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EX-32 - EXHIBIT 32 SECTION 906 CERTIFICATION - NORTHSIGHT CAPITAL, INC.f10q033115_ex32.htm
EX-31 - EXHIBIT 31 SECTION 302 CERTIFICATION - NORTHSIGHT CAPITAL, INC.f10q033115_ex31.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


  X .

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

For the quarterly period ended March 31, 2015


      .

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

For the transition period from ____________ to____________


Commission File Number: 000-53661


NORTHSIGHT CAPITAL, INC.

(Exact name of issuer as specified in its charter)


Nevada

 

26-2727362

(State or Other Jurisdiction of incorporation or organization)

 

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


7740 East Evans Rd.

Scottsdale, AZ 85260

(Address of Principal Executive Offices)


(480) 385-3893

(Registrant’s Telephone Number, Including Area Code)


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  X . No      .


Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes      . No  X .


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


Large accelerated filer

      .

Accelerated filer

      .

Non-accelerated filer

      . (Do not check if a smaller reporting company)

Smaller reporting company

  X .


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


APPLICABLE ONLY TO CORPORATE ISSUERS


The number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date:


Class

 

Outstanding as of May 19, 2015

Common Capital Voting Stock, $0.001 par value per share

 

105,521,796 shares






FORWARD LOOKING STATEMENTS


This Quarterly Report on Form 10-Q, Financial Statements and Notes to Financial Statements contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended.


PART I - FINANCIAL INFORMATION


Item 1. Financial Statements.


March 31, 2015


C O N T E N T S


Condensed Balance Sheets-(unaudited)

3

Condensed Statements of Operations-(unaudited)

4

Condensed Statements of Cash Flows-(unaudited)

5

Notes to Unaudited Condensed Financial Statements-(unaudited)

6




2




NORTHSIGHT CAPITAL, INC.

CONDENSED BALANCE SHEETS


 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$

1,185

 

$

20,690

Prepaid expenses

 

 

-

 

 

31,500

Total Current Assets

 

 

1,185

 

 

52,190

 

 

 

 

 

 

 

Property and equipment, net of $2,507 and $1,471 depreciation

 

 

9,930

 

 

10,966

Web Development Costs, net of $24,450 and $11,250 amortization

 

 

314,712

 

 

327,912

Total Assets

 

$

325,827

 

$

391,068

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

221,616

 

$

34,639

Accounts payable and accrued expenses – related party

 

 

285,376

 

 

56,676

Total Current Liabilities

 

 

506,992

 

 

91,315

 

 

 

 

 

 

 

Noncurrent Liabilities

 

 

 

 

 

 

Notes payable – related party

 

 

400,000

 

 

400,000

Total Liabilities

 

 

906,992

 

 

491,315

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit

 

 

 

 

 

 

Common stock - 200,000,000 shares authorized having a par value of $.001 per share; 105,021,796 and 104,019,196 shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively

 

 

105,022

 

 

104,019

Additional paid-in capital

 

 

10,956,719

 

 

10,536,221

Accumulated deficit

 

 

(11,642,906)

 

 

(10,740,487)

Total Stockholders' Deficit

 

 

(581,165)

 

 

(100,247)

Total Liabilities and Stockholders' Deficit

 

$

325,827

 

$

391,068


See accompanying notes to condensed financial statements.



3




NORTHSIGHT CAPITAL, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For The Three Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,102

 

$

-

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

General administrative

 

 

314,014

 

 

12,064

 

Consulting expense - related party

 

 

102,000

 

 

-

 

Executive compensation

 

 

407,000

 

 

-

 

Professional fees

 

 

57,301

 

 

32,648

 

Rent - related party

 

 

13,500

 

 

-

 

Travel

 

 

10,706

 

 

-

 

Total operating expenses

 

 

904,521

 

 

44,712

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(902,419)

 

 

(44,712)

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

Interest income (expense)

 

 

-

 

 

(71)

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(902,419)

 

$

(44,783)

 

 

 

 

 

 

 

 

 

Weighted Average Number of Common Shares

 

 

 

 

 

 

 

Outstanding - Basic and Diluted

 

104,760,276

 

12,977,489

 

Loss per Common Share - Basic and Diluted

 

$

(0.01)

 

$

(0.01)

 


See accompanying notes to condensed financial statements.



