UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 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:  333-201391

XSPORT GLOBAL, INC.
(Exact name of registrant as specified in its charter)

Wyoming
 
80-0873491
(State or other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)

1800 Camden Road, #107-196
Charlotte, NC
 
28203
(Address of Principal Executive Offices)
 
(Zip Code)

(980) 875-4199
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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 ☑ 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 and post such files).  Yes ☑ No ☐

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

       
Large accelerated filer
Accelerated filer
       
Non-accelerated filer
Smaller reporting company
       
   
Emerging Growth company

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 7(a)(2)(B) of the Securities Act: ☐

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading symbol(s)
Name of exchange on
which registered
None
N/A
N/A

As of May 29, 2019, there were 47,158,245 shares of the registrant’s common stock outstanding.



XSPORT GLOBAL, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2019
TABLE OF CONTENTS

 
Page
   
 3
     
ITEM 1.
 3
     
   3
     
   4
 
 
   5
     
  6
     
  7
   
  8
   
ITEM 2.
26
   
ITEM 3.
32
   
ITEM 4.
32
   
33
   
ITEM 1.
33
   
ITEM 1A. 
34
   
ITEM 2.
34
   
ITEM 3.
34
   
ITEM 4.
34
   
ITEM 5.
34
   
ITEM 6.
35
     
38

PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS

XSPORT GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
March 31, 2019
   
September 30, 2018
 
             
ASSETS
           
             
Current assets
           
Cash
 
$
78,787
   
$
87,595
 
Accounts receivable, net
   
386,179
     
384,390
 
Prepaid expenses
   
81,848
     
20,900
 
Total current assets
   
546,814
     
492,885
 
                 
Property and equipment, net
   
38,347
     
42,872
 
Intangible assets, net
   
120,985
     
128,647
 
                 
                 
Total assets
 
$
706,146
   
$
664,404
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
Current liabilities
               
Line of credit
 
$
98,310
   
$
98,310
 
Accounts payable and accrued liabilities
   
2,418,968
     
2,143,930
 
Accrued compensation to related parties
   
396,285
     
341,507
 
Current portion of long-term note payable
   
7,392
     
7,463
 
Notes payable - related parties
   
124,948
     
120,959
 
Current portion of convertible notes payable, net
   
402,653
     
146,816
 
Current portion of convertible notes payable - related parties
   
99,062
     
111,746
 
Derivative liability
   
180,711
     
-
 
                 
Total current liabilities
   
3,728,329
     
2,970,731
 
                 
Long-term note payable, net
   
14,069
     
19,067
 
Long-term convertible notes payable, net
   
402,718
     
398,424
 
Long-term convertible notes payable, related party, net
   
15,000
     
15,000
 
Total long-term liabilities
   
431,787
     
432,491
 
                 
Total liabilities
   
4,160,116
     
3,403,222
 
                 
Commitments and contingencies (note 16)
               
                 
Stockholders' deficit
               
Preferred stock, 10,000,0000 shares authorized; par value $0.001; no shares issued or outstanding
   
-
     
-
 
                 
Common stock, 500,000,0000 shares authorized; par value $0.001; 42,954,578 and 37,206,807 shares issued and outstanding as of March 31, 2019 and September 30, 2018, respectively
   
42,955
     
37,207
 
Additional paid-in capital
   
8,404,163
     
7,712,414
 
Accumulated deficit
   
(11,901,088
)
   
(10,488,439
)
                 
Total stockholders' deficit
   
(3,453,970
)
   
(2,738,818
)
                 
Total liabilities and stockholders' deficit
 
$
706,146
   
$
664,404
 

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

XSPORT GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
For the Three Months Ended
March 31,
   
For the Six Months Ended
March 31,
 
   
2019
   
2018
   
2019
   
2018
 
                         
Revenue, net
 
$
646,141
   
$
-
   
$
1,168,308
   
$
-
 
Cost of revenue
   
398,988
     
-
     
699,067
         
Gross profit
   
247,153
     
-
     
469,241
         
                                 
Operating expenses:
                               
                                 
Research and development
   
16,180
     
5,985
     
86,244
     
54,475
 
General and administrative
   
857,183
     
247,006
     
1,381,701
     
433,946
 
                                 
Total operating expenses
   
873,363
     
252,991
     
1,467,945
     
488,421
 
                                 
Loss from operations
   
(626,210
)
   
(252,991
)
   
(998,704
)
   
(488,421
)
                                 
Other expense:
                               
Interest expense
   
202,004
     
9,512
     
381,357
     
17,219
 
                                 
     
202,004
     
9,512
     
381,357
     
17,219
 
                                 
Net loss
 
(828,214
)
 
(262,503
)
 
(1,380,061
)
 
(505,640
)
                                 
Deemed dividend for warrant down round feature
   
(32,588
)
   
-
   
$
(32,588
)
   
-
 
                                 
Net loss applicable to common stockholders
 
$
(860,802
)
 
$
(262,503
)
 
$
(1,412,649
)
 
$
(505,640
)
                                 
                                 
Net loss per common share - common stockholders - basic and diluted
 
$
(0.02
)
 
$
(0.01
)
 
$
(0.04
)
 
$
(0.02
)
                                 
Weighted average shares outstanding - basic and diluted
   
40,074,375
     
29,967,824
     
39,012,842
     
29,868,277
 

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

XSPORT GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS STOCKHOLDERS’ DEFICIT
For the Three and Six Months Ended March 31, 2019
(Unaudited)

   
Common Stock
Shares
   
Common Stock
Amount
   
Additional
paid-in
Capital
   
Accumulated
Deficit
   
Total
Stockholders'
Deficit
 
                               
Balance, September 30, 2018
   
37,206,807
   
$
37,207
   
$
7,712,414
   
$
(10,488,439
)
 
$
(2,738,818
)
                                         
Common stock issued for cash
   
333,334
     
333
     
24,667
     
-
     
25,000
 
                                         
Shares issued for deferred wages of related parties
   
1,239,692
     
1,240
     
91,737
     
-
     
92,977
 
                                         
Stock based compensation - related parties
   
3,924,745
     
3,925
     
269,957
     
-
     
273,882
 
                                         
Shares issued for third-party services
   
250,000
     
250
     
18,500
     
-
     
18,750
 
                                         
Beneficial conversion feature on convertible debt
   
-
     
-
     
224,693
     
-
     
224,693
 
                                         
Warrants issued with convertible debt recorded as debt discount
   
-
     
-
      29,607      
-
      29,607  
                                         
Deemed dividend
   
-
     
-
     
32,588
     
(32,588
)
   
-
 
                                         
Net loss
   
-
     
-
     
-
     
(1,380,061
)
   
(1,380,061
)
                                         
Balance, March 31, 2019
   
42,954,578
   
$
42,955
   
$
8,404,163
   
$
(11,901,088
)
 
$
(3,453,970
)
                                         
Balance, December 31, 2018
   
38,135,984
   
$
38,136
   
$
7,876,173
   
$
(11,040,286
)
 
$
(3,125,977
)
                                         
Shares issued for deferred wages of related parties
   
643,849
     
644
     
47,645
     
-
     
48,289
 
                                         
Stock based compensation - related parties
   
3,924,745
     
3,925
     
269,957
     
-
     
273,882
 
                                         
Shares issued for third-party services
   
250,000
     
250
     
18,500
     
-
     
18,750
 
                                         
Beneficial conversion feature on convertible debt
   
-
     
-
     
154,037
     
-
     
154,037
 
                                         
Warrants issued with convertible debt recorded as debt discount
   
-
     
-
      5,263
     
-
      5,263  
                                         
Deemed dividend
   
-
     
-
     
32,588
     
(32,588
)
   
-
 
                                         
Net loss
   
-
     
-
     
-
     
(828,214
)
   
(828,214
)
                                         
Balance, March 31, 2019
   
42,954,578
   
$
42,955
   
$
8,404,163
   
$
(11,901,088
)
 
$
(3,453,970
)

The accompanying footnotes are in integral part of these unaudited condensed consolidated financial statements.

XSPORT GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For the Three and Six Months Ended March 31, 2018
(Unaudited)

   
Common Stock
Shares
   
Common Stock
Amount
   
Additional
paid-in
Capital
   
Accumulated
Deficit
   
Total
Stockholders'
Deficit
 
                               
Balance, September 30, 2017
   
28,908,989
   
$
28,909
   
$
7,017,971
   
$
(9,336,112
)
 
$
(2,289,232
)
                                         
Common stock issued for cash
   
1,081,057
     
1,081
     
118,919
     
-
     
120,000
 
                                         
Stock based compensation
   
-
     
-
     
11,352
     
-
     
11,352
 
                                         
Net loss
   
-
     
-
     
-
     
(505,640
)
   
(505,640
)
                                         
Balance, March 31, 2018
   
29,990,046
   
$
29,990
   
$
7,148,242
   
$
(9,841,752
)
 
$
(2,663,520
)
                                         
Balance, December 31, 2017
   
29,790,046
   
$
29,790
   
$
7,082,766
   
$
(9,579,249
)
 
$
(2,466,693
)
                                         
Common stock issued for cash
   
200,000
     
200
     
59,800
     
-
     
60,000
 
                                         
Stock based compensation
   
-
     
-
     
5,676
     
-
     
5,676
 
                                         
Net loss
   
-
     
-
     
-
     
(262,503
)
   
(262,503
)
                                         
Balance, March 31, 2018
   
29,990,046
   
$
29,990
   
$
7,148,242
   
$
(9,841,752
)
 
$
(2,663,520
)

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

XSPORT GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
For the Six Months Ended
March 31,
 
   
2019
   
2018
 
             
Cash flows used in operating activities:
           
             
Net loss
 
$
(1,380,061
)
 
$
(505,640
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
   
8,322
     
938
 
Amortization of intangible assets
   
7,662
     
-
 
Amortization of debt discount
   
345,107
     
4,292
 
Shares issued for third-party services
   
18,750
     
-
 
Stock-based compensation - related parties
   
273,882
     
11,352
 
Accrued interest
   
14,732
     
12,909
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(1,789
)
   
