Form 10-Q Webstar Technology Group For: Sep 30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ___________ to ___________
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
12058 San Jose Blvd, #604 Jacksonville, Florida 32257 |
32223 | |
| (Address of principal executive offices) | (Zip code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| 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 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act): Yes ☐
As of November 11, 2022, there were shares of common stock, $0.0001 par value per share and 1,000 shares of Series A Preferred stock, $0.0001 par value per share of the registrant outstanding.
TABLE OF CONTENTS
| PART I | 4 | |
| ITEM 1 | FINANCIAL STATEMENTS | 4 |
| ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 16 |
| ITEM 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 20 |
| ITEM 4 | CONTROLS AND PROCEDURES | 20 |
| PART II | 20 | |
| ITEM 1 | LEGAL PROCEEDINGS | 20 |
| ITEM 1A | RISK FACTORS | 20 |
| ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 21 |
| ITEM 3 | DEFAULTS UPON SENIOR SECURITIES | 21 |
| ITEM 4 | MINE SAFETY DISCLOSURE | 21 |
| ITEM 5 | OTHER INFORMATION | 21 |
| ITEM 6 | EXHIBITS | 21 |
| 2 |
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements.” Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about future business and financial performance or conditions, anticipated sales growth across markets, distribution channels and product categories, competition from larger, more established companies with greater economic resources than we have, expenses and gross margins, profits or losses, new product introductions, financing and working capital requirements and resources, control by our principal equity holders and the other factors set forth under “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 29, 2022.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
| 3 |
PART I – FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS. |
| 4 |
Webstar Technology Group, Inc.
Condensed Balance Sheets
(Unaudited)
| September
30, 2022 | December
31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Right-of-use assets | ||||||||
| Intangible asset - net
of accumulated amortization of $ | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued salaries and related expenses | ||||||||
| Accrued interest - related party | ||||||||
| Due to stockholder | ||||||||
| Lease liability | ||||||||
| Total current liabilities | ||||||||
| Lease liability - net of current portion | ||||||||
| Convertible note payable – related party | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 6) | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock, $ par value; Authorized shares; designated Series A Preferred, issued and outstanding as of September 30, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value; Authorized shares; issued and outstanding as of September 30, 2022 and December 31, 2021 | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 5 |
Webstar Technology Group, Inc.
Condensed Statements of Operations
(Unaudited)
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Salaries and related expense (nine months ended 2022 includes stock based compensation of $) | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense | ||||||||||||||||
| Loss on extinguishment of debt with a related party | ( | ) | ||||||||||||||
| Interest expense – related party | ( | ) | ( | ) | ||||||||||||
| Total other expense | ( | ) | ( | ) | ||||||||||||
| Net loss before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share-basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding-basic | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 6 |
Webstar Technology Group, Inc.
Condensed Statements of Stockholders’ Deficit
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)
| Additional | Total | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in - | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Loss on extinguishment of liabilities and stock-based compensation with related party | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 7 |
Webstar Technology Group, Inc.
Condensed Statements of Cash Flows
(Unaudited)
| For
the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities | ||||||||
| Stock based compensation and loss on extinguishment of debt | ||||||||
| Amortization expense | ||||||||
| Change in assets and liabilities | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued salaries and related expenses | ||||||||
| Accrued interest – related party | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Advances from stockholder | ||||||||
| Repayment of stockholder advances | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of the period | ||||||||
| Cash at end of the period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Schedule of non-cash investing and financing activities | ||||||||
| Reclassifications of accrued salary and related expenses and advances due to related party to additional paid-in-capital upon settlement | $ | $ | ||||||
| Issuance of convertible note payable for accrued salary and advances due to related party | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 8 |
WEBSTAR TECHNOLOGY GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
Webstar
Technology Group, Inc. (the “Company”) was incorporated in
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements are prepared in accordance with Rule 8-01 of Regulation S-X of the Securities Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures included in these unaudited condensed financial statements are adequate to make the information presented not misleading. The unaudited condensed financial statements included in this document have been prepared on the same basis as the annual financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with US GAAP and SEC regulations for interim financial statements. The results for the three months ended September 30, 2022 are not necessarily indicative of the results that the Company will have for any subsequent period or for the calendar year ending December 31, 2022. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes to those statements for the year ended December 31, 2021 which was filed with the SEC on March 29, 2022.