4




NORTHSIGHT CAPITAL, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


 

 

Three Months Ended March 31,

 

 

2015

 

2014

Cash Flows From Operating Activities

 

 

 

 

 

 

Net loss

 

$

(902,419)

 

$

(44,783)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

 

1,036

 

 

-

Amortization of web development costs

 

 

13,200

 

 

-

Stock issued for executive compensation

 

 

252,500

 

 

-

Corporate expenses paid by shareholders

 

 

-

 

 

71

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses

 

 

31,500

 

 

(1,145)

Accounts payable and accrued expenses

 

 

186,978

 

 

2,357

Accounts payable - related party

 

 

75,700

 

 

-

Net Cash Used In Operating Activities

 

 

(341,505)

 

 

(43,500)

Cash Flows From Investing Activities

 

 

 

 

 

 

Purchase of web development costs

 

 

-

 

 

(75,000)

Purchase of domain registrations

 

 

-

 

 

(81,000)

Net Cash Used In Investing Activities

 

 

-

 

 

(156,000)

Cash Flows From Financing Activities

 

 

 

 

 

 

Proceeds from advances  - related party

 

 

193,000

 

 

-

Payments on advances  - related party

 

 

(40,000)

 

 

-

Proceeds from sale of common stock, net of offering costs

 

 

169,000

 

 

592,750

Net Cash Provided by Financing Activities

 

 

322,000

 

 

592,750

 

 

 

 

 

 

 

Net (Decrease) Increase In Cash

 

 

(19,505)

 

 

393,250

Cash, Beginning of Period

 

 

20,690

 

 

-

Cash, End of Period

 

$

1,185

 

$

393,250

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Cash paid for interest

 

$

-

 

$

-

Cash paid for income taxes

 

$

-

 

$

-

Non-Cash Activities

 

 

 

 

 

 

Finder’s fees settled with stock

 

$

15,400

 

$

24,450


See accompanying notes to condensed financial statements.



5




NORTHSIGHT CAPITAL, INC.

(A Development Stage Company)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

March 31, 2015


NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION


Northsight Capital Inc. (“Northsight” or “the Company”) is an early stage company incorporated in the State of Nevada on May 21, 2008. In May, 2011, Safe Communications, Inc. (n/k/a Kuboo, Inc.) acquired 80% of the Company’s issued and outstanding common stock, and, as a result, became its parent company. On June 25, 2014, the Company completed the acquisition of approximately 7500 cannabis related Internet domain names, in exchange for which the Company issued 78.5 million shares of its common stock and a promissory note in the principal amount of $500,000. As a result of this transaction, the seller of the domain names became an 81% stockholder of the Company. Kuboo, Inc. continues to be a significant stockholder of the Company.  John Bluher, a director of Kuboo, Inc., is our Chief Executive Officer (“CEO”) and member of our board of directors.  John Venners, a director of Kuboo, Inc., and also sits on our board of directors.  See Note 9 - Related Party Transactions.


The Company’s principal business is to provide a wide variety of online directories for a broad range of businesses engaged in the lawful sale and distribution of cannabis and hemp related products. The following constitute the Company’s major product categories:  a monthly listing in one or more of the Company’s online directories, paid advertising in one or more of the Company’s online directories and leasing to customers one or more Internet domain names for the customer’s exclusive use.


The accompanying financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The interim financial statements reflect all adjustments, consisting of normal recurring adjustments which, in the opinion of management, are necessary to present a fair statement of the results for the period.


Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations for the three month period ended March 31, 2015, are not necessarily indicative of the operating results for the full year.


NOTE 2 – LIQUIDITY/GOING CONCERN


The Company is an early stage enterprise and has accumulated losses of $11,642,906 and has had consistent negative cash flows from operating activities since inception (May 2008). These factors raise substantial doubt about the Company’s ability to continue as a going concern.


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. During the three months ended March 31, 2015 the Company raised approximately $169,000 in capital through the sale of shares of common stock.  In addition to the stock sales, the Company has also been advanced a net proceeds of 150,000 during the Quarter ended March 31, 2015 from the Company’s majority shareholder Kae Yong Park, and her spouse Howard R. Baer.  The Company does not currently have sufficient cash to fund operating expenses. Management plans to (i) raise additional capital as soon as possible, to fund continued operations of the Company and (ii) continue to grow revenues and income from operations.

 

In the event the Company does not generate sufficient funds from revenues or financing through the issuance of its common stock or from debt financing, the Company will be unable to fully implement its business plan and pay its obligations as they become due, any of which circumstances would have a material adverse effect on its business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities.


NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS


On June 10, 2014, the Financial Accounting Standards Board (FASB) issued a new accounting standard that reduces some of the disclosure and reporting requirements for development stage entities. The change will be effective for interim and annual reporting periods beginning after December 15, 2014. As of such date, among other things, development stage entities will no longer be required to report inception-to-date information. The Company early adopted this standard on December 31, 2014



6




NOTE 4 – WEB DEVELOPMENT COSTS AND DOMAIN NAMES ASSETS


In accordance with ASC 350.50, during the three months ended March 31, 2015 and the year ended December 31, 2014, the Company capitalized $0 and $339,162, respectively, towards the development of multiple websites on which third parties can advertise the sale and distribution of cannabis related products and services: an online “yellow pages.”. The Company does not intend to engage in the sale or distribution of marijuana or related products. During the three months ended March 31, 2015 the Company recorded website development expenses of $30,930 which is included in general and administrative expenses on the Company’s condensed statements of operations.


