UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED:
JUNE 30, 2017 OR
□TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 2016 ORCOMMISSION FILE NUMBER: 333-04066
GEOSPATIAL CORPORATION
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER: 333-04066
NEVADA
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
229 Howes Run Road, Sarver, PA 16055(Address (Address of principal executive offices)
(724) 353-3400
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files): YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller | ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES ☐ NO ☒
The number of $.001$0.001 par value common shares outstanding at August 10, 2016: 174,555,605.3, 2017: 270,747,118.
1
FORWARD-LOOKING STATEMENT NOTICE
FORWARD-LOOKING STATEMENT NOTICE
The statements set forth in this report which are not historical constitute “Forward-Looking Statements”"Forward-Looking Statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, including statements regarding our expectations, beliefs, intentions or strategies for the future. When used in this report, the terms “anticipate,” “believe,” “estimate,” “expect”"anticipate," "believe," "estimate," "expect" and “intend”"intend" and words or phrases of similar import, as they relate to our business or our subsidiaries or our management, are intended to identify Forward-Looking Statements. These Forward-Looking Statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance. Forward-Looking Statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the Forward-Looking Statements.
Because our common stock is considered to be a “penny stock”"penny stock", the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995 do not apply to such Forward-Looking Statements.
Our business involves various risks, including, but not limited to, our ability to implement our business strategies as planned in a timely manner or at all; our lack of operating history; our ability to protect our proprietary technologies; our ability to obtain financing sufficient to meet our capital needs; our inability to use historical financial data to evaluate our financial performance; and the other risk factors identified in our filings with the Securities and Exchange Commission.
. '
Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statementsForward-Looking Statements made by us or on our behalf, readers of this report should not place undue reliance on any forward-looking statement.Forward-Looking Statement. Further, any forward-looking statementForward-Looking Statement speaks only as of the date on which it is made, and we undertake no obligations to update any Forward-Looking Statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of future events or developments. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any Forward-Looking Statements.
2
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION4
ITEM 2. MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK16
ITEM 4. CONTROLS AND PROCEDURES16
PART II - OTHER INFORMATION17
ITEM 2. SALES OF UNREGISTERED EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 5. OTHER INFORMATION17
3
PART I - FINANCIAL INFORMATION
GEOSPATIAL CORPORATIONITEM 1.FINANCIAL STATEMENTS
GEOSPATIAL CORPORATION INDEX
Page
FINANCIAL STATEMENTS AS OF JUNE 30, 2017 AND DECEMBER 31, 2016 AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
Consolidated Balance Sheets (Unaudited)5
Consolidated Statements of Operations (Unaudited)6
Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited)7
Consolidated Statements of Cash Flows (Unaudited)8
Notes to Unaudited Consolidated Financial Statements9
4
Geospatial Corporation and Subsidiaries
Consolidated Balance Sheets
| June 30 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 96,419 | $ | 16,962 | ||||
| Accounts receivable | 201,400 | 44,100 | ||||||
| Prepaid expenses and other current assets | 89,177 | 111,927 | ||||||
| Total current assets | 386,996 | 172,989 | ||||||
| Property and equipment: | ||||||||
| Field equipment | 354,281 | 339,079 | ||||||
| Field vehicles | 43,285 | 43,285 | ||||||
| Total property and equipment | 397,566 | 382,364 | ||||||
| Less: accumulated depreciation | (300,180 | ) | (245,208 | ) | ||||
| Net property and equipment | 97,386 | 137,156 | ||||||
| Total assets | $ | 484,382 | $ | 310,145 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 372,736 | $ | 533,578 | ||||
| Accrued expenses | 876,540 | 2,028,220 | ||||||
| Due to related parties | — | 157,286 | ||||||
| Current portion of capital lease liability to related party | 3,529 | 3,479 | ||||||
| Notes payable | 1,469,350 | 1,488,748 | ||||||
| Accrued registration payment arrangement | 54,732 | 547,315 | ||||||
| Total current liabilities | 2,776,887 | 4,758,626 | ||||||
| Non-current liabilities: | ||||||||
| Capital lease liability to related party | 1,501 | 3,278 | ||||||
| Total non-current liabilities | 1,501 | 3,278 | ||||||
| Total liabilities | 2,778,388 | 4,761,904 | ||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock: | ||||||||
| Undesignated, $0.001 par value; 10,000,000 and 20,000,000 shares authorized at June 30, 2016 and December 31, 2015, respectively; no shares issued and outstanding at June 30, 2016 and December 31, 2015 | — | — | ||||||
| Series B Convertible Preferred Stock, $0.001 par value; 5,000,000 shares authorized at June 30, 2016 and December 31, 2015; no shares issued and outstanding at June 30, 2016 and December 31, 2015 | — | — | ||||||
| Series C Convertible Preferred Stock, $0.001 par value; 10,000,000 and 0 shares authorized at June 30, 2016 and December 31, 2015, respectively; 4,543,654 and 0 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively | 4,544 | — | ||||||
| Common stock, $.001 par value; 350,000,000 shares authorized at June 30, 2016 and December 31, 2015; 173,555,605 and 143,336,073 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively | 173,556 | 143,336 | ||||||
| Additional paid-in capital | 38,073,795 | 36,031,156 | ||||||
| Additional paid-in capital, warrants | 54,278 | — | ||||||
| Accumulated deficit | (40,600,179 | ) | (40,626,251 | ) | ||||
| Total stockholders’ deficit | (2,294,006 | ) | (4,451,759 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 484,382 | $ | 310,145 | ||||
| June 30 |
| December 31, |
| 2017 |
| 2016 |
| (Unaudited) |
|
|
ASSETS | |||
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|
|
|
Current assets: |
|
|
|
Cash and cash equivalents | $ 2,468 |
| $ 66,992 |
Accounts receivable | 148,800 |
| 65,800 |
Prepaid expenses and other current assets | 124,948 |
| 140,105 |
|
|
|
|
Total current assets | 276,216 |
| 272,897 |
|
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|
|
Property and equipment: |
|
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|
Field equipment | 357,070 |
| 357,070 |
Field vehicles | 43,285 |
| 43,285 |
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|
|
Total property and equipment | 400,355 |
| 400,355 |
Less: accumulated depreciation | (382,162) |
| (355,616) |
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|
Net property and equipment | 18,193 |
| 44,739 |
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Total assets | $ 294,409 |
| $ 317,636 |
|
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LIABILITIES AND STOCKHOLDERS' DEFICIT | |||
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Current liabilities: |
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|
|
Accounts payable | $ 240,305 |
| $ 274,319 |
Accrued expenses | 984,529 |
| 813,197 |
Current portion of capital lease liability to related party | 1,501 |
| 3,278 |
Notes payable | 1,502,172 |
| 1,365,738 |
Accrued registration payment arrangement | 76,337 |
| 522,115 |
|
|
|
|
Total current liabilities | 2,804,844 |
| 2,978,647 |
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Non-current liabilities: |
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|
Notes payable | 6,667 |
| - |
|
|
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|
Total non-current liabilities | 6,667 |
| - |
|
|
|
|
Total liabilities | 2,811,511 |
| 2,978,647 |
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|
Stockholders' deficit: |
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|
Preferred stock: |
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Undesignated, $0.001 par value; 10,000,000 shares authorized at June 30, 2017 |
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and December 31, 2016; no shares issued and outstanding at June 30, 2017 and |
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December 31, 2016 | - |
| - |
Series B Convertible Preferred Stock, $0.001 par value; 5,000,000 shares authorized |
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at June 30, 2017 and December 31, 2016; no shares issued and outstanding at |
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|
June 30, 2017 and December 31, 2016 | - |
| - |
Series C Convertible Preferred Stock, $0.001 par value; 10,000,000 shares authorized |
|
|
|
at June 30, 2017 and December 31, 2016; 3,644,578 and 4,543,654 shares issued |
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|
|
and outstanding at June 30, 2017 and December 31, 2016, respectively | 3,645 |
| 4,544 |
Common stock, $0.001 par value; 750,000,000 shares authorized at June 30, 2017 and |
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|
|
December 31, 2016; 269,080,451 and 226,211,740 shares issued and outstanding |
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|
|
at June 30, 2017 and December 31, 2016, respectively | 269,080 |
| 226,212 |
Additional paid-in capital | 39,560,824 |
| 38,905,332 |
Additional paid-in capital, warrants | - |
| 20,626 |
Accumulated deficit | (42,350,651) |
| (41,817,725) |
|
|
|
|
Total stockholders' deficit | (2,517,102) |
| (2,661,011) |
|
|
|
|
Total liabilities and stockholders' deficit | $ 294,409 |
| $ 317,636 |
The accompanying notes are an integral part of these consolidated financial statements.