Liquidity, Going Concern and Uncertainties
These
unaudited condensed financial statements have been prepared in conformity with US GAAP, which contemplate continuation of the Company
as a going concern. To date, the Company’s commercial operations have not generated sufficient revenues to enable profitability.
As of September 30, 2022, the Company had an accumulated deficit of $
The Company’s continued operations will depend on its ability to raise additional capital through various potential sources, such as future equity offerings and/or debt financings, strategic relationships, and to successfully execute its business plans. The Company has relied upon advances from its Chairman, majority stockholder to fund operations since inception. Management is actively pursuing financing, but can provide no assurances that such financing will be available on acceptable terms, or at all. Without this funding, the Company could be required to delay, scale back or eliminate some or all of its business plans which would likely have a material adverse effect on the Company.
| 9 |
The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
Generally, the Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to, the results of its marketing efforts to attract users for its software solutions and rapidly changing technology, the successful launch and the acceptance of its software solutions in the marketplace, competition of its software solutions, attraction of talented and skilled employees to support the business and the ability to raise capital to support its operations.
The Impact of COVID-19 On Business Operations
While the Company’s operations have not been materially affected by the COVID-19 outbreak to date, the ultimate duration and severity of the outbreak and its impact on the economic environment and business is uncertain. Accordingly, while the Company does not anticipate an impact on its operations, the duration of the pandemic and potential impact on the business cannot be estimated. The spread of the coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may have a material economic effect on our business. While the potential economic impact brought on by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is likely to result in further, significant disruptions of global financial markets, which may reduce the Company’s future ability to access capital either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market events resulting from the spread of the coronavirus could materially and adversely affect our business and the value of our common stock. In addition, a severe or prolonged economic downturn could result in a variety of risks to the business, including a possible delay in implementing our business plan. At this time, the Company is unable to estimate the impact of this event on its operations.
Use of Estimates
The preparation of the unaudited condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Certain of our estimates could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary. Significant estimates made by management include the valuation of deferred tax assets, fair value of preferred stock, and stock based compensation.
Fair Value of Financial Instruments and Fair Value Measurements
The carrying amounts reported in the balance sheets for cash, accounts payable, accrued expenses, and due to stockholder approximate their fair market value based on the short-term maturity of these instruments. The carrying amount reported in the balance sheet for the convertible note payable-related party approximates its fair value based on the valuation on the issue date as discussed in Note 3 below. The Company did not have any non-financial assets or liabilities that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021.
Cash
The
Company considers cash and cash equivalents to include all stable, highly liquid investments with maturities of three months or less.
There are
| 10 |
Accounts Receivable
Accounts
receivable are recorded as revenue is earned and billed during the period the on-line classes are conducted. The billings are due within
30 days of the billing date. If accounts receivable are not paid within 90 days of billing, an allowance for doubtful accounts will be
established. Accounts receivable were $
As of September 30, 2022 and 2021, and for the three and nine months then ended, the Company had no customers or revenue.
Leases
The Company accounts for leases under ASU 2016-02. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the condensed balance sheets. The Company leases office equipment used to conduct our business.
Operating lease ROU assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expenses in the unaudited condensed statements of operations.
Intangible Assets
Intangible
assets are initially capitalized at cost, which includes the purchase price (net of any discounts and rebates) and other directly attributable
costs of preparing the asset for its intended use. Direct expenditure including employee costs, which enhances or extends the performance
of computer software beyond its specifications and which can be reliably measured, is added to the original cost of the software. Costs
associated with maintaining the computer software are recognized as an expense when incurred. Computer software is subsequently carried
at cost less accumulated amortization and accumulated impairment losses. These costs are amortized to profit or loss using the straight-line
method over their estimated useful lives of
Revenue Recognition
The Company recognizes revenue when control of the promised goods or services are transferred to its customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. For student fees, the Company generates student fee revenue by registering each student that participates in an on-line classroom utilizing our eCampus platform. This revenue is earned at the time the on-line class takes place and is accrued during the period whether or not actually billed. The student fees are billed to the college conducting the classes during the period the classes are conducted. There are no prepayments for student fees so there is no deferred revenue related to student fees. The annual fee charged to the college is billed in the first quarter of the year and the income is recognized over the entire year.
The
Company recognized
Stock Based Compensation
Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”, which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee, director, and non-employee services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to recognize forfeitures as they occur as permitted under ASU 2016-09 Improvements to Employee Share-Based Payment.