The Company amortizes these assets over their related useful lives (5 years), using a straight-line basis. Assets are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable, or at least annually. Measurement of the amount of impairment, if any, is based upon the difference between the asset's carrying value and estimated fair value. Fair value is determined through various valuation techniques, including market and income approaches as considered necessary. During the three months ended March 31, 2015 the Company recorded amortization expense of $13,200 related to websites previously launched.  During the year ended December 31, 2014 the company fully impaired its capitalized domain registration assets.


NOTE 5 – PROPERTY AND EQUIPMENT


Property and equipment consisted of the following at March 31, 2015 and December 31, 2014:


 

 

As of

March 31, 2015

 

As of

December 31, 2014

 

Estimated Useful Life

Furniture and equipment

 

 

12,437

 

 

12,437

 

3 years

Total

 

 

12,437

 

 

12,437

 

 

Less: Accumulated depreciation

 

 

(2,507)

 

 

(1,471)

 

 

 

 

$

9,930

 

$

10,966

 

 


The Company records depreciation expense on a straight-line basis over the estimated life of the related asset (approximately 3 years). The Company recorded depreciation expense of $1,036 and $1,471 during the three months ended March 31, 2015 and year ended December 31, 2014, respectively.


NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES RELATED PARTY


At March 31, 2015, the Company had a balance in related party accounts payable and accrued expenses of $285,376 which consisted of the following:


Party Name:

Relationship:

 

 

Amount

Kae Park

Majority shareholder

Consulting fees

 

19,000

Kae Park

Majority shareholder

Advances

 

96,000

Howard Baer

Spouse of majority shareholder

Advances

 

64,000

Howard Baer

Spouse of majority shareholder

Consulting fees

 

30,000

John Venners

Director, President and CEO of Kuboo, Inc.

Consulting fees

 

26,500

John Venners

Director, President and CEO of Kuboo, Inc.

Advances

 

3,000

Kuboo, Inc.

Former parent company, significant shareholder

Rent, contract labor

 

46,876

 

 

 

$

285,376


NOTE 7 – NOTES PAYABLE RELATED PARTY


On June 23, 2014, the Company issued a $500,000 promissory note in conjunction with the purchase of approximately 7,500 cannabis-related internet domain names. The note originally bore interest at the rate of 3.25% per annum and the first $100,000 of which was payable as follows: upon the Company’s receipt of an aggregate of $1,000,000 in funding (whether debt or equity), $100,000 was payable to the note holder. The remaining $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month the Company realizes at least $150,000 in gross revenue (see Note 10 - Commitments and Contingencies).



7




On July 25, 2014, the Company amended and restated its promissory note in the principal amount of $500,000 owing to Kae Yong Park (the Company’s majority shareholder) to provide that it would make the first $100,000 installment payment due under the Note on July 25, 2014 (earlier than required), in exchange for which Kae Yong Park agreed to waive all interest due over the term of the note. Thereafter, Kae Yong Park waived the requirement that the Company pay the $100,000 due under the Amended and Restated Note until August 25, 2014, at which time it was paid.  The Company subsequently recaptured all previously recorded interest expense related to the note.


NOTE 8 - EQUITY


During the three months ended March 31, 2015, the Company sold 691,000 shares of its common stock for an aggregate $169,000 in cash proceeds. The Company incurred a finder’s fee of $15,400, which the company has satisfied through the issuance of 61,600 shares of common stock.


In January 2015, the Company issued an 250,000 shares of common stock valued at $252,500 to its Chief Executive Officer, John Bluher, pursuant to his employment letter.


NOTE 9 – RELATED PARTY TRANSACTIONS


On June 23, 2014, we completed the acquisition of approximately 7,500 cannabis related Internet domain names (“Acquisition”), in exchange for which, the Company issued to Kae Yong Park, the seller, (i) 78.5 million shares of our restricted common stock which represented approximately 81% of our then issued and outstanding common stock and (ii) a promissory note in the principal amount of $500,000 (“Note”). The note originally bore interest at the rate of 3.25% per annum. The Note was originally payable as follows: upon our receipt of an aggregate of $1,000,000 in funding (whether debt or equity), $100,000 was to be paid, and the remaining balance of $400,000 was payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month we realize at least $150,000 in gross revenue.


On July 25, 2014, we amended and restated the Note owing to Kae Yong Park (our majority shareholder) to provide that we would make the first $100,000 installment payment due under the Note on July 25, 2014 (earlier than required), in exchange for which Kae Yong Park agreed to waive all interest due over the term of the Note. The Note, as amended and restated, otherwise remains in full force and effect.


