UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 2015
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION FILE NUMBER: 333-04066
GEOSPATIAL CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA | 87-0554463 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
229 Howes Run Road, Sarver, PA 16055
(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 reporting company | ☒ |
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 par value common shares outstanding at August 7, 2015: 137,806,264.
FORWARD-LOOKING STATEMENT NOTICE
When used in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions, which are not historical, constitute “Forward Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the expectations, beliefs, intentions or strategies for the future. We intend that such Forward-Looking Statements regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, operating results, and financial position be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Persons reviewing this report are cautioned that any Forward-Looking Statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the Forward-Looking Statements as a result of various factors. Such factors include general economic factors and conditions that may directly or indirectly impact the Company’s financial condition or results of operations. Readers are cautioned not to place undue reliance on these Forward-Looking Statements that speak only as of the date the statement was made.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION | 3 | |
ITEM 1. FINANCIAL STATEMENTS | 3 | |
ITEM 2. MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 16 | |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 19 | |
ITEM 4. CONTROLS AND PROCEDURES | 19 | |
PART II - OTHER INFORMATION | 20 | |
ITEM 1. LEGAL PROCEEDINGS | ||
ITEM 2. SALES OF UNREGISTERED EQUITY SECURITIES AND USE OF PROCEEDS | 20 | |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES | ||
ITEM 4. REMOVED AND RESERVED | ||
ITEM 5. OTHER INFORMATION | ||
ITEM 6. EXHIBITS | 20 |
2 |
PART I - FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
GEOSPATIAL CORPORATION
INDEX
Page | ||
FINANCIAL STATEMENTS AS OF JUNE 30, 2015 AND DECEMBER 31, 2014 AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014 | ||
Consolidated Balance Sheets (Unaudited) | 4 | |
Consolidated Statements of Operations (Unaudited) | 5 | |
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Unaudited) | 6 | |
Consolidated Statements of Cash Flows (Unaudited) | 7 | |
Notes to Unaudited Consolidated Financial Statements | 8 |
3 |
Geospatial Corporation and Subsidiaries
June 30, | December 31, | |||||||
2015 | 2014 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,794 | $ | 17,723 | ||||
Accounts receivable | 20,800 | 32,800 | ||||||
Prepaid expenses and other current assets | 325,463 | 180,689 | ||||||
Total current assets | 351,057 | 231,212 | ||||||
Property and equipment: | ||||||||
Field equipment | 339,079 | 339,079 | ||||||
Field vehicles | 43,285 | 43,285 | ||||||
Total property and equipment | 382,364 | 382,364 | ||||||
Less: accumulated depreciation | (187,705 | ) | (126,864 | ) | ||||
Net property and equipment | 194,659 | 255,500 | ||||||
Total assets | $ | 545,716 | $ | 486,712 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 602,961 | $ | 740,151 | ||||
Accrued expenses | 1,771,075 | 1,353,532 | ||||||
Due to related parties | 168,931 | 137,910 | ||||||
Notes payable to related parties | — | 29,047 | ||||||
Current portion of capital lease liability to related party | 3,429 | 3,379 | ||||||
Senior convertible redeemable notes, net of deferred debt issue costs | — | 1,525,025 | ||||||
Notes payable, net of deferred debt issue costs | 1,301,961 | 232,892 | ||||||
Accrued registration payment arrangement | 1,334,629 | 2,525,075 | ||||||
Total current liabilities | 5,182,986 | 6,547,011 | ||||||
Non-current liabilities: | ||||||||
Notes payable | 32,741 | 39,741 | ||||||
Capital lease liability to related party | 5,030 | 6,757 | ||||||
Total non-current liabilities | 37,771 | 46,498 | ||||||
Total liabilities | 5,220,757 | 6,593,509 | ||||||
Stockholders' deficit: | ||||||||
Preferred stock: | ||||||||
Undesignated, $0.001 par value; 20,000,000 shares authorized at June 30, 2015 | ||||||||
and December 31, 2014; no shares issued and outstanding June 30, 2015 and | ||||||||
December 31, 2014 | — | — | ||||||
Series B Convertible Preferred Stock, $0.001 par value; 5,000,000 shares authorized | ||||||||
at June 30, 2015 and December 31, 2014; 0 and 530,049 shares issued and | ||||||||
outstanding at June 30, 2015 and December 31, 2014, respectively | — | 530 | ||||||
Common stock, $.001 par value; 350,000,000 shares authorized at June 30, 2015 and | ||||||||
December 31, 2014; 137,806,264 and 126,235,177 shares issued and outstanding | ||||||||
at June 30, 2015 and December 31, 2014, respectively | 137,806 | 126,235 | ||||||
Additional paid-in capital | 35,184,339 | 33,596,411 | ||||||
Accumulated deficit | (39,997,186 | ) | (39,829,973 | ) | ||||
Total stockholders' deficit | (4,675,041 | ) | (6,106,797 | ) | ||||
Total liabilities and stockholders' deficit | $ | 545,716 | $ | 486,712 |
The accompanying notes are an integral part of these consolidated financial statements.