Income Taxes
Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the assets or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. As of September 30, 2022 and December 31, 2021, the Company does not believe it has any uncertain tax positions that would require either recognition or disclosure in the accompanying unaudited condensed financial statements.
| 11 |
The Company reports net loss per share in accordance with ASC Topic 260-10, “Earnings per Share.” Basic loss per share is computed by dividing loss available to common stockholders by the weighted average number of shares of common stock outstanding. Diluted loss per share is computed similarly to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and were dilutive.
For the period ended September 30, 2022 the Company had a convertible note outstanding with a related party that is convertible into shares of common stock (see Note 3). For the period ended September 30, 2021, the Company had no dilutive securities.
Recent Accounting Pronouncements Adopted
On August 5, 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.
ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, after adopting ASU 2020-06, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium.
The amendments are effective for public business entities, that are not smaller reporting companies, in fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, in fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.
Effective April 2022, the Company has elected to early adopt the guidance in ASU 2020-06 which results in no additional accounting for any beneficial conversion features embedded in the convertible notes payable issued on June 3, 2022 to a related party (see Note 3).
NOTE 3 – RELATED PARTY TRANSACTIONS
Due to Stockholder and Convertible Note Payable
Mr.
James Owens, the founder, controlling stockholder, and chairman of the board of directors of the Company, advances the Company money
as needed for working capital needs. During the nine months ended September 30, 2022, Mr. Owens loaned the Company $
On
June 3, 2022, the Company entered into a settlement agreement with Mr. Owens whereby Mr. Owens was issued a two-year convertible
note payable in the amount of $
in exchange for 1) the elimination of the “Due to stockholder” liability balance of $
The
Company believes the convertible notes standalone value to be minimal given the current financial position of the Company. Therefore,
the Company estimated the value of the conversion feature using the fair value of the equity shares that the convertible note could be
converted into on the date the note was issued. Per ASC 470-20-30-25, the fair value of a convertible note at date of issuance
shall be deemed no less than the fair value of the shares of equity for which it can be converted into if there is no other reliable
measure of fair value. The Company’s market price for one share of common stock was $ resulting in a fair value of the convertible
note of $
| 12 |
With
the valuation of the convertible note determined, the convertible note fair value was allocated pro-rata between the two instruments
being extinguished with the resulting difference being recognized in the statement of operations. Compensation expense relative to the
convertible note issued in exchange for the elimination of accrued salary and related expenses owed is $ and $ for the three
and nine months ended September 30, 2022 and $ for the three and nine months ended September 30, 2021 in the accompanying statements
of operations. Loss on extinguishment of debt relative to the convertible note issued in exchange for advances owed to Mr. Owens is $
The
Company notes that if a convertible debt instrument is issued at a substantial premium compared to the principal (or par) amount to
be settled at maturity, ASC 470-20-25-13 indicates that there is a presumption that the substantial premium should be recognized in
equity as paid-in capital Therefore, the convertible note was recorded at $
License Agreement
On
April 21, 2020, the Company entered into a license agreement with Soft Tech Development Corporation (“Soft Tech”) to
exclusively license, market and distribute Soft Tech’s Gigabyte Slayer and WARP-G software (the “Licensed
Technology”) and further develop and commercialize these softwares throughout the world. James Owens, our controlling
stockholder, is the majority owner of Soft Tech. Pursuant to the terms of the license agreement, we agreed to pay a contingent
licensing fee of $
On July 15, 2022, the Company amended its Technology Marketing and License Agreement with Soft Tech Development Corp. The material changes to the existing agreement are as follows:
Change Item 1., License
- to make the license exclusive
- to grant the Company a Right-of-First Refusal to acquire future exclusive marketing license for new technologies
- to remove Company’s option to broker and split proceeds on sale of Soft Tech’s technology
Change Item 12, Termination
-to give Licensor (Soft Tech) right to terminate the agreement upon:
- change in executive management of Company
- sale of majority interest in Company to a third party
- there is a Change of Control in the Company
| 13 |
Employment Agreements
On
February 21, 2020, effective January 1, 2020, the Company entered into executive employment agreements with Don D. Roberts as its President
and Chief Executive Officer, Harold E. Hutchins as its Chief Financial Officer, and James Owens as its Chief Technology Officer. The
details of these agreements are found in Note 6 below (Commitments). The agreements provide for salaries of $
The
salaries and related expenses related to these agreements for the three and nine months ended September 30, 2022 were $
NOTE 4 – LEASES
As
of September 30, 2022, the Company has one lease for a copier that meets the provisions of ASU 2016-02 which requires the recognition
of a right-of-use asset representing the rights to use the underlying leased asset for the lease terms with an offsetting lease liability.