In connection with the Acquisition, we agreed to pay Kae Yong Park for any consulting services we may require $9,500 per month, for a period of twelve months, commencing on the closing date and on the first of each month thereafter. Kae Yong Park has been paid $76,000 for consulting services through December March 31, 2015.


We are headquartered in Scottsdale, Arizona where we rent space from Kuboo, Inc., our former parent company and a significant shareholder. Through June 30, 2014, we were renting approximately 1,150 square feet of space on a month-to-month basis for $3,500 per month. Effective July 1, 2014 until April 1, 2015, we rented approximately 3,235 square feet of space for monthly rent of $4,500. Beginning April 1, 2015, we began occupying approximately an additional 3,000 square feet of space for no additional rent.  Effective May 19, 2015, we entered into an agreement with Kuboo, Inc. under which we rent approximately 6,100 square feet on a month to month basis for $11,500 per month.  Under this arrangement, the landlord pays taxes, utilities and maintenance and repairs.


During the three months ended March 31, 2015, the Company incurred expenses of $35,700 payable to Kuboo, Inc. for rent ($13,500) as well as its portion of salaries ($22,200) related to its use of certain Kuboo employees.  During this same period, the Company made payments to Kuboo, Inc. of $26,000 for said expenses. At March 31, 2015, the Company had a payable to Kuboo, Inc. of $46,876 for rent, and contract labor.


During the three months ended March 31, 2015, the Company paid $17,000 to Energy Plus, LLC, a company owned by John Venners, one of the Company’s directors, for consulting services rendered during July and August 2014.


During the three months ended March 31, 2015, the Company’s controlling shareholder, Kae Yong Park, and her spouse, Howard R. Baer, advanced $195,000 to the Company for short-term capital needs of which $45,000 has been repaid.  The advance is non-interest bearing and payable on demand. See Note 11 Subsequent Events.


During the three months ended March 31, 2015, the one of the Company’s directors, John Venners, advanced $3,000 to the Company for short-term capital needs.  The advance is non-interest bearing and payable on demand.




8




NOTE 10 – COMMITMENTS AND CONTINGENCIES


In May 2014, The Company entered into an asset purchase agreement pursuant to which it agreed to pay the seller $9,500 per month for a period of 12 months, for consulting services to be provided. This agreement also requires the Company to pay a monthly royalty equal to six percent of gross monthly revenues over $150,000. The royalty payment is payable for a period of thirty-six months from and after the first month in which the Company’s gross revenues are in excess of $150,000 (see Note 9 - Related Party Transactions).


On June 23, 2014, the Company issued a $500,000 promissory note in conjunction with the purchase of approximately 7,500 cannabis-related internet domain names. The original note originally bore interest at the rate of 3.25% per annum and was payable as follows: upon the Company’s receipt of an aggregate of $1,000,000 in funding (whether debt or equity), $100,000 was required to be paid. The remaining $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month the Company realizes at least $150,000 in gross revenue.

 

On July 25, 2014, the Company amended and restated its promissory note in the principal amount of $500,000 owing to Kae Yong Park (the Company’s majority shareholder) to provide that it would make the first $100,000 installment payment due under the Note on July 25, 2014 (earlier than required), in exchange for which Kae Yong Park agreed to waive all interest due over the term of the note. Thereafter, Kae Yong Park waived the requirement that the Company pay the $100,000 due under the Amended and Restated Note until August 25, 2014, at which time it was paid.  


On August 13, 2014, John Bluher became CEO of the Company. His agreement with the Company calls for a base salary of $25,000 per month, a non-accountable monthly expense allowance of $3,500, the issuance of 400,000 shares of Company common stock upon becoming CEO, and the issuance of an additional 750,000 shares of common stock in three equal installments of 250,000 each on October 1, 2014, January 1, 2015 and April 1 2015 (see Exhibit 10.6)


NOTE 11 – SUBSEQUENT EVENTS


In April, 2015, the Company sold 500,000 shares of its common stock for an aggregate $125,000 in cash proceeds.


Subsequent the date of these financial statements, Kae Yong Park, our majority shareholder, and her spouse, Howard R. Baer, collectively made additional unsecured cash advances to us in the aggregate amount of $291,500, and the Company made repayments in the aggregate amount of $48,000, leaving a balance due of $403,500 at May 19, 2015. These advances are non-interest bearing and payable on demand (in this Note 11, Kae Park and Howard R. Baer are collectively referred to as Park).