4 |
Geospatial Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Sales | $ | 20,800 | $ | 83,030 | $ | 20,800 | $ | 195,751 | ||||||||
Cost of sales | 41,975 | 46,202 | 79,569 | 95,817 | ||||||||||||
Gross profit (loss) | (21,175 | ) | 36,828 | (58,769 | ) | 99,934 | ||||||||||
Selling, general and administrative expenses | 656,697 | 640,146 | 1,323,339 | 1,243,687 | ||||||||||||
Net loss from operations | (677,872 | ) | (603,318 | ) | (1,382,108 | ) | (1,143,753 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (37,772 | ) | (39,130 | ) | (121,914 | ) | (78,908 | ) | ||||||||
Gain on extinguishment of debt | 73,181 | 164,306 | 146,363 | 235,474 | ||||||||||||
Registration payment arrangements | 468,996 | — | 1,190,446 | — | ||||||||||||
Total other income (expenses) | 504,405 | 125,176 | 1,214,895 | 156,566 | ||||||||||||
Net loss before income taxes | (173,467 | ) | (478,142 | ) | (167,213 | ) | (987,187 | ) | ||||||||
Provision for income taxes | — | — | — | — | ||||||||||||
Net loss | $ | (173,467 | ) | $ | (478,142 | ) | $ | (167,213 | ) | $ | (987,187 | ) | ||||
Basic and fully-diluted net loss per share of common stock | $ | — | $ | — | $ | — | $ | (0.01 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
Geospatial Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Deficit
For the Six Months Ended June 30, 2015
(Unaudited)
Series B | ||||||||||||||||||||||||||||||||
Convertible | ||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Preferred Stock | Additional Paid-In | Accumulated | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Subscribed | Capital | Deficit | Total | |||||||||||||||||||||||||
Balance, December 31, 2014 | 530,049 | $ | 530 | 126,235,177 | $ | 126,235 | $ | — | $ | 33,596,411 | $ | (39,829,973 | ) | $ | (6,106,797 | ) | ||||||||||||||||
Sale of common stock, net of issuance | ||||||||||||||||||||||||||||||||
costs | — | — | 120,000 | 120 | — | 29,820 | — | 29,940 | ||||||||||||||||||||||||
Conversion of Series B Convertible | ||||||||||||||||||||||||||||||||
Preferred Stock to Common Stock | (530,049 | ) | (530 | ) | 5,300,500 | 5,300 | — | (4,770 | ) | — | — | |||||||||||||||||||||
Conversion of senior convertible | ||||||||||||||||||||||||||||||||
redeemable notes to common stock | — | — | 6,150,587 | 6,151 | — | 1,562,878 | — | 1,569,029 | ||||||||||||||||||||||||
Net loss for the six months ended | ||||||||||||||||||||||||||||||||
June 30, 2015 | — | — | — | — | — | — | (167,213 | ) | (167,213 | ) | ||||||||||||||||||||||
. | ||||||||||||||||||||||||||||||||
Balance, June 30, 2015 | — | $ | — | 137,806,264 | $ | 137,806 | $ | — | $ | 35,184,339 | $ | (39,997,186 | ) | $ | (4,675,041 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
6 |
Geospatial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months | ||||||||
Ended June 30, | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (167,213 | ) | $ | (987,187 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 60,841 | 41,622 | ||||||
Amortization of deferred debt issuance costs | 46,873 | — | ||||||
Gain on extinguishment of debt | (146,362 | ) | (235,474 | ) | ||||
Accrued registration payment arrangement | (1,190,446 | ) | — | |||||
Accrued interest payable | 71,088 | 72,150 | ||||||
Changes in operating assets and liablities: | ||||||||
Accounts receivable | 12,000 | 86,170 | ||||||
Prepaid expenses and other current assets | (144,774 | ) | (94,969 | ) | ||||
Accounts payable | 9,172 | 79,940 | ||||||