Operating lease expense is recognized on a straight-line basis over the lease term. During the three and nine months ended September
30, 2022, the Company recorded $
The
term of the lease is
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under the noncancelable copier operating lease to the total operating lease liabilities recognized on the unaudited condensed balance sheet as of September 30, 2022:
| Year Ended December 31, | Amount | |||||
| Copier Lease | 2022 (remainder of year) | $ | ||||
| 2023 | ||||||
| 2024 | ||||||
| Total | ||||||
| Less: present value discount | ( | ) | ||||
| Total operating lease liabilities | $ | |||||
NOTE 5 – STOCKHOLDERS’ DEFICIT
Series A Preferred Stock
On
March 16, 2020, the Company filed a Certificate of Designations (the “Certificate”) with the Secretary of State of Wyoming
to amend its Articles of Incorporation to designate
On June 14, 2022, the Certificate of Designations was amended with the Secretary of State of Wyoming to remove the prohibition of transfer rights of the Series A Preferred Stock.
Common Stock
As of September 30, 2022 and 2021, the Company had issued and outstanding shares of common stock. There were issuances of common stock during the three and nine-month periods ended September 30, 2022 and 2021.
| 14 |
Stock Option Grant
On
December 9, 2021, the Company issued
non-qualified options to purchase the Company’s common stock to its Chief Financial Officer. The options were fully vested as
of the grant date and have an exercise price of $
per share. Given the exercise price is equal to par value, the Company valued the option grant at $
per option, which was the market price of the underlying stock as quoted on the OTC market on the grant date. The total value of
$
of the option grant was recorded as an increase to additional paid-in-capital and stock compensation expense during the year ended
December 31, 2021. Stock compensation expense was $
On June 3, 2022, the Company canceled the stock options granted to the Company’s Chief Financial Officer on December 9, 2021.
NOTE 6 – COMMITMENTS
Executive Employment Agreements
James
Owens. On February 21, 2020, the Company’s Board of Directors approved and executed, effective January 1, 2020, an employment
agreement with Mr. Owens to serve as its Chief Technology Officer. The term of this agreement is indefinite and may be terminated by
either party at any time provided that prior to termination, twenty (
On
June 3, 2022, the Company entered into a settlement agreement with Mr. Owens whereby Mr. Owens was issued a two-year convertible promissory
note in the amount of $ in exchange for 1) reduction in the “Due to stockholder” liability of $
Don
D. Roberts. Prior to February 21, 2020, the Company did not have any written employment agreement or other formal compensation agreement
with Mr. Roberts. On February 21, 2020, the Company’s Board of Directors approved and executed, effective January 1, 2020, an employment
agreement with Mr. Roberts to serve as its Chief Executive Officer. The term of this agreement is indefinite and may be terminated by
either party at any time provided that prior to termination, twenty (
Harold
E. Hutchins. Prior to February 21, 2020, the Company did not have any written employment agreement or other formal compensation agreement
with Mr. Hutchins. On February 21, 2020, the Company’s Board of Directors approved and executed, effective January 1, 2020, an
employment agreement with Mr. Hutchins to serve as its Chief Financial Officer. The term of this agreement is indefinite and may be terminated
by either party at any time provided that prior to termination, twenty (
Refer to Note 3 for amounts related to the Owens, Roberts, and Hutchins employment agreements included in the accompanying financial statements.
NOTE 7 – SUBSEQUENT EVENTS
Subsequent Events
Mr.
James Owens, the Chairman of the Board, Chief Technology Officer, founder, and controlling stockholder of the Company, loaned the Company
$
| 15 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes to those financial statements that are included elsewhere in this report and in conjunction with the audited financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 29, 2022. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Statement Regarding Forward-Looking Statements and Business sections in the audited financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2021.
