10-Q 1 airfox_10q.htm QUARTERLY REPORT Quarterly Report


 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


———————————


FORM 10-Q


þ

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


For the quarterly period ended December 31, 2019


OR


¨

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


For the transition period from _____________ to ____________


Commission File Number: 000-56037


CarrierEQ, Inc.

(Exact name of registrant as specified in its charter)


Delaware

 

81-1188636

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

186 Lincoln Street, Third Floor, Boston, MA

 

02111

(Address of principal executive offices)

 

(Zip Code)


(617) 841-7207

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act: None


Title of each class

Trading Symbol(s)

Name of each exchange on which registered

 

 

 


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


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


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


Large accelerated filer ¨

 

Accelerated filer ¨

Non-accelerated filer þ

 

Smaller reporting company þ

 

 

Emerging growth company þ


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


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


The number of shares of the registrant’s common stock outstanding as of February 19, 2020 was 7,753,069.

 

  







CARRIEREQ, INC. d/b/a AIRFOX AND SUBSIDIARIES


 

 

 

 

PART I — FINANCIAL INFORMATION

Item 1

Financial Statements

 

1

 

Condensed Consolidated Balance Sheets

 

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

3

 

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

 

4

 

Condensed Consolidated Statements of Cash Flows

 

5

 

Notes to Condensed Consolidated Financial Statements

 

6

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

33

Item 4

Controls and Procedures

 

33

 

 

 

 

PART II — OTHER INFORMATION

Item 1

Legal Proceedings

 

36

Item 1A

Risk Factors

 

36

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

Item 3

Defaults upon Senior Securities

 

36

Item 4

Mine Safety Disclosures

 

36

Item 5

Other Information

 

36

Item 6

Exhibits

 

37

 

 

 

 

Signatures

 

 

39








i



 


PART I — FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


CARRIEREQ, INC. d/b/a AIRFOX AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


 

 

December 31,
2019

(unaudited)

 

 

September 30,
2019

(audited)

 

ASSETS

  

                      

  

  

                      

  

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,827,650

 

 

$

5,451,348

 

Restricted cash

 

 

10,750,129

 

 

 

 

Short-term investments

 

 

103,957

 

 

 

100,576

 

Accounts receivable, net

 

 

1,880

 

 

 

15,836

 

Prepaid expenses and other current assets

 

 

948,434

 

 

 

819,358

 

Digital assets

 

 

 

 

 

1,392

 

Total current assets

 

 

14,632,050

 

 

 

6,388,510

 

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

 

Intangibles, net

 

 

3,073,539

 

 

 

1,773,312

 

Property and equipment, net

 

 

4,709

 

 

 

1,077

 

Security deposits

 

 

1,558,296

 

 

 

1,548,396

 

Operating lease right of use assets

 

 

2,308,863

 

 

 

 

Total non-current assets

 

 

6,945,407

 

 

 

3,322,785

 

Total assets

 

$

21,577,457

 

 

$

9,711,295

 




The accompanying notes are an integral part of these condensed consolidated financial statements


1



 


CARRIEREQ, INC. d/b/a AIRFOX AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


 

 

December 31,
2019

(unaudited)

 

 

September 30,
2019

(audited)

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,748,449

 

 

$

821,612

 

Accrued liabilities

 

 

1,712,995

 

 

 

1,385,095

 

Deferred revenue

 

 

16,336,721

 

 

 

237,111

 

Deferred revenue - AirToken Project, current portion

 

 

5,011,926

 

 

 

5,011,926

 

Airtoken refund liability

 

 

586,293

 

 

 

3,241,948

 

Operating lease liability, current portion

 

 

367,709

 

 

 

 

Deferred gain on issuance of AirTokens for services, current portion

 

 

158,713

 

 

 

158,713

 

Total current liabilities

 

 

25,922,806

 

 

 

10,856,405

 

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Simple agreement for future equity

 

 

239,899

 

 

 

239,899

 

Convertible notes payable - long-term portion

 

 

10,000,000

 

 

 

10,000,000

 

Deferred gain on issuance of AirTokens for services, net of current portion

 

 

198,399

 

 

 

238,077

 

Operating lease liability, net of current portion

 

 

2,016,764

 

 

 

 

Deferred revenue - AirToken Project, net of current portion

 

 

6,264,921

 

 

 

7,517,898

 

Total liabilities

 

 

44,642,789

 

 

 

28,852,279

 

     

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Convertible Preferred stock; Series One; par value $0.00001; 2,678,861 shares authorized; 2,652,072 shares issued and outstanding as of December 31, 2019 and September 30, 2019

 

 

27

 

 

 

27

 

Convertible Preferred stock; Series One A; par value $0.00001; 1,046,147 shares authorized; 1,046,147 shares issued and outstanding as of December 31, 2019 and September 30, 2019

 

 

11

 

 

 

11

 

Common stock; par value $0.00001; 70,000,000 shares authorized; 7,851,331 shares issued and 6,936,438 shares outstanding as of December 31, 2019; 7,728,821 shares issued and 6,813,928 shares outstanding as of September 30, 2019

 

 

79

 

 

 

78

 

Treasury stock, at cost, 914,893 shares as of December 31, 2019 and September 30, 2019

 

 

(240,005

)

 

 

(240,005

)

Additional paid-in capital

 

 

2,091,168

 

 

 

2,014,658

 

Accumulated deficit

 

 

(24,924,899

)

 

 

(21,025,864

)

Accumulated other comprehensive income

 

 

8,787

 

 

 

110,363

 

Total stockholders' deficit attributable to CarrierEQ, Inc. stockholders

 

 

(23,064,832

)

 

 

(19,140,732

)

Non-controlling interest in subsidiary

 

 

(500

)

 

 

(252

)

Total stockholders' deficit

 

 

(23,065,332

)

 

 

(19,140,984

)

Total liabilities and stockholders' deficit

 

$

21,577,457

 

 

$

9,711,295

 




The accompanying notes are an integral part of these condensed consolidated financial statements


2



 


CARRIEREQ, INC. d/b/a AIRFOX AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)


 

 

Three Months Ended
December 31,
(unaudited)

 

 

 

2019

 

 

2018

 

 

  

                      

  

  

                      

  

Revenue

 

$

1,254,739

 

 

$

247

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

5,206,039

 

 

 

1,204,432

 

Impairment of digital assets

 

 

 

 

 

1,079

 

Total operating expenses

 

 

5,206,039

 

 

 

1,205,511

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(3,951,300)

 

 

 

(1,205,264

)

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

Realized loss on sale of digital assets

 

 

(1,392)

 

 

 

(90,940

)

Gain on AirToken issuance for services

 

 

39,678

 

 

 

175,716

 

Interest (expense) income, net

 

 

(32,900

)

 

 

10,152

 

Other income, net

 

 

5,386

 

 

 

94,928

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(3,945,914

)

 

 

(1,110,336

)

 

 

 

 

 

 

 

 

 

Income tax benefit (expense)

 

 

46,631

 

 

 

(1,627

)

 

 

 

 

 

 

 

 

 

Net loss

 

 

(3,899,283

)

 

 

(1,111,963

)

Net loss attributable to non-controlling interest

 

 

248

 

 

 

5

 

Net loss attributable to CarrierEQ, Inc.

 

 

(3,899,035

)

 

 

(1,111,958

)

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(101,576

)

 

 

9,763

 

Total comprehensive loss

 

$

(4,000,611

)

 

$

(1,102,195

)






The accompanying notes are an integral part of these condensed consolidated financial statements


3



 




CARRIEREQ, INC. d/b/a AIRFOX AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

Non-

 

 

 

 

 

Total

 

 

 

(Series One)

 

 

(Series One A)

 

 

Common Stock

 

 

Treasury Stock

 

 

Paid-In

 

 

Comprehensive

 

 

controlling

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Interest

 

 

Deficit

 

 

Deficit

 

 

  

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                        

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

Balance at September 30, 2019 (audited)

 

 

2,652,072

 

 

$

27

 

 

 

1,046,147

 

 

$

11

 

 

 

6,813,928

 

 

$

78

 

 

 

914,893

 

 

$

(240,005

)

 

$

2,014,658

 

 

$

110,363

 

 

$

(252

)

 

$

(21,025,864

)

 

$

(19,140,984

)

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42,588

 

 

 

 

 

 

 

 

 

 

 

 

42,588

 

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

122,510

 

 

 

1

 

 

 

 

 

 

 

 

 

33,922

 

 

 

 

 

 

 

 

 

 

 

 

33,923

 

Noncontrolling Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(248

)

 

 

 

 

 

(248

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,899,035

)

 

 

(3,899,035

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(101,576

)

 

 

 

 

 

 

 

 

(101,576

)

Balance at December 31, 2019 (unaudited)

 

 

2,652,072

 

 

$

27

 

 

 

1,046,147

 

 

$

11

 

 

 

6,936,438

 

 

$

79

 

 

 

914,893

 

 

$

(240,005)

 

 

$

2,091,168

 

 

$

8,787

 

 

$

(500

)

 

$

(24,924,899

)

 

$

(23,065,332

)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

Non-

 

 

 

 

 

Total

 

 

 

(Series One)

 

 

(Series One A)

 

 

Common Stock

 

 

Treasury Stock

 

 

Paid-In

 

 

Comprehensive

 

 

controlling

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Interest

 

 

Deficit

 

 

Deficit

 

 

  

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

 

 

                        

 

 

 

                      

 

 

 

                      

 

 

 

                      

 

Balance at September 30, 2018 (audited)

 

 

2,652,072

 

 

$

27

 

 

 

1,046,147

 

 

$

11

 

 

 

6,745,595

 

 

$

76

 

 

 

914,893

 

 

$

(240,005

)

 

$

1,884,566

 

 

$

(302

)

 

$

(2

)

 

$

(11,001,067

)

 

$

(9,356,696

)

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,333

 

 

 

1

 

 

 

 

 

 

 

 

 

2,999

 

 

 

 

 

 

 

 

 

 

 

 

3,000

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,618

 

 

 

 

 

 

 

 

 

 

 

 

23,618

 

Non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

 

 

 

(5

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,111,958

)

 

 

(1,111,958

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,763

 

 

 

 

 

 

 

 

 

9,763

 

Balance at December 31, 2018 (unaudited)

 

 

2,652,072

 

 

$

27

 

 

 

1,046,147

 

 

$

11

 

 

 

6,778,928

 

 

$

77

 

 

 

914,893

 

 

$

(240,005

)

 

$

1,911,183

 

 

$

9,461

 

 

$

(7

)

 

$

(12,113,025

)

 

$

(10,432,278

)





The accompanying notes are an integral part of these condensed consolidated financial statements


4



 


CARRIEREQ, INC. d/b/a AIRFOX AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


 

 

Three Months Ended
December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

  

                      

  

  

                      

  

Net loss

 

$

(3,899,283

)

 

$

(1,111,963

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Amortization

 

 

36,757

 

 

 

24,877

 

Stock based compensation

 

 

42,588

 

 

 

23,618

 

Impairment of digital assets

 

 

 

 

 

1,079

 

Realized loss on sale of digital assets

 

 

1,392

 

 

 

90,940

 

Gain on issuance of AirTokens for services

 

 

(39,678

)

 

 

(175,716

)

Changes in Assets and Liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

13,956

 

 

 

253,936

 

Prepaid expenses and other current and long-term assets

 

 

(103,795

)

 

 

(21,834

)

Accounts payable

 

 

926,837

 

 

 

242,096

 

Operating lease right of use assets and liabilities

 

 

40,429

 

 

 

 

Accrued liabilities and other current liabilities

 

 

159,083

 

 

 

(1,054,424

)

Deferred revenue – AirToken Project

 

 

(1,252,977

)

 

 

 

Deferred revenue – Mastercard Program Agreement

 

 

16,092,700

 

 

 

 

AirToken refund liability

 

 

(2,655,655

)

 

 

 

Net cash provided by (used in) operating activities

 

 

9,362,354

 

 

 

(1,727,391

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3,632

)

 

 

 

Acquisition of intangible assets

 

 

(1,336,984

)

 

 

(288,895

)

Net cash used in investing activities

 

 

(1,340,616

)

 

 

(288,895

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITY -

 

 

 

 

 

 

 

 

Proceeds from exercise of options

 

 

33,923

 

 

 

3,000

 

Net cash provided by financing activities

 

 

33,923

 

 

 

3,000

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

70,770

 

 

 

(5

)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

8,126,431

 

 

 

(2,013,291

)

 

 

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

5,451,348

 

 

 

8,019,152

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash, end of period

 

$

13,577,779

 

 

$

6,005,861

 

 

 

 

 

 

 

 

 

 



The accompanying notes are an integral part of these condensed consolidated financial statements


5



 


CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED


Note 1 - Organization and Nature of Operations


CarrierEQ Inc., doing business as AirFox (“AirFox USA”), was incorporated in Delaware on January 19, 2016 with a principal place of business in Boston, Massachusetts.