Accrued expenses | 417,013 | (94,997 | ) | |||||
Due to related parties | 31,021 | 22,170 | ||||||
Other long-term liabilities | — | (6,279 | ) | |||||
Net cash used in operating activities | (1,000,787 | ) | (1,116,854 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property, plant and equipment | — | (169,576 | ) | |||||
Net cash used in investing activities | — | (169,576 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of notes payable | 1,600,000 | — | ||||||
Principal payments on notes payable | (587,155 | ) | (90,541 | ) | ||||
Principal payments on capital lease liabilities | (1,677 | ) | (1,629 | ) | ||||
Deferred debt issuance costs paid | (53,250 | ) | — | |||||
Proceeds from sale of common stock, net of offering costs | 29,940 | 2,061,296 | ||||||
Proceeds from exercise of warrants to purchase common stock, net of offering costs | — | 5,332 | ||||||
Proceeds from exercise of warrants to purchase Series B Convertible Preferred Stock, | ||||||||
net of offering costs | — | 266,571 | ||||||
Repurchase of shares of common stock for cancellation | — | (1,114,688 | ) | |||||
Net cash provided by financing activities | 987,858 | 1,126,341 | ||||||
Net change in cash and cash equivalents | (12,929 | ) | (160,089 | ) | ||||
Cash and cash equivalents at beginning of period | 17,723 | 778,597 | ||||||
Cash and cash equivalents at end of period | $ | 4,794 | $ | 618,508 | ||||
Supplemental disclosures: | ||||||||
Cash paid during period for interest | $ | 3,953 | $ | 6,758 | ||||
Cash paid during period for income taxes | — | — | ||||||
Non-cash transactions: | ||||||||
Conversion of senior convertible redeemable notes to common stock | 1,569,029 | — |
The accompanying notes are an integral part of these consolidated financial statements.
7 |
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2015
Note 1 – Basis of Presentation
The Unaudited Consolidated Financial Statements included herein have been prepared by Geospatial Corporation (the “Company”) in accordance with generally accepted accounting principles for interim financial information and regulations contained in 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, 2015 should be read in conjunction with the Company’s Financial Statements as of and for the year ended December 31, 2014. 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 Condensed Consolidated Financial Statements, are of a normal and recurring nature. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, 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 Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiary, Geospatial Mapping Systems, Inc. All intercompany accounts and transactions have been eliminated.
Note 2 – Accrued Expenses
Accrued expenses consisted of the following:
June 30, | December 31, | |||||||
2015 | 2014 | |||||||
Payroll and taxes | $ | 1,393,157 | $ | 1,134,918 | ||||
Accounting | 59,048 | 67,280 | ||||||
Insurance | 126,288 | 33,902 | ||||||
Contractors and subcontractors | 118,083 | 60,848 | ||||||
Other | 74,499 | 56,584 | ||||||
Accrued expenses | $ | 1,771,075 | $ | 1,353,532 |
8 |
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2015
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. The Company incurred $19,500 of lease expense during the three months ended June 30, 2015 and 2014, and $39,000 of lease expense during the six months ended June 30, 2015 and 2014. The lease is cancellable by either party upon 30 days’ notice.