Background and Overview
Webstar Technology Group, Inc. (the “Company”) was incorporated in Wyoming on March 10, 2015. The Company was established for the operation of certain licensed and purchased software solutions. Since inception, the Company signed two letters of intent with a related party to license proprietary software technology solutions, i.e., Gigabyte Slayer and WARP-G. The Company has been focused in large part on organizational activities and the development of its business plans to license the Gigabyte Slayer software application that is designed to deliver live video streams, video downloads and large data files more efficiently by using new proprietary data compression technology and to license the WARP-G software solution that is designed to enable enterprise customers that transmit live video streams, video downloads and large data files to push such data over existing pipelines at higher speeds in less time also by using new proprietary data compression technology. The Company completed the license of Gigabyte Slayer and WARP-G software on April 21, 2020. In 2022, the Company is taking a three-pronged approach to commercialize its business: 1) sub-license the Gigabyte Slayer and WARP-G software; 2) acquire rights to additional technology; 3) sell the right to sublicense the software.
COVID-19
While the Company’s operations have not been materially affected by the COVID-19 outbreak to date, the ultimate duration and severity of the outbreak and its impact on the economic environment and business is uncertain. Accordingly, while the Company does not anticipate an impact on its operations, the duration of the pandemic and potential impact on the business cannot be estimated. The spread of the coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may have a material economic effect on our business. While the potential economic impact brought on by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is likely to result in further, significant disruptions of global financial markets, which may reduce the Company’s future ability to access capital either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market events resulting from the spread of the coronavirus could materially and adversely affect our business and the value of our common stock. In addition, a severe or prolonged economic downturn could result in a variety of risks to the business, including a possible delay in implementing our business plan. At this time, the Company is unable to estimate the impact of this event on its operations.
Recent Developments
2nd Amended and Restated Technology Marketing and License Agreement
On July 15, 2022, the Company amended its technology marketing and license agreement with Soft Tech Development Corp. The material changes to the existing agreement are as follows:
Change Item 1., License
- to make the license exclusive
- to grant the Company a Right-of-First Refusal to acquire future exclusive marketing license for new technologies
- to remove Company’s option to broker and split proceeds on sale of Soft Tech’s technology
Change Item 12, Termination
-to give Licensor (Soft Tech) right to terminate the agreement upon:
- change in executive management of Company
- sale of majority interest in Company to 3rd party
- there is a Change of Control in the Company
Plan of Operations
Marketing the Products
Management has decided that the fastest way to get the Company’s technologies to market is to not bear the burden ourselves. Numerous third parties already have the requisite infrastructure in place and there is no need for the Company to re-build those elements. Additionally, the third parties we seek to align ourselves with, are better positioned to handle the retail, business and governmental marketing sectors worldwide. They will be experienced, globally well-known entities with everything already in place for a quick launch/utilization of the Company’s technology.
There are three main paths that the Company is pursuing: 1) Licensing the technology to third parties; 2) Selling the technology via Permanent License to a third-party; 3) Acquisition of the Company by a third party via a change of control of the Company; all of which would generate up-front and residual revenues for the Company.
| 16 |
Gigabyte Slayer Software
Gigabyte Slayer is a distinct mobile application created to enable users to transmit more data over existing data streams to optimize data usage across mobile devices including smartphones and tablets. The application is designed to eliminate video streaming delays and reduce customers’ data plan bandwidth usage from any 3G or 4G LTE cell phone network provider. The application is designed to deliver live video streams, video downloads and large data files more efficiently by using new proprietary data compression technology. This technology significantly reduces the data package size and enhances the data traffic control between cell phone provider data downloads and uploads to customers’ mobile devices.
Web browsers perform various levels of caching data, the practice of storing data in and retrieving data from a memory device. Unfortunately, many use unsophisticated cache control capabilities. In comparison, Gigabyte Slayer data compression is capable of optimizing the high bandwidth downloads and returns the data to users’ mobile devices. This process is expected to dramatically reduce the data bandwidth needed when watching online videos, playing online games, or simply downloading large data files. The service is targeted to enter the mobile device market by offering application downloads with a monthly service fee. A smartphone and tablet user utilizing the Gigabyte Slayer application is expected to be able to decrease their data usage on their current data plan, at no additional cost, from their cell phone provider. Further, Gigabyte Slayer is designed to eliminate downloads “buffering” currently experienced by many current applications.
WARP-G Software
WARP-G is a business-to-business software solution that companies can use on an enterprise wide basis to transmit more data over existing data streams to optimize their data usage. The software is designed to enable enterprise users to deliver faster data streams, experience shorter download/upload times and increase the volume and speed of the data. The software is designed to create less congestion and increase the speed of packets being delivered more efficiently by using new proprietary data compression technology. This technology is expected to allow the enterprise users to push more data through existing pipelines meeting increasing consumer video demands and other large files.