-
 
Prepaid expenses
   
(60,948
)
   
(33,517
)
Accounts payable and accrued liabilities
   
275,038
     
123,662
 
Accrued compensation to related parties
   
147,754
     
81,775
 
                 
Net cash used in operating activities
   
(351,551
)
   
(304,229
)
                 
Cash flows from investing activities:
               
                 
Purchase of property and equipment
   
(3,797
)
   
-
 
                 
Net cash used in investing activities
   
(3,797
)
   
-
 
                 
Cash flows from financing activities:
               
                 
Proceeds from convertible notes payable, net
   
334,700
     
-
 
Payments on convertible notes payable, related parties
   
(8,091
)
   
-
 
Payments on notes payable
   
(5,069
)
   
-
 
Proceeds from sale of common stock
   
25,000
     
120,000
 
                 
Net cash provided by financing activities
   
346,540
     
120,000
 
                 
Decrease in cash
   
(8,808
)
   
(184,229
)
                 
Cash – beginning of period
   
87,595
     
186,881
 
Cash – end of period
 
$
78,787
   
$
2,652
 
                 
Supplementary cash flow information:
               
Interest paid
 
$
8,409
   
$
-
 
Income taxes paid
 
$
-
   
$
-
 
                 
Non-cash investing and financing activities:
   
,
         
Shares issued for accrued compensation of related parties
 
$
92,977
   
$
-
 
Beneficial conversion feature on convertible notes
 
$
224,693
   
$
-
 
Warrants issue in connection with debt recorded as debt discount
 
$
29,607
   
$
-
 
Deemed dividend for warrant down round feature
 
$
32,588
   
$
-
 

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

XSPORT GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - NATURE OF THE ORGANIZATION AND BASIS OF PRESENTATION

XSport Global, Inc. and Subsidiary (the “Company”, “XSport” “Us,” “Our” or “We”), formerly known as TeleHealthCare, Inc. (“TeleHealthCare”), was incorporated under the laws of the State of Wyoming on December 10, 2012.  Prior to the reverse merger described below, TeleHealthCare developed platforms in the telehealth industry.

On September 11, 2017, TeleHealthCare executed an Agreement and Plan of Merger (the “Merger Agreement”) with XSport Global, Inc., a North Carolina corporation, and HT Acquisition Corp., a Wyoming corporation and wholly-owned subsidiary of XSport Global, Inc. (the “Acquisition”) whereby the Acquisition was merged with and into the Company (the “Merger”) in consideration for 52,500,000 newly-issued shares of Common Stock of the Company (the “Merger Shares”) (17,500,000 shares post-reverse split).  As a result of the Merger, XSport became a wholly-owned subsidiary of TeleHealthCare, and following the consummation of the Merger and giving effect to the retirement of approximately 15,666,666 shares (leaving approximately 7,957,666 post-split shares remaining prior to the Merger), and the sale of approximately 3,451,322 post-split shares at the Merger to accredited investors, the stockholders of XSport became beneficial owners of approximately 61% of our issued and outstanding common stock.  Certain assets and liabilities of the original TeleHealthCare were then spun off, including assets and liabilities associated with CarePanda, with the Company assuming approximately $195,000 of remaining liabilities and changing the name of the newly merged company to XSport Global, Inc.

As a result of the Merger, the 17,325,000 post-split newly-issued shares were issued to the pre-existing XSport shareholders for all of the outstanding capital stock of XSport.  XSport assumed net liabilities totaling $194,632, with the remaining assets and liabilities assumed by MD Capital Advisors, Inc., a Company owned by TeleHealthCare’s former CEO, in a split-off agreement.  For accounting purposes, XSport was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of the Company.  Accordingly, XSport’s assets, liabilities and results of operations became the historical consolidated financial statements of the Company and the Company’s assets, liabilities and results of operations was consolidated with XSport effective as of the date of the Merger.  No step-up in basis or intangible assets or goodwill was recorded in this transaction.

On August 28, 2017, our Board of Directors approved a reverse stock split of our issued and authorized shares of common on the basis of three (3) shares for one (1) new share.  Our shareholders approved the reverse split through a special meeting held on November 2, 2017.  FINRA effected the reverse stock split in July 2018.  Our authorized common stock remained unchanged with 500,000,000 shares of common stock.  No fractional shares were issued in connection with the reverse stock split.  Additionally, the Board of Directors and shareholders approved the authorization of 10,000,0000 shares of blank check preferred stock with a par value of $0.001 per share. All share or per share information included in these consolidated financial statements gives effect to the reverse split.

On March 22, 2018, the Board of Directors and Majority Shareholders approved an amendment to our Articles of Incorporation to change our name to XSport Global, Inc.

As a result of the Merger with XSport Global, our business plan has shifted to mobile applications for athletes of all ages and all skill levels, designed to engage and improve cognitive abilities.  We are focused on developing a unique, industry-leading iOS and Android cognitive training mobile device application platform called XSport Global that we believe is differentiated from other players in the cognitive training space with a primary focus on the youth sports markets.

XSport Global, Inc.

HeadTrainer, Inc. was incorporated in the state of North Carolina on May 13, 2014.  It subsequently changed its original name of Head Trainer, Inc. to HeadTrainer, Inc, then subsequently to XSport Global, Inc.

XSport Global (formerly known as HeadTrainer, Inc.) was established to create, develop, promote, market, produce, and distribute online/mobile application cognitive training tools initially intended for the youth, millennial and adult sports markets.  The Corporation initially intends to outsource product manufacturing, distribution and the majority of its marketing efforts. The Corporation may work in conjunction with other organizations that provide computer programming, graphic design, and marketing expertise, and/or accomplish these same tasks in-house.

Shift Now Acquisition

On August 28, 2018, the Company entered into a stock purchase agreement (the “Agreement”) whereby the Company agreed to acquire all of the outstanding capital stock of Shift Now, Inc., a North Carolina corporation (“Shift Now”).  The purchase price consisted of 700,000 shares of our common stock, par value $0.001 per share, with a value of $0.075 per share totaling $52,500, (of which 250,000 shares are contingent on meeting future performance targets) and two convertible promissory notes for $30,000.

Also, on August 28, 2018, the Company entered into an employment agreement (the “Employment Agreement”) with Kristi Griggs, the former principal shareholder of Shift Now (the “Employee”) to serve as Executive Vice President of the Company’s Shift Now Division (See note 7).  Additionally, as additional consideration, the Company shall issue the Employee 150,000 shares of Common Stock at the 12-month anniversary of execution of the Employment Agreement. Employee shall receive an additional 150,000 shares of Common Stock upon the 24-month anniversary of the Employment Agreement.

Shift Now is a full-service strategic, creative and digital marketing agency.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial statements, instructions to Form 10-Q, and Regulation S-X.  Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.  These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended September 30, 2018.  In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation to make our financial statements not misleading have been included.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year, or any other period.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The Company’s unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).  The Company has a September 30 year-end.

Basis of Consolidation

The consolidated financial statements include the accounts of XSport Global, Inc. and its wholly-owned subsidiaries HeadTrainer, Inc. and Shift Now, Inc.  All significant intercompany transactions have been eliminated in consolidation.

Business Segments

The Company has two business segments.  XSport Global is focused on the development and sale software applications through subscriptions to end users.  Shift Now provides marketing services to businesses.

Use of Estimates

The preparation of unaudited consolidated financial statements in accordance with United States GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses in the reporting period.  The Company regularly evaluates estimates and assumptions related to useful life and recoverability of long-lived assets, valuation of shares for services and assets, deferred income tax asset valuations and loss contingencies.  The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.  The actual results experienced by the Company may differ materially and adversely from the Company’s estimates.  To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Cash

For purposes of the statement of cash flows, the Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.  There is no restricted cash or cash equivalents.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606 “Revenue from Contracts with Customers”. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In applying the revenue recognition model to contracts with customers, an entity: (1) identifies the contract(s) with a customer; (2) identifies the performance obligations in the contract(s); (3) determines the transaction price; (4) allocates the transaction price to the performance obligations in the contract(s); and (5) recognizes revenue when (or as) the entity satisfies a performance obligation.

XSport

XSport recognizes revenue from the sale of its software application thorough subscriptions received from end users.  XSport had no revenues from its application during the three and six months ended March 31, 2019 and 2018.

Shift Now

Shift Now recognizes service revenue when the service is completed under ASC Topic 606.  The Company records project revenue and expenses as net revenue for projects where the Company receives payments from customers and has limited credit risk (acts as an agent versus principal).

Accounts Receivable

Accounts receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts.  The Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate.  The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible.  As of March 31, 2019 and September 30, 2018, the Company’s allowance for doubtful accounts was $10,000 and $10,000, respectively.

Property and Equipment

Property and equipment consists of computer equipment, and furniture and fixtures, and is recorded at cost, less accumulated depreciation.  Property and equipment is depreciated on a straight-line basis over its estimated life of three to seven years.  We assess the impairment of long-lived assets on an ongoing basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our impairment review process is based upon an estimate of future undiscounted cash flows. Factors we consider that could trigger an impairment review include significant underperformance relative to expected historical or projected future operating results and significant negative industry or economic trends. Based on our analysis, there have been no impairment charges recorded during the six months ended March 31, 2019 and 2018.

Intangible Assets

The Company periodically reviews the carrying value of intangible assets to determine whether impairment may exist. Intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, an impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount. The Company uses level 3 inputs and a discounted cash flow methodology, along to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units.

Convertible Notes Payable and Derivative Liability

The Company had convertible notes outstanding at March 31, 2019 with default payment provisions (default provisions that required payment ranging from 150% to 200% of the outstanding principal amount plus accrued interest). The Company determined that the default provision is an embedded component that qualifies as a derivative which should be bifurcated from the convertible notes and separately accounted for in accordance with FASB ASC 815, “Derivatives and Hedging”.  ASC 815 –15–25–42 establishes criteria to determine whether puts are closely and clearly related to a debt host should the debt contain a substantial premium or default provision (one that is greater than 10% of the principal resulting from puts that require payoff for more than 110% of principal amount outstanding). The embedded derivative is recorded at fair value on the date of issuance and marked-to-market at each balance sheet date with the change in the fair value recorded as income or expense in the statement of operations.”