On November 9, 2012, the Company and Mr. Smith entered into a Lease Agreement, pursuant to which the Company 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 $65 and $137 for the three months and six months, respectively, ended June 30, 2015, and $89 and $185 for the three and six months, respectively, ended June 30, 2014. The lease is recorded as a capital lease. At June 30, 2015, gross assets recorded under the lease and associated accumulated depreciation were $16,870 and $8,857, respectively. Future minimum payments under the capital lease are as follows as of June 30, 2015:
Balance of 2015 | $ | 1,812 | ||
Year ending December 31, 2016 | 3,628 | |||
Year ending December 31, 2017 | 3,326 | |||
Thereafter | — | |||
Total minimum payments | 8,766 | |||
Less: minimum interest payments | (307 | ) | ||
Minimum principal payments | $ | 8,459 |
9 |
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2015
Note 4 – Notes Payable
Current notes payable consisted of the following:
June 30, 2015 | December 31, 2014 | |||||||
Secured Promissory Note payable to an individual, due October 2, 2015, bearing interest at 10% per annum, plus warrants to purchase the common stock | $ | 1,018,345 | $ | — | ||||
Unsecured Convertible Promissory Note payable to an individual, due May 14, 2014, bearing interest at 10% plus warrants to purchase common stock | 51,514 | — | ||||||
Unsecured Convertible Promissory Note payable to an individual, due July 31, 2015, bearing interest at 10% per annum, plus warrants to purchase common stock | 50,194 | — | ||||||
Current portion of long-term notes payable | 181,908 | 232,892 | ||||||
Current notes payable | $ | 1,301,961 | $ | 232,892 |
Long-term notes payable consisted of the following:
June 30, 2015 | December 31, 2014 | |||||||
Notes payable under settlement agreements with former employees, payable monthly with terms of up to 39 months, with interest rates ranging from 0% to 4% | $ | 167,908 | $ | 218,892 | ||||
Notes payable under settlement agreements with vendors, payable monthly with terms of up to 60 months, with interest rates ranging from 0% to 32% | 46,741 | 53,741 | ||||||
Total long-term notes payable | 214,649 | 272,633 | ||||||
Less: current portion | (181,908 | ) | (272,892 | ) | ||||
Long-term notes payable, less current portion | $ | 32,741 | $ | 39,741 |
Future maturities of long-term debt are as follows as of June 30, 2015:
Balance of 2015 | $ | 174,908 | ||
Year ending December 31, 2016 | 14,000 | |||
Year ending December 31, 2017 | 14,000 | |||
Year ending December 31, 2018 | 11,741 | |||
Thereafter | — | |||
$ | 214,649 |
10 |
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2015
Note 5 – Income Taxes
The Company’s provision for (benefit from) income taxes is summarized below:
Three Months Ended June 30, 2015 | Three Months Ended | Six Months Ended June 30, 2015 | Six Months Ended | |||||||||||||
Current: | ||||||||||||||||
Federal | $ | — | $ | — | $ | — | $ | — | ||||||||
State | — | — | — | — | ||||||||||||
— | — | — | — | |||||||||||||
Deferred: | ||||||||||||||||
Federal | (297,847 | ) | (149,132 | ) | (522,590 | ) | (308,982 | ) | ||||||||
State | (94,555 | ) | (47,344 | ) | (165,902 | ) | (98,089 | ) | ||||||||
(392,402 | ) | (196,476 | ) | (688,492 | ) | (407,071 | ) | |||||||||
Total income taxes | (392,402 | ) | (196,476 | ) | (688,492 | ) | (407,071 | ) | ||||||||
Less: valuation allowance | 392,402 | 196,476 | 688,492 | 407,071 | ||||||||||||
Net income taxes | $ | — | $ | — | $ | — | $ | — |
The reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||
Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||
State income taxes (net of federal benefit) | 6.5 | 6.5 | 6.5 | 6.5 | ||||||||||||
Valuation allowance | (41.5 | ) | (41.5 | ) | (41.5 | ) | (41.5 | ) | ||||||||
Effective rate | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % |
11 |
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2015
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, 2015 |
December 31, 2014 | |||||||
Start-up costs | $ | 42,408 | $ | 47,325 | ||||
Depreciation | (37,029 | ) | (37,684 | ) | ||||
Accrued expenses | 484,747 | 378,020 | ||||||
Net operating loss carryforward | 15,559,588 | 14,973,562 | ||||||
Deferred income taxes | 16,049,714 | 15,361,223 | ||||||
Less: valuation allowance | (16,049,714 | ) | (15,361,223 | ) | ||||
Net deferred income taxes | $ | — | $ | — |
At June 30, 2015, the Company had federal and state net operating loss carryforwards of approximately $37,493,000. 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.