Results of Operations for the three and nine months ended September 30, 2022 and 2021
Revenue
Revenue was $0 for the three and nine-month periods ended September 30, 2022 and 2021. In January 2021, the Company lost its only customer for the eCampus software thereby causing the drop in revenue. Cost of sales was $0 for the three and nine months ended September 30, 2022 and 2021. Gross profit was $0 for the three and nine months ended September 30, 2022 and 2021. The cost of sales and gross profit declines were also due to the loss of the eCampus customer.
Operating Expenses
Total operating expenses which are comprised of salaries and related expenses, and general and administrative expenses were $199,432 and $298,935 for the three months ended September 30, 2022 and 2021, respectively. The decrease primarily resulted from the decrease in salaries and related expense due to the salary reduction in Mr. Owens’ employment agreement. Total operating expenses were $16,873,492 and $925,209 for the nine months ended September 30, 2022 and 2021, respectively. The increase is primarily attributable to the settlement agreement with Mr. Owens which resulted in a significant stock based compensation expense, and additionally, increases in stock exchange and audit fees partially offset by decreases in internet cable fees, insurance, and repairs and maintenance.
Net Loss
The net loss was $221,452 and $298,935 for the three months ended September 30, 2022 and 2021, respectively. The decrease in the net loss was primarily attributable to the decrease in Mr. Owens’ salary partially offset by an increase in interest expense resulting from the Owens’ settlement agreement. The net loss was $30,798,361 and $925,209 for the nine months ended September 30, 2022 and 2021, respectively. The increase is primarily attributable to the settlement agreement with Mr. Owens which resulted in a significant loss on extinguishment of liabilities and stock based compensation expense and increases in exchange fees, audit fees, and interest expense partially offset by decreases in internet cable fees, insurance, and repairs and maintenance.
| 17 |
Liquidity, Going Concern and Uncertainties
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of September 30, 2022, our working capital deficit amounted to $2,320,694 a decrease of $801,427 as compared to working capital deficit of $3,122,121 as of December 31, 2021. This decrease in working capital deficit is primarily a result of the decrease in accrued salaries and related expenses related to the amending of Mr. Owens’ employment agreement and decreases in accounts payable and amounts due to stockholder and an increase in prepaid expenses and partially offset by an increase in accrued interest.
Net cash used in operating activities was $149,547 during the nine months ended September 30, 2022 compared to $114,575 for the nine months ended September 30, 2021. The increase in cash used in operating activities was primarily attributable to decreases in accounts payable and accrued salaries and related expenses, and an increase in prepaid expenses and accrued interest.
Net cash provided by financing activities was $149,440 during the nine months ended September 30, 2022 compared to $117,587 in the nine months ended September 30, 2021. The increase in cash from financing activities was the result of an increase in cash advances received from our controlling stockholder.
The unaudited condensed financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. To date, the Company’s commercial operations have not generated adequate revenues to enable profitability. Based on the current business plans and the Company’s operating requirements, management believes that the current cash balance will not be sufficient to fund operations for at least the next twelve months following the issuance of these financial statements. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
The Company’s continued operations will depend on its ability to raise additional capital through various potential sources, such as equity offerings and/or debt financings, strategic relationships, and to successfully execute its business plans. Management is actively pursuing financing, but can provide no assurances that such financing will be available on acceptable terms, or at all. Without this funding, the Company could be required to delay, scale back or eliminate some or all of its business plans which would likely have a material adverse effect on the Company.
The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
Generally, the Company’s operations are subject to a number of factors that can affect its operating result and financial condition. Such factors include, but are not limited to, the results of our marketing efforts to promote users for our software solutions, successful launch and acceptance of our software solutions in the marketplace, competition of our software solutions, attraction of talented and skilled employees to support the business and the ability to raise capital to support its operations.