Income Taxes

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled. A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being recognized. Changes in recognition and measurement are reflected in the period in which the change in judgment occurs. Interest and penalties related to unrecognized tax benefits are included in income tax expense.

The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017.  The Act reduces the US federal corporate tax rate from 35% to 21% and required the Company to re-measure certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. The Company has reflected the aspects of the Act as it relates our calculations as of September 30, 2018.

Fair value

Financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, line of credit, notes payable, convertible notes payable, and derivative liability.  Except for the derivative liability (see table below), the recorded values of all financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US GAAP.  The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available.  The three-level hierarchy is defined as follows:

Level 1 - Valuation is based upon unadjusted quoted market prices for identical assets or liabilities in accessible active markets.

Level 2 - Valuation is based upon quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable in the market.

Level 3 - Valuation is based on models where significant inputs are not observable. The unobservable inputs reflect a company’s own assumptions about the inputs that market participants would use.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Our derivative liabilities have been valued as Level 3 instruments.

 
Level 1
 
Level 2
 
Level 3
 
Total
 
Fair value of convertible note derivative liability – March 31, 2019
 
$
   
$
   
$
180,711
   
$
180,711
 

The fair value of the derivative liability was based on the default provisions of the convertible notes.  The Company recorded derivative liabilities of $180,711 related to our convertible notes during the six months ended March 31, 2019.

Research and development expenses

Research and development expenses are expensed as incurred and are primarily comprised of product development.

Warrants

The Company has issued warrants in connection with financing arrangements. Warrants that do not qualify to be recorded as permanent equity are recorded as liabilities at their fair value using the Black- Scholes option pricing model. The relative fair value of the warrants, using the Black-Scholes model, is recorded in additional paid-in capital and as a debt discount.   For warrants issued for services, the relative fair value is recorded in additional paid-in capital and stock-based compensation. For warrants with down round provisions, a deemed dividend is recorded for the change in fair value of the warrants when the down round provision is triggered.

Share-based Compensation

The Company measures the cost of awards of equity instruments based on the grant date fair value of the awards.  That cost is recognized on a straight-line basis over the period during which the employee is required to provide service in exchange for the entire award.  The fair value of stock options on the date of grant is calculated using the Black-Scholes option pricing model, based on key assumptions such as the fair value of common stock, expected volatility and expected term. The Company’s estimates of these important assumptions are primarily based on third-party valuations, historical data, peer company data and the judgment of management regarding future trends and other factors.

Equity Instruments Issued for Services

Issuances of the Company’s common stock for services is measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to employees and board members is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those financial reporting dates. Based on the applicable guidance, the Company records the compensation cost but treats forfeitable unvested shares as unissued until the shares vest.

Advertising Costs

The Company expenses the costs of advertising when the advertisements are first aired or displayed.  All other advertising and promotional costs are expensed in the period incurred.  Total advertising expense for the period ended March 31, 2019 and 2018 was $0 and $0, respectively.  The Company’s mobile device application was inactive and not sold during the three and six months ended March 31, 2019 and 2018.

Earnings (Loss) Per Share (“EPS”)

Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding.  Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes.

The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise price could be less than the average market price of the common shares:

   
Three and Six Months
Ended
March 31,
 
   
2019
   
2018
 
             
Convertible notes
   
22,224,635
     
12,955,086
 
Warrants
   
2,365,492
     
3,791,966
 
Potentially dilutive securities
   
24,590,127
     
16,747,052
 

Recent Accounting Pronouncements

On May 10, 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-09 “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”, which provides guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.  The guidance is effective prospectively for all companies for annual periods beginning on or after December 15, 2017.  Early adoption is permitted.   The Company determined that the adoption of this ASU had no material impact on its financial position or results of operations.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting. The new standard contains several amendments that will simplify the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The changes in the new standard eliminate the accounting for excess tax benefits to be recognized in additional paid-in capital and tax deficiencies recognized either in the income tax provision or in additional paid-in capital.   The ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual reporting periods beginning after December 15, 2018.  The Company determined that the adoption of this ASU had no material impact on its financial position or results of operations.

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)." ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This amendment will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” and ASU No. 2018-11 “Leases (Topic 842) Targeted Improvements" in July 2018, and ASU No. 2018-20 "Leases (Topic 842) - Narrow Scope Improvements for Lessors" in December 2018. ASU 2018-10 and ASU 2018-20 provide certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company will adopt this guidance beginning with its first quarter ended December 31, 2019. Management does not expect to have a material impact upon adoption.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its unaudited condensed consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

NOTE 3 - LIQUIDITY, UNCERTAINTIES AND GOING CONCERN

The Company is subject to a number of risks similar to those of early stage companies, including dependence on key individuals, the difficulties inherent in the development of a commercial market, the potential need to obtain additional capital necessary to fund the development of its products, and competition from larger companies.

These unaudited condensed consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.  The Company has a working capital deficiency of approximately $3.2 million, has incurred a loss since inception resulting in an accumulated deficit of approximately $11.9 million as of March 31, 2019, and further losses are anticipated in the development of its business raising substantial doubt about the Company's ability to continue as a going concern.  The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.  Management intends to finance operating costs over the next twelve months from the date of the issuance of these unaudited condensed consolidated financial statements with existing cash on hand and loans from directors and/or the private placement of common stock.  There is, however, no assurance that the Company will be able to raise any additional capital through any type of offering on terms acceptable to the Company and cash on hand will not be sufficient for the next twelve months from the issuance of these financial statements.

NOTE 4 – PROPERTY AND EQUIPMENT, NET

The Company’s property and equipment, net consists of the following:

   
March 31,
2019
   
September
30,
2018
 
             
Computer equipment
 
$
18,099
   
$
14,302
 
Autos
   
37,308
     
37,308
 
     
55,407
     
51,610
 
Less: accumulated depreciation
   
(17,060
)
   
(8,738
)
   
$
38,347
   
$
42,872
 

Depreciation expense was $8,322 and $938 for the six months ended March 31, 2019 and 2018, respectively.

NOTE 5 – INTANGIBLE ASSETS, NET

The Company’s intangible assets, net consist of the following:

   
March 31,
2019
   
September
30,
2018
 
             
Trade name and trademarks
 
$
10,000
   
$
10,000
 
Customer base
   
119,924
     
119,924
 
     
129,924
     
129,924
 
Less: accumulated amortization
   
(8,939
)
   
(1,277
)
   
$
120,985
   
$
128,647
 

The intangible assets have an estimated useful life ranging from 5 to 9 years.

Total amortization expense related to the intangible assets during the six months ended March 31, 2019 was $7,662, resulting in an unamortized balance of $120,985 as of March 31, 2019.

NOTE 6 – ACQUISITION

Shift Now, Inc.

On August 28, 2018, the Company entered into a stock purchase agreement to acquire all of the outstanding capital stock of Shift Now for a total purchase price of $82,500.  The purchase price included 700,000 shares of our common stock with a value of $52,500 and a convertible promissory note for $30,000.  250,000 shares of the 700,000 shares are contingent on future performance targets.

The total purchase price for Shift Now was allocated as follows:

Intangible assets
 
$
129,924
 
Cash
   
123,625
 
Current assets
   
306,125
 
Note receivable – related party
   
3,183
 
Property and equipment
   
44,259
 
Line of credit
   
(98,310
)
Note payable
   
(30,000
)
Current liabilities
   
(396,306
)
Total net assets acquired
 
$
82,500
 
The purchase price consists of the following:
       
Convertible notes payable – related party
 
$
30,000
 
Common Stock
   
52,500
 
Total purchase price
 
$
82,500
 

Amortization of the intangible assets are deductible for tax purposes.

Intangible assets consist of customer base totaling $119,924 and trade name and trademarks totaling $10,000, with an estimated remaining useful life of 9 years and 5 years, respectively.

Proforma Information

The accompanying unaudited condensed consolidated financial statements include the results of operations of Shift Now for the six months ended March 31, 2019, of which Shift Now contributed approximately $1,168,000 of revenue and a net loss of approximately $76,000.

The following unaudited pro forma information presents the unaudited condensed consolidated results of the Company’s operations and the results of the acquisition of Shift Now had it been consummated on October 1, 2017. Such unaudited pro forma information is based on historical unaudited financial information with respect to the Shift Now acquisition and does not include operational or other charges which might have been affected by the Company, including any pro forma adjustments for amortization of intangible assets which approximates $1,277 per month. The unaudited pro forma information for the six months ended March 31, 2018 presented below is for illustrative purposes only and is not necessarily indicative of the results which would have been achieved or results which may be achieved in the future:

   
Three Months
Ended
March 31,
2018
   
Six Months
Ended
March 31,
2018
 
Net revenue
 
$
566,438
   
$
1,510,201
 
Cost of revenues
    308,392      
998,433
 
Operating expenses
    510,741      
1,034,390
 
Net loss
 
$
(262,207 )
 
$
(539,840
)
Net loss per share – basic and diluted
 
$
(0.01 )
 
$
(0.02
)

NOTE 7- RELATED PARTIES

In June 2014, the Company entered into an agreement with HIP, LLC (“HIP”), a company owned by the Company’s former Chairman, Mr. Maurice Durschlag. Per the agreement, in exchange for the intellectual property consisting of certain patents and trademarks, the Company is to pay HIP periodic royalty payments equal to 1.75% of the revenue derived from the sale of any product incorporating the intellectual property.  There was no material revenue from these products since the Company’s inception.  This agreement was voided on November 30, 2018.