As noted above, as of May 19, 2015, the Company was indebted to Park in the aggregate the amount of $361,500, including $158,000 advanced since May 14, 2015. To evidence this indebtedness, on May 19, 2015, the Company issued Park a non-interest bearing, unsecured demand promissory note in the principal amount of up to $403,500 ($361,500 currently outstanding) (“Company Note”).  Unpaid principal under the Company Note is due and payable upon the earlier to occur of (i) an “event of default” (as defined), (ii) written demand and (iii) the Company’s receipt of capital (to the extent of net proceeds received) from any capital raising transaction after May 15, 2015, whether in the form of debt, equity or otherwise.


The additional $200,000 in advances after May 14, 2015 were made pursuant to an agreement entered into with the Company on May 15, 2015 (the “Funding Agreement”).  Under the Funding Agreement, Park committed to advance the Company a minimum of $200,000, on an unsecured and non-interest bearing basis, subject to Park’s receipt of funding from a third party lender of $300,000.  On May 14, 2015, Park secured a commitment from a third party (“Park Lender”) to advance Park $300,000 in two tranches, $100,000 on May 14, 2015 and $200,000 on or before May 22, 2015. Park advanced $100,000 to the Company on May 15, 2015 and advanced an additional $100,000 on May 18, 2015.


In order to secure the funding commitment from the Park Lender and enable Park to fund the Company, (i) the Company agreed to issue the Park Lender warrants to purchase 2 million shares of common stock at an exercise price of $.05 per share and (ii) Kae Yong Park pledged to the Park Lender 55 million shares of her Company common stock as collateral for Park’s repayment of amounts Park borrowed from the Park Lender (such 55 million shares represent more than a majority of Company common stock outstanding as of the date hereof).  Under the note payable by Park to the Park Lender (“Park Note”), Park must repay the $300,000 Park Note within sixty days, unless the Company has not paid her back within such time period, in which event, there is an automatic thirty day extension of the maturity date of the Park Note (for a total of ninety days), in consideration for which the Company must issue to the



9



Park Lender a warrant to purchase 1 million shares of Company common stock at an exercise price of $.05 per share.  


Under the Pledge Agreement, if Park defaults on the repayment of the $300,000 Park Note, the Park Lender has the right to take ownership of all of Ms. Park’s 55 million shares of Company common stock pledged thereunder, without any obligation to remit to Ms. Park proceeds from the collateral in excess of the unpaid obligations under the Park Note. Under the Funding Agreement, if the Park Lender takes ownership of Ms. Park’s 55 million shares of Company common stock, the Company (i) must to issue Ms. Park 10 million shares of Company common stock (leaving Ms. Park with a net loss of 45 million shares) and (ii) shall not effect a reverse split of its common stock for a period of two years.


We are headquartered in Scottsdale, Arizona where we rent space from Kuboo, Inc., our former parent company and a significant shareholder. Through June 30, 2014, we were renting approximately 1,150 square feet of space on a month-to-month basis for $3,500 per month. Effective July 1, 2014 until April 1, 2015, we rented approximately 3,235 square feet of space for monthly rent of $4,500. Beginning April 1, 2015, we began occupying approximately an additional 3,000 square feet of space for no additional rent.  Effective May 19, 2015, we entered into an agreement with Kuboo, Inc. under which we rent approximately 6,100 square feet on a month to month basis for $11,500 per month.  Under this arrangement, the landlord pays taxes, utilities and maintenance and repairs.




10




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.


Forward-looking Statements


Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.


Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.


Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.


Overview


On June 23, 2014, the Company acquired approximately 7,500 cannabis related Internet domain names from Kae Yong Park (who became our majority shareholder in connection with such acquisition). The list of domain names we acquired is filed as Exhibit 99.3 to the Form 8-K Current Report filed with the Commission on June 25, 2014. In consideration of the acquisition of these assets from Kae Yong Park, we issued her 78.5 million shares of our common stock. In addition, we issued a promissory note in the aggregate principal amount of $500,000, the payment of $400,000 of which is contingent upon our achieving $150,000 in monthly revenues. See Note 9 (Related Party Transactions) and Note 10 (Commitments and Contingencies), in each case to the financial statements for the year ended December 31, 2014 filed herewith.


The note was amended and restated to provide that the first $100,000 installment payment due under the Note would be made July 25, 2014 (earlier than required), in exchange for which Kae Yong Park agreed to waive all interest due over the term of the note. Kae Yong Park has waived the requirement that the Company pay the $100,000 due under the Amended and Restated Note, until August 25, 2014. Such $100,000 has since been paid to Ms. Park. The remaining balance of $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month the Company realizes at least $150,000 in gross revenue.


The Company has already launched several websites and portals and intends to build additional websites/portals around its owned internet domain names. These websites/portals will serve as directories for businesses engaged in the lawful sale and distribution of cannabis and hemp related products.