12 |
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2015
Note 6 – Net Loss Per Share of Common Stock
Basic net loss per share 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 loss per share reflects per share amounts that would have resulted if dilutive potential common stock had been converted to common stock. Dilutive 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, 2015 | Three Months Ended June 30, 2014 | Six Months Ended June 30, 2015 | Six Months Ended June 30, 2014 | |||||||||||||
Net loss | $ | (173,467 | ) | $ | (478,142 | ) | $ | (167,213 | ) | $ | (987,187 | ) | ||||
Weighted average number of shares of common stock outstanding | 137,806,264 | 100,867,638 | 134,988,604 | 95,601,622 | ||||||||||||
Dilutive potential shares of common stock | 137,806,264 | 100,867,638 | 134,988,604 | 95,601,622 | ||||||||||||
Net loss per share of common stock: | ||||||||||||||||
Basic | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | ||||
Diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) |
13 |
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2015
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, 2015 | Three Months Ended June 30, 2014 | Six Months Ended June 30, 2015 | Six Months Ended June 30, 2014 | |||||||||||||
Series B Convertible Preferred Stock | — | 23,153,050 | 1,766,830 | 23,153,050 | ||||||||||||
Options and warrants to purchase common stock | 12,447,647 | 10,886,702 | 13,628,571 | 11,245,045 | ||||||||||||
Warrants to purchase Series B Convertible Preferred Stock | — | 2,377,343 | — | 2,415,287 | ||||||||||||
Unsecured Convertible Promissory Notes | — | — | — | — | ||||||||||||
Secured Promissory Note | 836,735 | — | — | |||||||||||||
Senior Convertible Redeemable Notes | 1,952,032 | 2,899,917 | 769,724 | 2,899,917 | ||||||||||||
Total | 15,236,414 | 39,317,012 | 16,165,125 | 39,713,299 |
14 |
Geospatial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 2015
Note 7 – Stock-Based Payments
During the six months ended June 30, 2015, the Company granted stock appreciation rights on 362,500 shares of the Company’s common stock to an eligible consultant pursuant to the 2013 Equity Incentive Plan.
During the six months ended June 30, 2015, the Company granted warrants to purchase 3,661,750 shares of the Company’s common stock to lenders in connection with loans to the Company, and warrants to purchase 1,300,000 shares of the Company’s common stock to consultants.
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 470-60, Troubled Debt Restructurings by Debtors, 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 $73,181 and $164,306 during the three months ended June 30, 2015 and 2014, respectively, and $146,363 and $235,474 during the six months ended June 30, 2015 and 2014, respectively.
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 $1,334,629 at June 30, 2015, and $2,525,075 at December 31, 2014. 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” which amounted to gains of $468,996 and $1,190,446 during the three and six months, respectively, ended June 30, 2015. There were no such gains or losses during the three and six months ended June 30, 2014.
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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, 2014, and for the three months ended March 31, 2015, filed with our Registration Statement on Form S-1 on June 12, 2015, and our financial statements and notes thereto as of and for the three and six months ended June 30, 2015, 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
AtJune 30,2015,wehadcurrentassetsof$351,057,andcurrentliabilitiesof$5,182,986.
Our Companyhasincurrednetlossessinceinception.Ouroperationsandcapitalrequirementshavebeenfundedbysalesofourcommonandpreferredstock andadvancesfromourchiefexecutiveofficer.At June 30,2015,currentliabilitiesexceededcurrentassetsby$4,831,929,andtotalliabilitiesexceededtotalassetsby $4,675,041.Thosefactorsraisedoubtsaboutourabilitytocontinueasagoingconcern.