On July 24, 2015, the Company entered into a separation agreement and release of liability (the ‘Separation Agreement”) with the Company’s former Chief Executive Officer (the “former CEO”) whereby the Company agreed to pay the former CEO a severance payment of $150,000, plus repay a $50,000 unsecured promissory note, on or before December 31, 2017, or within 10 days of the Company receiving $700,000 in cash proceeds from the issuance of debt or equity securities.  The $150,000 severance payment is reflected in accrued compensation to related parties as of March 31, 2019.  Additionally, the Company agreed to pay the former CEO a royalty of 0.5% of the Company’s gross revenue recognized from June 15, 2015 through January 25, 2018 payable on a quarterly basis.  There were no material revenues during this period.  The former CEO has initiated legal action against the Company and has received a judgement to collect the unpaid severance payment, promissory note, and royalties as the amounts remain unpaid as of March 31, 2019.  The Company has appropriately accrued for this matter and has included in accrued liabilities on the accompanying unaudited condensed consolidated balance sheets. On June 22, 2018, the Company paid $41,909 to the former CEO towards these amounts due, and an additional $25,000, $12,500 and $1,500 in January 2019, $1,500 in February 2019, and $1,500 in March 2019.  The severance payment of $150,000 and accrued interest on the unsecured promissory note of $7,635 were outstanding as of March 31, 2019.

On February 1, 2015, the Company entered into an Employment Agreement with one of the Company’s founders, Mr. Maurice Durschlag, to serve as Chairman of the Board of Directors (the “Former Chairman and current Director and CMO”).   As of March 31, 2019 and September 30, 2018, a total of $27,750, remains accrued for this agreement and is included in accrued compensation to related parties on the accompanying balance sheet.

On September 15, 2017, we entered into an amended employment agreement with Mr. Maurice Durschlag as our CMO.  Under the terms of the employment agreement, Mr. Durschlag is considered an “At Will” employee and shall receive annual compensation of $120,000 per year.  As of March 31, 2019 and September 30, 2018, a total of $84,668 and $87,750 respectively, remains accrued for this agreement and is included in accrued compensation to related parties on the accompanying balance sheet. On September 1, 2018, the Board of Directors approved a resolution to increase the annual compensation under this agreement to $180,000 per year, allow an annual bonus of in the form of stock up to 1% of the total number of shares issued by the Company on last day of each calendar year, extend the term of the agreement through December 31, 2020, modify the stock compensation to 500,000 shares earned in increments of 125,000 per quarter commencing October 1, 2018, and modify the purchase price for the optional deferment of salary from $0.0227 to $0.0681 due the 3 for 1 reverse stock split. During the six months ended March 31, 2019, the Company issued at total of 576,075 shares of the Company’s common stock with a value of $43,206 in payment for unpaid salary under the agreement.

On September 15, 2017, we entered into an amended employment agreement with Mr. Robert Finigan as our former Chairman and CEO.  Under the terms of the employment agreement, Mr. Finigan is considered an “At Will” employee and shall receive annual compensation of $150,000 per year and be immediately vested in the Company’s health and benefits package.  Mr. Finigan was also granted 1,000,000 shares of the Company’s common stock (333,333 post-reverse stock split), with a fair value of $22,700, that vests as to 41,667 shares on each of October 1, 2017, January 1, 2018, April 1, 2018, July 1, 2018, October 1, 2018, January 1, 2019, April 1, 2019 and July 1, 2019.  Mr. Finigan also may defer up to 50% of his annual salary to purchase an equivalent number of shares in the Company based upon a purchase price of $0.0227 per share.  Mr. Finigan is also entitled to reimbursement of business expenses and customary provisions for vacation, sick time and holidays.  Determinations with regard to bonus or option grants are made by the Board of Directors.  As of March 31, 2019 and September 30, 2018, a total of $34,474 and $42,327, respectively, remains accrued for this agreement and is included in accrued compensation to related parties on the accompanying balance sheet. In June 2018, the Company granted Mr. Finigan 1,263,989 shares and 871,880 shares of common stock for unpaid wages as Chairman and CEO, as well as 241,667 shares for incentives and director services. On September 1, 2018, the Board of Directors approved a resolution to increase the annual compensation under this agreement to $200,000 per year, allow an annual bonus of in the form of stock up to 1% of the total number of shares issued by the Company on last day of each calendar year, extend the term of the agreement through December 31, 2020, modify the stock compensation to 500,000 shares earned in increments of 125,000 per quarter commencing October 1, 2018, and modify the purchase price for the optional deferment of salary from $0.0227 to $0.0681 due the 3 for 1 reverse stock split.  During the six months ended March 31, 2019, the Company issued a total of 663,617 shares of the Company’s common stock with a value of $49,771 in payment for unpaid salary under the agreement. Mr. Finigan resigned on May 16, 2019 (see Note 18 – Subsequent Events)

On August 28, 2018, the Company entered into an employment agreement (the “Employment Agreement”) with Kristi Griggs, the former principal shareholder of Shift Now (the “Employee”) to serve as Executive Vice President of the Company’s Shift Now Division.  The Employment Agreement provides that upon consummation of the Merger, Employee shall be entitled to receive a salary of $100,000 per year plus a bonus of 5% of net revenue of clients managed by Employee or 1.5% of total gross revenues of Shift Now to be paid on the last pay period of the month for the prior month’s activity.  Additionally, as additional consideration, the Company shall issue the Employee 150,000 shares of Common Stock at the 12-month anniversary of execution of the Employment Agreement. Employee shall receive an additional 150,000 shares of Common Stock upon the 24-month anniversary of the Employment Agreement.  The Employee may receive severance of the greater of six months’ salary or $50,000 upon termination of the Employment Agreement and shall be entitled to retain all equity ownership earned as of the date of termination.

In February, 2019, the Company entered an Employment Agreement with its new President and CEO. The Employment Agreement has a two-year term, includes annual compensation of $180,000 per year, the issuance of 5,000,000 shares of the Company’s common stock of which 2,000,000 shares vest immediately, with the remainder vesting equally over 12 months.

On March 18, 2019, the Company entered an Employment Agreement for the position of Vice President of Business Development. The Employment Agreement has a two-year term, includes annual compensation of $120,000 per year contingent on the successful capital raise of more than $500,000, and the issuance of 2,000,000 shares of the Company’s common stock of which 200,000 shares vest immediately, with the remainder vesting equally over 8 quarters of the Employment Agreement.

As of March 31, 2019 and September 30, 2018 an additional $100,691 and $46,806, respectively, was accrued for other employees and employer taxes which is included in accrued compensation to related parties on the accompanying unaudited condensed balance sheet.

NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are as:

   
March 31,
2019
   
September
30,
2018
 
             
Accounts payable
 
$
706,543
   
$
611,840
 
Accrued consulting and brand endorsement fees
   
1,461,666
     
1,361,666
 
Accrued other
   
250,759
     
170,424
 
   
$
2,418,968
   
$
2,143,930
 

NOTE 9 – LINE OF CREDIT, NOTES PAYABLE RELATED PARTIES AND NON-RELATED PARTY

Note payable

The Company has a note payable dated January 2017 to a finance company for the finance of an automobile. The note bears interest at 3.25% per and calls for 60 monthly payments of $685 per month through March 2022.  Total balance of the note is $21,461 as of March 31, 2019, with current maturities of $7,392 and long-term maturities of $14,069.

Line of Credit

The Company has a $100,000 line of credit with a bank with a balance of $98,310 as of March 31, 2019 and September 30, 2018.  The line bears interest at prime rate (5.50% as of March 31, 2019), or a minimum of 4.5%, is collateralized by substantially all assets of the Company, and matured on May 15, 2019.  This line of credit is currently in default.

Notes payable – related parties

Current related party notes payable are as follows at March 31, 2019 and September 30, 2018, respectively:

   
March 31,
2019
   
September
30,
2018
 
             
Notes payable, shareholder, 0% interest, unsecured, due upon demand.  On May 18, 2016, the noteholder converted the note to an 8% unsecured promissory note due August 1, 2016.  This note is in default as of March 31, 2019.
 
$
100,000
   
$
100,000
 
                 
Notes payable, shareholder, 0% interest, unsecured, due upon demand
   
2,000
     
2,000
 
     
102,000
     
102,000
 
                 
Accrued interest
   
22,948
     
18,959
 
   
$
124,948
   
$
120,959
 

Interest expense related to these notes for the six months ended March 31, 2019 and 2018 was $3,989 and $3,989, respectively.

NOTE 10 – CONVERTIBLE NOTES PAYABLE

Convertible notes payable are as follows at March 31, 2019 and September 30, 2018, respectively:

   
March 31,
2019
   
September 30,
2018
 
             
Convertible note payable, including interest at 10%, due December 31, 2016, convertible at $1.47 per share.  This note is in default as of March 31, 2019 and continues to accrue interest at 10%.
 
$
100,000
   
$
100,000
 
                 
Convertible notes payable dated May 5, 2017, including interest at 10%, due May 5, 2018, convertible into shares of the Company’s common stock at $0.0681 per share. This note is currently in default.
   
10,000
     
10,000
 
                 
Four convertible denture notes payable dated in August and September 2017, including interest at 0% (12% after an event of default) due in August and September of 2020, convertible at any time into shares of the Company’s common stock at $0.0615 per share.  The Company recorded a debt discount of $25,756 for the beneficial conversion feature upon issuance, with an unamortized balance of $12,282 and $16,576 as of March 31, 2019 and September 30, 2018, respectively.  A total of $200,000 of these notes were assumed in the Merger, with $40,000 received in cash subsequent the Merger.
   
227,718
     
223,424
 
                 
Three convertible denture notes payable dated in August and September 2018, including interest at 0% (12% after an event of default) due in August and September of 2021, convertible at any time into shares of the Company’s common stock at $0.075 per share.
   
175,000
     
175,000
 
                 
Convertible note payable dated December 14, 2018, with principal of $57,000, interest at 8%, due December 14, 2019, convertible after 180 days into shares of the Company’s common stock at $0.25 per share, an original issue debt discount of $7,000 and a beneficial conversion feature of $50,000, with an unamortized balance of $6,417 and $42,715, respectively, as of March 31, 2019.   The terms of the note include a reduced conversion price at a 25% discount the price of the issuance of subsequent common stock equivalents, resulting in a conversion price of $0.023 per share as of March 31, 2019, due to the issuance of the note below.  This note is currently in default which created a derivative liability with a balance of $11,667 as of March 31, 2019.
   