5
Geospatial Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Sales | $ | 258,800 | $ | 20,800 | $ | 440,000 | $ | 20,800 | ||||||||
| Cost of sales | 72,603 | 41,975 | 130,536 | 79,569 | ||||||||||||
| Gross profit (loss) | 186,197 | (21,175 | ) | 309,464 | (58,769 | ) | ||||||||||
| Selling, general and administrative expenses | 396,901 | 656,697 | 776,724 | 1,323,339 | ||||||||||||
| Net loss from operations | (210,704 | ) | (677,872 | ) | (467,260 | ) | (1,382,108 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (69,553 | ) | (37,772 | ) | (132,772 | ) | (121,914 | ) | ||||||||
| Gain on extinguishment of debt | 58,603 | 73,181 | 133,521 | 146,363 | ||||||||||||
| Registration payment arrangements | — | 468,996 | 492,583 | 1,190,446 | ||||||||||||
| Total other income (expense) | (10,950 | ) | 504,405 | 493,332 | 1,214,895 | |||||||||||
| Net income (loss) before income taxes | (221,654 | ) | (173,467 | ) | 26,072 | (167,213 | ) | |||||||||
| Provision for income taxes | — | — | — | — | ||||||||||||
| Net income (loss) | $ | (221,654 | ) | $ | (173,467 | ) | $ | 26,072 | $ | (167,213 | ) | |||||
| Basic and fully-diluted net income (loss) per share of common stock | $ | (0.00 | ) | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | |||||
| For the Three Months Ended |
| For the Six Months Ended | ||||
| June 30, |
| June 30, | ||||
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
|
|
|
|
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Sales | $ 192,935 |
| $ 258,800 |
| $ 291,135 |
| $ 440,000 |
Cost of sales | 44,032 |
| 72,603 |
| 86,086 |
| 130,536 |
|
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|
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Gross profit | 148,903 |
| 186,197 |
| 205,049 |
| 309,464 |
|
|
|
|
|
|
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Selling, general and administrative expenses | 555,304 |
| 396,901 |
| 1,037,947 |
| 776,724 |
|
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|
|
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|
|
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Net loss from operations | (406,401) |
| (210,704) |
| (832,898) |
| (467,260) |
|
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Other income (expense): |
|
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|
|
|
|
|
Interest expense | (73,830) |
| (69,553) |
| (146,299) |
| (132,772) |
Gain on extinguishment of debt | - |
| 58,603 |
| 13,693 |
| 133,521 |
Registration payment arrangements | 178,120 |
| - |
| 432,578 |
| 492,583 |
|
|
|
|
|
|
|
|
Total other income (expense) | 104,290 |
| (10,950) |
| 299,972 |
| 493,332 |
|
|
|
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Net Income (Loss) before income taxes | (302,111) |
| (221,654) |
| (532,926) |
| 26,072 |
|
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Provision for income taxes | - |
| - |
| - |
| - |
|
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Net Income (Loss) | $ (302,111) |
| $ (221,654) |
| $ (532,926) |
| $ 26,072 |
|
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|
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Basic and fully diluted net income (loss) per share of common stock | $ 0.00 |
| $ 0.00 |
| $ 0.00 |
| $ 0.00 |
The accompanying notes are an integral part of these consolidated financial statements.
6
Geospatial Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders’Stockholders' Deficit
For the Six Months Ended June 30, 2016
2017
(Unaudited)
| Additional Paid-In Capital, Warrants | ||||||||||||||||||||||||||||||||
| Additional Paid-In Capital | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Accumulated Deficit | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||||||||
| Balance, December 31, 2015 | — | $ | — | 143,336,073 | $ | 143,336 | $ | 36,031,156 | $ | — | $ | (40,626,251 | ) | $ | (4,451,759 | ) | ||||||||||||||||
| Sale of Series C Convertible Preferred Stock, net of issuance costs | 2,750,000 | 2,750 | — | — | 540,623 | — | — | 543,373 | ||||||||||||||||||||||||
| Issuance of common stock in settlement of liabilities | — | — | 30,219,532 | 30,220 | 1,082,579 | — | — | 1,112,799 | ||||||||||||||||||||||||
| Issuance of Series C Convertible Preferred Stock in settlement of liabilities | 1,793,654 | 1,794 | — | — | 356,937 | — | 358,731 | |||||||||||||||||||||||||
| Conversion of liabilities to warrants to purchase common stock | — | — | — | — | — | 54,278 | — | 54,278 | ||||||||||||||||||||||||
| Issuance of convertible securities with beneficial conversion features | — | — | — | — | 62,500 | — | — | 62,500 | ||||||||||||||||||||||||
| Net income for the six months ended June 30, 2016 | — | — | — | — | — | — | 26,072 | 26,072 | ||||||||||||||||||||||||
| Balance, June 30, 2016 | 4,543,654 | $ | 4,544 | 173,555,605 | $ | 173,556 | $ | 38,073,795 | $ | 54,278 | $ | (40,600,179 | ) | $ | (2,294,006 | ) | ||||||||||||||||
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| Additional |
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| Additional |
| Paid-In |
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| Preferred Stock |
| Common Stock |
| Paid-In |
| Capital, |
| Accumulated |
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| ||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Warrants |
| Deficit |
| Total |
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Balance, December 31, 2016 | 4,543,654 |
| $ 4,544 |
| 226,211,740 |
| $ 226,212 |
| $ 38,905,332 |
| $ 20,626 |
| $ (41,817,725) |
| $ (2,661,011) |
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Sale of common stock, net of issuance |
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costs | - |
| - |
| 13,333,334 |
| 13,333 |
| 386,667 |
| - |
| - |
| 400,000 |
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Conversion of Series C Convertible |
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Preferred Stock to common stock | (899,076) |
| (899) |
| 17,981,520 |
| 17,981 |
| (17,082) |
| - |
| - |
| - |
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Issuance of common stock for |
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registration penalty | - |
| - |
| 132,000 |
| 132 |
| 13,068 |
| - |
| - |
| 13,200 |
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Exercise of warrants to purchase |
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common stock | - |
| - |
| 4,421,857 |
| 4,422 |
| 54,204 |
| (20,626) |
| - |
| 38,000 |
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Issuance of common stock for services | - |
| - |
| 7,000,000 |
| 7,000 |
| 193,000 |
| - |
| - |
| 200,000 |
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Issuance of convertible securities with |
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beneficial conversion features | - |
| - |
| - |
| - |
| 25,635 |
| - |
| - |
| 25,635 |
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Net loss for the six months ended |
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June 30, 2017 | - |
| - |
| - |
| - |
| - |
| - |
| (532,926) |
| (532,926) |
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Balance, June 30, 2017 | 3,644,578 |
| $ 3,645 |
| 269,080,451 |
| $ 269,080 |
| $ 39,560,824 |
| $ - |
| $ (42,350,651) |
| $ (2,517,102) |
The accompanying notes are an integral part of these consolidated financial statements.