Airfox USA has a 99.99% ownership interest in banQi Instituição de Pagamento Ltda (formerly known as Airfox Servicos E Intermediacoes LTDA), a limited liability company organized under the laws of the Federative Republic of Brazil, and a 100% ownership interest in AirToken GmbH, a Swiss GmbH. Airfox USA, Airfox Brazil and Airtoken GmbH are collectively referred to herein, as the “Company” or “Airfox”.


Beginning in February 2017, the Company began exploring consumer applications of its legacy prepaid mobile applications. The Company initiated a business plan to introduce a mobile application that would allow users to earn digital tokens, exchange them for free or discounted mobile data and, ultimately, other goods and services in South America as part of a new international business and ecosystem (the “AirToken Project”). The AirToken Project included the issuance of digital tokens (“AirToken(s)”). The AirToken is an ERC-20 token issued on the Ethereum blockchain.


The Company obtained Ether and Bitcoin (collectively referred therein as the “Digital Assets”), in August 2017 through early October 2017 from those interested in obtaining AirTokens. The Company raised approximately $15.4 million for the purpose of developing the AirToken Project.


The Company’s business is evolving to focus on providing unbanked and financially underserved individuals in emerging markets mobile access to financial services. The Company is developing a software technology platform initially consisting of two applications, a digital wallet application and an alternative credit scoring and lending application. The Company’s software technology platform is designed and built as a Software as Service (or SaaS) offering. The Company expects to generate revenue from these applications from fixed recurring fees, transaction fees, third party fees and interest income. The Company’s initial markets are the cash and unbanked markets in Brazil.


The Company’s digital wallet application, branded as banQi, is a digital banking application capable of leveraging machine learning capabilities to build alternative, smartphone-based credit risk models. banQi, available on Android and iOS, aims to eliminate the need for traditional financial institutions allowing those without bank accounts or credit cards to more easily and quickly make many everyday transactions using a smartphone. It will also enable the Company to create an alternative credit scoring system for our users for use in connection with our alternative credit scoring and lending application.


The alternative credit scoring and lending application is designed to be a blockchain-based, peer-to-peer lending application that will enable anyone from around the world to provide capital for a microloan to a diversified cohort of borrowers. This technology is expected to harness the decentralized power of the Ethereum blockchain to create a digital ledger of the user’s behavioral and transactional data to fund a new financial asset class from a global pool of lenders seeking to make socially impactful microloans.


Note 2- Financial Condition and Management’s Plans


The Company has experienced recurring losses and negative cash flow from operations. At December 31, 2019 the Company had cash and cash equivalents of $2.8 million, a working capital deficit of $11.3 million, total stockholders' deficit of $23.1 million and an accumulated deficit of $25.0 million. The Company is obligated to refund the remaining amount of claims related to the AirToken Project when valid claims are finalized. Additionally, the Company may be subject to other legal liabilities. (see Note 15).


The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business. The Company believes that its ability to continue operations depends on its ability to generate revenues and obtain funding that will be sufficient to sustain its operations until it rolls out its core product offerings and achieve profitability and positive cash flows from operating activities.





6



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


The successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operating results. The consolidated financial statements do not include any adjustments related to this uncertainty and as to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.


The Company’s management has taken several actions in an effort to secure funding and generate revenue streams including:


1.

Entering into a Services Agreement and related convertible notes agreements with Via Varejo (see Note 8 to the consolidated financial statements) whereby the Company has received $10,000,000 by issuing convertible notes in connection with the Company’s software design and development services provided to Via Varejo. The Company has received $10,256,000 in cash and issued convertible notes totaling $10,000,000 as of December 31, 2019 (See Note 9).


2.

Pursuing opportunities to enter into service agreements with insurance companies, travel companies, and other service companies, to use the Airfox platform as a source of distribution of their products.


3.

Entering into a Program Agreement on June 12, 2019 by and among (i) Airfox Brazil (ii) Via Varejo, and (iii) Mastercard Brasil, whereby on December 16, 2019 the Company received an incentive prepayment totaling R$65,000,000 (approximately $15,973,857) (See Note 4).

 

4.

Entering into a Loan Agreement with Via Varejo (the “Lender”) on October 31, 2019 whereby the Company borrowed R$10,000,000 (approximately $2.5 million USD) from Via Varejo. Principal plus interest is payable at the maturity date and matures 181 days from the date the Loan Agreement was executed. The loan was repaid in full on December 17, 2019 in the amount of R$10,167,740 (approximately $2.5 million USD).

 

In addition to the actions above, the Company is evaluating diversifying its revenue streams, raising additional capital, and considering other actions that may yield additional funding. Further, the Company’s management can implement expense reductions, as necessary. However, there is no assurance that the Company will be successful in obtaining funding or generating revenues sufficient to fund operations.


In the event the Company is unable to raise additional debt or equity financing, we may:


1.

have to cease operations, in which case the Company may file a petition for bankruptcy in U.S. Bankruptcy Court under Chapter 7, whereby a trustee will be appointed to sell off the Company’s assets, and the money will be used to pay off the Company’s debts in order of their priority. The priority of an AirToken holder seeking a refund claim should be equal to all of the Company’s other unsecured creditors, including Via Varejo; or

2.

file a petition for bankruptcy in U.S. Bankruptcy Court under Chapter 11 to restructure the Company’s debt, including the Company’s debt to AirToken holders seeking refund claims. The priority of an AirToken holder seeking a refund claim, should be equal to all of the Company’s other unsecured creditors, including Via Varejo. The Chapter 11 reorganization plan will spell out rights of AirToken holders seeking refund claims and what such investors can expect to receive, if anything, from the Company.


Note 3 - Summary of Significant Accounting Policies


Basis of Presentation


The accompanying unaudited condensed consolidated interim financial statements (“interim statements”) of Airfox have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as determined by Financial Accounting Standards Board (the “FASB”) within its Accounting Standards Codification (“ASC”) and under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended September 30, 2019.



7



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act, enacted on April 5, 2012 and has elected to comply with certain reduced public company reporting requirements, however, the Company may adopt accounting standards based on the effective dates for public entities.


Principles of Consolidation


The accompanying consolidated financial statements includes the accounts of AirFox and its majority-owned subsidiaries. All intercompany transactions have been eliminated in consolidation. The Company is not involved with variable interest entities.


The Company has a 99.99% controlling interest in banQi Instituição de Pagamento Ltda (formerly known as Airfox Servicos E Intermediacoes LTDA) and a 100% interest in AirToken GmbH; accordingly, the Company consolidates these entities and records non-controlling interests to reflect the economic interest of the non-controlling equity holders.


Use of Estimates


The preparation of financial statements in conformity with GAAP 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 balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates. The most significant accounting estimates inherent in the preparation of the Company's financial statements includes the fair values of AirTokens and Digital Assets, estimated lives of intangible assets, intangible asset impairment, revenue recognition (including the estimated development period for completing the AirToken Project), stock-based compensation and deferred tax valuation allowance.


Foreign Currency


The Company has operations in Brazil where the local currency is used to prepare the financial statements which are translated into the Company’s reporting currency, U.S. dollars. The local currency is the functional currency for the operations outside the United States. Changes in the exchange rates between this currency and the Company’s reporting currency, are partially responsible for some of the periodic changes in the consolidated financial statements. Assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at the spot rate in effect at the applicable reporting date. Revenues and expenses of the Company’s foreign operations are translated at the average exchange rate during the applicable period. The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other comprehensive income (loss) in stockholders’ deficit. Realized and unrealized transaction gains and losses generated by transactions denominated in a currency different from the functional currency of the applicable entity are recorded in other income (loss) in the period in which they occur.


Revenue Recognition


The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.


ASC 606 prescribes a 5-step process to achieve its core principle:


Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when the Company satisfies a performance obligation




8



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Display Advertising Services


The Company’s revenue historically was derived from display advertising services and totaled $0 and $247 for the three months ended December 31, 2019 and 2018, respectively. The Company historically engaged in a business line known as Airfox Wireless related to technology that the Company developed that generates display advertising revenue for U.S. advertising networks. Pursuant to the Airfox Wireless model, the Company partnered with U.S. mobile telecommunications companies to have advertisers display advertisements on the lock screens of mobile devices and paid its partners a share of the ad revenue generated. The Company recognizes revenue, net of amounts retained by the third-party partners, pursuant to revenue sharing agreements. The form of the agreements was such that the Company provided services in exchange for a fee. The Company recognizes only the fee for providing its services as it has no latitude in establishing prices with third party advertisers.


In January 2019, the Company decided to no longer pursue the display advertising services as a core part of the business plan as the revenue did not represent a significant portion of the Company operations. The Company expects to receive minimal residual income from existing arrangements related to the display advertising services. Additionally, the Company discontinued the AirFox Wireless business line earlier in 2019 so that it can focus on the development of other products.


AirToken Project Development Services (Non ASC 606 Revenue)


The Company determined that its token issuances represent obligations to perform software development services and accounts for the proceeds received in the token issuances in accordance with ASC 730-20, Research and Development – Research and Development Arrangements (“ASC 730-20”). At the time of, and in conjunction with the token issuances, the Company’s obligation was to develop a live, operational, de-centralized network with token functionality including, at a minimum, features including a digital wallet, credit scoring and peer-to-peer networking (collectively, the “AirToken Project”). Due to the significant hurdles in developing the AirToken Project, technological feasibility had not been established at the time of the token issuances and, therefore, all of the Company’s development costs were expensed.


The Company, beginning in August 2017 through early October 2017, obtained Ether and Bitcoin totaling approximately $15.3 million (and cash of $0.1 million) towards the development of the AirToken Project. Pursuant to the terms of the AirTokens, there is no form of partnership, joint venture, agency or any similar relationship between a holder of an AirToken and the Company and/or other individuals or entities involved with the AirToken Project. AirTokens are non-refundable and do not pay interest and have no maturity date. AirTokens confer only the right to services in the AirToken Project and confer no other rights of any form with respect to the Company, including, but not limited to, any voting, distribution, redemption, liquidation, proprietary (including all forms of intellectual property), or other financial or legal rights. Subsequent to the distribution of AirTokens to those parties who contributed towards the funding of the AirToken Project, no AirTokens were sold by the Company.


Pursuant to the Settlement Agreement (as defined and described further in Note 15), the Company is obligated to refund amounts raised for the purpose of developing the AirToken Project if valid claims are submitted and may incur other fines and penalties.


On or before December 28, 2019 Airfox paid all approved claims to approved claimants who returned their AirTokens to Airfox (approximately 93.5% of the total dollar amount of all approved claim refunds). All amounts were refunded in cash and paid through Airfox’s existing cash and cash equivalent reserves. The total claim amounts including interest, totaled $3,289,607 on December 28, 2019. Certain approved claimants did not return their AirTokens to Airfox. Airfox did not pay approved claims to approved claimants who did not return their AirTokens to Airfox. The amount that was not paid was approximately $586,293. All unpaid approved claims are expected to be paid during the second quarter of 2020 upon return to the Company of approved claimants’ AirTokens.


The Company will recognize the remaining proceeds of $12.5 million over the remaining estimated development period of the AirToken Project, on a straight-line basis, beginning on October 1, 2019 until the completion of the AirToken Project. The estimated development period to complete the AirToken Project is approximately 30 months and is expected to be completed in March 2022. Refer to Note 15 for further information on the Rescission Offer.




9



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


For the three months ended December 31, 2019 and 2018, the Company recognized $1.3 million and $0 from the AirToken Project research and development arrangement as described above, and software development costs expensed, related to the AirToken Project were approximately $421 thousand and $229 thousand, respectively.


Cash and Cash Equivalents


The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market instruments.


Restricted Cash


Restricted cash consists of the money received by AirFox Brazil related to the Mastercard Program Agreement. Airfox Brazil cannot use any Incentives (as defined in the Program Agreement) for the benefit of any product of any Mastercard competitor and/or any card brand other than the Mastercard Network. (Note 4).


Short-Term Investments


Short-term investments are investments which have a maturity at the date of purchase of three months to five years. Short-term investments consist of a Certificate of Deposit due to mature January 1, 2020 with Santander Bank located in the Cayman Islands.


Accounts Receivable and Allowance for Doubtful Accounts


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


Concentrations of Credit Risk and Off-Balance Sheet Risk


The Company is subject to concentration of credit risk with respect to their cash and cash equivalents, which the Company attempts to minimize by maintaining cash, cash equivalents, and restricted cash with institutions of sound financial quality. At times, cash balances may exceed limits federally insured by the Federal Deposit Insurance Corporation. At December 31, 2019, Airfox Brazil held cash, cash equivalents, and restricted cash totaling $10,973,524 in Brazilian financial institutions. Airfox cash, cash equivalents, and restricted cash, including amounts held in financial institutions in the USA, totaled $13,577,799.


The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the funds are held. The Company has no financial instruments with off-balance sheet risk of loss.