7,868
     
-
 
                 
Convertible note payable dated December 17, 2018, with principal of $165,000, interest at 18%, due December 17, 2019, convertible at any time into shares of the Company’s common stock at a price equal to 65% of the lowest one day trading price during the prior 20 day trading period , with an original issue debt discount of $15,000, and a $24,344 debt discount related to the relative fair value of the warrants issued with the note, and a $70,656 debt discount related to the beneficial conversion feature.  The total debt discount was expensed in full as this note is in default as of March 31, 2019.  Additionally, the Company recorded a derivative liability with a balance of $55,000, which was transferred to the balance of the note during the three months ended March 31, 2019, with no derivative liability remaining related to this note as of March 31, 2019.  The note includes anti-dilution provisions which may impact the conversion price in the future.
   
165,000
     
-
 
                 
On January 3, 2019, the Company entered into convertible note payable for $53,000, including an original issue discount of $8,300, resulting in net proceeds of $44,700, with interest at 8%, due January 3, 2020, convertible after 180 days at a price of 65% of the average of the lowest two trading prices of the Company’s common stock during the 15 trading days prior to conversion, with a $27,006 debt discount and derivative liability related to the beneficial conversion feature.  The unamortized balance of the original issue discount and beneficial conversion features was $6,322 and $20,569, respectively, as of March 31, 2019.  This note is currently in default.
   
26,109
     
-
 
                 
On February 15, 2019, the Company entered into convertible note payable for $75,000, including original issue debt discount of $15,000, resulting in net proceeds of $60,000, with interest at 10%, due October 15, 2020, convertible at any time at a price of 60% of the lowest trading price of the Company’s common stock during the 20 trading days prior to conversion, with a $57,356 debt discount related to the beneficial conversion feature and a $2,644 debt discount related to the value of the 37,500 warrants issued with the note (see Note 13).  Additionally, the Company recorded a derivative liability with a balance of $65,526 as of March 31, 2019.  The unamortized balance of the original issue discount, beneficial conversion feature and warrants was $13,192, $44,320 and $2,043, respectively as of March 31, 2019.  This note is currently in default.
   
15,445
     
-
 
                 
On February 19, 2019, the Company entered into convertible note payable for $43,000, including original issue debt discount of $7,300, resulting in net proceeds of $35,700, with interest at 8%, due February 19, 2020, convertible after 180 days at a price of 60% of the lowest trading price of the Company’s common stock during the 20 trading days prior to conversion, with a $21,689 debt discount related to the beneficial conversion feature. Additionally, the Company recorded a derivative liability with a balance of $21,689 as of March 31, 2019 The unamortized balance of the original issue debt discount and beneficial conversion feature was $6,500 and $19,312, respectively, as of March 31, 2019. This note is currently in default.
   
17,188
     
-
 
                 
On February 26, 2019, the Company entered into convertible note payable for $62,500, including original issue debt discount of $13,200, resulting in net proceeds of $49,300, with interest at 10%, due November 21, 2019, convertible at any time at a price of 60% of the lowest trading price of the Company’s common stock during the 20 trading days prior to conversion, with a $46,681 debt discount related to the beneficial conversion feature and a $2,619 debt discount related to the value of the 37,500 warrants issued with the note (see Note 13).  Additionally, the Company recorded a derivative liability with a balance of $54,823 as of March 31, 2019.  The unamortized balance of the original issue debt discount, beneficial conversion feature and warrants was $12,007, $39,394, and $2,209 as of March 31, 2019. This note is currently in default.
   
8,890
     
-
 
                 
     
753,218
     
508,424
 
                 
Accrued interest
   
52,153
     
36,816
 
     
805,371
     
545,240
 
Less current portion
   
(402,653
)
   
(146,816
)
Long-term convertible notes payable, net
 
$
402,718
   
$
398,424
 

Interest expense related to these notes for the six months ended March 31, 2019 and 2018 was $15,337 and $5,500, respectively.   Amortization of the debt discounts and non-cash interest was $345,107 and $4,292 for the six months ended March 31, 2019 and 2018, respectively, and included in interest expense for each period on the accompanying unaudited consolidated statement of operations.

NOTE 11 – CONVERTIBLE NOTES PAYABLE – RELATED PARTIES

Convertible notes payable to related parties are as follow at March 31, 2019 and 2018, respectively:

   
Mar. 31,
2019
   
Sept. 30,
2018
 
             
Convertible note payable to brother of former CEO, including interest at 10%, due December 31, 2016, convertible at $1.47 per share.  This note is in default as of March 31, 2019 and continues to accrue interest at 10%.
 
$
50,000
   
$
50,000
 
                 
Convertible note payable to former CEO, including interest at 10%, due December 31, 2017, convertible at $1.47 per share, currently in default.  The Company paid $41,909 towards this note in June 2018 and $16,500 towards principal ($8,091) and interest ($8,409) during the six months ended March 31, 2019.
   
-
     
8,091
 
                 
Convertible notes payable, with a shareholder, dated May 5, 2017, including interest at 10%, due May 5, 2018, convertible into shares of the Company’s common stock at $0.0681 per share.  This note is currently in default.
   
5,000
     
5,000
 
                 
Convertible notes payable, with a shareholder as part of the purchase price of Shift Now, Inc., dated August 10, 2018, including interest at 5%, convertible into shares of the Company’s common stock at $0.075 per share on August 10, 2019. 50% of the principal and interest are due on August 19, 2019, with the balance due August 19, 2020.
   
30,000
     
30,000
 
     
85,000
     
93,091
 
Accrued interest
   
29,062
     
33,655
 
     
114,062
     
126,746
 
Less current portion
   
(99,062
)
   
(111,746
)
Long-term convertible notes payable, related parties
 
$
15,000
   
$
15,000
 

Interest expense related to these notes for the six months ended March 31, 2019 and 2018 was $3,816 and $5,250, respectively.

NOTE 12 – COMMON STOCK

On May 13, 2014, the Company filed its Articles of Incorporation with the State of North Carolina Secretary of State giving it the authority to issue 10,000,000 common shares, with no par value.  On February 3, 2016, the majority voting common shareholders approved the amendment of the Company’s articles of incorporation in order to increase its authorized common stock from 10,000,000 shares to 25,000,000 shares.

On September 11, 2017, TeleHealthCare executed an Agreement and Plan of Merger (the “Merger Agreement”) with HeadTrainer, Inc., a North Carolina corporation, and HT Acquisition Corp., a Wyoming corporation and wholly-owned subsidiary of HeadTrainer, Inc. (the “Acquisition”) whereby the Acquisition was merged with and into the Company (the “Merger”) in consideration for 52,500,000 newly-issued shares of Common Stock of the Company (the “Merger Shares”) (17,500,000 shares post-reverse stock split).  As a result of the Merger, HeadTrainer became a wholly-owned subsidiary of TeleHealthCare, and following the consummation of the Merger and giving effect to the retirement of approximately 47,000,000 shares (15,666,667 shares post-reverse stock split) (leaving approximately 24,000,000 shares remaining prior to the Merger or 8,000,000 shares post-reverse stock split), and the sale of approximately 10,000,000 shares (3,333,333 shares post-reverse stock split) at the Merger to accredited investors, the stockholders of HeadTrainer, Inc. became beneficial owners of approximately 61% of our issued and outstanding common stock.  Certain assets and liabilities of the original TeleHealthCare were then spun off, including assets and liabilities associated with CarePanda, with the Company assuming approximately $195,000 of remaining liabilities and changing the name of the newly merged company to HeadTrainer, Inc.  All TeleHealthCare stock options or warrants expired by September 30, 2017.  Warrants to purchase an aggregate of 1,500,000 shares of common stock (500,000 shares post-reverse stock split) remain from HeadTrainer, with a total of 2,625,000 HeadTrainer stock options cancelled (875,000 post-reverse stock split).

As a result of the Merger, each HeadTrainer shareholder received approximately 2.53 newly issued shares of TeleHealthCare for every 1 common share of HeadTrainer owned.

Concurrent with Merger, our Board of Directors approved an amendment to our Articles of Incorporation (the “Amendment”) to (i) change our name to HeadTrainer, Inc.; (ii) to increase the number of our authorized shares of capital stock to 510,000,000 shares, of which 500,000,000 shares shall be common stock and 10,000,000 shares shall be blank check preferred stock; and (iii) to provide that the Company may take action without a meeting on the written consent of the holders of a majority of the shares entitled to vote at such meeting.

On March 22, 2018, the Board of Directors and Majority Shareholders approved an amendment to our Articles of Incorporation to change our name to XSport Global, Inc.

Transactions during the six months ended March 31, 2018 (all shares are post-reverse stock split):

During the six months ended March 31, 2018, the Company received proceeds of $120,000 from accredited investors for the sale of 1,081,057 shares of the Company’s common stock at a price of $0.11 per share.

Transactions during the six months ended March 31, 2019 (all shares are post-reverse stock split):

In October 2018, the Company issued 324,749 and 271,094 shares of the Company’s common stock the Company’s CEO and CMO, respectively, at a price of $0.075 per share for payment of deferred wages.

In October 2018, the Company received proceeds of $25,000 from an accredited investor for the sale of 333,334 shares of the Company’s common stock at a price of $0.075 per share, under a subscription agreement for 666,667 shares for $50,000.

In January 2019, the Company issued 338,868 and 304,981 shares of the Company’s common stock the Company’s former CEO and the Company’s CMO, respectively, at a price of $0.075 per share for payment of deferred wages.

In January 2019, the Company issued 125,000 and 125,000 shares of the Company’s common stock the Company’s former CEO and the Company’s CMO, respectively, at a price of $0.075 per share for incentive payments of under their employment contracts.

In January 2019, the Company issued 582,489 and 388,327 shares of the Company’s common stock the Company’s CEO and CMO, respectively, at a price of $0.075 per share for payment of bonus shares under their employment contracts.

In February 2019, the Company issued 250,000 shares to a consultant for services at a price of $0.075 per share.

Effective March 31, 2019, the Company issued 125,000 and 125,000 shares of the Company’s common stock the Company’s CEO and CMO, respectively, at a price of $0.075 per share for incentive payments of under their employment contracts.