7
Geospatial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2016 | 2015 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 26,072 | $ | (167,213 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 54,972 | 60,841 | ||||||
| Amortization of deferred debt issue costs | — | 46,873 | ||||||
| Amortization of discount on notes payable | 52,194 | — | ||||||
| Gain on extinguishment of debt | (133,521 | ) | (146,362 | ) | ||||
| Accrued registration payment arrangement | (492,583 | ) | (1,190,446 | ) | ||||
| Accrued interest payable | 65,058 | 71,088 | ||||||
| Changes in operating assets and liablities: | ||||||||
| Accounts receivable | (157,300 | ) | 12,000 | |||||
| Prepaid expenses and other current assets | 22,750 | (144,774 | ) | |||||
| Accounts payable | (43,635 | ) | 9,172 | |||||
| Accrued expenses | 16,791 | 417,013 | ||||||
| Due to related parties | (504 | ) | 31,021 | |||||
| Net cash used in operating activities | (589,706 | ) | (1,000,787 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (15,202 | ) | — | |||||
| Net cash used in investing activities | (15,202 | ) | — | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of notes payable | 250,000 | 1,600,000 | ||||||
| Principal payments on notes payable | (107,281 | ) | (587,155 | ) | ||||
| Principal payments on capital lease liabilities | (1,727 | ) | (1,677 | ) | ||||
| Debt issuance costs paid | — | (53,250 | ) | |||||
| Proceeds from sale of common stock, net of offering costs | — | 29,940 | ||||||
| Proceeds from sale of Series C Convertible Preferred Stock, net of offering costs | 543,373 | — | ||||||
| Net cash provided by financing activities | 684,365 | 987,858 | ||||||
| Net change in cash and cash equivalents | 79,457 | (12,929 | ) | |||||
| Cash and cash equivalents at beginning of period | 16,962 | 17,723 | ||||||
| Cash and cash equivalents at end of period | $ | 96,419 | $ | 4,794 | ||||
| Supplemental disclosures: | ||||||||
| Cash paid during period for interest | $ | 15,520 | $ | 3,953 | ||||
| Cash paid during period for income taxes | — | — | ||||||
| Non-cash transactions: | ||||||||
| Issuance of common stock in settlement of liabilities | 1,112,799 | 1,569,029 | ||||||
| Issuance of Series C Convertible Preferred Stock in settlement of liabilities | 358,731 | — | ||||||
| Issuance of warrants to purchase common stock in settlement of liabilities | 54,278 | — | ||||||
| For the Six Months Ended | ||
| June 30, | ||
| 2017 |
| 2016 |
Cash flows from operating activities: |
|
|
|
Net income (loss) | $ (532,926) |
| $ 26,072 |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
Depreciation | 26,546 |
| 54,972 |
Amortization of discount on notes payable | 41,452 |
| 52,194 |
Gain on extinguishment of debt | (13,693) |
| (133,521) |
Accrued registration payment arrangement | (432,578) |
| (492,583) |
Accrued interest payable | 102,604 |
| 65,058 |
Issuance of common stock for services | 200,000 |
| - |
Changes in operating assets and liablities: |
|
|
|
Accounts receivable | (83,000) |
| (157,300) |
Prepaid expenses and other current assets | 15,157 |
| 22,750 |
Accounts payable | (10,762) |
| (43,635) |
Accrued expenses | 213,106 |
| 16,791 |
Due to related parties | - |
| (504) |
|
|
|
|
Net cash used in operating activities | (474,094) |
| (589,706) |
|
|
|
|
Cash flows from investing activities: |
|
|
|
Purchase of property and equipment | - |
| (15,202) |
|
|
|
|
Net cash used in investing activities | - |
| (15,202) |
|
|
|
|
Cash flows from financing activities: |
|
|
|
Proceeds from issuance of notes payable | - |
| 250,000 |
Principal payments on notes payable | (26,653) |
| (107,281) |
Principal payments on capital lease liabilities | (1,777) |
| (1,727) |
Proceeds from sale of common stock, net of offering costs | 400,000 |
| - |
Proceeds from exercise of warrants to purchase common stock | 38,000 |
| - |
Proceeds from sale of Series C Convertible Preferred Stock, net of offering costs | - |
| 543,373 |
|
|
|
|
Net cash provided by financing activities | 409,570 |
| 684,365 |
|
|
|
|
Net change in cash and cash equivalents | (64,524) |
| 79,457 |
|
|
|
|
Cash and cash equivalents at beginning of period | 66,992 |
| 16,962 |
|
|
|
|
Cash and cash equivalents at end of period | $ 2,468 |
| $ 96,419 |
|
|
|
|
Supplemental disclosures: |
|
|
|
Cash paid during period for interest | $ 2,243 |
| $ 15,520 |
Cash paid during period for income taxes | - |
| - |
Non-cash transactions: |
|
|
|
Issuance of common stock for registration penalty | 13,200 |
| - |
Liabilities settled by issuance of notes payable | 51,227 |
| - |
Issuance of convertible securities with beneficial conversion features | 25,635 |
| - |
Issuance of common stock in settlement of liabilities | - |
| 1,112,799 |
Issuance of Series C Convertible Preferred Stock in settlement of liabilities | - |
| 358,731 |
Issuance of warrants to purchase common stock in settlement of liabilities | - |
| 54,278 |
Issuance of common stock for services | 200,000 |
| - |
The accompanying notes are an integral part of these consolidated financial statements.
8
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2016 2017
Notes to Unaudited Consolidated Financial Statements
Note 1 – Basis of Presentation
The Unaudited Consolidated Financial Statements included herein have been prepared by Geospatial Corporation (the “Company”) in accordance with accounting principles generally accepted accounting principlesin the United States of America for interim financial information and regulations contained inissued pursuant to the Securities Exchange Act of 1934, as amended. Accordingly, the accompanying Unaudited Consolidated Financial Statements do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying Unaudited Consolidated Financial Statements as of and for the three and six months ended June 30, 20162017 should be read in conjunction with the Company’s Financial Statements as of and for the year ended December 31, 2015.2016. In the opinion of the Company’s management, all adjustments considered necessary for a fair statement of the accompanying Unaudited Consolidated Financial Statements have been included, and all adjustments, unless otherwise discussed in the Notes to the Unaudited Consolidated Financial Statements, are of a normal and recurring nature. Operating results for the three and six months ended June 30, 20162017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016,2017, or any other interim periods, or any future year or period.
The use of accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, Geospatial Mapping Systems, Inc. and Utility Services and Consulting Corporation, which ceased operations in 2011. All intercompany accounts and transactions have been eliminated.