Long-Lived Assets, Including Definite Intangible Assets


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


Security Deposits


As of December 31, 2019, security deposits primarily include monies being held subject to a security agreement (“Security Agreement”) with Mastercard, Inc. executed on June 7, 2019. The Security Agreement is related to the Services Agreement (See Note 9) to ensure a minimum amount of users for the cards, as this is a major phase in the Company’s development process. Upon Mastercard issuing the minimum number of cards to users, the $1.5 million security deposit will be paid back to the Company in full. The Company has classified this amount as non-current assets as these funds are not highly liquid and cannot be easily converted into cash.



10



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Software Development Costs


The Company capitalizes costs related to software developed or obtained for internal use in accordance with the ASC 350-40, Internal-Use Software (“ASC 350-40”). The following illustrates the various stages and related processes of computer software development in accordance with ASC 350-40:


·

Preliminary project stage: (a) conceptual formulation of alternatives; (b) evaluation of alternatives; (c) determination of existence of needed technology; and (d) final selection of alternatives. Internal and external costs incurred during the preliminary project stage are expensed as incurred.

·

Application development stage: (a) design of chosen path, including software configuration and software interfaces; (b) coding; (c) installation to hardware; and (d) testing, including parallel processing phase. Internal and external costs incurred to develop internal-use computer software during the application development stage are capitalized.

·

Post-implementation-operation stage: (a) training; and (b) application maintenance. Internal and external costs incurred during the post-implementation-operation stage are expensed as incurred.


Certain costs incurred are considered enhancements, modifications to existing internal-use software that result in additional functionality. Enhancements normally require new software specifications and may also require a change to all or part of the existing software specifications. When this additional functionality is determinable, the related costs are capitalized. Otherwise, costs are expensed as incurred. Capitalization of internal-use software costs ceases when a computer software project is substantially complete and ready for its intended use. The Company begins amortization when the product is available for general release or use.


The Company capitalizes costs related to the development and maintenance of its website in accordance with ASC 350-50, Website Development Costs. Accordingly, costs expensed as incurred include planning the website, developing the applications and infrastructure until technological feasibility is established, developing graphics such as borders, background and text colors, fonts, frames and buttons, and operating the site such as training administration and maintenance.


Capitalizing Software Costs in Connection with Hosting Arrangements and Software as a Service Arrangements


The Company develops certain software that is considered to be part of a cloud computing arrangement (or hosting arrangement), whereby, a user or a customer of software does not take possession of the Company’s software; rather, the software is accessed on an as-needed basis over the Internet.


Therefore, when the software is used to produce a product or in a process to provide a service to a customer, and the customer is not given the right to obtain or use the software, the related costs are accounted for in accordance with ASC 350-40. When a hosting arrangement includes multiple modules or components, capitalized costs are amortized on a module-by-module basis. When a module or component is substantially ready for its intended use, amortization begins, regardless of whether the overall hosting arrangement is being placed in service in planned stages. If the module’s functionality is entirely dependent on the completion of one or more other modules, then amortization does not begin until that group of interdependent modules is substantially ready for use.


Impairment of Long-term Assets


The Company evaluates the recoverability of tangible and intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.




11



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Leases


The Company categorizes leases at their inception as either operating or finance leases based on the criteria in ASC 842, Leases. The Company adopted ASC 842 on October 1, 2019, using the modified retrospective approach, and has established a Right-of-Use (“ROU”) Asset and a current and non-current Lease Liability for each lease arrangement identified. The lease liability is recorded at the present value of future lease payments discounted  using the discount rate that approximates the Company’s incremental borrowing  rate for the lease established at the commencement  date, and the ROU asset is measured as the lease liability plus any initial direct costs, less any lease incentives received before commencement. The Company recognizes a single lease cost, so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis.


Advertising


Advertising costs are expensed as incurred and included in selling, general and administrative expenses and amounted to $221,385 and $10,601 for the three months ended December 31, 2019 and 2018, respectively.


Income Taxes


Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.


The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes any interest and penalties accrued related to unrecognized tax benefits as income tax expense.


Deferred gain on issuance of AirTokens for services


AirTokens issued to vendors for services in connection with raising monies for the purpose of developing the AirToken Project are accounted for in accordance with ASC 845-30-1, Nonmonetary Transactions, which requires that the AirTokens to be recognized at fair value, and resulted in recognizing a deferred gain of approximately $1.7 million in October 2017. The fair value of the AirTokens issued was based on the last price paid ($0.02) by initial investors in acquiring AirTokens towards the development of the AirToken Project (representing a Level 3 non-recurring measurement). The deferred gain will be recognized on a straight-line basis over the estimated development period of the AirToken Project as this represents the best depiction of the measure of progress towards the development of the AirToken Project. The Company will recognize the gain in Other Income beginning October 2017 through the estimated development period of the AirToken Project (i.e. March 2022).  


Distinguishing Liabilities from Equity


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




12



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


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


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


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


Hedging


The Company does not use derivative instruments to hedge exposures to cash flows, market or foreign currency risks. The Company evaluates its financial instruments, including equity-linked financial instruments, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.


Stock-based Compensation


The Company accounts for stock-based compensation to employees and non-employees in conformity with the provisions of ASC 718, Compensation - Stock Based Compensation. The Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Stock-based awards are recognized on a straight-line basis over the requisite service period. For stock-based employee compensation, cost recognized at any date will be at least equal to the amount attributable to share-based compensation that is vested at that date. The Company estimates the fair value of stock option grants using the Black-Scholes option-pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.


Common shares issued to third parties for services provided are valued based on the estimated fair value of the Company’s common shares.


All stock-based compensation costs are recorded in selling, general and administrative expenses in the condensed consolidated statements of operations.


Fair Value Measurement


The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short and long-term debt. The fair values of cash and cash equivalents, accounts receivable, and accounts payable approximate their stated amounts because of the short maturity of these financial instruments. The Company believes the carrying amount of their simple agreement for future equity approximate fair value based on rates and other terms currently available to the Company for similar debt instruments.


The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy under ASC 820 are described below:


Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.




13



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Adoption of Recent Accounting Pronouncements


In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. The amendments in this Update require that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update do not provide a definition of restricted cash or restricted cash equivalents. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.


In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02 (“ASU 2016-02”), which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; and ASU No. 2018-20, Narrow-Scope Improvements for Lessors. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.


The Company adopted ASU 2016-02 effective October 1, 2019 using the modified retrospective approach whereby the Company will continue to present prior period financial statements and disclosures under ASC 840. In addition, the Company elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. Further, the Company adopted a short-term lease exception policy, permitting the Company to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets.


Adoption of the new standard resulted in the recording of right-of-use assets and lease liabilities related to the Company’s operating leases, totaling $2.3 and $2.4 million, respectively, recorded on the Company’s consolidated balance sheet as of October 1, 2019. The standard did not materially affect the Company's consolidated net earnings or cash flows.


Recent Accounting Pronouncements


The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company's financial reporting, the Company undertakes a study to determine the consequences of the change to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Company's consolidated financial statements properly reflect the change.


In August 2018, the FASB issued ASU 2018-15, Intangibles, Goodwill and Other (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”), which requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance in ASC 350-40. The new standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting the new standard.


In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. In addition, an entity will have to disclose significantly more information about allowances and credit quality indicators.  The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements and intends to adopt the standard on October 1, 2023.




14



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Note 4 – Mastercard Program Agreement


On December 16, 2019, Airfox Brazil, received R$65,000,000 (approximately U.S.$15,973,857) from Mastercard Brasil Soluções de Pagamento Digital Ltda. (“Mastercard Brasil) pursuant to a Strategic Alliance and Incentive Program Agreement (the “Program Agreement”) entered into between Airfox Brazil, Mastercard Brasil and Via Varejo S.A. (“Via Varejo”) on June 12, 2019.


Pursuant to the Program Agreement, Airfox Brazil, as a licensee of MasterCard International, Inc. and a business partner of Mastercard Brasil, entered into the Incentive Program (as defined in the Program Agreement) in order to issue, expand and boost the prepaid card (“Airfox Card”) base of Airfox Brazil as well as the number of transactions and turnover (sales revenue) generated by MasterCard Cards. The Program Incentives monies (as defined in the Program Agreement) cannot be used for the benefit of any product of any Mastercard competitor and/or any card brand other than the Mastercard Network. As an incentive to support the launching of Airfox Card, on December 16, 2019 Mastercard Brasil made to Airfox Brazil the incentive prepayment per sales revenue ("Sales Revenue Incentive Prepayment") totaling R$65,000,000.


As a Mastercard prepaid debt card issuer, Airfox Brazil will be entitled to receive Sales Revenue Incentive pursuant to the Program Agreement. As a result, the Sales Revenue Incentive will be used to amortize the Sales Revenue Incentive Prepayment received on December 11, 2019. Upon complete amortization of Incentive Prepayment, Mastercard will make quarterly payments of the Sales Revenue Incentive, calculated according to the value of transactions completed with the prepaid debit cards issued by the Airfox Brazil. Airfox Brazil will have no minimum commitment of transaction volumes to be completed with the prepaid cards.  


The Sales Revenue Incentive Prepayment constitutes the creation of a direct financial obligation on Airfox Brazil since it constitutes prepaid sales revenue from Mastercard Brasil to Airfox Brazil. Via Varejo has agreed to act as a guarantor of Airfox Brazil’s Sales Revenue Incentive Prepayment obligations to Mastercard Brasil pursuant to the Program Agreement and a Guaranty Letter. No sales incentives have been earned through December 31, 2019.


The Program Agreement has a term of ten years, unless earlier terminated by either party in accordance with specific provisions of the Program Agreement.


Note 5 - Prepaid Expenses and Other Current Assets


Prepaid expenses and other current assets consisted of the following:


 

 

December 31,
2019

 

 

September 30,
2019

 

Service contract

 

$

349,000

 

 

$

349,000

 

R&D tax credit

 

 

335,274

 

 

 

288,187

 

Prepaid expenses

 

 

264,160

 

 

 

182,171

 

Total Prepaid expenses and other current assets

 

$

948,434

 

 

$

819,358

 


Note 6 - Digital Assets


Digital Assets held by the Company consist of Ether and Bitcoin and are included in current assets in the consolidated balance sheets. Due to the lack of authoritative GAAP guidance, the Company has determined its Digital Assets to be akin to intangible assets and are accounted in such manner. As intangible assets, Digital Assets are initially measured at cost. Since there is no limit on the useful life of the Company’s Ether and Bitcoin, they are classified as indefinite-lived intangible assets.


Indefinite-lived intangible assets are not subject to amortization. Instead they are tested for impairment on an annual basis and more frequently if events or circumstances change that indicate that it’s more likely than not that the asset is impaired. As a result of the aforementioned, the Company will only recognize decreases in the value of its Ether and Bitcoin, and any increase in value will be recognized upon disposition. Ether and Bitcoin are traded on exchanges in which there are observable prices in an active market, the Company views a decline in the quoted price below the cost to be an impairment indicator. The quoted price and observable prices, for Ether and Bitcoin, are determined by the Company using a principal market analysis in accordance with ASC 820, Fair Value Measurement.



15



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


When the Company evaluates its Ether and Bitcoin for impairment under ASC 350, Intangible – Goodwill and Other, each acquisition of Ether and Bitcoin is considered a separate unit of account. The Company tracks the cost of each unit of Ether and Bitcoin when received or purchased, when performing impairment testing and upon disposition either through sale or exchanged for goods or services. Realized gain (loss) on sale of Digital Assets is included in other income (expense) in the consolidated statements of operations, while impairment of Digital Assets is included in operating expenses because of the nature of the assets.


Changes in Digital Assets during the three months ended December 31, 2019 was as follows:


 

 

Ether

 

 

Bitcoin

 

 

Total

 

Balance at September 30, 2019

 

$

1,392

 

 

$

 

 

$

1,392

 

Realized loss on the sale of digital assets

 

 

(1,392

)

 

 

 

 

 

(1,392

)

Balance at December 31, 2019

 

$

 

 

$

 

 

$

 


Note 7 - Intangible Assets, Net


The following table summarizes the Company’s definitive-lived intangible assets:


 

 

December 31, 2019

 

 

 

Estimated Useful Life (Years)

 

Gross Carrying Amount

 

 

Additions

 

 

Accumulated Amortization

 

 

Net Carrying Value

 

Domain names

 

 

3

 

$

140,012

 

 

$

 

 

$

(63,209

)

 

$

76,803

 

Capitalized software costs towards VV wallet

 

 

3

 

 

1,500,058

 

 

 

1,302,722

 

 

 

 

 

 

2,802,780

 

Website

 

 

3

 

 

272,083

 

 

 

10,562

 

 

 

(128,374)

 

 

 

154,271

 

Software

 

 

3

 

 

17,486

 

 

 

23,700

 

 

 

(1,501

)

 

 

39,685

 

 

 

 

 

 

$

1,929,639

 

 

$

1,336,984

 

 

$

(193,084

)

 

$

3,073,539

 

 

 

 

 

September 30, 2019

 

 

 

 

Estimated Useful Life (Years)

 

Gross Carrying Amount

 

 

Additions

 

 

Accumulated Amortization

 

 

Net Carrying Value

 

Domain names

 

 

 

3

 

$

86,540

 

 

$

53,472

 

 

$

(51,542

)

 

$

88,470

 

Capitalized software costs towards VV wallet

 

 

 

3

 

 

 

 

 

1,500,058

 

 

 

 

 

 

1,500,058

 

Website

 

 

 

3

 

 

120,333

 

 

 

151,750

 

 

 

(104,202

)

 

 

167,881

 

Software

 

 

 

3

 

 

 

 

 

17,486

 

 

 

(583

)

 

 

16,903

 

 

 

 

 

 

 

$

206,873

 

 

$

1,722,766

 

 

$

(156,327

)

 

$

1,773,312

 


The Company uses the straight-line method to determine the amortization expense for its definite-lived intangible assets. The amortization expense related to the definite-lived intangible assets was $36,757 and $24,877 for the three months ended December 31, 2019 and 2018, respectively.