Effective March 31, 2019, the Company issued an aggregate of 2,453,929 shares to two employees at a price of $0.075 per share that became vested under their employment agreements.

NOTE 13 - STOCK OPTIONS AND WARRANTS

As of March 31, 2019, the Company had no outstanding stock options.

On April 21, 2016, the Company issued a warrant for 1,895,983 shares of common stock (631,994 shares post-reverse split) to NUWA Consulting Group pursuant to their agreement to purchase common stock.  The warrants have a 5-year term and exercise price of $0.21.  The Company valued the warrant using the Black-Scholes option pricing model with the following assumptions: dividend yield of zero, expected term of 5 years, risk free rate 1.93 percent, and annualized volatility of 274%. These warrants were not converted in the Merger and remain outstanding.

On May 18, 2016, the Company issued a warrant for 1,895,983 shares of common stock (631,994 shares post-reverse split) under a Debt Restructure and Conversion Agreement with a consultant.  The warrants have a 10-year term and an exercise price of $0.21 The Company valued the warrant using the Black-Scholes option pricing model with the following assumptions: dividend yield of zero, contractual term of 10 years, risk free rate of 2.45 percent, and annualized volatility of 277%. These warrants were not converted in the Merger and remain outstanding.

On December 17, 2018, the Company issued a warrant for 372,754 shares of common stock in connection with a convertible note payable.  The warrants have a 5-year term and an exercise price of $0.50 per share. The warrant includes an anti-dilution provision whereby the exercise price adjusts to the price included in the issuance of any common stock purchase warrant, option or similar security with a more favorable price during the term of the warrant.  The Company valued the warrant at a relative fair value of approximately $24,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of zero, expected term of 5 years, risk free rate 2.69 percent, and annualized volatility of 247%.

On February 6, 2019, the Company issued a warrant for 37,500 shares of common stock in connection with a convertible note payable.  The warrants have a 5-year term and an exercise price of $0.50 per share. The Company valued the warrant at a relative fair value of approximately $3,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of zero, expected term of 5 years, risk free rate 2.45 percent, and annualized volatility of 247%.  The warrant includes an anti-dilution provision whereby the exercise price adjusts to the price included in the issuance of any common stock purchase warrant, option or similar security with a more favorable price during the term of the warrant (currently at $0.03), along with an adjustment to the number of warrant shares related to the aggregate exercise price which adjusted the number shares under the warrant to 625,000.

In connection with financing referenced above, the placement agent received of a warrant to purchase 3,750 shares of common stock with terms substantially similar under an Engagement Agency Agreement dated December 7, 2018.

On February 26, 2019, the Company issued a warrant for 37,500 shares of common stock in connection with a convertible note payable.  The warrants have a 5-year term and an exercise price of $1.00 per share. The Company valued the warrant at a relative fair value of approximately $3,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of zero, expected term of 5 years, risk free rate 2.49 percent, and annualized volatility of 241%. The warrant includes an anti-dilution provision whereby the exercise price adjusts to the price included in the issuance of any common stock purchase warrant, option or similar security with a more favorable price during the term of the warrant (currently at $0.03), along with an adjustment to the number of warrant shares related to the aggregate exercise price which would adjusted the number of shares under the warrant.

In connection with financing referenced above, the placement agent received of a warrant to purchase 3,750 shares of common stock with terms substantially similar under an Engagement Agency Agreement dated December 7, 2018.

The down round anti-dilution provision in the above warrants issued on February 6, 2019 and February 26, 2019 created a deemed dividend to common stockholders of $32,588 which is reflected on the accompanying condensed consolidated statements of operations and stockholders’ deficit.

During the six months ended March 31, 2019, the Company has issued a total of 454,629 warrants with a weighted average term of 5 years and a weighted average exercise price of $0.55.  The down round feature of certain warrants created the issuance of an additional 646,250 warrants during the period.  There were 2,365,492 outstanding at March 31, 2019, with a weighted average exercise price of $0.14, weighted average remaining term of 4.7 years and weighted average intrinsic value of $0.01 per warrant.  No warrants were exercised, forfeited or cancelled during the period.

NOTE 14 – CONCENTRATIONS

Significant Customers

As of March 31, 2019, the Company had accounts receivable balances comprising 13% and 17% of total accounts receivable from two customers.

As of September 30, 2018, the company had accounts receivable balances comprising 28%, 12% and 11% of total accounts receivable from three customers.

 During the six months ended March 31, 2019, the Company had revenues comprising 29% and 24% of total revenues from two customers.

NOTE 15 – OPERATING LEASE

The Company entered into a lease agreement for office space in August 2017 for a total monthly rental of $1,995 and a term of 24 months.

The Company’s subsidiary, Shift Now, entered into a lease for office space in November 8, 2017 for a total monthly rental of $2,500 per month through December 31, 2018.  Shift Now renewed this lease through December 31, 2019 at $2,500 per month.

NOTE 16 – COMMITMENTS AND CONTINGENCIES

The Company has endorsement agreements with spokespeople to serve as the Company’s brand ambassadors entered in January 2015, providing for cash compensation of $100,000 annually.  The agreements have a ten-year term and provide for one-year extensions by agreement of both parties.  The future compensation to brand ambassadors is approximately $1,150,000, to be earned during the period from April 1, 2019 to December 31, 2024. In addition, the Company will pay royalties to each spokesperson of .5% per month for all gross subscription revenue received by the Company for US subscriptions and 0.25% per month for all gross product subscription revenue received by the Company for all non-US subscriptions.  Accrued royalties under these agreements were not material as of March 31, 2019 or September 30, 2018 as the Company had no product sales.  Total accrued expense under these agreements was $550,000 and $450,000 respectively, as of March 31, 2019 and September 30, 2018, respectively.

The Company has endorsement agreements with athletes with dates all expiring in 2017, providing for cash compensation of amounts ranging from $50,000 annually to $150,000 annually. The future compensation to athletes is $0 as of March 31, 2019. In addition, the Company agreed to pay royalties of .5% of revenues from subscribers that identify the selected athlete as their favorite athlete.  Accrued royalties under these agreements were not material as of March 31, 2019 as the Company had no product revenues during through March 31, 2019.  Total accrued expense related to these agreements was $775,000 as of March 31, 2019, and September 30, 2018.  All agreements were expired as of September 30, 2017.

In addition to the royalties to be paid for products sales to brand ambassadors and athletes, the Company is to pay royalties the former CEO and to the Company's Founder as disclosed in Related Party footnote, however there have been no material product sales through March 31, 2019.

The Company is to pay commissions to Apple and Google in consideration for services as the Company's agent and commissionaire for sales of licensed applications to end-users in the amount of 30% of all purchase prices payable to each end-user.  The Company’s application was inactive during the six months ended March 31, 2019 and 2018.

On August 28, 2018, the Company entered into a Stock Purchase Agreement with Shift Now (see note 6), which includes the issuance of 125,000 incentive shares of common stock based on gross revenue targets of $500,000 during the 12 months following the closing of the acquisition, plus an additional 125,000 shares of common stock base on gross revenue targets of $500,000 during the following 12 months.

NOTE 17 - BUSINESS SEGMENT INFORMATION

As of March 31, 2019, the Company had two operating segments, XSport and Shift Now.

The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services.  The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.

The accounting policies of each of the segments are the same as those described in the Summary of Significant Accounting Policies in Note 2.  The Company evaluates performance based primarily on income (loss) from operations.

Operating results for the business segments of the Company were as follows:

   
XSport
   
Shift Now
   
Total
 
                   
Three months ended March 31, 2019
                 
Net sales
 
$
-
   
$
646,141
   
$
646,141
 
Loss from operations
 
$
(619,315
)
 
$
(6,895
)
 
$
(626,210
)
                         
Three months ended March 31, 2018
                       
Net sales
 
$
-
   
$
-
   
$
-
 
Income (loss) from operations
 
$
(252,991
)
 
$
-
   
$
(252,991
)
                         
                         
Six months ended March 31, 2019
                       
Net sales
 
$
-
   
$
1,168,308
   
$
1,168,308
 
Loss from operations
 
$
(935,347
)
 
$
(63,157
)
 
$
(998,704
)
                         
Six months ended March 31, 2018
                       
Net sales
 
$
-
   
$
-
   
$
-
 
Income (loss) from operations
 
$
(488,421
)
 
$
-
   
$
(488,421
)
                         
Total Assets
                       
March 31, 2019
 
$
286,996
   
$
419,150
   
$
706,146
 
September 30, 2018
 
$
283,485
   
$
380,919
   
$
664,404
 

NOTE 18 – SUBSEQUENT EVENTS

In April 2019, the Company issued 338,686 and 304,981 shares of the Company’s common stock the Company’s CEO and CMO, respectively, at a price of $0.075 per share for payment of deferred wages.

On May 16, 2019, Robert Finigan resigned as Chief Executive Officer (Principal Executive Officer), Principal Financial Officer and as Chairman of the Board of Directors of the Company.

On May 13, 2019, the Company issued 3,560,000 shares of the Company’s common stock to a consultant as a deposit for future capital raising services.

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

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management's current views with respect to future events and financial performance.  Forward-looking statements are projections in respect of future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates.” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.  Those statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based.  Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, as filed with the Securities & Exchange Commission (“SEC”) on January 30, 2019, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  These risks include, by way of example and without limitation:

our ability to successfully commercialize and our products and services on a large enough scale to generate profitable operations;
relationships with our sponsored athletes;
the retention and availability of key personnel;
general economic and business conditions;
substantial doubt about our ability to continue as a going concern;
our need to raise additional funds in the future;
our ability to successfully recruit and retain qualified personnel in order to continue our operations;
our ability to successfully implement our business plan;
our ability to successfully acquire, develop or commercialize new products and equipment;
our ability to successfully acquire and integrate other businesses;
intellectual property claims brought by third parties; and
ability to successfully demonstrate scientific improvement and claims in identified cognitive areas.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance.  Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC.  We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law.  We believe that our assumptions are based upon reasonable data derived from and known about our business and operations.  No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.