Note 2 – Accrued Expenses
Accrued expenses consisted of the following:
| June 30, | December 31, | June 30, |
| December 31, |
| ||||||||
| 2016 | 2015 | 2017 |
| 2016 |
| ||||||||
|
| ||||||||||||
| Payroll and taxes | $ | 721,102 | $ | 1,832,937 | $ 780,569 |
| $ 632,678 |
| |||||
| Accounting | 45,777 | 50,737 | 81,376 |
| 62,792 |
| |||||||
| Insurance | — | 34,014 | |||||||||||
| Contractors and subcontractors | 10,227 | 20,227 | 10,227 |
| 10,227 |
| |||||||
| Interest | 3,443 | 7,800 | 2,043 |
| 2,150 |
| |||||||
Insurance | 5,521 |
| - |
| |||||||||
| Other | 95,991 | 82,505 | 104,793 |
| 105,350 |
| |||||||
|
|
| |||||||||||
| Accrued expenses | $ | 875,540 | $ | 2,028,220 | $ 984,529 |
| $ 813,197 |
| |||||
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2016
Note 3 – Related-Party Transactions
The Company leases its headquarters building from Mark A. Smith, the Company’s Chairman and Chief Executive Officer. The building has approximately 3,200 square feet of office space, and is used by the Company’s corporate, technical, and operations staff. Mr. Smith has agreed to suspend collection of rent effective April 1, 2016. No rent will accrue during the suspension. The lease is cancellable by either party upon 30 days’ notice. The Company incurred no lease expense during the three and six months ended June 30, 2016,2017, and $0 and $19,500 of lease expense during the three and six months ended June 30, 2016. The Company incurred lease expense of $19,500 and $39,000 during the three and six months, respectively, ended June 30, 2015.2016, respectively.
On November 9, 2012, the Company and Mr. Smith entered into a Lease Agreement, pursuant to which the Company
9
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2017
leases a field vehicle from Mr. Smith. The lease is for 60 months, and is for substantially the same terms for which Mr. Smith leases the vehicle from the manufacturer. Interest on the lease amounted to $41$15 and $65, respectively,$41 for the three months ended June 30, 20162017 and 2015,2016, respectively, and $88$37 and $137, respectively,$88 for the six months ended June 30, 20162017 and 2015,2016, respectively. The lease is recorded as a capital lease. At June 30, 2016,2017, gross assets recorded under the lease and associated accumulated depreciation were $16,870 and $12,231,$15,605, respectively. Future minimum payments under the capital lease are as follows as of June 30, 2016:2017:
| Balance of 2016 | $ | 1,814 | ||
| Year ending December 31, 2017 | 3,326 | |||
| Thereafter | — | |||
| Total minimum payments | 5,140 | |||
| Less: minimum interest payments | (110 | ) | ||
| Minimum principal payments | $ | 5,030 |
Balance of 2017 | $ 1,512 | |
Thereafter | -- | |
Total minimum payments | 1,512 | |
Less: minimum interest payments | (11) | |
Minimum principal payments | $ 1,501 |
On May 18, 2016, the Company and Mr. Smith entered into a Conversion Agreement (the “Smith Conversion Agreement”), pursuant to which Mr. Smith converted accrued salaries totaling $766,833 to 19,170,831 shares of the Company’s common stock and warrants to purchase 23,004,998 shares of the Company’s common stock at an exercise price of $0.04 per share. Mr. Smith also converted pursuant to the Smith Conversion Agreement, $156,782 of unreimbursed business expenses and unpaid rent on the Company’s offices to 783,912 shares of the Company’s Series C Convertible Preferred Stock.Note 4 – Notes Payable
On May 18, 2016, the Company and Troy G. Taggart, the Company’s President, entered into a Conversion Agreement, pursuant to which Mr. Taggart converted accrued salaries totaling $215,490 to 5,387,241 sharesCurrent notes payable consisted of the Company’s common stock and warrants to purchase 6,464,689 sharesfollowing:
| June 30, |
| December 31, |
Secured Promissory Note, payable to an individual, bearing interest at | $ 1,451,277 |
| $ 1,332,920 |
Note payable under settlement agreement with vendor, payable monthly over | 5,560 |
| - |
Notes payable under settlement agreements with former employees, | 15,335 |
| 32,818 |
|
|
|
|
Current portion of long-term notes payable | $ 30,000 |
| $ - |
Current notes payable | $ 1,502,172 |
| $ 1,365,738 |
Long-term notes payable consisted of the Company’s common stock at an exercise pricefollowing:
June 30, 2017 | June 30, 2016 | ||
Note payable under settlement agreements with former employee, payable monthly with term of 16 months, with no interest | $ 36,667 | $ - | |
Total long-term notes payable | 36,667 | - | |
Less: current portion | (30,000) | - | |
Long-term notes payable, less current portion | $ 6,667 | $ - |
Future maturities of $0.04 per share.long-term debt are as follows as of June 30, 2017:
Balance of 2017 | $ 15,000 | |
Year ending December 31, 2018 | 21,667 | |
Thereafter | --- | |
$ 36,667 |
10
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2016 2017
Note 3 – Related-Party Transactions (continued)
On May 18, 2016, the Company and Thomas R. Oxenreiter, the Company’s Chief Financial Officer, entered into a Conversion Agreement (the “Oxenreiter Conversion Agreement”), pursuant to which Mr. Oxenreiter converted accrued salaries totaling $226,458 to 5,661,460 shares of the Company’s common stock and warrants to purchase 6,793,753 shares of the Company’s common stock at an exercise price of $0.04 per share. Mr. Oxenreiter also converted, pursuant to the Oxenreiter Conversion Agreement, $5,000 of unreimbursed business expenses to 25,000 shares of the Company’s Series C Convertible Preferred Stock.
Note 4 – Notes Payable
Current notes payable consisted of the following:
| June 30, 2016 | December 31, 2015 | |||||||
| Secured Promissory Note, payable to an individual, bearing interest at 10% per annum, due July 31, 2016, net of discount. The note is convertible to common stock at 75% of the weighted average trading price, and is secured by substantially all the assets of the Company | $ | 1,376,986 | $ | 1,075,833 | ||||
| Unsecured Promissory Note, payable to an individual, bearing interest at 10% per annum | — | 67,817 | ||||||
| Unsecured Convertible Promissory Notes, payable to individuals, bearing interest at 10% per annum, convertible to common stock at prices ranging from $0.20 to $0.25 per share | — | 190,453 | ||||||
| Notes payable under settlement agreements with former employees, payable monthly with terms of up to twelve months, with interest rates ranging from 0% to 20% | 92,364 | 154,645 | ||||||
| Current notes payable | $ | 1,469,350 | $ | 1,488,748 | ||||
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2016
Note 5 – Income Taxes
The Company’s provision for (benefit from) income taxes is summarized below:
| Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 | Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended |
| |||||||||||||
|
|
|
|
| ||||||||||||||||||||
| Current: |
|
| ||||||||||||||||||||||
| Federal | $ | — | $ | — | $ | — | $ | — | $ - |
| $ - |
| $ - |
| $ - |
| ||||||||
| State | — | — | — | — | - |
| - |
| - |
| - |
| ||||||||||||
| — | — | — | — | - |
| - |
| - |
| - |
| |||||||||||||
| Deferred: |
|
|
|
|
|
|
|
| ||||||||||||||||
| Federal | (68,553 | ) | (297,847 | ) | (145,323 | ) | (522,590 | ) | (94,634) |
| (68,553) |
| (166,242) |
| (145,323) |
| ||||||||
| State | (21,763 | ) | (94,555 | ) | (46,134 | ) | (165,902 | ) | (30,043) |
| (21,763) |
| (52,775) |
| (46,134) |
| ||||||||
| (90,316 | ) | (392,402 | ) | (191,457 | ) | (688,492 | ) | (124,677) |
| (90,316) |
| (219,017) |
| (191,457) |
| |||||||||
| Total income taxes | (90,316 | ) | (392,402 | ) | (191,457 | ) | (688,492 | ) | (124,677) |
| (90,316) |
| (219,017) |
| (191,457) |
| ||||||||
|
| |||||||||||||||||||||||
| Less: valuation allowance | 90,316 | 392,402 | 191,457 | 688,492 | 124,677 |
| 90,316 |
| 219,017 |
| 191,457 |
| ||||||||||||
|
|
|
|
| ||||||||||||||||||||
| Net income taxes | $ | — | $ | — | $ | — | $ | — | $ - |
| $ - |
| $ - |
| $ - |
| ||||||||
The reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:
Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 | Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended | |||||||||||||
| Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 % |
| 35.0 % |
| 35.0 % |
| 35.0 % | ||||||||
| State income taxes (net of federal benefit) | 6.5 | 6.5 | 6.5 | 6.5 | 6.5 |
| 6.5 |
| 6.5 |
| 6.5 | ||||||||||||
| Valuation allowance | (41.5 | ) | (41.5 | ) | (41.5 | ) | (41.5 | ) | (41.5) |
| (41.5) |
| (41.5) |
| (41.5) | ||||||||
|
|
|
|
|
|
| |||||||||||||||||
| Effective rate | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 % |
| 0.0 % |
| 0.0 % |
| 0.0 % | ||||||||
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2016
Note 5 – Income Taxes (continued)
Significant components of the Company’s deferred tax assets and liabilities are summarized below. A valuation allowance has been established as realization of such assets has not met the more-likely-than-not threshold requirement under FASB ASC 740.