Note 8 - Accrued liabilities

 

Accrued liabilities consisted of the following: 


 

 

December 31,
2019

 

 

September 30,
2019

 

Other accrued liabilities

 

$

681,118

 

 

$

562,840

 

Customer deposits

 

 

338,929

 

 

 

193,267

 

Accrued compensation

 

 

251,986

 

 

 

167,760

 

Legal and professional

 

 

102,775

 

 

 

97,957

 

Software and website development

 

 

338,187

 

 

 

363,271

 

Total accrued liabilities

 

$

1,712,995

 

 

$

1,385,095

 



16



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Note 9 – Via Varejo Services Agreement and Convertible Notes


Services Agreement


The Company entered into a Services Agreement (the “Services Agreement”) as of September 11, 2018 (“the Agreement Effective Date”) with Via Varejo S.A., a corporation organized under the laws of the Federative Republic of Brazil (the “Client”) and those stockholders of the Company that have signed the Call Option Agreement (defined below) as well as any stockholder of the Company who signs a joinder to the Services Agreement after September 11, 2018 (the “Stockholders”). Concurrently, the Client and the Company have entered into a convertible note purchase and call option agreement (the “Call Option Agreement”). The Client has the irrevocable option to acquire shares of the Company’s capital stock owned by certain stockholders and convert notes issued, in connection with the Call Option Agreement, into shares of the Company’s capital stock representing, in the aggregate, up to eighty percent (80%) of the Company’s common stock (the “Call Option”). The Company may issue up to $10,000,000 in convertible notes for cash dependent on the completion of designated phases outlined in the Services Agreement.


The Client has engaged the Company to design and develop a mobile software module and application programming interface that will provide Client customers with access to certain mobile payment functionality, and that integrates banQi (“VV Wallet Services”). In conjunction with the Services Agreement, the Company will provide certain services, including hosting, maintenance and operation of banQi (the “VV Ongoing Services”). The VV Wallet Services are structured into four phases. The Phases are - Phase 1: Specifications and Customization; Phase 2: Features; Phase 3: License and Maintenance Services and Phase 4: Rollout.


The Client will make the following payments to the Company related to the VV Wallet Services:


·

$256,000, non-refundable, to be paid within thirty days of the date of the Services Agreement. This payment was received on December 14, 2018.

·

$2,500,000, to be paid upon completion of Phase 1, in exchange for a convertible note in the same amount to be issued by the Company. This payment was received on February 14, 2019 and the Company issued a Convertible Note (defined below).

·

$3,500,000, to be paid upon completion of Phase 2, in exchange for a convertible note in the same amount to be issued by the Company. This payment was received on June 10, 2019 and the Company issued a convertible note.

·

$4,000,000, to be paid upon completion, as defined, of Phase 3, in exchange for a convertible note in the same amount to be issued by the Company. This payment was received on September 6, 2019 and the Company issued a convertible note.


In consideration for the VV Ongoing Services rendered by the Company, the Client will pay the Company amounts monthly for the services outlined in the Services Agreement (the “Service Charges”).


The development of the VV Wallet Services is considered a bundled performance obligation that includes the development of the API and software as a service which is hosted on the Company’s servers. In addition to the software as a service performance obligation, the Company will provide support services for the software as a service. The Client is considered to simultaneously receive and consume the benefits provided by the Company’s performance as the Company performs the services. Accordingly, the revenue from Service Charges will be recognized over time based on the number of transactions made by Client customers with banQi. As of the date of the financial statements no revenue has been received or recognized. Revenue will not be recognized until banQi is utilized by the Client customers.


The payment of $256,000 (“Upfront Payment”) will be recognized as revenue ratably over the remaining term of the Services Agreement upon the completion of the VV Wallet Services. The funding received in exchange for the convertible notes is not considered revenue but is a liability of the Company.


All payments to the Company under the Services Agreement will be based in U.S. dollars except those in connection with the Service Charges, which will be in Brazilian Real.




17



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


This Services Agreement has a term of five years, unless earlier terminated by either the Client or the Company as set forth below:


i.

The Client may terminate the Services Agreement at its sole discretion upon written notice to the Company at any time prior to the completion of Phase 1;

ii.

In the event that the Company is not able to complete any of its deliverables for any phase of the Services Agreement;

iii.

After the commencement of Phase 3, provided that the Phase 3 funding has been paid to the Company;

iv.

At any time, if the Company’s obligation under the Settlement Agreement exceeds $15,000,000 (as defined in Note 15); or

v.

If the Call Option expires without being exercised.


In the event that this Services Agreement is terminated by the Client, the Company shall retain all right, title and ownership interest in and to banQi and the Company shall retain the payment of $256,000 received in December 2018.


Either Party shall be entitled to terminate the Services Agreement upon written notice to the other party, in the event of a material breach, as defined in the Services Agreement, by the other party and that the breaching party has failed to remedy such breach within the applicable period.


In the event that the Services Agreement is terminated by Client pursuant to a material breach, the outstanding convertible notes shall become immediately due and payable; and the Company shall pay to the Client liquidated damages in the amount of $10,000,000 within five business days of termination (“Liquidated Damages Amount”).


If there is a Company liquidity event, as defined in the Services Agreement, within five years of the date of termination, the Company will, within ten business days from the closing of such liquidity event, pay to Client an amount equivalent to eighty percent (80%) of the proceeds from such liquidity event(s), less the Liquidated Damages Amount. In addition, and pursuant to certain data transfer limitations, as defined in the Services Agreement, the Company shall grant to Client a market-priced, royalty-bearing, non-exclusive, non- sublicensable, non-transferable, revocable license to use and operate the banQi App for a term of thirty (30) years.


In the event that the Services Agreement is terminated by Client pursuant to a material technical breach, as defined in the Services Agreement, by the Company:


i.

The outstanding convertible notes shall become immediately due and payable;

ii.

The Company shall pay to Client liquidated damages in the amount of $500,000 (the “Reduced Liquidation Damages Amount”) within five business days of termination;

iii.

Certain data transfer limitations will apply; and

iv.

If there is any Company liquidity event within two years of the date of termination, the Company shall, within ten business days from the closing of such liquidity event, pay to Client an amount equivalent to: eighty percent (80%) of the proceeds from such Company Liquidity Event(s), less the Reduced Liquidated Damages Amount the (“Liquidated Damages Amount”).


In the event that the Services Agreement is terminated by the Company pursuant to a material breach, as defined in the Services Agreement, by Client:


i.

The convertible notes shall be canceled;

ii.

The Call Option shall be terminated;

iii.

Certain data transfer limitations will apply;

iv.

The banQi License shall be immediately terminated; and

v.

The Company will retain the payment of $256,000 and any funding it has received as of the date of such termination, and Client shall not be entitled to convert any convertible notes into common stock of the Company and shall not be entitled to exercise the Call Option.




18



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


The Company shall have the right to terminate the Services Agreement, upon written notice to Client, commencing two years after the Call Option Expiration Date, in the event that Client does not exercise its Call Option.


In the event that the Services Agreement is terminated by the Company the convertible notes shall remain outstanding and the Company may repay the obligations under the convertible notes at any time until the respective convertible note maturity date without any penalty; and data transfer limitations apply.


Either Party may terminate the Services Agreement if either Party experiences or undergoes a bankruptcy event. In the event that this Services Agreement is terminated:


i.

Due to a Company Bankruptcy Event:

a)

The outstanding convertible notes shall become immediately due and payable; and

b)

Certain data transfer limitations apply.


ii.

Due to a Client bankruptcy event:

a)

the convertible notes shall remain outstanding, and the Company may repay the obligations under the convertible notes without penalty at any point until the maturity date; and

b)

Certain data transfer limitations apply.


Convertible Notes


On September 11, 2018, the Company entered into an agreement (the “Notes Agreement”) to sell up to $10,000,000 of one or more Convertible Promissory Notes (the “Notes”) to the Client. The Company received cash and issued convertible notes totaling $2,500,000, $3,500,000, and $4,000,000 on February 14, 2019, June 10, 2019, and September 6, 2019 respectively, under these agreements. When issued, the Notes are subordinated to any of the Company’s outstanding indebtedness. The term of the Notes Agreement is 5 years unless terminated earlier by either the Company or the Client for events detailed in the Notes Agreement.


Interest Rates


The outstanding principal amount of the Notes bear interest at the annual rate of 1.00%, compounded monthly. If any amount payable under the Notes are not paid when due, such overdue amount shall bear interest of 3.00%.


Call Option


The Call Option Period for the Notes is the period commencing on the Agreement Effective Date and ending upon the earlier to occur of (a) November 30, 2020 or (b) 30 days following the date on which banQi has been downloaded 12 million times in the aggregate by customers in Brazil for use with the VV Wallet Services (the "Call Option Period End Date"). The Call Option Period End Date may be extended to September 30, 2021 by certain events detailed in the Notes Agreement (collectively, the “Call Options Expiration Date”).


The Notes features both primary and secondary call rights in which, during the Call Option Period, at the option of the Client, the Notes may be converted into $10,000,000 and $6,000,000, respectively, of the Company’s Common Stock.


The Company analyzed the call options and determined they did not meet the definition of derivatives and therefore they will not be bifurcated from the host agreement.




19



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Exercise of Call Rights


During the Call Option Period, the Client may choose to exercise certain call rights (the “Call Rights”). In such instance, the Client will notify the Company and specify that the exercise is with respect to one of the following alternatives:


a.

Majority Exercise - An aggregate amount of (i) Notes equal to $4,000,000 being converted into shares of the Company’s Common Stock (“Primary Shares”) and (ii) $6,000,000 of shares of the Company’s Common Stock being purchased directly from the Stockholders (“Secondary Shares”), provided, that, in the event that there are less than $4,000,000 in Notes outstanding ("Insufficient Notes") at the time the Client elects to exercise the Call Rights, the Company agrees to issue to the Client, at an established valuation of the Company, as defined in the Notes Agreement (the “Agreed Valuation”) and the Client agrees to purchase, such additional shares of the Company’s common stock in an amount such that when combined with, and after giving effect to, the conversion of the Insufficient Notes into Primary Shares and the purchase of $6,000,000 in Secondary Shares, The Client shall own at least a majority of the shares of Company Stock then issued and outstanding, on a fully diluted basis; or


b.

Eighty Percent Exercise - An aggregate amount of (i) Notes equal to $10,000,000 being converted into Primary Shares and (ii) $6,000,000 of Secondary Shares being purchased from the Stockholders, such that the Client shall own 80% of the Company Stock on a fully diluted basis, provided, that, in the event that, at the time the Client elects to exercise the Call Right, there are less than $6,000,000 of Secondary Shares available for purchase from the Stockholders, the Company agrees to issue to the Client, at the Agreed Valuation, and Client agrees to purchase, such additional shares of the Company’s common stock in an amount such that when combined with, and after giving effect to, the conversion of the Notes into Primary Shares and the purchase of the Secondary Shares available for purchase from the Stockholders, the Client shall own at least 80% of the shares of common stock then issued and outstanding, on a fully diluted basis.


Termination Rights


The Client shall have the right to terminate the Notes Agreement at its sole discretion upon written notice to the Company:


i.

At any time before the completion of Phase 1

ii.

In the event the Company is unable to complete deliverables for any phase of the Services Agreement.

iii.

After the commencement of Phase 3 provided Phase 3 funding has been paid to the Company

iv.

At any time, if the Company’s obligation under the Settlement Agreement exceeds $15,000,000 (as defined in Note 15)

v.

If the Call Option Period expires without being exercised


Either party is entitled to terminate the Notes Agreement upon written notice to the other party, in the event of a material breach by the other party and the breaching party has failed to remedy such breach within the applicable cure period.