In 2012,weraisedapproximately$632,000incashthroughprivatesalesofourSeriesBConvertiblePreferredStock(“SeriesBStock”),andconvertedapproximately$215,000 inliabilitiestoSeriesBStock.In2013,weraisedapproximately$3,246,000throughprivatesalesofourSeriesBStockandcommonstock,andconvertedapproximately$4,926,000 ofliabilitiestoSeriesBStockandcommonstock.During2014,weraisedapproximately$2,430,000throughprivatesalesofourcommonstock,andapproximately$272,000throughtheexerciseofoutstandingwarrantstopurchaseSeriesBStockandcommonstock.Inaddition,wehavenegotiatedsettlementsorlong-termextensionsonapproximately$1,776,000ofliabilitiesfrom2012through2014.WeenteredintoanagreementwithReductNV,licensorofourformerexclusivetechnology,onMay10,2013thateliminatesallpriorliabilitiestoReductinconsiderationfortheissuanceof9,000,000sharesofourcommonstock,warrantstopurchase3,500,000sharesofourcommonstock,andpurchasesof$300,000ofequipmentfromReduct.Theagreementallowsustopurchasetheirproductsonanon-exclusivebasiswithouttheminimumpurchaserequirementstomaintaintheexclusivelicense.OnFebruary26,2015,anoutstandingSeniorSecuredRedeemableNotewithabalancedueofapproximately$1.6millionwasconvertedintosharesofourcommonstock.
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On January16,2015,weissuedaSeniorSecuredPromissoryNotetoHorbergEnterprisesLLC(the“HorbergNote”)in theprincipalamountof$500,000.TheHorbergNotewasdueonApril8,2015,andaccruednointerestthroughtheduedate.TheHorbergNotewassecuredbyliensonallofourassets.WealsoissuedHorbergEnterprisesLLCwarrantstopurchase1,500,000sharesofourcommonstockinconsiderationforitspurchasingtheHorbergNote.ProceedsfromtheissuanceoftheHorbergNotewereusedforworkingcapitalpurposes.WerepaidtheHorbergNoteonApril3,2014.
On April2,2015,weissuedaSecuredPromissoryNotetoDavidM.Truitt(the“TruittNote”)intheprincipalamountof$1,000,000.TheTruittNoteisdueonOctober2,2015,andbearsinterestat10%perannum.TheTruittNoteissecuredbyliensonallofourassets,andisconvertibleintosharesofourcommonstockattheoptionoftheholder.Wealsoissued Mr.Truittwarrantstopurchase2,000,000sharesofourcommonstockinconsiderationforhispurchasingtheTruittNote.ProceedsfromtheissuanceoftheTruittNotewereusedtorepaytheHorbergNoteandforworkingcapitalpurposes.
On September17,2014,weenteredintoanAssetPurchaseAgreementtoacquiresubstantiallyalltheassetsofSelectAnalyticsLLC,acompanythatoperatestheShaleNavigatorwebsite,andisengagedinthebusinessofaggregating,managing,andsellinginfrastructuredata.PursuanttotheAssetPurchaseAgreement,wewillberequiredtopay$160,000incashandissue550,000sharesoftheCompany’scommonstocktothesellerduring2015.
Management iscontinuingeffortstosecurefundingsufficientfortheCompany’soperatingandcapitalrequirementsthroughprivatesalesofcommonstock,andtonegotiatesettlementsorextensionsofexistingliabilities.Theproceedsofsuchsalesofstock,ifany,willbeusedtofundgeneralworkingcapitalneeds.
Beginning in2012,wechangedthefocusofourcompanytopositionustogeneraterevenuefromdataacquisitionanddatamanagement.Weexpandedourserviceofferingstoprovidedataacquisitionservicesutilizingtwelvedifferenttechnologies.Wedevelopednew,cloud-basedmappingsoftwaretobemarketedunderourexistingnameGeoUndergoundthatreplacesourpreviousversionofGeoUnderground.WecurrentlyutilizeGeoUnderground todeliverdatatocustomers.WeintendtoofferGeoUndergroundasasubscription-basedstand-aloneproduct beginninginthefirstquarterof 2015.In2014,weenteredintoanagreementtoacquirethe ShaleNavigatorwebsite,whichweintendtoincorporateintoGeoUnderground.WeexpecttohavetheShaleNavigatorwebsiteincorporatedintoGeoUnderground, andtorealizerevenuefromShaleNavigatorsubscriptionsandsalesofdatabeginningin2015.Webelievethatourchangestoouroperatingfocus willenableustobegintogeneratesignificantrevenuefromoperations.
We believe that our actions and planned actions will enable us to finance our operations beyond the next twelve months.