June 30, 2016 | December 31, 2015 | June 30, 2017 |
| December 31, 2016 | |||||||
| Start-up costs | $ | 32,574 | $ | 37,491 | $ 22,741 |
| $ 35,033 | ||||
| Depreciation | (37,400 | ) | (37,759 | ) | (37,326) |
| (37,423) | ||||
| Accrued expenses | 207,219 | 687,212 | 353,355 |
| 745,103 | ||||||
| Net operating loss carryforward | 16,345,431 | 15,669,422 | 16,731,262 |
| 15,714,795 | ||||||
|
| ||||||||||
| Deferred income taxes | 16,547,824 | 15,356,366 | 17,070,032 |
| 16,457,508 | ||||||
| Less: valuation allowance | (16,547,824 | ) | (15,356,366 | ) | (17,070,032) |
| (16,457,508) | ||||
|
| ||||||||||
| Net deferred income taxes | $ | — | $ | — | $ - |
| $ - | ||||
At June 30, 2016,2017, the Company had federal and state net operating loss carryforwards of approximately $38,020,000.$40,316,000. The federal and state net operating loss carryforwards will expire beginning in 2021 and 2026, respectively. The amount of the state net operating loss carryforward that can be utilized each year to offset taxable income is limited by state law.
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2016
Note 6 – Net Income (Loss) Per Share of Common Stock
Basic net income (loss) per share of common stock are computed by dividing earnings available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share reflects per share amounts that would have resulted if dilutive potential common stock had been converted to common stock. Dilutive
11
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2017
potential common shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock at market value. The number of shares remaining after the proceeds are exhausted represents the potentially dilutive effect of the securities.
The following reconciles amounts reported in the financial statements:
| Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 | Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended | |||||||||||||
| Net income (loss) | $ | (221,654 | ) | $ | (173,467 | ) | $ | 26,072 | $ | (167,213 | ) | ||||||||||||
Net Income (Loss) | $ (302,111) |
| $ (221,654) |
| $ (532,926) |
| $ 26,072 | ||||||||||||||||
|
|
|
|
|
|
| |||||||||||||||||
| Weighted average number of shares of common stock outstanding | 157,615,632 | 137,806,264 | 150,475,853 | 134,988,604 | 260,511,076 |
| 157,615,632 |
| 249,148,356 |
| 150,475,853 | ||||||||||||
| Dilutive potential shares of common stock | 157,615,632 | 137,806,264 | 150,475,853 | 134,988,604 | 260,511,076 |
| 157,615,632 |
| 249,148,356 |
| 150,475,853 | ||||||||||||
|
|
|
|
|
|
| |||||||||||||||||
| Net income (loss) per share of common stock: |
| ||||||||||||||||||||||
| Basic | $ | (0.00 | ) | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | $ (0.00) |
| $ (0.00) |
| $ (0.00) |
| $ (0.00) | |||||
| Diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | $ (0.00) |
| $ (0.00) |
| $ (0.00) |
| $ (0.00) | |||||
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2016
Note 6 – Net Loss Per Share of Common Stock (continued)
The following securities were not included in the computation of diluted net loss per share, as their effect would have been anti-dilutive:
| Three Months Ended June 30, 2016 | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 | Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended | |||||||||||||
| Series B Convertible Preferred Stock | — | — | 1,766,830 | 1,766,830 | - |
| - |
| - |
| 1,766,830 | ||||||||||||
| Series C Convertible Preferred Stock | 63,986,319 | — | 34,190,962 | — | 72,891,560 |
| 63,986,319 |
| 76,865,377 |
| 34,190,962 | ||||||||||||
| Options and warrants to purchase common stock | 52,778,589 | 12,447,647 | 50,034,974 | 13,628,571 | 5,953,003 |
| 52,778,589 |
| 12,374,734 |
| 50,034,974 | ||||||||||||
| Secured Promissory Note | 6,165,741 | 836,735 | 6,261,574 | — | 42,139,511 |
| 6,165,741 |
| 33,939,564 |
| 6,261,574 | ||||||||||||
| Senior Convertible Redeemable Notes | 1,952,032 | 1,952,032 | 769,724 | 769,724 | - |
| 1,952,032 |
| - |
| 769,724 | ||||||||||||
|
|
|
|
|
|
| |||||||||||||||||
| Total | 15,236,414 | 15,236,414 | 16,165,125 | 16,165,125 | 120,984,074 |
| 15,236,414 |
| 123,179,675 |
| 16,165,125 | ||||||||||||
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2016
Note 7 – Stock-Based Payments
During the six months ended June 30, 2016, stock appreciation rights on 3,896,000 shares of the Company’s common stock issued to eligible employees and consultants pursuant to the Company’s 2013 Equity Incentive Plan were forfeited.
During the six months ended June 30, 2016,2017, the Company granted warrants to purchase 29,226,000833,334 shares of the Company’s common stock to consultants and to lendersinvestors in connection with loans to the Company, and warrants to purchase 36,263,440 to the Company’s officersinvestments in connection with the conversion of debt owed to the officers to equity.
On May 10, 2016, the Company entered into a Conversion Agreement with an investor whereby the investor converted (i) an Unsecured Convertible Note Payable (the “Note Payable”) due from the Company in the amount of $54,278, and (ii) warrants to purchase 3,075,000 shares of the Company’s common stock in exchange for warrants to purchase 10,000,000stock. The Company also issued 7,000,000 shares of the Company’s common stock at $0.01 per shareto vendors in consideration for a term of five years (the “Warrant”).services. The Company recorded expense of $200,000, the Warrant on the Consolidated Balance Sheet as “Additional paid-in capital, warrant” at the carryingfair value of the Note Payable.services received.
Note 8 – Gains on Extinguishment of Debt
Due to significant cash flow problems, the Company has negotiated concessions on the amounts of certain liabilities and extensions of payment terms. The Company accounts for such concessions in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 470-60, Troubled Debt Restructurings by Debtors, and ASC 405-20,Extinguishment of Liabilities, and recognizes gains to the extent that the carrying value of the liability exceeds the fair value of the restructured payment plan. Such gains are included as “Gains on extinguishment of debt” in “Other income and expenses” on the Company’s Consolidated Statement of Operations. In addition, the Company has accounts payable that have aged or are expected to age beyond the statute of limitations. The Company is amortizing those liabilities over the remaining term of the statute of limitations. Gains on extinguishment of debt amounted to $58,603$0 and $73,181$58,603 during the three months ended June 30, 20162017 and 2015,2016, respectively, and $492,583$13,693 and $1,190,446$133,521 during the six months ended June 30, 2017 and 2016, and 2015, respectively.