Corporate History and Overview

XSport Global, Inc., formerly known as HeadTrainer, Inc. (“HeadTrainer”), was incorporated on December 10, 2012, under the laws of the State of Wyoming.  XSport Global is a leading youth and collegiate sports technology and media holding company focused on developing disruptive sports-centric technologies and related media projects around the world, where sports industries and players are highly regarded.  We seek to help athletes achieve their full potential through cognitive training, careers, genetics, recruiting and more.  Our flagship company, HeadTrainer, was established to create, develop, promote, market, produce, and distribute online/mobile application cognitive training tools initially intended for the youth, millennial, and adult sports markets.  The mobile platform was designed and developed in careful coordination with a team of professionals from the fields of science and medicine, and world-class athletes from a variety of sports.

On August 28, 2017, our Board of Directors approved a reverse stock split of our issued and authorized shares of common on the basis of three (3) shares for one (1) new share.  Our shareholders approved the reverse split through a special meeting held on November 2, 2017.  FINRA effected the reverse stock split in July 2018.  Our authorized common stock remained unchanged with 500,000,000 shares of common stock.  No fractional shares were issued in connection with the reverse stock split.  Additionally, the Board of Directors and shareholders approved the authorization of 10,000,0000 shares of blank check preferred stock with a par value of $0.001 per share. All share or per share information included in this Form 10-Q gives effect to the reverse split.

The Company was considered a shell company until February 8, 2016 when its former Chief Executive Officer acquired the majority of voting control of the Company and adopted the business of TeleHealthCare.  On September 11, 2017, TeleHealthCare executed an Agreement and Plan of Merger (the “Merger Agreement”) with HeadTrainer, Inc., a North Carolina corporation, and HT Acquisition Corp., a Wyoming corporation and wholly-owned subsidiary of HeadTrainer, Inc. (the “Acquisition”) whereby the Acquisition was merged with and into the Company (the “Merger”) in consideration for 52,500,000 (17,500,000 post-split) newly-issued shares of Common Stock of the Company (the “Merger Shares”).  As a result of the Merger, HeadTrainer became a wholly-owned subsidiary of TeleHealthCare, and following the consummation of the Merger and giving effect to the retirement of approximately 15,666,666 post-split shares (leaving approximately 7,957,666 post-split shares remaining prior to the Merger), and the sale of approximately 3,451,322 post-split shares at the Merger to accredited investors, the stockholders of HeadTrainer, Inc. became beneficial owners of approximately 61% of our issued and outstanding common stock.  As a result of the Merger, the 52,500,000 (17,500,000 post-split) newly-issued shares were issued to the pre-existing HeadTrainer shareholders for all the outstanding shares of HeadTrainer common stock.  HeadTrainer assumed net liabilities totaling $194,632, with the remaining assets and liabilities assumed by MD Capital Advisors, Inc., a Company owned by TeleHealthCare’s former CEO, in a Split-Off Agreement.  At the effective time of the Merger, our Board of Directors and officers were reconstituted by the resignation of Derek Cahill and the appointment of Bob Finigan, Maurice Durschlag and Jay Bilas.  Subsequently, on October 16, 2017, Mr. Jay Bilas resigned from our Board of Directors.

At the Merger, our Board of Directors approved an amendment to our Articles of Incorporation (the “Amendment”) to (i) change our name to HeadTrainer, Inc.; (ii) to increase the number of our authorized shares of capital stock to 510,000,000 shares, of which 500,000,000 shares shall be common stock and 10,000,000 shares shall be blank check preferred stock; and (iii) to provide that the Company may take action without a meeting on the written consent of the holders of a majority of the shares entitled to vote at such meeting.

On March 22, 2018, the Board of Directors and Majority Shareholders approved an amendment to our Articles of Incorporation to change our name to XSport Global, Inc.  Our business plan has shifted to mobile applications for athletes of all ages and all skill levels, designed to engage and improve cognitive abilities. We are focused on developing a unique, industry-leading iOS and Android cognitive training mobile device application platform called HeadTrainer that we believe is differentiated from other players in the cognitive training space with a primary focus on the youth sports markets.

On August 28, 2018, the Company acquired all of the outstanding capital stock (the “Shares”) of Shift Now, Inc., a North Carolina corporation (“Shift Now”).  The purchase price for the Shares was 700,000 shares of our Common Stock and $30,000 consisting of two promissory notes for $15,000 each (the “Notes”).  The first promissory note for $15,000 is to be delivered at closing and due within 12 months of the closing.  The second promissory note for $15,000 is to be delivered to the Seller no later than the 12-month anniversary of the closing and due within 12 months after issuance.  Also, on August 28, 2018, the Company entered into an employment agreement (the “Employment Agreement”) with Kristi Griggs, the former principal shareholder of Shift Now (the “Employee”) to serve as Executive Vice President of the Company’s Shift Now Division.  The Employment Agreement provides that upon consummation of the Merger, Employee shall be entitled to receive a salary of $100,000 per year plus a bonus of 5% of net revenue of clients managed by Employee or 1.5% of total gross revenues of Shift Now to be paid on the last pay period of the month for the prior month’s activity.  Additionally, the Company shall issue the Employee 150,000 shares of Common Stock at the 12-month anniversary of execution of the Employment Agreement.  Employee shall receive an additional 150,000 shares of Common Stock upon the 24-month anniversary of the Employment Agreement.  The Employee may receive severance of the greater of six months’ salary or $50,000 upon termination of the Employment Agreement and shall be entitled to retain all equity ownership earned as of the date of termination.

On May 16, 2019, Robert Finigan resigned as Chief Executive Officer (Principal Executive Officer), Principal Financial Officer and as Chairman of the Board of Directors of the Company.

Our business plan is to develop mobile applications for athletes of all ages and all skill levels, designed to engage and improve cognitive abilities.  We are focused on developing a unique, industry-leading iOS and Android cognitive training mobile device application platform called XSport Global that we believe is differentiated from other players in the cognitive training space with a primary focus on the youth sports markets.

Results of Operations

Comparison of the Three Months Ended March 31, 2019 and 2018

A comparison of the Company’s operating results for the three months ended March 31, 2019 and 2018 are as follows:

   
Three Months
Ended
March 31, 2019
   
Three Months
Ended
March 31, 2018
 
             
Revenue, net
 
$
646,141
   
$
-
 
Gross profit
   
247,153
     
-
 
Operating expenses
   
873,363
     
252,991
 
Operating loss
   
(626,210
)
   
(252,991
)
Other expense
   
(202,004
)
   
(9,512
)
Net loss
 
$
(828,214
)
 
$
(262,503
)

Revenues, net

Revenues increased by $646,141 from the three months ended March 31, 2018 as a result of our August 28, 2018 acquisition of Shift Now, Inc.

Gross profit

Gross profit increased by $247,153 from the three months ended March 31, 2018 as a result of our acquisition of Shift Now, Inc.

Operating expenses

Operating expenses for the three months ended March 31, 2109 and 2018 were $873,363 and $252,991, respectively.  The increase of $620,372 in operating expenses is due primarily to our August 28, 2018 acquisition of Shift Now, Inc. and an increase of approximately $268,000 related to stock based compensation to related parties for the three months ended March 31, 2019.

Operating loss

Loss from operations for the three months ended March 31, 2109 and 2018 was $626,210 and $252,991, respectively.  The increase in operating loss is primarily due primarily to our August 28, 2018 acquisition of Shift Now, Inc, and an increase in general and administrative expenses, including an increase of approximately $268,000 related to stock based compensation to related parties for the three months ended March 31, 2019.

Other expense

Other expense for the three months ended March 31 2019 was $202,004 and $9,512.  The increase was due primarily to higher interest expense and non-cash amortization debt discounts related to increased debt balances.

Comparison of the Six Months Ended March 31, 2019 and 2018

A comparison of the Company’s operating results for the six months ended March 31, 2019 and 2018 are as follows:

   
Six Months
Ended
March 31, 2019
   
Six Months
Ended
March 31, 2018
 
             
Revenue, net
 
$
1,168,308
   
$
-
 
Gross profit
   
469,241
     
-
 
Operating expenses
   
1,467,945
     
488,421
 
Operating loss
   
(998,704
)
   
(488,421
)
Other expense
   
(381,357
)
   
(17,219
)
Net loss
 
$
(1,380,061
)
 
$
(505,640
)

Revenues, net

Revenues for the six months ended March 31, 2019 increased by $1,168,308 from the prior year as a result of our August 28, 2018 acquisition of Shift Now, Inc.

Gross profit

Gross profit for the six months ended March 31, 2019 increased by $469,241 as a result of our acquisition of Shift Now, Inc.

Operating expenses

Operating expenses for the six months ended March 31, 2019 and 2018 were $1,467,945 and $488,421, respectively.  The increase of $979,524 was due primarily to our August 28, 2018 acquisition of Shift Now, Inc. and an increase of approximately $80,000 related to XSport operating expenses for the six months ended March 31, 2019.

Operating loss

Loss from operations for the six months ended March 31, 2019 and 2018 was $998,704 and $488,421, respectively.  The increase of $510,283 was primarily due primarily to our August 28, 2018 acquisition of Shift Now, Inc. and an increase in general and administrative expenses related to XSport operating expenses, including an increase of $262,530 in stock based compensation to related parties expense.

Other expense

Other expense for the six months ended March 31 2019 was $381,357 and $17,219.  The increase was due primarily to higher interest expense and non-cash amortization debt discounts related to increased debt balances.

Liquidity, Financial Condition and Capital Resources

As of March 31, 2019, we had cash on hand of $78,787 and a working capital deficiency of $3,181,515, as compared to cash on hand of $87,595 and a working capital deficiency of $2,477,846 as of September 30, 2018.  The increase in working capital deficiency is mainly due to an increase in accounts payable and accrued expenses, as well as new convertible debt issued, and the related increase in derivative liability, during the six months ended March 31, 2019.

Line of Credit

The Company has a $100,000 line of credit with a bank with a balance of $98,310 as of March 31, 2019 and September 30, 2018.  The line bears interest at prime rate, or a minimum of 5.5%, and matured on May 15, 2019.  The line of credit is currently in default and the Company is working on refinancing options.