Since our inception, we have been funded by loans from our controlling shareholder, James Owens. The loans from Mr. Owens are pursuant to an oral agreement, are non-interest bearing and payable upon demand by Mr. Owens. Mr. Owens has orally agreed not to demand repayment of his loans until such time as we have sufficient capital resources to repay such loans. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. There can be no assurance that additional capital will be available to us. Since we have no other such arrangements or plans currently in effect, our inability to raise funds for the above purposes that exceed our current working capital will have a severe negative impact on our ability to remain a viable company.
| 18 |
We have incurred significant losses since our inception on March 10, 2015. We had a net loss for the nine-month period ended September 30, 2022 of $30,798,361 and an accumulated deficit as of September 30, 2022 of $42,000,437. In the event we are unable to secure a line of credit from a related company, we will continue to seek sub-license agreements for our Gigabyte Slayer and WARP-G products but delay, scale back or eliminate some or all of our additional business plans until we raise additional capital. Since we have no agreement or arrangements for any future funding from Mr. Owens, we are unable to determine how long we will be able to operate our business. This raises substantial doubt about our ability to continue as a going concern.
Management’s plan is to obtain such resources for our capital needs by obtaining capital from management and significant shareholders sufficient to meet its operating expenses. However, management cannot provide any assurances that we will be successful in accomplishing any of our plans.
Our ability to continue as a going concern is dependent upon our ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if we were unable to continue as a going concern.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our unaudited condensed financial statements included herein for the nine-month period ended September 30, 2022 and in the notes to our annual report 10-K which includes audited financial statements for the years ended December 31, 2021 and 2020. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.
Use of Estimates
The preparation of the unaudited condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Certain of our estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary. Significant estimates made by management include the valuation of deferred tax assets, fair value of preferred stock, and stock based compensation.
Revenue Recognition
The Company recognizes revenue when control of the promised goods or services are transferred to its customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. For student fees, the Company generates student fee revenue by registering each student that participates in an on-line classroom utilizing our eCampus platform. This revenue is earned at the time the on-line class takes place and is accrued during the period whether or not actually billed. The student fees are billed to the college conducting the classes during the period the classes are conducted. There are no prepayments for student fees so there is no deferred revenue related to student fees. The annual fee charged to the college is billed in the first quarter of the year and the income is recognized over the entire year.
The Company lost its only customer in January 2021 due to circumstances at the customer level. The Company will maintain its eCampus platform for future customers and the Company’s revenue policies and procedures described above remain unchanged.
The Company recognized no revenue from student and annual fees during the three and nine month periods ended September 30, 2022 and 2021.
| 19 |
Leases
The Company accounts for leases under ASU 2016-02. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the condensed balance sheets. The Company leases office equipment used to conduct our business.
Operating lease ROU assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expenses in the unaudited condensed statements of operations. During the three and nine months ended September 30, 2022, the Company recorded $438 and $1,314, respectively, and $438 and $1,314, respectively, for the three and nine months ended June 30, 2021 as operating lease expense which is included in general and administrative expenses on the unaudited condensed statements of operations. As of September 30, 2022 and December 31, 2021, the unamortized right-of-use assets resulting from the lease was $2,736 and $3,858, respectively, and the lease liabilities were $2,786 and $3,931, respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
As a “smaller reporting company,” we are not required to provide the information required by Item 3.
| ITEM 4. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer (the Company’s principal executive officer and principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the quarter covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, due to the material weaknesses identified in our annual report 10-K.
Changes in Internal Controls over financial reporting
There has been no change in our internal control over financial reporting occurred during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
We know of no existing or pending legal proceedings against us, nor are we involved as a plaintiff in any proceeding or pending litigation. There are no proceedings in which any of our directors, officers or any of their respective affiliates, or any beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
| ITEM 1A. | RISK FACTORS |
There have been no material changes from the risk factors disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 29, 2022.
| 20 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
| ITEM 3. | Defaults Upon Senior Securities. |
None.
| ITEM 4. | Mine Safety Disclosures. |
Not applicable.
| ITEM 5. | Other Information. |
None.
| ITEM 6. | EXHIBITS. |
EXHIBIT INDEX
Exhibit Number |
Description | |
| 31.1* | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 21 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Webstar Technology Group, Inc. | ||
| Dated: November 14, 2022 | By: | /s/ Don D. Roberts |
| Don D. Roberts | ||
| Chief Executive Officer | ||
| (principal executive officer) | ||
| Dated: November 14, 2022 | By: | /s/ Harold E. Hutchins |
| Harold E. Hutchins | ||
| Chief Financial Officer | ||
| (principal financial and accounting officer) | ||
| 22 |
ATTACHMENTS / EXHIBITS
INLINE XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
INLINE XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT
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