12
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2016 2017
Note 9 – Registration Payment Arrangements
The Company is contractually obligated to issue shares of its common stock to certain investors for failure to register shares of its common stock under the Securities Act of 1933, as amended (the “Securities Act”). The Company has recorded a liability for the estimated number of shares to be issued at the fair value of the stock to be issued. The Company measures fair value by the price of its common stock at its most recent sale. The Company reviews its estimate of the number of shares to be issued and the fair value of the stock to be issued quarterly. The liability is included on the Consolidated Balance Sheet under the heading “accrued registration payment arrangement,” and amounted to $54,732$76,337 and $522,115 at June 30, 2016,2017 and $547,315 at December 31, 2015.2016, respectively. Gains or losses resulting from changes in the carrying amount of the liability are included in the Consolidated Statement of Operations in other income and expense under the heading “registration payment arrangements”. There were no suchThe Company had gains or lossesfrom registration payment arrangements of $178,120 and $0 during the three months ended June 30, 2017 and 2016, a gain of $468,996 during the three months ended June 30, 2015,respectively, and gains of $492,583$432,578 and $1,190,446$492,583 during the six months ended June 30, 2017 and 2016, and 2015, respectively.
13
ITEM 2:MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) together with our financial statements and notes thereto as of and for the year ended December 31, 2015,2016, filed with our Annual Report on Form 10-K on April 14, 2016,2017, and our financial statements and notes thereto as of and for the three and six months ended June 30, 2016,2017, which appear elsewhere in this Quarterly Report on Form 10-Q.
We provide cloud-based geospatial solutions to accurately locate and digitally map underground pipelines and other infrastructure in three dimensions. Our professional staff offers the expertise, ability, and technologies required to design and execute solutions that are delivered in a cloud-based GIS (geographic information system) platform.
We believe that the market for aggregating and maintaining positional data for underground assets is maturing, and that business and governmental entities are beginning to understand the value of such data. We believe that this developing market presents us with an opportunity to deliver long-term value to our shareholders. In order to realize that value, our primary challenge is to raise working capital sufficient to operate our business, and investment capital to hire employees, acquire assets, and expand our business. Management is currently focused on raising capital, and planning to position our business to capitalize on the maturing market for positional data once such capital is in place, including identifying new technologies for aggregating positional data, developing our GeoUnderground software, and planning the strategies and processes for our upcoming marketing campaigns. We use financial and non-financial performance indicators to assess our business, including liquidity measures, revenues, gross margins, operating revenue, and backlog.
Liquidity and Capital Resources
At June 30, 2016,2017, we had current assets of $386,996,$276,216, and current liabilities of $2,776,887.
$2,804,844.
Our Company has incurred net losses since inception. Our operations and capital requirements have been funded by sales of our common and preferred stock, and advances from our chief executive officer.officer, and issuance of notes payable. At June 30, 2016,2017, current liabilities exceeded current assets by $2,389,891,$2,528,628, and total liabilities exceeded total assets by $2,294,006.$2,517,102. Those factors raise doubts about our ability to continue as a going concern.
In 2014, we raised approximately $2.4 million through private sales of our common stock, and approximately $272,000 through the exercise of outstanding warrants to purchase Series B Stock and common stock. We also issued common stock for services valued at $82,500, and settled $500,000 of liabilities for shares of our common stock. In 2015, we raised approximately $476,000 through private sales of our common stock, and converted our outstanding Senior Secured Redeemable Note with a balance due of approximately $1.6 million to shares of our common stock.
On January 16, 2015, we issued a Senior Secured Promissory Note to Horberg Enterprises LLC (the “Horberg Note”) in the principal amount of $500,000. The Horberg Note was due on April 8, 2015, and accrued no interest through the due date. The Horberg Note was secured by liens on all of our assets. We also issued Horberg Enterprises LLC warrants to purchase 1,500,000 shares of our common stock in consideration for its purchasing the Horberg Note. Proceeds from the issuance of the Horberg Note were used for working capital purposes. We repaid the Horberg Note on April 3, 2015.
On April 2, 2015, we issuedentered into a Note and Warrant Purchase Agreement with David M. Truitt, pursuant to which Mr. Truitt loaned us $1,000,000 pursuant to a Secured Promissory Note to David M. TruittPayable (as amended, the “Truitt Note”) in the principal amount of $1,000,000. The Truitt Note bears interest at 10% per annum. The Truitt Notethat is secured by liens onsubstantially all of ourthe Company’s assets, and is convertible intoat the holder’s option to shares of ourthe Company’s common stock at a discount to market value at the option of the holder. We also issued Mr. Truitt warrants to purchase 2,000,000 shares of our common stock in consideration for his purchasing the Truitt Note. Proceeds from the issuance of the Truitt Note were used to repay the Horberg Note and for working capital purposes.trading value. The initial due date of the Truitt Note was originally due on October 2, 2015.
On January 27,26, 2016, we entered into an Agreement and Amendment with Mr. Truitt (the “January 2016 Amendment”), pursuant to which Mr. Truitt loaned us an additional $250,000, and extended the due date of the Truitt Note to July 31, 2016. We also issued Mr. Truitt warrants to purchase 25.0 million shares of our common stock in connection with the January 2016 Amendment. On August 12, 2016, we entered into an Agreement and Amendment.
Amendment with Mr. Truitt (the “August 2016 Amendment”), pursuant to which Mr. Truitt agreed to extend the maturity date of the Truitt Note to January 31, 2017 in consideration for the Company issuing to Mr. Truitt warrants to purchase 12.0 million shares of the Company’s common stock. On November 9, 2016, we made a payment of $200,000 of the balance of the Truitt Note. On December 14, 2016, we entered into a Note and Warrant Purchase Agreement with Mr. Truitt, pursuant to which Mr. Truitt loaned the Company an additional $100,000 subject to the terms of the Truitt Note, and the Company issued to Mr. Truitt warrants to purchase 100,000 shares of the Company’s common stock. We failed to repay the Truitt Note as required on January 31, 2017, and are currently in default under the terms of the Truitt Note.
On March 16, 2016, we designated 10.0 million shares of preferred stock as Series C Convertible Preferred Stock (“Series C Stock”). Series C Stock is convertible to common stock at a conversion ratio of 20 shares of common stock for each share of Series C Stock, subject to adjustment for stock dividends, splits, and similar events. Series C Stock has a liquidation preference equal to its original issue price, and has voting rights equal to five times the number of shares of common stock into which the Series C Stock is convertible. On March 16,
During 2016, we sold 1,250,0001.5 million shares of Series C Stock to Mr. Truitt for consideration of $250,000.
During the second quarter of 2016, we sold 1,500,000$300,000, and 1.3 million shares of Series C Stock to Mr. Truitt for $300,000. Also during the second quarter of 2016, weother investors. We converted notes payable totaling approximately $197,000 to shares of Series C Stock, and we converted a note payable of approximately $54,000 to warrants to purchase common stock. We also converted approximately $1.3 million of our officers’ accrued salaries to shares of common stock, and approximately $162,000 of other liabilities to our officers to shares of Series C Stock.
On August 12, 2016, we entered into an Agreement and Amendment with Mr. Truitt pursuant to which Mr. Truitt extended We sold 1.4 million shares of common stock for $100,000. We received $472,000 from the due dateexercise of the Truitt Note to January 31, 2017. We issued Mr. Truitt warrants to purchase 12.047.2 million shares of ourcommon stock. We issued 1.0 million shares of common stock in connectionconsideration for services with the Agreementa fair value of $100,000, and Amendment.converted approximately $88,000 of liabilities to 2.8 million shares of common stock.
In 2017, we sold 13.3 million shares of common stock for $400,000. We received $38,000 for exercises of warrants to purchase 4.4 million shares of common stock, and we issued 7.0 million shares of common stock in consideration for services with a fair value of $200,000.