The Company has the right to terminate the Agreement in its sole discretion, upon written notice to the Client, commencing two years after the Call Option Expiration Date, in the event the Client does not exercise its Call Option.


Termination Events


The principal amount of the Notes shall be reduced by 50%, if the Client terminates the Services Agreement; 1) after the commencement of Phase 3, provided that the Phase 3 funding has been paid to the Company; 2) at any time, if the Company’s obligation under the Settlement Agreement exceeds $15,000,000 (as defined in Note 15); or 3) if the Call Option expires without being exercised.




20



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Acceleration Termination Event


An Acceleration Termination Event is a termination of the Notes Agreement by the Client as a result of a material breach by the Company or a bankruptcy event by the Company. The Notes will become immediately due and payable as a result of an Acceleration Termination Event, or the occurrence of any of the following events:


1.

Failure to Pay. The Company fails to pay (a) any principal amount of any Note when due or (b) interest or any other amount when due and such failure continues for 10 days after written notice to the Company.

2.

Breach of Representations and Warranties. Any representation or warranty made by the Company or the Stockholders in the Notes Agreement that could affect the value, validity or enforceability of, the Notes is incorrect in any material respect on the date as of which such representation or warranty was made.

3.

Breach of Covenants. The Company or the Stockholders fail to observe or perform any material covenant, obligation or agreement contained in the Notes Agreement and such failure continues for 20 days after written notice to the Company.

4.

Cross-Defaults. The Company fails to pay when due any of its indebtedness (other than indebtedness arising under the Notes Agreement) or any interest or premium thereon when due and such failure continues after the applicable grace period, if any, specified in the Notes Agreement or instrument relating to such indebtedness and results in the acceleration of such indebtedness.

5.

Bankruptcy. The Company experiences or undergoes a bankruptcy event.


In the event of a technical material breach, as defined in the Notes Agreement, by the Company, the Notes become immediately due and payable and the Company shall pay liquidated damages in the amount of $500,000 to the Client.


In the event of a non-technical material breach by the Company, the Notes become immediately due and payable and the Company shall pay liquidated damages in the amount of $10,000,000 to the Client. In addition, the Company shall grant to the Client a market-priced, royalty-bearing, non-exclusive, non–sublicensable, non-transferable, revocable license to use and operate banQi for use with the VV Wallet Services for a term of thirty years.


The Company determined that the criteria included in the Termination Events Rights, Termination Events, Cancellation Termination Event and Acceleration Termination Event, described above represent put options which are considered derivates as they are not considered clearly and closely related to the Notes. When a note is issued, the Company will evaluate the likelihood of these events occurring and estimate an associated value, if any, to be recorded as a derivative liability. No values were ascribed to the above noted features upon issuance of the convertible note on February 14, 2019, or as of December 31, 2019.


Non-Conversion Termination Event


After the occurrence of a Non-Conversion Termination Event, as defined in the Notes agreement as a termination of the Notes Agreement solely in the event of a winding-up, insolvency dissolution or bankruptcy of the Client, the Company shall have the right to prepay the Notes (in whole or in part) at any time or from time to time, without penalty or premium, by paying both principal and accrued interest.


On June 7, 2019, the Company entered into the First Amendment to the Convertible Note Purchase and Call Option Agreement and the related First Amendment to the Services Agreement (the “Amended Services Agreement”) with Via Varejo. The Company has agreed to reimburse Via Varejo for certain marketing and promotional expenses incurred by the Company in this partnership with Via Varejo (“Reimbursement Payment”) by issuing additional Notes to Via Varejo. These additional Notes will be in the amount equal to the amount of the corresponding Reimbursement Payment under (and as defined in) the Amended Services Agreement made on the day of issuance.




21



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Note 10 - Simple Agreement for Future Equity


In July 2017, the Board of Directors of the Company approved and designated a right to Investors for certain shares of the Company’s capital stock (otherwise known as Simple Agreement for Future Equity (“SAFE”), utilizing a valuation estimate, as defined, (“Valuation Cap”) and 80% discount rate (the “Discount Rate”). On July 15, 2017, the Company entered into two SAFE’s in the amount of $189,899, and $50,000, respectively. The number of shares to be issued upon conversion of the SAFE’s are subject to the following:


·

Equity Financing – Prior to the expiration of termination of the SAFEs, if there is an equity financing that occurs, the Company is to automatically issue a number of shares of Preferred Stock, equal to the Purchase amount divided by the Conversion Price of shares.

·

Conversion Price – Means either: (1) the SAFE Price or (2) the Discount Price, whichever calculation results in the greater number of shares of Preferred Stock. The SAFE Price is the price per share equal to the Valuation Cap divided by the Company’s capitalization amount on a fully-diluted basis. The Discount Price is the price per share of the equity instrument sold in an Equity Financing multiplied by the Discount Rate.

·

Liquidity Event – If there is Liquidity Event, as defined, before the scheduled termination of the SAFE instruments, the holder of a SAFE can either (i) receive a cash payment equal to the amount paid for the SAFE (“SAFE Amount”) or (ii) automatically receive from the Company a number of shares of Common Stock equal to the SAFE Amount divided by the price per share from the Liquidation Event. The SAFE amount is due and payable by the Company to the holder of a SAFE concurrent with a Liquidation Event. If there are insufficient funds to pay the holders of SAFEs, the remaining funds available for distribution will be done on a pro rate basis among the holders in proportion with their SAFE Amounts.

·

Dissolution Event – Upon a dissolution event that occurs before the expiration of the SAFEs, the Company will pay an amount equal to the SAFE Amount to the holder at the time of the Dissolution Event. If the Company has insufficient funds to make complete payment to all holders of SAFEs, the Company will then be liable to distribute available assets to the holder for the remaining portion due.


The Company evaluated the SAFEs in accordance with ASC 480-10 and determined that the SAFEs represented an obligation that the Company must settle by issuing a variable number of its equity shares, the monetary value of which is known when entering into the SAFE. As of the date of issuance and through December 31, 2019, the fair value of the related liability was $239,899.


Note 11 - Preferred Stock


Series One and One-A Preferred Stock Purchase Agreement


On July 15, 2016, the Company sold to accredited investors an aggregate of 2,652,072 shares of Series One and 1,046,147 of Series One-A Preferred Shares (collectively, “Preferred Stock”).


The Preferred Stock is convertible into the Company’s Common Stock on a 1 for 1 basis at the holders’ option. The Preferred Stock does not contain any redemption provisions. The Preferred Stock does not pay dividends and vote together with the common stock of the Company as a single class on all actions to be taken by the stockholders of the Company.


Note 12 - Common Stock


On January 25, 2016, the Company issued 497,873 shares of common stock to an investor (the “Investor”) for a purchase price of $20,000, which at the time represented 6% of the capital stock of the Company. As part of this transaction, the Company agreed to issue additional shares of common stock (for no additional consideration) to maintain the investor’s ownership interest at 6% of the total capital stock upon a subsequent equity financing greater than $250,000. This 6% ownership is calculated on a fully diluted basis, including all outstanding shares of common and preferred stock, all outstanding options and warrants, phantom stock, stock appreciation rights, and any shares reserved for issuance under the Company’s equity incentive plans. However, the capital stock does exclude shares issuable, but contingent on conversion of any current or future convertible debt and equity instruments (which would include the SAFE’s). Therefore, as part of any issuance of capital stock to any future investors, the Company must issue additional stock to the Investor, as well, to ensure that they remain at 6% of the Company’s capital stock. There were 133,893 additional shares issued on July 15, 2016 to the Investor in order to maintain their 6% equity interest.




22



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


The contingent issuance of shares of common stock to the Investor was evaluated to determine whether the embedded feature would be required to be recorded as a derivative liability. It was determined the embedded feature qualifies for equity classification.


On February 28, 2018 the Company repurchased 414,893 shares of common stock which it had previously granted to an independent entity in exchange for $240,000. The Company recorded these repurchased shares as Treasury shares in its consolidated balance sheet.


Note 13 - Stock Based Compensation


The Company established a 2016 Equity Incentive Plan (the “Plan”) during 2016 and issued stock-based awards to certain employees and non-employees under this plan. The Plan provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units and other stock awards. The number of shares of common stock authorized for issuance under the Plan is 2,097,673.


The Company lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a set of publicly traded peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.


The fair value of the Company’s common stock was estimated to be $0.29 at December 31, 2019 and September 30, 2019, respectively. In order to determine the fair value, the Company considered, among other things, the Company’s business, financial condition and results of operations; the lack of marketability of the Company’s common stock; the market performance of comparable publicly traded companies; and U.S. and global economic and capital market conditions.


The Company used the Black-Scholes option-pricing model to estimate the fair value of options issued using the following assumptions:


 

 

Three Months Ended

December 31,
2019

 

 

Three Months Ended

December 31,
2018

 

Price of Common Stock

 

$

0.29

  

  

$

0.29

 

Volatility

 

 

60%

 

 

 

60%

 

Expected term (in years)

 

 

6.08

 

 

 

6.08

 

Risk free rate

 

 

1.39%

 

 

 

2.55%

 


The following table summarizes the Company’s stock option activity and related information for the period indicated:


 

 

Number of
Shares

 

 

Weighted Average Remaining Contractual Term (in years)

 

 

Weighted Average Exercise Price ($)

 

Outstanding at September 30, 2019

 

 

2,684,717

 

 

 

9.47

 

 

$

0.23

 

Granted

 

 

5,000

 

 

 

9.76

 

 

$

0.29

 

Forfeited

 

 

(55,000)

 

 

 

9.50

 

 

$

0.29

 

Cancelled

 

 

 

 

 

 

 

$

 

Outstanding at December 31, 2019

 

 

2,634,717

 

 

 

9.47

 

 

$

0.23

 

 

  

  

 

 

 

 

 

 

 

 

 

  

Exercisable at December 31, 2019

 

 

516,717

 

 

 

6.37

 

 

 

0.23

 




23



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


The grant date fair value per share for the stock options grant during the three months ended December 31, 2019 was $0.16. At December 31, 2019, the total unrecognized compensation related to unvested stock option awards granted was $286,739, which the Company expects to recognize over a weighted-average period of approximately 3.09 years. The expense for stock-based compensation awards was $42,588 and $23,618 for the three months ended December 31, 2019 and 2018, respectively. Expenses for stock-based compensation is included on the accompanying consolidated statements of operations in selling, general and administrative expense.


Note 14 - Concentrations


Accounts Payable


As of December 31, 2019, and September 30, 2019 the Company had approximately 43% and 86%, respectively, of its accounts payable balances held by its top five vendors. During each of these same aforementioned periods, the Company had two of its vendors accounting for more than 10% each of the Company’s accounts payables balances.


Note 15 - Commitments and Contingencies


Operating Leases


The Company has operating leases primarily consisting of office space with remaining lease terms of 1 to 8 years, subject to certain renewal options as applicable.


Leases with an initial term of twelve months or less are not recorded on the balance sheet, and the Company does not separate lease and non-lease components of contracts.  There are no material residual guarantees associated with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord, as is customary with these types of charges for office space.


The Company determined that the exercise of the renewal option became reasonably certain for its office space in Boston and Brazil; therefore, the payments associated with the renewal are now included in the measurement of the lease liability and ROU asset for those locations. The useful life of the Boston and Brazil office spaces will extend through February 2028 and September 2021, respectively.


Our lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate imputed discount rate. The Company benchmarked itself against other companies of similar credit ratings and comparable quality and derived imputed rates, which were used to discount its real estate lease liabilities. We used estimated incremental borrowing rates of 7.52%, 5.73%, and 9.68% on October 1, 2019 for all leases that commenced prior to that date, for two office spaces in Boston, Massachusetts, and one office space in Brazil, respectively.


There was no sublease rental income for the quarter ended December 31, 2019, the Company is not the lessor in any lease arrangement, and no related party transactions for lease arrangements have occurred.


