13,784
Common stock; par value $0.001; 200,000,000 shares authorized; 115,323,931 shares issued and outstanding as of June 30, 2020; 93,608,619 shares issued and outstanding as of December 31, 2019								115,324			93,608
Additional paid-in capital		86,489,136			82,831,014			105,755,784			100,906,143
Accumulated other comprehensive income		21,648			17,991			(31,706	)		(79,901	)
Accumulated deficit		(32,236,903	)		(26,207,510	)		(41,979,048	)		(35,787,679	)
Total shareholders’ equity		54,364,413			56,728,939			63,875,138			65,146,955
Total liabilities and shareholders’ equity	$	62,075,753		$	60,937,498		$	71,836,036		$	73,682,997

	Common Stock				Preferred Stock (Class A)				Preferred Stock (Class B)				Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total Shareholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Income			Deficit			Equity
Balance at March 31, 2019		74,410,397	$	74,410		1,000,000	$	1,000		13,784,201	$	13,784	$	83,357,328		$	22,238		$	(37,049,211	)	$	46,419,549

Issuance of common stock per stock investment unit agreements		166,667		167										66,247									66,414

Share-based compensation expense														485,333									485,333

Issuance of common stock resulting from exercise of stock options		72,562		73										21,735									21,808

Issuance of common stock resulting from cashless exercise of stock options		47,084		47										(47	)								-

Restricted common stock issued as part of Tan Security acquisition		250,000		250										709,750									710,000

Issuance of common stock in satisfaction of contingent consideration		733,300		733										1,787,921									1,788,654

Issuance of common stock resulting from convertible note PIK interest (paid)		67,708		68										60,869									60,937

Foreign currency translation																	(590	)					(590	)

Net income																				4,812,308			4,812,308

Balance at June 30, 2019		75,747,718	$	75,748		1,000,000	$	1,000		13,784,201	$	13,784	$	86,489,136		$	21,648		$	(32,236,903	)	$	54,364,413

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Numerator
Net income attributable to common shareholders	$	4,811,718		$	(9,032,037	)	$	(6,025,736	)	$	(24,469,219	)
Effect of dilutive instruments on net loss		(7,024,580	)		-			-			-
Net income (loss) attributable to common shareholders - diluted	$	(2,212,862	)	$	(9,032,037	)	$	(6,025,736	)	$	(24,469,219	)

Denominator
Weighted average shares of common stock outstanding - basic		75,470,238			42,673,528			74,324,689			35,907,118

Dilutive effect of warrants and convertible securities		5,766,440			-			-			-

Weighted average shares of common stock outstanding - diluted		81,236,678			42,673,528			74,324,689			35,907,118

Net income (loss) per share
Basic	$	0.06		$	(0.21	)	$	(0.08	)	$	(0.68	)
Diluted	$	(0.03	)	$	(0.21	)	$	(0.08	)	$	(0.68	)

Base Price – Cash	$	2,100,373
Base Price - Stock Options		916,643
Contingent Consideration - Stock Options		916,643
Total Purchase Price	$	3,933,659

			Weighted Average Useful Life
Description	Fair Value		(in years)
Assets acquired:
Cash	$	14,137
Accounts receivable		53,792
Costs & earnings in excess of billings		96,898
Property, plant and equipment, net		27,775
Trademarks		25,000	10
Customer lists		3,154,578	5
Web address		5,000	5
Goodwill		664,329
Other assets		3,880
Total assets acquired	$	4,045,389
Liabilities assumed:
Billings in excess of costs	$	23,967
Loans payable		18,414
Credit card payable and other liabilities		69,349
Total liabilities assumed		111,730
Estimated fair value of net assets acquired	$	3,933,659

Base Price - Common Stock	$	44,905,542
Base Price - Stock Options		12,646,491
Total Purchase Price	$	57,552,033

	As Adjusted
Base Price - Common Stock	$	388,702
Contingent Consideration - Common Stock		777,298
Contingent Consideration - Cash		-
Total Purchase Price	$	1,166,000

	Total Goodwill
Balance at December 31, 2017	$	664,329
Impairment of goodwill		(664,329	)
Goodwill attributable to BiotrackTHC acquisition		39,135,007
Goodwill attributable to Engeni acquisition		778,552
Balance at December 31, 2018	$	39,913,559
Goodwill attributable to Tan Security acquisition		821,807
Balance at June 30, 2019	$	40,735,366

	June 30, 2019			December 31, 2018
Note Five, 5% interest, convertible promissory note, fixed secured, maturing November 16, 2019	$	-		$	187,177
Note Ten, 25% interest, convertible promissory note, fixed secured, maturing March 1, 2020, net of debt discount for warrants		423,700			-
		423,700			187,177
Less: Current portion		(423,700	)		(187,177	)
Long-term portion	$	-		$	-

Date of Sale	Number of Shares Sold		Total Proceeds
February 2018		222,222	$	200,000
March 2018		500,000		450,000
April 2018		500,000		450,000
May 2018		244,444		219,999
		1,466,666	$	1,319,999

Date of Issuance	Number of Shares Issued		Total Share Based Compensation
March 2019		250,000	$	320,000
		250,000	$	320,000

Date of Sale	Number of Shares Sold		Total Proceeds
Initial
May 2017		7,318,084	$	1,875,000
Second
July 2017		1,680,000		840,000
Third
August 2017		369,756		120,000
September 2017		462,195		150,000
October 2017		462,195		150,000
October 2017		1,042,337		557,500
December 2017		2,449,634		795,000
Ending Balance		13,784,201	$	4,487,500

For the Six Months Ended June 30, 2018
Issuance Date	Beneficial Conversion Feature Term (months)	Number of shares		Fair Value of Beneficial Conversion Feature		Amount accreted as a deemed dividend at December 31, 2017			Amount accreted as a deemed dividend for the Six Months Ended June 30, 2018			Unamortized Beneficial Conversion Feature
May 17, 2017	12		7,318,084	$	25,247,098	$	(15,779,436	)	$	(9,467,661	)	$	-
July 29, 2017	9.5		1,680,000		6,804,000		(3,674,634	)		(3,129,366	)		-
August 29, 2017	8.5		369,756		1,148,263		(556,190	)		(592,073	)		-
September 15, 2017	8		462,195		1,435,329		(648,601	)		(786,728	)		-
October 11, 2017	7		462,195		1,121,036		(426,309	)		(694,727	)		-
October 31, 2017	6.5		1,042,337		1,735,641		(548,570	)		(1,187,071	)		-
December 19, 2017	5		2,449,634		6,921,348		(576,780	)		(6,344,568	)		-
Total			13,784,201	$	44,412,715	$	(22,210,520	)	$	(22,202,194	)	$	-

For the Six Months Ended June 30, 2019
	Warrant Shares		Weighted Average Exercise Price
Balance at January 1, 2019		3,418,184	$	0.23

Warrants granted		1,507,374	$	1.23

Balance at June 30, 2019		4,925,558	$	0.55

	Operating leases
2019	$	473,495
2020		420,291
2021		275,223
2022		198,144
2023		199,144
Thereafter		205,135
Total lease payments	$	1,771,432