Management is continuing efforts to secure funding sufficient for the Company’s operating and capital requirements through private sales of Series C Stock and common stock, and to negotiate settlements or extensions of existing liabilities. The proceeds of such sales of stock, if any, will be used to repay the Truitt Note and to fund general working capital needs.
Beginning in 2012, weWe changed the focus of our company to position us to generate revenue from both data acquisition and data management. We expanded our service offerings to provide data acquisition services utilizing twelve different technologies. We developed new, cloud-based mapping software to be marketed under our existing name GeoUndergound that replacedreplaces our previous version of GeoUnderground. We currently utilize GeoUnderground to deliver data to customers. We intend to offer GeoUnderground as a subscription-based stand-alone product beginning in 2016.2017. We believe that our changes to our operating focus will enable us to begin to generate significant revenue from operations.
We believe that our actions and planned actions will enable us to finance our operations beyond the next twelve months.
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We do not believe that inflation and changing prices will have a material impact on our net sales and revenues, or on income from continuing operations.
Results of Operations
We had sales of $192,935 and $291,135 during the three and six months, respectively, ended June 30, 2017. Cost of sales were $44,032 and $86,086 for the three and six months, respectively, ended June 30, 2017. Sales were $258,800 and $440,000 during the three and six months, respectively, ended June 30, 2016. Cost of sales were $72,603 and $130,536 forduring the three and six months, respectively, ended June 30, 2016. Sales were $20,800 during each of the three and six months ended June 30, 2015. Cost of sales were $41,975 and $79,569 during the three and six months, respectively, ended June 30, 2015. Our sales have fluctuated throughout 20162017 and 20152016 as our ability to market and perform jobs was hampered by our financial condition. We expect sales and cost of sales to continue to fluctuate as our business continues to mature.
Selling, general, and administrative (“SG&A”) expenses were $555,304 and $1,037,947 for the three and six months, respectively, ended June 30, 2017. SG&A expenses were $396,901 and $776,724 for the three and six months, respectively, ended June 30, 2016. SG&A expenses were $656,697 and $1,323,339 for the three and six months, respectively, ended June 30, 2015. The decreasesincrease in SG&A costs for the three and sixmonths ended June 30, 2017 compared to the three months ended June 30, 2016 compared to the three and six months ended June 30, 2015 werewas due to decreasesincreases in payroll cost related to an increase in staffing, and professional fees due to investor relations and investment banking expenses incurred in 2017. The increases in payroll cost and professional fees were partially offset by a decrease in rent expense due to reductions in staffing necessitateda suspension of rent by our financial position.effective April 1, 2016.
Other income and expense for the three and six months, respectively, ended June 30, 2017 were net income of $104,290 and $299,972, which included interest expense of $73,830 and $146,299, gains on extinguishment of debt of $0 and $13,693, and gains related to registration payment arrangements of $178,120 and $432,578, respectively. Other income and expense for the three and six months, respectively, ended June 30, 2016 was awere net expense of $10,950 and a net income of $493,332, respectively, which included interest expense of $63,553$69,553 and $132,772, respectively, gains on extinguishment of debt of $58,603 and $133,521, respectively, and gains related to registration payment arrangements of $0 and $492,583, respectively. Other income and expense for the three and six months ended June 30, 2015 was a net income of $504,405 and a net income of $1,214,895, respectively, which included interest expense of $37,772 and $121,914, respectively, gains on extinguishment of debt of $73,181 and $146,363, respectively, and gains related to registration payment arrangements of $468,996 and $1,190,446, respectively.
The increase in interest expense in 20162017 was due to interest on the Truitt Note, in 2016. which increased due to a higher outstanding balance and a higher interest rate incurred after the due date of January 31, 2017.
Gains or expense related to registration payment arrangements result from a series of Stock Subscription Agreements we entered into in 2009 and 2010 (the “Stock Subscription Agreements”). We were required to register the shares of common stock sold pursuant to the Stock Subscription Agreements under the Securities Act. Our failure to timely register the shares of common stock under the Securities Act timely resulted in our obligation to issue additional shares (“Penalty Shares”) to investors who purchased shares pursuant to the Stock Subscription Agreements. We recorded a liability on our books for the value of the estimated number of shares to be issued. We incur losses on our registration payment arrangements when the estimated number of Penalty Shares to be issued increases, or when the value of our common stock increases. We record gains on our registration payment arrangements when the estimated number of Penalty Shares to be issued decreases, or when the value of our common stock decreases.
During the three and six months, respectively, ended June 30, 2017, we had gains related to registration payment arrangements of $178,120 and $432,578, due to decreases in the value of our common stock in both periods. We had no gain or loss related to registration payment arrangements during the three months ended June 30, 2016, we2016. We had no gains or losses related to registration payment arrangements. Duringarrangements of $492,593 during the six months ended June 30, 2016 we had gains of $492,583 related to registration payment arrangements due to a decrease in the value of our common stock. During the three and six months ended June 30, 2015, we had gains related to registration payment arrangements of $468,996 and $1,190,446, respectively, due to decreases in the value of our common stock and the estimated number of penalty shares to be issued. We expect that income or expense related to registration payment arrangements will fluctuate as the price of our common stock and the estimate of the number of Penalty Shares to be issued fluctuate.
We had no benefit from income taxes during the three and six months ended June 30, 20162017 and 2015,2016, as our deferred tax benefit was completely offset by a valuation allowance due to the uncertainty of realization of the benefit.
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of June 30, 2016. 2017.
Application of Critical Accounting Policies
We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America, which requiresrequire us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions which, in our opinion, are significant to the underlying amounts included in the financial statements and for which it would be reasonably possible that future events or information could change those estimates include:
Registration Payment Arrangements. We are contractually obligated to issue shares of our common stock to certain investors for failure to timely register their shares of our common stock under the Securities Act. We have recorded a liability for the estimated number of shares to be issued at the fair value of the stock to be issued. We review on a quarterly basis our estimate of the number of shares to be issued and the fair value of the stock to be issued.
Realization of Deferred Income Tax Assets.We provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between financial reporting and tax accounting methods and any available operating loss or tax credit carryovers. At June 30, 2016,2017, we had a deferred tax asset resulting principally from our net operating loss deduction carryforward available for tax purposes in future years. This deferred tax asset is completely offset by a valuation allowance due to the uncertainty of realization. We evaluate the necessity of the valuation allowance quarterly.
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Estimated Costs to Complete Fixed-Price Contracts.We record revenues for fixed-price contracts under the percentage-of-completion method of accounting, whereby revenues are recognized ratably as those contracts are completed. This rate is based primarily on the proportion of contract costs incurred to date to total contract costs projected to be incurred for the entire project, or the proportion of measurable output completed to date to total output anticipated for the entire project. We review our estimates of costs to complete each contract quarterly, and make adjustments if necessary. At June 30, 2016,2017, we do not believe that material changes to contract cost estimates at completion for any of ourhad no open contracts are reasonably likely to occur.contracts.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk—Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. We do not have significant short-term investments. Accordingly, we believe that we do not have a material interest rate exposure.
Foreign Currency Risk—Our functional currency is the United States dollar. We do not currently have any assets or liabilities denominated in foreign currencies. Consequently, we have no direct exposure to foreign currency risk.
Commodity Price Risk—Based on the nature of our business, we have no direct exposure to commodity price risk.