Lease Costs


The table below presents certain information related to the lease costs for the Company’s operating leases for the three months ended December 31, 2019:


 

 

Three Months Ended

 

 

 

December 31, 2019

 

Components of total lease cost:

 

 

 

 

Operating lease expense

 

$

168,115

 

Short-term lease expense

 

 

 

Total lease cost

 

$

168,115

 




24



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Lease Position as of December 31, 2019


Right of use lease assets and lease liabilities for our operating leases were recorded in the condensed consolidated balance sheet as follows:


 

 

As of

 

 

 

December 31, 2019

 

 

 

 

 

Assets

 

 

 

 

Other assets

 

$

2,308,863

 

Total lease assets

 

$

2,308,863

 

 

 

 

 

 

Liabilities

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable and accrued liabilities

 

$

367,709

 

Noncurrent liabilities:

 

 

 

 

Lease liability, net of current portion

 

 

2,016,764

 

Total lease liability

 

$

2,384,473

 


Lease Terms and Discount Rate


The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases as of December 31, 2019:


Weighted average remaining lease term (in years) – operating leases

  

  

6.96

  

Weighted average discount rate – operating leases

 

 

7.7%

 


Cash Flows


The table below presents certain information related to the cash flows for the Company’s operating leases for the year ended December 31, 2019:


 

 

Three Months Ended

 

 

 

December 31, 2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

Operating cash flows for operating leases

 

$

40,429

 

Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets

 

$

2,465,218

 




25



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Undiscounted Cash Flows


Future lease payments included in the measurement  of lease liabilities on the condensed consolidated balance sheet as of December 31, 2019, for the following five fiscal years and thereafter  were as follows:


Year ending September 30,

 

Operating Leases

 

Remaining 2020

 

$

397,492

 

2021

 

 

525,434

 

2022

 

 

326,453

 

2023

 

 

333,104

 

2024

 

 

339,755

 

2025

 

 

346,406

 

2026

 

 

353,055

 

2027

 

 

359,714

 

2028

 

 

152,420

 

Total Minimum Lease Payments

 

$

3,133,833

 

Less effects of discounting

 

 

(749,360

)

Present value of future minimum lease payments

 

$

2,384,473

 


Legal Proceedings


The Company may be involved in various lawsuits, claims and proceedings incidental to the ordinary course of business. The Company accounts for such contingencies when a loss is considered probable and can be reasonably estimated.


Between August and October 2017, the Company offered and sold AirTokens pursuant to the 2017 ICO and raised approximately $15 million in capital. The SEC determined that the AirToken offering was an offer and sale of “securities” as defined by Section 2(a)(1) of the Securities Act. On November 16, 2018 the Company settled the 2017 ICO matter with the SEC pursuant to the Settlement Agreement. As part of the Settlement Agreement, Airfox agreed to offer rescission rights to the Potential AirToken Claimants and paid a penalty of $250,000 to the SEC.


On March 15, 2019, the Company filed an initial registration statement on Form 10 with the SEC under the Exchange Act on a voluntary basis in connection with the Settlement Agreement and to provide current information to Potential AirToken Claimants pursuant to Section 12(a) of the Securities Act. The Form 10 registration statement became effective on May 14, 2019, and on October 18, 2019 the Company was notified that the SEC had completed its review of the Form 10 registration statement.


In conjunction with the Settlement Agreement, Potential AirToken Claimants are entitled to return their AirTokens to the Company and receive a refund in the amount of consideration paid, plus interest, less the amount of any income received thereon. Pursuant to the Settlement Agreement, as modified in May 2019, the Company timely distributed the claim forms on June 28, 2019. The claims period closed on September 28, 2019. All forms were processed in accordance with the terms and provisions set forth by the Settlement Agreement. The Company received claim forms from 174 Potential AirToken Claimants during the claims period and the Company determined to approve payment on 163 out of the 174 claims, which is approximately 93% of the claim forms received during the claims period. On December 11, 2019 the Company commenced the process of notifying, via email only, all 174 Potential AirToken Claimants of the Company’s resolution of their claim.


On or before December 28, 2019 Airfox paid all approved claims to approved claimants who returned their AirTokens to Airfox (approximately 93.5% of the total dollar amount of all approved claim refunds). All amounts were refunded in cash and paid through Airfox’s existing cash and cash equivalent reserves. The total claim amounts including interest, totaled $3,289,607 on December 28, 2019. Certain approved claimants did not return their AirTokens to Airfox. Airfox did not pay approved claims to approved claimants who did not return their AirTokens to Airfox. The amount that was not paid was approximately $586,293. All unpaid approved claims are expected to be paid during the second quarter of 2020 upon return to the Company of approved claimants’ AirTokens.




26



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Additionally, the Settlement Agreement requires the Company to:


·

Maintain timely filings of all reports required by Section 13(a) of the Exchange Act for at least one year from the date the Form 10 becomes effective (the Effective Date) and continue these filings until the Company is eligible to terminate its registration pursuant to Rule 12g-4 under the Securities Exchange Act of 1934.

·

Provide monthly reports to the SEC which include the amount of the claims paid, and any claims not paid as well as the reasons for non-payment.

·

Submit to the SEC a final report of its handling of all claims received within seven months from the Effective Date of the Form 10 filing.


Also, on November 16, 2018, the Company entered into a settlement with the Massachusetts Securities Division related to our issuance of AirTokens in the Company’s 2017 ICO whereby the Company agreed to pay a penalty of $100,000 to the Commonwealth of Massachusetts.


As a result of the Company’s inability to timely resolve these accounting issues, the Company did not timely file with the SEC the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019, and the Company’s annual report on Form 10-K for the year ended September 30, 2019, which puts the Company in violation of Section 13(a) of the Exchange Act and the Settlement Agreement. In addition, the Company did not timely file certain Current Reports on Form 8-K. As a result of the Company’s failure to timely file these various reports, the SEC may through civil or administrative actions seek monetary and non-monetary relief from the Company, including fines, penalties, undertakings and conduct-based injunctions, and officer and director bars and suspensions.


On December 30, 2019 a claimant who purchased AirTokens in the 2017 ICO whose claim was denied for failure to comply with the deadlines and the claim process filed a civil lawsuit against the Company in the Supreme Court of the State of New York, County of New York. The lawsuit alleges a claim of sale of unregistered securities to the plaintiff under Section 12(a) of the Securities Act of 1933 in connection with the plaintiff’s purchase of AirTokens in the 2017 ICO. The plaintiff demands a full refund in the amount of consideration paid, plus interest and other costs. To date, no complaint has been formally served on the Company.


Other than with respect to the matters described above, the Company is not aware of any pending or threatened claims that the Company violated any federal or state securities laws. However, the Company cannot assure you that any such claim will not be asserted in the future or that the claimant in any such action will not prevail. The possibility that such claims may be asserted in the future will continue until the expiration of the applicable federal and state statutes of limitations. If the payment of additional rescission claims or fines is significant, it could have a material adverse effect on the Company’s cash flow, financial condition or prospects and the value of the AirTokens.


Note 16 - Income Taxes

 

A nominal provision for taxes has been recorded as the Company has incurred net operating losses since inception. Significant components of the Company’s net deferred income tax assets as of December 31, 2019 and September 30, 2019 consist of income tax loss carryforwards. These amounts are available for carryforward indefinitely for use in offsetting taxable income. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry-forward period. Utilization of some of the net operating loss carry-forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. Due to the Company’s history of operating losses, these deferred tax assets arising from the future tax benefits are currently not likely to be realized and are thus reduced to zero by an offsetting valuation allowance. As a result, there is no provision for income taxes other than state minimum taxes.


Note 17 - Related Party Transaction


There are no related party transactions that have been identified during the three months ended December 31, 2019 and December 31, 2018.




27



CARRIEREQ, INC d/b/a AIRFOX AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 


Note 18 - Subsequent Events


On February 3, 2020, the Company’s board of directors (i) accelerated the vesting of all 260,021 stock option awards awarded to Douglas Lopes, the Company’s Chief Financial Officer; (ii) approved an amendment to the registrant’s 2016 Equity Incentive Plan (the “Plan”) to decrease the aggregate number of shares of the Company’s common stock that may be issued pursuant to Stock Awards (as defined in the Plan) from 2,834,837 to 2,676,126; and (iii) waived the restrictions on transfer and right of first refusal in favor of the Company, as set forth in the Company’s Amended and Restated Bylaws, for certain stockholders, including Mr. Lopes and Victor Santos, the Company’s Chief Executive Officer.


On February 7, 2020, pursuant to a written Call Exercise Notice (“Call Exercise Notice”), Via Varejo notified the Company and the Option Stockholders of Via Varejo’s intention to exercise the Call Right pursuant to the Call Option Agreement, through Lake Niassa Empreendimentos e Participações Ltda., a limited liability company duly organized under the laws of the Federative Republic of Brazil and 100% owned by Via Varejo (the “Buyer”), whereby (i) the Notes in the aggregate principal amount of $10,000,000 will be converted into shares of the Company’s common stock (the “Primary Shares”) and (ii) $6,000,000 of shares of the Company’s common stock will be purchased directly from the Option Stockholders (the “Secondary Shares”), such that Via Varejo shall own 80% of the Company’s common stock on a fully diluted basis (the “Transaction”). The agreed upon valuation of the Company for the purposes of the Transaction is $20 million.


Pursuant to the Call Exercise Notice, Via Varejo’s exercise of the Call Right, and its obligation to consumate the Transaction, is subject to and conditioned upon the satisfaction by the Company or the Option Stockholders of certain conditions (or waiver of such conditions by Via Varejo) prior to the consummation of the Transaction, which is expected to occur prior to April 11, 2020. These conditions include, among other things, (a) the Company amending its certificate of incorporation to provide for (i) a single class of common stock (and automatic conversion of any and all outstanding shares of preferred stock into common stock) (the “Conversion of Shares”) and (ii) no preferential rights in favor of any person other than Via Varejo, (b) obtaining preemptive rights waivers’ from certain Option Stockholders and (c) the acceleration of vesting of all stock options issued under the Company’s 2016 Equity Incentive Plan, as amended (the “Plan”) whereby upon the consummation of the Transaction, all stock options then issued and outstanding under the Plan are cancelled in exchange for a cash payment (calculated based on the per share price in the Employee SPAs) funded by Via Varejo and made to the holders of such stock options. Additionally, the execution and delivery of a stock purchase agreement, substantially in the form contemplated by the Call Option Agreement (“Form Stock Purchase Agreement”), by each of Via Varejo, the Company and the Option Stockholders, is a condition to closing the Transaction.







28



 


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q contains, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about the Company’s industry, management’s beliefs, and certain assumptions made by management. Forward-looking statements include our expectations regarding product, services, and maintenance revenue, and short- and long-term cash needs. In some cases, words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “estimates,” variations of these words, and similar expressions are intended to identify forward-looking statements. The statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements. Risks and uncertainties of our business include those set forth under “Risk Factors” in our Annual Report on Form 10-K (“Form 10-K”) as of and for the year ended September 30, 2019, as filed with the United States Securities and Exchange Commission (“SEC”) on January 15, 2020. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission, particularly any future Annual Reports on Form 10-K, any Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.


OVERVIEW


Beginning in February 2017, the Company began exploring consumer applications of its legacy prepaid mobile applications. The Company initiated a business plan to introduce a mobile application that would allow users to earn digital tokens, exchange them for free or discounted mobile data and, ultimately, other goods and services in South America as part of a new international business and ecosystem (the “AirToken Project”). The AirToken Project included the issuance of digital tokens (“AirTokens”). The AirToken is an ERC-20 token issued on the Ethereum blockchain.


The Company obtained Ether and Bitcoin (collectively referred therein as the “Digital Assets”), in August 2017 through early October 2017 from those interested in obtaining AirTokens. The Company raised approximately $15.4 million for the purpose of developing the AirToken Project.


The Company’s business is evolving to focus on providing unbanked and financially underserved individuals in emerging markets mobile access to financial services. The Company is developing a software technology platform initially consisting of two applications, a digital wallet application and an alternative credit scoring and lending application. The Company’s software technology platform is designed and built as a Software as Service (or SaaS) offering. The Company expects to generate revenue from these applications from fixed recurring fees, transaction fees, third party fees and interest income. The Company’s initial markets are the cash and unbanked markets in Brazil.


The Company’s digital wallet application, branded as banQi, is a digital banking application capable of leveraging machine learning capabilities to build alternative, smartphone-based credit risk models. banQi, available on Android and iOS, aims to eliminate the need for traditional financial institutions allowing those without bank accounts or credit cards to more easily and quickly make many everyday transactions using a smartphone. It will also enable the Company to create an alternative credit scoring system for our users for use in connection with our alternative credit scoring and lending application.


The alternative credit scoring and lending application is designed to be a blockchain-based, peer-to-peer lending application that will enable anyone from around the world to provide capital for a microloan to a diversified cohort of borrowers. This technology is expected to harness the decentralized power of the Ethereum blockchain to create a digital ledger of the user’s behavioral and transactional data to fund a new financial asset class from a global pool of lenders seeking to make socially impactful microloans.


Subsequent to the distribution of AirTokens to those parties who contributed towards the funding of the AirToken Project, no AirTokens were sold by the Company.





29



 


The Company has experienced recurring losses and negative cash flows from operations. At December 31, 2019 and September 30, 2019, the Company had cash and cash equivalents of $2,827,650 and $5,451,348, a working capital deficit of $11,290,756 and $4,467,895, total stockholders’ deficit of $23,065,332 and $19,140,984 and an accumulated deficit of $24,924,899 and $21,025,864. To date, the Company has in large part, relied on debt and equity financing to fund its operations. The Company expects to continue to incur losses from operations for the near-term and these losses could be significant as the Company incurs costs and expenses associated with the development of the AirToken Project.