Recent Developments


In addition to the asset acquisition and commencement of business operations described above, the Company has between March, 2014 and December, 2014 sold 9,259,000 shares of its common stock, for aggregate gross proceeds of $2,266,000, including 975,000 shares sold upon exercise of outstanding warrants to purchase common stock at an exercise price of $.20 per share. In addition, between January 5 and May 19, 2015, we have raised $294,000 from the sale of 1,191,000 shares of common stock at an average per share price of $0.25.


In addition, between December 31 and May 19, 2015, Kae Yong Park, our majority shareholder, and her spouse, Howard R, Baer (collectively, Park), made $454,500 of unsecured cash advances to us to fund our basic operations, including $158,000 advanced between May 15 and May 19, 2015, $93,000 of which has been repaid, leaving a balance due of $361,500, as of May 19, 2015. The Company has used these limited funds to fund its basic operations on a scaled back basis.


As noted above, as of May 19, 2015, the Company was indebted to Park in the aggregate the amount of $361,500, including $158,000 advanced since May 14, 2015. To evidence this indebtedness, on May 19, 2015, the Company issued Park a non-interest bearing, unsecured demand promissory note in the principal amount of up to $403,500 ($361,500 currently outstanding) (“Company Note”).  Unpaid principal under the Company Note is due and payable upon the earlier to occur of (i) an “event of default” (as defined), (ii) written demand and (iii) the Company’s receipt of capital (to the extent of net proceeds received) from any capital raising transaction after May 15, 2015, whether in the form of debt, equity or otherwise.



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The additional $158,000 in advances after May 14, 2015 were made pursuant to an agreement entered into with the Company on May 15, 2015 (the “Funding Agreement”).  Under the Funding Agreement, Park committed to advance the Company a minimum of $200,000, on an unsecured and non-interest bearing basis, subject to Park’s receipt of funding from a third party lender of $300,000.  On May 14, 2015, Park secured a commitment from a third party (“Park Lender”) to advance Park $300,000 in two tranches, $100,000 on May 14, 2015 and $200,000 on or before May 22, 2015. Park advanced $100,000 to the Company on May 15, 2015 and advanced an additional $58,000 on May 18, 2015.


In order to secure the funding commitment from the Park Lender and enable Park to fund the Company, (i) the Company agreed to issue the Park Lender warrants to purchase 2 million shares of common stock at an exercise price of $.05 per share and (ii) Kae Yong Park pledged to the Park Lender 55 million shares of her Company common stock as collateral for Park’s repayment of amounts Park borrowed from the Park Lender (such 55 million shares represent more than a majority of Company common stock outstanding as of the date hereof).  Under the note payable by Park to the Park Lender (“Park Note”), Park must repay the $300,000 Park Note within sixty days, unless the Company has not paid her back within such time period, in which event, there is an automatic thirty day extension of the maturity date of the Park Note (for a total of ninety days), in consideration for which the Company must issue to the Park Lender a warrant to purchase 1 million shares of Company common stock at an exercise price of $.05 per share.  


Under the Pledge Agreement, if Park defaults on the repayment of the $300,000 Park Note, the Park Lender has the right to take ownership of all of Ms. Park’s 55 million shares of Company common stock pledged thereunder, without any obligation to remit to Ms. Park proceeds from the collateral in excess of the unpaid obligations under the Park Note. Under the Funding Agreement, if the Park Lender takes ownership of Ms. Park’s 55 million shares of Company common stock, the Company (i) must to issue Ms. Park 10 million shares of Company common stock (leaving Ms. Park with a net loss of 45 million shares) and (ii) shall not effect a reverse split of its common stock for a period of two years.


Beyond the $200,000 commitment made in the funding agreement, neither Ms. Park nor Mr. Baer are under any obligation to provide any further funding to the Company. The Company has an immediate and urgent need for additional capital.  See “Liquidity and Capital Resources.”


Results of Operations


As the Company only commenced its business operations during the quarter ended March 31, 2014 (and was a shell company prior to such period), the Company has no meaningful historical business operations, with which to compare the current quarterly period. Since the Company has no comparable historical business operations, the following discussion omits discussion of income from continuing operations, expenses and other matters related to “results of operations,” as well as information relating to the statement of cash flows, as the Company does not believe that analysis of this information would be meaningful to investors.


Liquidity and Capital Resources


As of March 31, 2015 and May 19, 2015, we had only minimal cash on hand. Consequently, we have an immediate and urgent need for additional capital. We recently depleted the proceeds remaining from the sale of 9,259,000 shares of common stock, for aggregate gross proceeds of $2,224,750, including 975,000 shares sold upon exercise of outstanding warrants to purchase common stock at an exercise price of $.20 per share. As disclosed above, in order to fund our basic operations, (i) since January 5, 2015, we have raised $294,000 from the sale of 1,191,000 shares of common stock at an average per share price of $.25, and (ii) between December 31 and May 19, 2015, Kae Yong Park, our majority shareholder, and her spouse, Howard Baer,  have collectively made $454,500 of unsecured cash advances to us, $93,000 of which has been repaid, leaving a balance due of $361,500, as of May 19, 2015. See “Recent developments” above. Neither Ms. Park nor Mr. Baer have any obligation to provide further funding to us.  