ITEM 4.CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the United States Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of Company management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) and 15d-15(e). Based upon, and as of the date of this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three and six months ended June 30, 20162017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 2.SALES OF UNREGISTERED EQUITY SECURITIES
On April 22, 2016,4, 2017, the Company converted notes payable totaling $179,815 due to an investor to 899,076issued 2,000,000 shares of its common stock to a consultant in exchange for services. The issuance was made pursuant to the Company’s Series C Convertible Preferred Stockexemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act. The consultant is an accredited investor, and the Company issued the shares of common stock without any general solicitation or advertisement, and with a restriction on resale.
Between April 13, 2017 and April 19, 2017, the Company sold 5,000,000 shares of its common stock to two investors at a price of $0.20$0.02 per share. In connection withshare, for an aggregate sales price of $100,000. The sales took place in a series of private placement transactions pursuant to the conversion,exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act and/or Regulation D. The purchasers are accredited investors, and the Company adjustedconducted the private placements without any general solicitation or advertisement, and with a restriction on resale.
On April 25, 2017, the Company issued 621,857 shares of its common stock to an investor upon exercise price of warrants to purchase 725,250common stock. Such shares were issued pursuant to the exemption from the registration requirements of the Company’sSecurities Act provided by Section 4(2) and/or Section 3(a)(9) of the Securities Act and/or Regulation D. The converting holder is an accredited investor, and the Company issued the shares without any general solicitation or advertisement, and with a restriction on resale.
On May 12, 2017, the Company issued 3,800,000 shares of common stock to an investor upon exercise of warrants to purchase common stock at an exercise price of $0.01 per share.share, for total consideration of $38,000. Such shares were issued pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) and/or Section 3(a)(9) of the Securities Act and/or Regulation D. The investor is an accredited investor, and the Company issued the shares without any general solicitation or advertisement, and with a restriction on resale.
On May 24, 2017, the Company issued 5,000,000 shares of its common stock to a consultant in exchange for services. The issuance was made pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act. The consultant is an accredited investor, and the Company issued the shares of common stock without any general solicitation or advertisement, and with a restriction on resale.
On June 13, 2017, the Company sold 3,333,334 shares of its common stock, and issued warrants purchase 333,334 shares of common stock at an exercise price of $0.04, to an investor at a price of $0.015 per share, for an aggregate sales price of $50,000. The sale took place in a private placement transaction pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act and/or Regulation D. The purchaser is an accredited investor, and the Company conducted the private placement without any general solicitation or advertisement, and with a restriction on resale.
On April 26, 2016,July 17, 2017, the Company converted notes payable totaling 17,133 due to two investors to 85,666sold 1,666,667 shares of the Company’s Series C Convertible Preferred Stockits common stock, and issued warrants purchase 166,667 shares of common stock at an exercise price of $0.04, to an investor at a price of $0.20$0.015 per share.share, for an aggregate sales price of $25,000. The sale took place in a private placement transaction pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act and/or Regulation D. The purchaser is an accredited investor, and the Company conducted the private placement without any general solicitation or advertisement, and with a restriction on resale.
On May 10, 2016, the Company converted a note payable of $54,278 due to an investor, and warrants to purchase 3,075,000 shares of the Company’s common stock, to warrants to purchase 10,000,000 shares of the Company’s common stock at an exercise price of $0.01 per share. The sale took place in a private placement transaction pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act and/or Regulation D. The purchaser is an accredited investor, and the Company conducted the private placement without any general solicitation or advertisement, and with a restriction on resale.
On May 12, 2016, the Company sold 1,500,000 shares of its Series C Convertible Preferred Stock to an investor at a price of $0.20 per share, for consideration of $300,000. The sale took place in a private placement transaction pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act and/or Regulation D. The purchaser is an accredited investor, and the Company conducted the private placement without any general solicitation or advertisement, and with a restriction on resale.
On May 18, 2016, the Company issued to Mark A. Smith, the Company’s Chief Executive Officer and Director, 19,170,831 shares of the Company’s common stock, and warrants to purchase 23,004,998 shares of the Company’s common stock at an exercise price of $0.04 per share, in conversion of $766,833 of accrued salary owed by the Company to Mr. Smith. The Company also issued to Mr. Smith 783,912 shares of the Company’s Series C Convertible Preferred stock in conversion of $156,782 of unreimbursed business expenses and unpaid rent for the Company’s offices owed by the Company to Mr. Smith. The issuances were made pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act and/or Regulation D. Mr. Smith is an accredited investor, and the Company issued the common stock, warrants, and Series C Convertible Preferred Stock without any general solicitation or advertisement and with a restriction on resale.
On May 18, 2016, the Company issued to Troy G. Taggart, the Company’s President, 5,387,241 shares of the Company’s common stock, and warrants to purchase 6,464,689 shares of the Company’s common stock at an exercise price of $0.04 per share, in conversion of $215,490 of unpaid salary owed by the Company to Mr. Taggart. The issuance was made pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act and/or Regulation D. Mr. Taggart is an accredited investor, and the Company issued the common stock and warrants without any general solicitation or advertisement and with a restriction on resale.
On May 18, 2016, the Company issued to Thomas R. Oxenreiter, the Company’s Chief Financial Officer and Director, 5,661,460 shares of the Company’s common stock, and warrants to purchase 6,793,753 shares of the Company’s common stock at an exercise price of $0.04 per share, in conversion of $226,458 of unpaid salary owed by the Company to Mr. Oxenreiter. The Company also issued to Mr. Oxenreiter 25,000 shares of the Company’s Series C Convertible Preferred stock in conversion of $5,000 of unreimbursed business expenses owed by the Company to Mr. Oxenreiter. The issuances were made pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act and/or Regulation D. Mr. Oxenreiter is an accredited investor, and the Company issued the common stock, warrants, and Series C Convertible Preferred Stock without any general solicitation or advertisement and with a restriction on resale.
On July 18, 2016, the Company issued 1,000,000 shares of its common stock to an investor at a price of $0.01 per share upon exercise of an outstanding warrant to purchase common stock. The sale took place in a private placement transaction pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act and/or Regulation D. The purchaser is an accredited investor, and the Company conducted the private placement without any general solicitation or advertisement, and with a restriction on resale.
On August 12, 2016, the Company issued to an investor warrants to purchase 2,000,000 shares of its common stock at a price of $0.25 per share, which are exercisable through August 12, 2026, and warrants to purchase 10,000,000 shares of its common stock at a price of $0.01 per share, which are exercisable through August 12, 2020. The issuance took place in a private placement transaction pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) of the Securities Act and/or Regulation D. The investor is an accredited investor, and the Company conducted the private placement without any general solicitation or advertisement, and with a restriction on resale.
The recipients of the securities in each of these transactiontransactions described above represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us.
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ITEM 6.EXHIBITS
Exhibit |
Description
Entry into a Material Definitive Agreement; Unregistered Sales of Equity Securities
On August 12, 2016, the Company entered into an Agreement and Amendment with David M. Truitt, pursuant to which Mr. Truitt agreed to extend the due date on the Secured Promissory Note dated April 2, 2015, as amended, to January 31, 2017, and the Company issued Mr. Truitt warrants to purchase 12,000,000 shares of the Company’s common stock.
Amendments to Articles of Incorporation or Bylaws; Material Modification to Rights of Security Holders
On August 15, 2016, the Company amended its Articles of Incorporation to change the number of authorized shares of common stock to 750,000,000.
31.1 | ||
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| Rule 13a-14(a) Certification of Mark A. Smith | ||
31.2 | ||
32.1 | ||
32.2 | ||
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SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 14, 2017
Geospatial Corporation (Registrant) | |||
By: | |||
/S/ MARK A. SMITH | |||
Name: Title: | Mark A. Smith | ||
Chief Executive Officer | |||
By: | |||
/S/ THOMAS R. OXENREITER | |||
Name: Title: | Thomas R. Oxenreiter | ||
Chief Financial Officer |
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