On November 16, 2018, the Company entered into a settlement agreement with the SEC (the “SEC Settlement Agreement”). Initially with the Commonwealth of Massachusetts and ultimately pursuant to the SEC Settlement Agreement, the Company agreed to the certain actions including a) payment of a penalty, b) offer to refund consideration paid for AirTokens on or before October 5, 2017 in exchange for AirTokens, plus interest, c) filing a Form 10 to register the AirTokens as a class of securities and maintain timely filings of all reports required by Section 13(a) of the Exchange Act for at least one year from the date the Form 10 becomes effective (the “Effective Date”) and continue these filings until the Company is eligible to terminate its registration, and d) submit to the SEC a final report of its handling of all claims received within seven months from the Effective Date of the Form 10 registration statement filing. See Liquidity and Capital Resources for further details. The Company’s Form 10 registration statement is now effective, and we need to ensure that we will have the ability to prepare, on a timely basis, financial statements that comply with SEC reporting requirements.


In conjunction with the Settlement Agreement, Potential AirToken Claimants are entitled to return their AirTokens to our Company and receive a refund in the amount of consideration paid, plus interest, less the amount of any income received thereon. Pursuant to the Settlement Agreement, as modified in May 2019, our Company timely distributed the claim forms on June 28, 2019. The claims period closed on September 28, 2019. All forms were processed in accordance with the terms and provisions set forth by the Settlement Agreement. We received claim forms from 174 Potential AirToken Claimants during the claims period and we determined to approve payment on 163 out of the 174 claims, which is approximately 93% of the claim forms received during the claims period. On December 11, 2019 we commenced the process of notifying, via email only, all 174 Potential AirToken Claimants of our resolution of their claim.


On or before December 28, 2019 Airfox paid all approved claims to approved claimants who returned their AirTokens to Airfox (approximately 93.5% of the total dollar amount of all approved claim refunds). All amounts were refunded in cash and paid through Airfox’s existing cash and cash equivalent reserves. The total claim amounts including interest, totaled $3,289,607 on December 28, 2019. Certain approved claimants did not return their AirTokens to Airfox. Airfox did not pay approved claims to approved claimants who did not return their AirTokens to Airfox. The amount that was not paid was approximately $586,293. All unpaid approved claims are expected to be paid during the second quarter of 2020 upon return to the Company of approved claimants’ AirTokens.


The Company will recognize the remaining proceeds of $12.5 million over the remaining estimated development period of the AirToken Project, on a straight-line basis, beginning on October 1, 2019 until the completion of the AirToken Project. The estimated development period to complete the AirToken Project is approximately 30 months and is expected to be completed in March 2022.


In September 2018, the Company entered into the Services Agreement and related convertible notes agreement with Via Varejo whereby the Company could receive up to $10,256,000 by issuing convertible notes in connection with the Company’s software design and development services provided to Via Varejo. The Company has received the full $10,256,000 in cash and issued convertible notes for $2,500,000 on February 14, 2019, $3,500,000 on June 10, 2019, and $4,000,000 on September 6, 2019 under these agreements. See Note 9 – Via Varejo Services Agreement and Convertible Notes in the notes to the unaudited condensed consolidated interim financial statements appearing elsewhere in this Form 10-Q.


On June 12, 2019, Airfox Brazil entered into a Program Agreement with Mastercard Brasil and Via Varejo. As a licensee of MasterCard International, Inc. and a business partner of Mastercard Brasil, we launched our prepaid card and entered into an Incentive Program (as defined in the Program Agreement) in order to issue, expand and boost the Airfox Card base in Brazil as well as the number of transactions and turnover (sales revenue) generated by MasterCard Cards. As an incentive to support the launching of our Airfox Card, on December 16, 2019 Mastercard Brasil made to our Company a Sales Revenue Incentive Prepayment totaling R$65,000,000 (approximately $15,973,857). The Sales Revenue Incentive Prepayment constitutes the creation of a direct financial obligation on our Company since it constitutes prepaid sales revenue from Mastercard Brasil to our Company. Via Varejo has agreed to act as a guarantor of our Sales Revenue Incentive Prepayment obligations to Mastercard Brasil pursuant to the Program Agreement and a guaranty letter.




30



 


As a Mastercard prepaid debit card issuer, we will be entitled to receive Sales Revenue Incentive (as defined in the Program Agreement) pursuant to the Program Agreement. As a result, the Sales Revenue Incentive will be used to amortize the Sales Revenue Incentive Prepayment. Upon complete amortization of the Sales Revenue Incentive Prepayment, Mastercard will make quarterly payments of the Sales Revenue Incentive, calculated according to the value of transactions completed with the prepaid debit cards issued by Airfox. We have no minimum commitment of transaction volumes to be completed with the Airfox Cards.  


The Program Agreement has a term of ten years, unless earlier terminated by either party in accordance with specific provisions of the Program Agreement.


RESULTS OF OPERATIONS


The following comparative analysis on results of operations for the three months ended December 31, 2019 and 2018 are based on the comparative unaudited condensed consolidated financial statements, footnotes, and related information for the periods identified. This analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this filing.


The following table shows our results of operations for the periods indicated. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.


 

 

For the Three Months Ended
December 31,

 

 

Change

 

 

 

2019

 

 

2018

 

 

Dollars

 

 

Percentage

 

Revenue

 

$

1,254,739

 

 

$

247

 

 

$

1,254,492

 

 

 

507,891

%

Selling, general and administrative

 

 

5,206,039

 

 

 

1,204,432

 

 

 

4,001,607

 

 

 

332

%

Operating expenses

 

 

5,206,039

 

 

 

1,205,511

 

 

 

4,000,528

 

 

 

332

%

Loss from operations

 

 

(3,951,300

)

 

 

(1,205,264

)

 

 

(2,746,036

)

 

 

-228

%

Other income, net

 

 

5,386

 

 

 

94,928

 

 

 

(89,542

)

 

 

-94

%

Income tax benefit (expense)

 

 

46,631

 

 

 

(1,627

)

 

 

48,258

 

 

 

2,966

%

Net loss

 

$

(3,899,283

)

 

$

(1,111,963

)

 

$

(2,787,320

)

 

 

-251

%


Revenue


Revenue for the three months ended December 31, 2019 was $1.3 million from the Company’s recognition of the deferred revenue related to the remaining proceeds received from the AirToken Project which will be recognized, on a straight-line basis, over the remaining estimated development period through March 2022.


Operating expenses


Selling, general and administrative expenses


Selling, general and administrative expenses for the three months ended December 31, 2019 was $5.2 million representing an increase of $4.0 million or a 332% increase, as compared to $1.2 million for the three months ended December 31, 2018. The primary components of the increase include: general and administrative expenses increased by $2,194,377 due to the overall increase of our operating activities, salaries and wage, and one time year-end bonus related expenses increased by $831,969 due to an increase in full time employees, consulting services increased by $457,502, legal and professional fees increased by $276,165 due to assistance with ERP system implementation, and advertising expenses increased by $210,784 due to increased activity in Brazil and the increased spend related to marketing efforts.


Digital Asset impairment charge


Digital Asset impairment charges of $0 for the three months ended December 31, 2019 and $1,079 for the three months ended December 31, 2018 were recognized, as a result of declines in the fair value of the Digital Assets below their respective carrying values.




31



 


Other income, net


Other income, net for the three months ended December 31, 2019 and 2018 was $5,386 and $94,928, respectively. The $89,542 decrease in other income, net was primarily attributable to a decrease in the gain on AirTokens issued to vendors as compensation for services due to a change in the estimated development period in the quarter ended September 30, 2019, as the AirToken development period was extended, decreasing the monthly amortization expense. Interest expense increased by $43,052 primarily due to the compounded interest on the AirToken refund liability (through the payment date of December 28, 2019) which was determined to be probable and estimable in the quarter ended September 30, 2019. Finally, there was a realized loss on the sale of digital assets in the amount of ($1,392) recognized in the quarter ended December 31, 2019 compared to ($90,940) in the quarter ended December 31, 2018.


Income tax benefit (expense)


Income tax benefit (expense) for the three months ended December 31, 2019 and 2018 was $46,631 and $(1,627), respectively.


LIQUIDITY AND CAPITAL RESOURCES


Our working capital deficit decreased $6,822,861, or 153%, to $11.2 million as of December 31, 2019 from $4.5 million as of September 30, 2019. The decrease in working capital is related to a decrease in cash and cash equivalents and the AirToken refund liability, along with an increase in accounts payable, and accrued liabilities, offset by increases in restricted cash and deferred revenue related to the Mastercard Program Agreement.


We have historically experienced recurring losses and negative cash flows from operations. At December 31, 2019, we had a working capital deficit of $11,290,756 which included cash and cash equivalents of $2,827,650. The following table summarizes total current assets, liabilities and working capital deficit for the periods indicated:


 

 

December 31,
2019

 

 

September 30, 2019

 

 

Change

 

Current assets (including $10,750,129 of restricted cash at December 31, 2019)

 

$

14,632,050

 

 

$

6,388,510

 

 

$

8,243,540

 

Current liabilities

 

 

25,922,806

 

 

 

10,856,405

 

 

 

15,066,401

 

Working capital deficit

 

$

(11,290,756

)

 

$

(4,467,895

)

 

$

(6,822,861

)


Cash Flows


We have historically financed operations through cash flows from investing and financing activities. At December 31, 2019, our principal source of liquidity was $2,827,650 million in cash and cash equivalents. Other uses of cash may include capital expenditures and products technology expansion.


 

 

For the Three Months Ended
December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

9,362,354

 

 

$

(1,727,391

)

Net cash used in investing activities

 

$

(1,340,616

)

 

$

(288,895

)

Net cash provided by financing activities

 

$

33,923

 

 

$

3,000

 


Operating Activities


Net cash provided by operating activities for the three months ended December 31, 2019 was $9,362,354. Cash was consumed from continuing operations by the loss of $3,899,283 million, non-cash items consisting primarily of amortization totaling $36,757, stock-based compensation totaling $42,588, net of recognizing $39,678 of a deferred gain on AirTokens. Changes in other working capital accounts had a positive impact of $13,220,578 on cash, including deferred revenue - Master Program Agreement of $16,092,700, offset by $2,655,655 in AirToken refund liability and $1,252,977 in deferred revenue - AirToken Project.




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Net cash used in operating activities for the three months ended December 31, 2018 was $1,727,391. Cash was consumed from continuing operations by the loss of $1,111,963, non-cash items consisting primarily of amortization totaling $24,877, stock-based compensation totaling $23,618, a realized loss on the sale of our Digital Assets of $90,940, net of recognizing $175,716 of a deferred gain on AirTokens. Changes in working capital accounts had a negative impact of $580,226 on cash.


Investing Activities


Net cash used in investing activities during the three months ended December 31, 2019 was $1,340,616 million which substantially consisted of the acquisition of capitalized software costs relating to the Via Varejo Services Agreement.


Net cash used in investing activities during the three months ended December 31, 2018 was $288,895 consisting of the acquisition of intangible assets primarily related to Via Varejo.


We expect to make investments in our personnel, systems, corporate facilities, and information technology infrastructure in Fiscal 2020 and thereafter. However, the amount of our capital expenditures has fluctuated materially and may continue to fluctuate on an annual basis.


Financing Activities


Net cash provided by financing activities related to $33,923 in proceeds from the exercise of options for the three months ended December 31, 2019.


Net cash provided by financing activities related to $3,000 in proceeds from the exercise of options for the three months ended December 31, 2018.


OFF-BALANCE SHEET ARRANGEMENTS


We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Not Applicable


ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2019, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.




33



 


The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board include the following:


For the year ended September 30, 2019, we did not effectively apply the Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO framework, due primarily to an insufficient complement of personnel possessing the appropriate accounting and financial reporting knowledge and experience to determine the appropriate accounting for non-recurring transactions and transactions requiring more complex accounting judgment. The Company has not established an audit committee which led to ineffective oversight in the establishment and monitoring of required internal controls and procedures.


We did not maintain an appropriate level of evidence of the effectiveness of controls over the preparation and review of certain reconciliations utilized in the financial close processes to ensure that the information recorded in the general ledger was complete and accurate, including the stock-based compensation process. In addition, we did not maintain effective controls over the preparation and review of the consolidated financial statements to ensure that we identified and accumulated all required supporting information to ensure the completeness and accuracy of the information contained in the consolidated financial statements.

  

Lastly, we did not implement appropriate general information technology controls as the Company did not maintain effective logical access and program change controls over our third-party systems, including the general ledger system.


Management’s Remediation Initiatives


In an effort to remediate the identified material weakness and enhance our internal controls, we have initiated the following measures:


 

·

We retained full-time accounting staff over the course of the 2019.  We started 2019 with 2 accountants and utilized an accounting and financial reporting advisory firm. As of December 31, 2019, our internal full-time accounting team is 9 accountants with requisite experience to oversee the accounting function and with implementing and enhancing our internal controls over financial reporting. As we secure additional working capital, we will create additional positions in order to increase our personnel resources and technical accounting expertise within the accounting function.