As we only recently commenced our business operations in March, 2014, we have not yet realized significant operating revenues. We are however incurring significant costs and expenses in connection with the establishment of our new business, implementation of our business plan and ongoing compliance costs associated with being a public company. Consequently, we are currently experiencing negative cash flows from operations.


During the three months ended March 31, 2015 and 2014, our operating activities used $341,505 (or approximately $114,000 per month) and 43,500 (or approximately $14,000 per month), respectively.  This increase is due to in part to increased operating activity during the current quarter, compared with the comparable prior period. In addition, the approximate $298,000 increase in cash used by our operating activities was due primarily to (all figures are approximate) a $857,000 increase in our net loss, partially offset by a $253,000 increase in non-cash stock based compensation, a $185,000 increase in accounts payable and accrued expenses, and a 76,000 increase in accounts payable to related parties.



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During the three months ended March 31, 2015 and 2014, our financing activities provided $322,000 and $592,750 in cash, respectively.  The approximate $271,000 decrease in cash provided by our financing activities was due to a $424,000 decrease in proceeds from sales of common stock, partially offset by a $153,000 increase in net advances form related parties (primarily our majority shareholder and her spouse).  Neither our majority shareholder nor her spouse have any obligation to provide further funding to us.  


During the three months ended March 31, 2015 and 2014, our investing activities used $0 and $156,000.  This decrease is due to a reduction on capital investments in web development and domain registrations during the current quarter, due to a lack of cash.


Accordingly, during the three months ended March 31, 2015 and 2014, our operating and investing activities used in the aggregate approximately $341,000 (or $114,000 per month) and approximately $200,000 (or $67,000 per month), respectively. We expect our operating and investing activities to consume an increasing amount of cash as we continue to ramp up our operating activities.


Our operations will use increasing amounts of cash in coming quarters as we further ramp up our operations, unless and until we are able to generate revenue from our operating activities


Based on our current business plan, we anticipate that our operating and website development activities will use approximately $300,000 in cash per month over the next twelve months, or $3.6 million. We currently have only minimal cash on hand.    We believe that our operations will not begin to generate positive cash flows until at least the second quarter of 2016.  Accordingly, we have an immediate and urgent need for capital to fund our operating activities.


In order to remedy this liquidity deficiency, we are actively seeking to raise additional funds through the sale of equity and debt securities, and ultimately we will need to generate substantial positive operating cash flows. Our internal sources of funds will consist of cash flows from operations, but not until we begin to realize substantial revenues from the sale of services. As previously stated, we currently have no meaningful revenue, and our operations are generating negative cash flows, and thus adversely affecting our liquidity. We intend to raise additional funds through equity and/or debt financing. In addition, we expect that our operations will begin to generate revenues during the second quarter of 2016, which should ameliorate our liquidity deficiency.  If we are unable to raise additional funds in the near term, we will not be able to implement our business plan, and it is unlikely that we will be able to continue as a going concern.


In the event we do not generate sufficient funds from revenues or financing through the issuance of common stock or from debt financing, we may be unable to fully implement our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities. See Note 2 to the Financial Statements - Liquidity/Going Concern.


Subject to the availability of funds, which we currently do not have, we expect to incur approximately $150,000 in website development expenditures over the next 12 months (included in the $3.6 million estimate of cash required over the next twelve months). The purpose of these expenditures will be for the development of various Websites/portals we intend to create and acquisition of additional domain names.


We expect to fund these website development expenditures through a combination of cash flows from operations and proceeds from equity financing. If we are unable to generate positive cash flows from operations, and/or raise additional funds (either through debt or equity), we will be unable to fund our website development expenditures, in which case, there could be an adverse effect on our business and results of operations.


We expect to raise additional funds in the near term from the further sales of shares of common stock. Additional sales of common stock will reduce the percentage interest of existing shareholders in our company. Although it is possible, we do not believe it is likely that we will raise funds through the sale of debt securities in the near term.


As described above, In June, 2014, we issued Kae Yong Park a promissory note in the principal amount of $500,000, as partial consideration for the acquisition of approximately 7500 cannabis related internet domain names. We have since paid $100,000 in principal to Ms. Park. The remaining balance of $400,000 is payable in thirty-six equal monthly installments, commencing on the fifteenth day following the first month we realize at least $150,000 in gross revenue. This remaining $400,000 balance is currently classified as a noncurrent liability. We believe that we will be able to make the approximate $11,000 monthly payment when (and if) we achieve the monthly $150,000 revenue threshold which triggers our repayment obligation.