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 $20,800 during each of the three and six months ended June 30, 2015. Cost of sales were $41,975 and $79,569 for the three and six months, respectively, ended June 30, 2015. Forthethree and sixmonthsended June 30,2014,sales were $83,030 and $195,751, respectively,andcostofsaleswere$46,202and$95,817,respectively.Oursaleshavefluctuatedthroughout2015and2014asourabilitytomarketandperformjobswashamperedbyourfinancialcondition.Weexpectsalesandcostofsalestocontinuetofluctuateasourbusinesscontinuestomature.
Selling, general, and administrative (“SG&A”) expenses were $656,697 and $1,323,339 for the three and six months ended June 30, 2015, respectively, compared to $640,146 and $1,243,687 for the three and six months, respectively, ended June 30, 2014. The increase in SG&A costs for the three and six months ended June 30, 2015 compared to the three and six months ended June 30, 2014 were due to increased payroll costs related to our expanded technical staff in 2015.
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Other incomeandexpenseforthethree and sixmonthsended June 30,2015wasanetincomeof$504,405 and $1,214,895, respectively,whichincludedinterestexpenseof$37,772 and $121,914, respectively,gains onextinguishmentofdebtof$73,181 and $146,363, respectively, andgainsrelatedtoregistrationpaymentarrangementsof$468,996 and $1,190,446, respectively.Otherincomeandexpenseforthethree and sixmonthsended June 30,2014wasanetincomeof$125,176 and $156,566, respectively,whichincludedinterestexpenseof$39,130 and $78,908, respectively,andgainsonextinguishmentofdebtof$164,306 and $235,474, respectively.Theincreaseininterestexpensein2015wasdue tointerestonnewloansin2015,andinterestonhigherbalancesforexistingloans.Thegainsonextinguishmentofdebtresultedfromsettlementagreementsonpriorliabilities.
Gains orexpenserelatedtoregistrationpaymentarrangementsresultfromaseriesofStockSubscriptionAgreementsweenteredintoin2009and2010(the“StockSubscriptionAgreements”).We arerequiredtoregisterthesharesofcommonstocksoldpursuanttotheStockSubscriptionAgreementsundertheSecurities Act.OurfailuretoregisterthesharesofcommonstockundertheSecuritiesActresultedinourobligationtoissueadditionalshares(“PenaltyShares”) toinvestorswhopurchasedsharespursuanttotheStockSubscriptionAgreements.We recorded aliabilityonourbooksforthevalueoftheestimatednumberofsharestobeissued.WeincurlossesonourregistrationpaymentarrangementswhentheestimatednumberofPenaltySharestobeissuedincreases,orwhenthevalueofourcommonstockincreases.WerecordgainsonourregistrationpaymentarrangementswhentheestimatednumberofPenaltySharestobeissueddecreases,orwhenthevalueofourcommonstockdecreases.
During thethree and sixmonthsended June 30,2015,wehadgainsrelatedtoregistrationpaymentarrangementsduetodecreasesinthevalueofourcommonstock and the estimated number of Penalty Shares to be issued.Wehad nogainsorexpenserelatedtoregistrationpaymentarrangements duringthethree and sixmonthsended June 30,2014.Weexpectthatincomeorexpenserelatedtoregistrationpaymentarrangements willfluctuateasthepriceofourcommonstockandtheestimateofthenumberofPenaltySharestobeissuedfluctuate.
We hadnobenefitfromincometaxesduringthethree and sixmonthsended June 30,2015or2014,asourdeferredtaxbenefitwascompletelyoffsetbyavaluationallowanceduetotheuncertaintyofrealizationofthebenefit.
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of June 30, 2015.
Application of Critical Accounting Policies
We prepareour financialstatements inconformity withaccounting principlesgenerally acceptedintheUnited StatesofAmerica, whichrequiresusto makeestimatesandassumptions thataffectthereported amountsofassetsand liabilitiesanddisclosuresof contingentassetsandliabilities atthedate ofthe financialstatements,andthereportedamounts ofrevenuesandexpenses duringthereporting period.Actualresultscould differfromthoseestimates. Estimatesandassumptionswhich, inouropinion,are significanttotheunderlying amountsincludedinthe financialstatementsandfor whichit wouldbereasonably possiblethatfutureeventsorinformationcouldchange thoseestimatesinclude:
Registration Payment Arrangements.Weare contractuallyobligatedtoissuesharesofourcommon stocktocertaininvestors forfailuretoregister theirsharesofour commonstockunderthe Securities Act.Wehave recordedaliability fortheestimatednumber ofsharestobe issuedatthefair valueofthestock tobeissued.We reviewonaquarterlybasis ourestimateofthenumberofsharestobeissued andthefairvalue ofthestocktobeissued.