 

·

We will continue to utilize an accounting and financial reporting advisory firm with significant experience with publicly held companies to assist our management in evaluating significant transactions and conclusions reached regarding technical accounting matters and financial reporting disclosures for the foreseeable future until our internal team is fully staff.

 

Changes in Internal Control over Financial Reporting

 

In July of 2019, we implemented a new general ledger system at Airfox Brazil. There were no changes to our internal control over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





34



 


PART II — OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS


Between August and October 2017, our Company offered and sold AirTokens pursuant to the 2017 ICO and raised approximately $15 million in capital. The SEC determined that the AirToken offering was an offer and sale of “securities” as defined by Section 2(a)(1) of the Securities Act. On November 16, 2018 we settled the 2017 ICO matter with the SEC pursuant to the Settlement Agreement. As part of the Settlement Agreement, Airfox agreed to offer rescission rights to the Potential AirToken Claimants and paid a penalty of $250,000 to the SEC.


On March 15, 2019, we filed an initial registration statement on Form 10 with the SEC under the Exchange Act on a voluntary basis in connection with the Settlement Agreement and to provide current information to Potential AirToken Claimants pursuant to Section 12(a) of the Securities Act. The Form 10 registration statement became effective on May 14, 2019, and on October 18, 2019 we were notified that the SEC had completed its review of the Form 10 registration statement.


In conjunction with the Settlement Agreement, Potential AirToken Claimants are entitled to return their AirTokens to our Company and receive a refund in the amount of consideration paid, plus interest, less the amount of any income received thereon. Pursuant to the Settlement Agreement, as modified in May 2019, our Company timely distributed the claim forms on June 28, 2019. The claims period closed on September 28, 2019. All forms were processed in accordance with the terms and provisions set forth by the Settlement Agreement. We received claim forms from 174 Potential AirToken Claimants during the claims period and we determined to approve payment on 163 out of the 174 claims, which is approximately 93% of the claim forms received during the claims period. On December 11, 2019 we commenced the process of notifying, via email only, all 174 Potential AirToken Claimants of our resolution of their claim.


On or before December 28, 2019 Airfox paid all approved claims to approved claimants who returned their AirTokens to Airfox (approximately 93.5% of the total dollar amount of all approved claim refunds). All amounts were refunded in cash and paid through Airfox’s existing cash and cash equivalent reserves. The total claim amounts including interest, totaled $3,289,607 on December 28, 2019. Certain approved claimants did not return their AirTokens to Airfox. Airfox did not pay approved claims to approved claimants who did not return their AirTokens to Airfox. The amount that was not paid was approximately $586,293. All unpaid approved claims are expected to be paid during the second quarter of 2020 upon return to the Company of approved claimants’ AirTokens.


Additionally, the Settlement Agreement requires our Company to:


·

Maintain timely filings of all reports required by Section 13(a) of the Exchange Act for at least one year from the date the Form 10 becomes effective (the Effective Date) and continue these filings until the Company is eligible to terminate its registration pursuant to Rule 12g-4 under the Securities Exchange Act of 1934.

·

Provide monthly reports to the SEC which include the amount of the claims paid, and any claims not paid as well as the reasons for non-payment.

·

Submit to the SEC a final report of its handling of all claims received within seven months from the Effective Date of the Form 10 filing.


Also, on November 16, 2018, we entered into a settlement with the Massachusetts Securities Division related to our issuance of AirTokens in our 2017 ICO whereby we agreed to pay a penalty of $100,000 to the Commonwealth of Massachusetts.


As a result of our inability to timely resolve these accounting issues, we did not timely file with the SEC our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019, which puts us in violation of Section 13(a) of the Exchange Act and the Settlement Agreement. In addition, we did not timely file certain Current Reports on Form 8-K. As a result of our failure to timely file these various reports, the SEC may through civil or administrative actions seek monetary and non-monetary relief from us, including fines, penalties, undertakings and conduct-based injunctions, and officer and director bars and suspensions.




35



 


On December 30, 2019 a claimant who purchased AirTokens in the 2017 ICO whose claim was denied for failure to comply with the deadlines and the claim process filed a civil lawsuit against our Company in the Supreme Court of the State of New York, County of New York. The lawsuit alleges a claim of sale of unregistered securities to the plaintiff under Section 12(a) of the Securities Act of 1933 in connection with the plaintiff’s purchase of AirTokens in the 2017 ICO. The plaintiff demands a full refund in the amount of consideration paid, plus interest and other costs. To date, no complaint has been formally served on our Company.


Other than with respect to the matters described above, we are not aware of any pending or threatened claims that we violated any federal or state securities laws. However, we cannot assure you that any such claim will not be asserted in the future or that the claimant in any such action will not prevail. The possibility that such claims may be asserted in the future will continue until the expiration of the applicable federal and state statutes of limitations. If the payment of additional rescission claims or fines is significant, it could have a material adverse effect on our cash flow, financial condition or prospects and the value of the AirTokens.


ITEM 1A. RISK FACTORS


Not Applicable


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


During the period covered by this report, our Company issued the following securities without registering the securities under the Securities Act:

 

Securities issued for services

 

Date

 

Security

December 24, 2019

 

122,510 shares of common stock at a purchase price of $0.29 per share issued pursuant to an option exercise.

October 06, 2019

 

Stock Options – rights to buy 5,000 shares of common stock at an exercise price of $0.29 per share.

 

 

 

We relied on Section 701 of the Securities Act since the transactions did not involve any public offering. No underwriters were utilized, and no commissions or fees were paid with respect to any of the above transactions.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES


Not Applicable


ITEM 4. MINE SAFETY DISCLOSURES


Not Applicable


ITEM 5. OTHER INFORMATION


Amendment to 2016 Equity Incentive Plan


On October 4, 2019, pursuant to an Action By Written Consent of the Board of Directors, Section 9(d) of the Plan was amended so that all Stock Awards (unless otherwise provided in any Award Agreement (as defined in the Plan)) shall automatically vest and become exercisable upon a Change of Control (as defined in the Plan). Section 2(b)(iv) of the Plan provides that our Board of Directors, without seeking shareholder approval, may accelerate the time at which any Stock Award may be exercised or vest.


Loan agreement with Via Varejo


On October 31, 2019, we entered into a Loan Agreement with Via Varejo whereby we borrowed 10,000,000 Brazilian Reals (approximately $2.5 million USD) from Via Varejo. Principal plus interest is payable at the maturity date and matures 181 days from the date the Loan Agreement was executed. The loan was repaid in full on December 18, 2019 in the amount of 10,167,740 Brazilian Reals (approximately $2.5 million USD).




36



 


Employee Agreement Amendments


On December 31, 2019 our Company’s board of directors made an oral amendment to Douglas Lopes’ employment agreement to increase his annual salary from $185,000 per year to $200,000 per year effective January 1, 2019.


ITEM 6. EXHIBITS


INDEX TO EXHIBITS

 

 

 

 

 

 

Incorporated by Reference

 

Filed or Furnished

Exhibit #

 

Exhibit Description

 

 

Form

 

Date Filed

 

 

Number

 

Herewith

3.1

  

Restated Certificate of Incorporation dated July 12, 2016

 

 

10

  

3/15/19

 

 

3.1

  

 

3.2

 

Amendment to Restated Certificate of Incorporation dated September 13, 2018

 

 

10

 

3/15/19

 

 

3.2

 

 

3.3

 

Amended and Restated Bylaws

 

 

10

 

3/15/19

 

 

3.3

 

 

4.1

 

Convertible Promissory Note, attached as Exhibit B to each of  (i) Services Agreement dated September 11, 2018 between by and among the Company and Via Varejo, S.A. et. al., and (ii) Convertible Note Purchase and Call Option Agreement dated September 11, 2018 by and among the Company and Via Varejo, S.A. et. al.

 

 

10

 

3/15/19

 

 

4.1

 

 

4.2

 

Form of Additional Convertible Promissory Note attached as Exhibit B-1 to each of (i) Services Agreement Amendment dated June 7, 2019 by and among the Company and Via Varejo, S.A. et. al., and (ii) Convertible Note Purchase and Call Option Agreement Amendment dated June 7, 2019 by and among the Company and Via Varejo, S.A. et. al.

 

 

10/A

 

7/8/19

 

 

4.2

 

 

4.3

 

Convertible Promissory Note dated February 26, 2016 – Star Power

 

 

10

 

3/15/19

 

 

4.2

 

 

4.4

 

Amended and Restated AirToken Terms & Conditions

 

 

10/A

 

9/25/19

 

 

4.4

 

 

10.1

 

Services Agreement dated September 11, 2018 by and among the Company and Via Varejo, S.A. et. al.

 

 

10

 

3/15/19

 

 

10.1

 

 

10.2

 

Services Agreement Amendment dated June 7, 2019 by and among the Company and Via Varejo, S.A. et. al.

 

 

10/A

 

7/8/19

 

 

10.2

 

 

10.3

 

Convertible Note Purchase and Call Option Agreement dated September 11, 2018 by and among the Company and Via Varejo, S.A. et. al. attached as Exhibit A to Services Agreement dated September 11, 2018 between by and among the Company and Via Varejo, S.A. et. al.

 

 

10

 

3/15/19

 

 

10.2

 

 

10.4

 

Convertible Note Purchase and Call Option Agreement Amendment dated June 7, 2019 by and among the Company and Via Varejo, S.A. et. al.

 

 

10/A

 

7/8/19

 

 

10.4

 

 

10.5

 

Airfox Service Level Agreement attached as Exhibit C to Services Agreement dated September 11, 2018 between by and among the Company and Via Varejo, S.A. et. al.

 

 

10

 

3/15/19

 

 

10.3

 

 

10.6

 

Client Service Level Agreement attached as Exhibit D to Services Agreement dated September 11, 2018 between by and among the Company and Via Varejo, S.A. et. al.

 

 

10

 

3/15/19

 

 

10.4

 

 

10.7

 

Via Varejo Loan Agreement re: 11/1/19 loan

 

 

10-K

 

1/15/20

 

 

10.7

 

 

10.8*

 

Program Agreement between Mastercard Brasil, Airfox Brazil and Via Varejo

 

 

8-K

 

12/26/19

 

 

10.1

 

 

10.9

 

Guaranty Letter – Via Varejo

 

 

8-K

 

12/26/19

 

 

10.2

 

 



37



 





10.10

 

Form of CarrierEQ, Inc. Stockholders Agreement attached as Exhibit D to Convertible Note Purchase and Call Option Agreement dated September 11, 2018 by and among the Company and Via Varejo, S.A. et. al.

 

 

10

 

3/15/19

 

 

10.5

 

 

10.11

 

Form of Stock Purchase Agreement attached as Exhibit E to Convertible Note Purchase and Call Option Agreement dated September 11, 2018 by and among the Company and Via Varejo, S.A. et. al.

 

 

10

 

3/15/19

 

 

10.6

 

 

10.12

 

CarrierEQ, Inc. 2016 Equity Incentive Plan

 

 

10

 

3/15/19

 

 

10.10

 

 

10.13

 

Amendment 2019-1 to CarrierEQ, Inc. 2016 Equity Incentive Plan

 

 

10-K

 

1/15/20

 

 

10.16

 

 

10.14

 

Amendment 2020-1 to CarrierEQ, Inc. 2016 Equity Incentive Plan

 

 

8-K

 

2/4/20

 

 

10.3

 

 

10.15

 

CarrierEQ, Inc. Equity Incentive Plan Form of Stock Option Grant Notice

 

 

10

 

3/15/19

 

 

10.11

 

 

10.16

 

Assignment by Inventors to CarrierEQ, Inc.

 

 

10

 

3/15/19

 

 

10.12

 

 

10.17

 

Douglas Lopes Employee Agreement dated January 29, 2019

 

 

10

 

3/15/19

 

 

10.17

 

 

10.19

 

Office Lease Agreement with Brickman Lincoln LLC

 

 

10-K

 

1/15/20

 

 

10.25

 

 

31.1

 

Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Executive Officer of the Company

 

 

 

 

 

 

 

 

 

Filed

31.2

 

Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Financial Officer of the Company

 

 

 

 

 

 

 

 

 

Filed

32.1

 

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

 

 

 

 

 

 

 

 

 

Filed

32.2

 

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

 

 

 

 

 

 

 

 

 

Filed

101

 

The following financial information from the quarterly report on Form 10-Q of CarrierEQ, Inc. for the quarter ended December 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Stockholders’ Deficit, (iv) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

Filed

———————

*  Confidential portions of this exhibit have been omitted from the exhibit.




38



 


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 thereunto duly authorized.


 

CarrierEQ, Inc.

 

 

Date: February 19, 2020

By:

/s/ Douglas de Carvalho Lopes

 

 

Douglas de Carvalho Lopes

 

 

Chief Financial Officer

(Principal Financial and Accounting Officer)






39