Notes Payable – Related Parties

As of March 31, 2019, the Company had notes payable to related parties totaling $124,948, including accrued interest of $22,948.   The notes are unsecured and bear interest at 8% and are all in default as of March 31, 2019.

Convertible Notes Payable

As of March 31, 2019, The Company had convertible notes payable to related parties totaling $114,062, including accrued interest of $29,062.  The convertible notes bear interest ranging from 5% to 10% and are convertible in shares of the Company’s common stock at prices ranging from $0.0681 to $1.47 per share.  A total of $55,000 of these notes are currently in default.

As of March 31, 2019, The Company had convertible notes payable to third-parties totaling $805,371, including accrued interest of $52,153.  The convertible notes bear interest at rates ranging from 0% to 18% and are convertible in shares of the Company’s common stock at prices ranging from $0.023 to $1.47 per share.  A total of $350,500 of these notes are currently in default.

Common Stock Financing

In October 2018, the Company received proceeds of $25,000 from an accredited investor for the sale of 333,334 shares of the Company’s common stock at a price of $0.075 per share, under a subscription agreement for 666,667 shares for $50,000.

Debt Financing

During the six months ended March 31, 2019, the Company received an aggregate of $334,700 from the issuance of convertible notes payable.

Going Concern

The unaudited condensed consolidated financial statements contained in this quarterly report on Form 10-Q have been prepared assuming that the Company will continue as a going concern.  The Company has accumulated losses from inception through the period ended March 31, 2019 of approximately $12 million, as well as negative cash flows from operating activities.  Presently, the Company does not have sufficient cash resources to meet its plans in the twelve months following the issuance of these financial statements.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management is in the process of evaluating various financing alternatives in order to finance the continued development of the product and services, as well as other general and administrative expenses to support growth of its agency service offerings and future business development efforts.  These alternatives include raising funds through public or private equity markets and either through institutional or retail investors.  Although there is no assurance that the Company will be successful with its fund-raising initiatives, management believes that the Company will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing shareholders.

The unaudited condensed consolidated financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern.  The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability.  If the Company raises additional funds through the issuance of equity, the percentage ownership of current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to the rights, preferences and privileges of the Company’s common stock.  Additional financing may not be available upon acceptable terms, or at all.  If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict its future plans for developing its business and achieving commercial revenues.  Management believes its current cash on hand will not be sufficient for the next twelve months from the issuance of this report.

Working Capital Deficiency

   
March 31,
2019
   
September 30,
2018
 
Current assets
 
$
546,814
   
$
492,885
 
Current liabilities
   
3,728,329
     
2,970,731
 
Working capital deficiency
 
$
(3,181,515
)
 
$
(2,477,846
)

The increase in current assets is mainly due to an increase in prepaid expenses of $60,948 for the six months ended March 31, 2019.  The increase in current liabilities is primarily due to an increase in accounts payable and accrued expenses, as well as the issuance of new convertible debt and the related derivative liability during the six months ended March 31, 2019.

Cash Flows

   
Six Months Ended
March 31,
 
   
2019
   
2018
 
Net cash used in operating activities
 
$
(351,551
)
 
$
(304,229
)
Net cash used in investing activities
   
(3,797
)
   
-
 
Net cash provided by financing activities
   
346,540
     
120,000
 
Decrease in cash
 
$
(8,808
)
 
$
(184,229
)

Operating Activities

Net cash used in operating activities was $351,551 for the six months ended March 31, 2019, primarily due to the net loss of $1,380,061, partially offset by non-cash expenses related to amortization of debt discounts, stock-based compensation to related parties, an increase in accounts payable and accrued liabilities and accrued compensation to related parties.

Net cash used in operating activities was $304,229 for the six months ended March 31, 2018, primarily due to the net loss of $505,640, partially offset by an increase in accounts payable and accrued liabilities and accrued compensation to related parties.

Investing Activities

Net Cash used in operating activity of $3,797 for the six months ended March 31, 2019 was for the purchase of equipment.

Financing Activities

For the six months ended March 31, 2019, net cash provided by financing activities was $346,540, of which $25,000 was received from the sale of common stock, $334,700 was received from the issuance of convertible debt.

For the six months ended March 31, 2018, net cash provided by financing activities was $120,000 from the sale of the Company’s common stock.

Future Financing

We will require additional funds to implement our growth strategy for our business.  In addition, while we have received capital from various private placements of equity and convertible debt that have enabled us to fund our operations, these funds have been largely utilized, and additional funds are needed for other corporate operational and working capital purposes.  However, not including funds needed to fund the growth of the Company or to pay down existing debt and trade payables, we anticipate that we will need to raise additional capital to cover all of our operational expenses over the next 12 months from the issuance of this report.  These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares.  There can be no assurance that additional financing will be available to us when needed or, if available, that such financing can be obtained on commercially reasonable terms.  If we are not able to obtain the additional necessary financing on a timely basis, or if we are unable to generate significant revenues from operations, we will not be able to meet our other obligations as they become due, and we will be forced to scale down or perhaps even cease our operations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Effects of Inflation

We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in the notes to our condensed consolidated financial statements included herein for the quarter ended March 31, 2019 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

Recently Adopted Accounting Pronouncements

Our recently adopted accounting pronouncements are more fully described in Note 2 to our unaudited condensed consolidated financial statements included herein for the quarter ended March 31, 2019.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.  As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 4.
CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer and Treasurer (who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of March 31, 2019 pursuant to Exchange Act Rule 13a-15.  Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2019 in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.  This conclusion is based on findings that constituted material weaknesses.  A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.

In performing the above-referenced assessment, management identified the following deficiencies in the design or operation of our internal controls and procedures, which management considers to be material weaknesses:

(i)         Lack of Formal Policies and Procedures.  We utilize a third-party independent contractor for the preparation of our financial statements.  Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions.  The third-party independent contractor is not involved in the day to day operations of the Company and may not be provided information from management on a timely basis to allow for adequate reporting/consideration of certain transactions.

(ii)        Audit Committee and Financial Expert.  We do not have a formal audit committee with a financial expert, and thus we lack the board oversight role within the financial reporting process.

(iii)      Insufficient Resources.  We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls.  As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.

(iv)      Entity Level Risk Assessment.  We did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud related risks and the risks related to non-routine transactions, if any, on internal control over financial reporting.  Lack of an entity-level risk assessment constituted an internal control design deficiency which resulted in more than a remote likelihood that a material error would not have been prevented or detected, and constituted a material weakness.

Our management feels the weaknesses identified above have not had any material effect on our financial results.  However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses, and expect to implement changes in the near term, as resources permit, in order to address these material weaknesses.  Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis, and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds permit.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS

We may be involved in legal proceedings in the ordinary course of our business.  Although our management cannot predict the ultimate outcome of these legal proceedings with certainty, it believes that the ultimate resolution of our legal proceedings, including any amounts we may be required to pay, will not have a material effect on our unaudited condensed consolidated financial statements.

On July 24, 2015, the Company entered into a separation agreement and release of liability (the ‘Separation Agreement”) with the Company’s former Chief Executive Officer (the “former CEO”) whereby the Company agreed to pay the former CEO a severance payment of $150,000, plus repay a $50,000 unsecured promissory note which is included in convertible notes payable – related parties on the accompanying balance sheet, on or before December 31, 2017, or within 10 days of the Company receiving $700,000 in cash proceeds from the issuance of debt or equity securities.  The $150,000 severance payment is reflected in accrued compensation to related parties as of March 31, 2019 and September 30, 2018.  Additionally, the Company agreed to pay the former CEO a royalty of 0.5% of the Company’s gross revenue recognize from June 15, 2015 through January 25, 2018 payable on a quarterly basis.  The former CEO has received a judgement to collect the unpaid severance payment, promissory note, and royalties as the amounts remain unpaid as of March 31, 2019.  The Company has appropriately accrued for this matter and has included in accrued liabilities on the accompanying unaudited condensed consolidated balance sheets.  The Company made a payment of $41,909 towards this unpaid amount in June 2018. The Company has made subsequent payments of $25,000, $12,500 and $1,500 in January 2019, $1,500 in February 2019 and $1,500 in March 2019 towards the judgment and is actively working towards a settlement agreement and timeline.  The severance payment of $150,000 and accrued interest on the unsecured promissory note of $7,635 were outstanding as of March 31, 2019.

From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business. As of the date of this report, we are not aware of any other proceeding, threatened or pending, against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.

ITEM 1A.
RISK FACTORS

As a smaller reporting company, we are not required to provide the information required by this Item.  We note, however, that an investment in our common stock involves a number of very significant risks.  Investors should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for our fiscal year ended September 30, 2018, as filed with SEC on January 30, 2019, in addition to other information contained in such Annual Report and in this Quarterly Report on Form 10-Q, in evaluating the Company and our business before purchasing shares of our common stock.  The Company’s business, operating results and financial condition could be adversely affected due to any of those risks.

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

In October 2018, the Company received proceeds of $25,000 from an accredited investor for the sale of 333,334 shares of the Company’s common stock at a price of $0.075 per share.

The securities referred to above were offered and sold without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506(b) of Regulation D promulgated thereunder.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.
MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5.
OTHER INFORMATION

None.

ITEM 6.
EXHIBITS

Exhibit No.
 
Description
2.1
 
     
3.1
 
     
3.2
 
     
3.3
 
     
4.1
 
     
4.2
 
     
4.3
 
     
10.1
 
     
10.2
 
     
10.3
 
     
10.4
 
     
10.5
 
     
10.6
 
     
10.7
 
     
10.8
 
     
10.9
 
     
10.10
 
     
10.11
 
     
10.12
 
     
10.13
 
     
10.14
 
     
10.15
 
     
14.1
 
     
 
Subsidiaries of the Company *
     
 
Certification of Chief Executive Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act *
     
 
Certification of Principal Financial Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act *
     

 
Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
     
 
Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

* Filed herewith.

(1) Incorporated herein by reference to Exhibit 2.1 to the Company’