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Realization of Deferred Income Tax Assets.We provideanetdeferred taxassetorliability equaltotheexpectedfuturetaxbenefitorexpenseoftemporary reportingdifferencesbetweenfinancial reportingandtaxaccounting methodsandanyavailable operatinglossortax creditcarryovers.At June 30,2015,wehadadeferred taxassetresultingprincipally fromournetoperating lossdeductioncarryforwardavailable fortaxpurposesin futureyears.Thisdeferred taxassetiscompletely offsetbyavaluationallowancedue totheuncertaintyof realization.Weevaluatethenecessityofthevaluation allowancequarterly.
Estimated Costs to Complete Fixed-Price Contracts.Werecordrevenues forfixed-price contractsunderthepercentage-of-completionmethod of accounting,wherebyrevenuesare recognizedratablyasthosecontractsarecompleted.Thisrateisbasedprimarilyon theproportionofcontract costsincurredtodate tototalcontractcosts projectedtobeincurredfortheentireproject,or theproportionofmeasurableoutputcompleted todatetototal outputanticipatedforthe entireproject.Wereviewourestimatesofcoststocompleteeach contractquarterly,andmake adjustmentsifnecessary.AtJune 30,2015,we donotbelievethat materialchangestocontractcostestimatesatcompletionforany ofouropencontracts arereasonablylikelytooccur.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest RateRisk—Interest raterisk refersto fluctuationsin thevalue ofasecurityresulting fromchangesinthe generallevelofinterest rates.Wedonot havesignificantshort-terminvestments.Accordingly,webelieve thatwedonot haveamaterial interestrateexposure.
Foreign CurrencyRisk—Our functionalcurrency isthe UnitedStates dollar.We donot currentlyhaveanyassetsorliabilitiesdenominatedinforeign currencies.Consequently,wehave nodirectexposuretoforeigncurrencyrisk.
CommodityPrice 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
TheCompany 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
Therewere no changes in our internal control over financial reporting during the three months ended June 30, 2015 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 AND USE OF PROCEEDS |
OnJune16,2015,theCompanyissuedwarrantstopurchase 150,000sharesoftheCompany’scommonstockatanexercisepriceof$0.20persharetoaconsultant. Theissuancewasmade pursuanttotheexemption fromtheregistrationrequirements oftheSecuritiesAct providedbySection4(2) oftheSecuritiesAct and/orRegulationD.Therecipientisanaccreditedinvestor,andtheCompany issuedthewarrantswithout anygeneralsolicitationor advertisementandwitharestrictionon resale.
OnJune 17,2015,the Companyissuedtoalenderan UnsecuredConvertiblePromissoryNote intheprincipalamount of$50,000,whichis convertibleintosharesofcommonstockattheoption oftheholder, andwarrantstopurchase 75,000sharesofitscommon stockatanexercisepriceof$0.20pershare. Theissuancewasmade pursuanttotheexemption fromtheregistrationrequirements oftheSecuritiesAct providedbySection4(2) oftheSecuritiesAct and/orRegulationD.The recipientisanaccreditedinvestor,andtheCompanyissued theNoteandthewarrantswithout anygeneralsolicitationor advertisementandwitharestrictionon resale.
ITEM 6. | EXHIBITS |
Exhibit | Description | |
31.1 | Rule 13a-14(a) Certification of Mark A. Smith | |
31.2 | Rule 13a-14(a) Certification of Thomas R. Oxenreiter | |
32.1 | Section 1350 Certification of Chief Executive Officer | |
32.2 | Section 1350 Certification of Chief Financial Officer | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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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.
Geospatial Corporation | ||||
(Registrant) | ||||
Date: August 14, 2015 | By: | /S/ MARK A. SMITH | ||
Name: | Mark A. Smith | |||
Title: | Chief Executive Officer | |||
By: | /S/ THOMAS R. OXENREITER | |||
Name: | Thomas R. Oxenreiter | |||
Title: | Chief Financial Officer |
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