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As noted above, as of May 19, 2015, the Company was indebted to Park in the aggregate the amount of $361,500, including $158,000 advanced since May 14, 2015. To evidence this indebtedness, on May 19, 2015, the Company issued Park a non-interest bearing, unsecured demand promissory note in the principal amount of up to $403,500 ($361,500 currently outstanding) (“Company Note”).  Unpaid principal under the Company Note is due and payable upon the earlier to occur of (i) an “event of default” (as defined), (ii) written demand and (iii) the Company’s receipt of capital (to the extent of net proceeds received) from any capital raising transaction after May 15, 2015, whether in the form of debt, equity or otherwise.


Off-balance Sheet Arrangements


None.


Item 3. Quantitative and Qualitative Disclosures about Market Risk.


Not required.


Item 4. Controls and Procedures.


Evaluation of Disclosure Controls over Procedures


Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including the CEO and Financial Controller, to allow timely decisions regarding required disclosures.


Under the supervision and with the participation of our management, including our CEO and financial controller, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our CEO and financial controller concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls were not effective.


Changes in Internal Control over Financial Reporting


During the fiscal quarter covered by this Quarterly Report, we hired a financial controller (part-time) to oversee our books and records, as well as our accounting function. Otherwise, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II - OTHER INFORMATION


Item 1. Legal Proceedings


None.


Item 1A. Risk Factors


Not required.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


Previously reported in current or periodic reports.

 

Item 3. Defaults upon Senior Securities


None; not applicable.


Item 4. Mine Safety Disclosures


Not applicable.


Item 5. Other Information



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Item 6. Exhibits


(a)

Exhibits


Identification of Exhibit


3.1

Articles of Incorporation, as amended

 

 

3.2

Bylaws (1)

 

 

4.1

Common Stock Purchase Warrant issued to Safe Communications, Inc. (2)

 

 

10.1

Common Stock Purchase Agreement dated as of May 27, 2011, by and between the Company, Safe Communications, Inc. and certain shareholders of the Company (3)

 

 

10.2

Principal Shareholders Agreement, dated as of May 27, 2011, by and between the Company and certain shareholders of the Company (4)

 

 

10.3

Agreement between the Company, Kuboo, Inc. and the Principal Shareholders, dated as of April 9, 2014 (5)

 

 

10.4

Asset Purchase Agreement between the Company and Kae Park, dated May 2, 2014 (6)

 

 

10.5

Amended and Restated Promissory Note issued to Kae Yong Park July 25, 2014

 

 

10.6

Agreement with John Bluher, CEO, dated August 13, 2014

 

10.7

Agreement with Kae Yong Park dated September 23, 2014 (7)

 

 

10.8

Agreement with Howard R. Baer dated December 2, 2014 (7)

 

 

10.9

Agreement with Kae Yong Park and Howard R.  Baer regarding Funding (8)

 

 

10.10

Promissory Note Issued to Kae Yong Park and Howard R. Baer (8)

 

 

10.11

Agreement with Sandor Capital Master Fund (8)

 

 

10.12

Lease Agreement with Kuboo, Inc. dated May 19, 2015 (8)

 

 

31

Certification of Principal Executive and Principal Financial Officer as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002

 

 

32

Certification of Principal Executive and Principal Financial Officer pursuant to 18 U.S.C section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(1)

Filed as Exhibits to our Form S-1 Registration Statement on July 11, 2008 and incorporated herein by reference.

(2)

Filed as Exhibit 4.1 to our Form 10-Q filed November 21, 2011 and incorporated herein by reference.

(3)

Filed as Exhibit 10.1 to our Current Report on Form 8-K filed on June 2, 2011 and incorporated herein by reference.

(4)

Filed as Exhibit 10.2 to our Current Report on Form 8-K filed on June 2, 2011 and incorporated herein by reference.

(5)

Filed as Exhibit 10.3 to our Form 10-Q filed May 20, 2014 and Incorporated herein by reference.

(6)

Filed as Exhibit 4.01 to our Current Report on Form 8-K filed on May 7, 2014 and incorporated herein by reference

(7)

Filed as Exhibits to our Form S-1 Registration Statement on December 12, 2014 and incorporated herein by reference.

(8)

Filed as Exhibits to our Form 10K on May20, 2015 and incorporated herein by reference.


*

Filed herewith

**

Furnished, not filed



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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


NORTHSIGHT CAPITAL, INC.

(Issuer)


Date:

May 20,2015

 

By:

/s/John Bluher

 

 

 

 

John Bluher, CEO






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