NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(UNAUDITED)
NOTE 1. ORGANIZATION AND BUSINESS
Organization and Operations
IDdriven, Inc., (“IDdriven”, “we”, “us”, or the “Company”) is a Nevada corporation incorporated on January 27, 2014 under the name TiXFi, Inc. (“TiXFi”). Insight Innovators B.V., was incorporated on May 22, 2013 in the Netherlands and has its registered corporate seat in Amersfoort, The Netherlands.
Effective on February 1, 2016, the Company’s corporate name was changed to IDdriven, Inc. Following its December 21, 2015 acquisition of a 100% ownership interest of Insight Innovators, B.V., a Dutch corporation (“Insight”), the Company became an enterprise software company that developed, and is currently marketing and seeking license opportunities for a next-generation Identity and Access Management enterprise solution designed to manage large volumes of users and access rights over various applications in hybrid environments (cloud and on-premises). The Company’s sports and entertainment ticket broker business was sold upon completion of the Insight merger as discussed below.
Change in Fiscal Year.
On January 21, 2016, our Board of Directors approved a change in our Fiscal Year from February 28 to December 31 in connection with our acquisition of Insight Innovators, B.V. The change in fiscal year became effective for our 2015 fiscal year, which began March 1, 2015 and ended December 31, 2015. Insight had a fiscal year of December 31. Due to reverse acquisition with Insight, all of the financial statements prior to the acquisition date are of Insight.
Stock Split
. Effective January 21, 2016, we effected a 1 for 6 forward stock split of our issued and outstanding common stock (the “Forward Stock Split”). All references to shares of our common stock in this report on Form 10-Q refers to the number of shares of common stock after giving effect to the Forward Stock Split (unless otherwise indicated).
Share Exchange and Reorganization
On December 21, 2015 (the “Effective Date”), Insight Innovators B.V. merged into IDdriven, and became a 100% subsidiary of IDdriven. Furthermore, the Company entered into and closed on a share exchange agreement with Insight and its shareholders. Pursuant to the terms of the share exchange agreement, IDdriven issued 55,980,000 shares of its unregistered common stock to the shareholders of Insight in exchange for 40,074 shares of Insight’s common stock, representing 100% of its issued and outstanding common stock and assumed $46,000 of Insight’s debts and as a result of the share exchange agreement, Insight became a wholly owned subsidiary of TiXFi. In conjunction with the Share Exchange, we purchased 12,000,000 shares of our common stock from Paula Martin, our former Chief Executive Officer and sole director, for a price of approximately $0.0125 per share (an aggregate of $150,000) pursuant to the terms of a Stock Redemption Agreement dated December 21, 2015. In addition, pursuant to the terms and conditions of a Spin-Off Agreement dated December 21, 2015, Ms. Martin acquired all assets and liabilities related our online ticket brokerage business in exchange for the cancellation by Ms. Martin of 18,000,000 shares of our common stock she held.
Going Concern Matters
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the Company’s continuation as a going concern. The Company has incurred operating losses of $1,462,833 during the period ended September 30, 2016 and has an accumulated deficit of $3,196,370 as of September 30, 2016. In addition, current liabilities exceed current assets by $1,965,976 as of September 30, 2016.
Management intends to raise additional operating funds through equity and/or debt offerings. However, there can be no assurance management will be successful in its endeavors.
There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support its working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available to the Company, it may be required to curtail or cease its operations.
Due to uncertainties related to these matters, there exists a substantial doubt about the ability of the Company to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation of Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the unaudited condensed financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative of operations for a full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2015, as filed with the Securities and Exchange Commission on April 14, 2016.
Consolidation Policy
For September 30, 2016, the unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Insight Innovators B.V. All significant intercompany balances and transactions have been eliminated in consolidation. Prior to December 21, 2015, the financial statements presented are those of Insight.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions about collection of accounts and notes receivable, the valuation and recognition of stock-based compensation expense, the valuation and recognition of derivative liability, valuation allowance for deferred tax assets and useful life of fixed assets.
Functional currency
The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars ("USD"). The Company's wholly owned subsidiary (Insight’s) functional currency is the Euro. The financial statements are translated into USD in accordance with Codification ASC 830, “Foreign Currency Matters”. All assets and liabilities were translated at the current exchange rate, at respective balance sheet dates, shareholders' equity is translated at the historical rates and income statement items are translated at the average exchange rate for the reporting periods. The resulting translation adjustments are reported as other comprehensive income and accumulated other comprehensive income in the shareholders' equity in accordance with Codification ASC 220, “Comprehensive Income”.
Translation gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated into Euro at the rate on the date of the transaction and included in the results of operations as incurred. There were no material transaction gains or losses in the periods presented.
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Spot Euro: USD exchange rate
|
|
$
|
1.12
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
Average Euro: USD exchange rate
|
|
$
|
1.11-1.12
|
|
|
$
|
1.10–1.15
|
|
Revenue recognition
The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) services have been rendered; (iii) the fee is fixed or is determinable; and (iv) collectability is reasonably assured. Determination of criteria (iii) and (iv) are based on management's judgments regarding the fixed nature of the selling prices of the services delivered and the collectability of those amounts. The Company’s agreements do not include general rights of return and do not provide clients with the right to take possession of the software supporting the services being provided. As such, the agreements are accounted for as service contracts.
Revenues from the services rendered are recognized in proportion to the services delivered.
Any amount receivable or received, but unrecognized for revenue recognition purpose is recorded as deferred revenues.
Sales taxes collected from clients and remitted to governmental authorities where applicable are accounted for on a net basis and therefore are excluded from revenues in the statements of operations.
Fair value measurements
Fair value is defined as the price that the Company would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent counter-party in the principal market or in the absence of a principal market, the most advantageous market for the investment or liability. A three-tier hierarchy is established to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs); and establishes a classification of fair value measurements for disclosure purposes.
The hierarchy is summarized in the three broad levels listed below:
|
Level 1
|
quoted prices in active markets for identical assets and liabilities
|
|
Level 2
|
other significant observable inputs (including quoted prices for similar assets and liabilities, interest rates, credit risk, etc.)
|
|
Level 3
|
significant unobservable inputs (including the Company’s own assumptions in determining the fair value of assets and liabilities).
|
In accordance with Accounting Standards Codification (“ASC”) 815, the Company’s debt derivative liabilities are measured at fair value on a recurring basis, and are level 3 measurements in the three-tier fair value hierarchy.
There were no transfers between the levels of the fair value hierarchy during the periods ended September 30, 2016 and 2015.
Stock-Based Compensation
ASC 718, "Compensation – Stock Compensation," prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, "Equity –Based Payments to Non-Employees." Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date. Share-based expense totaled $132,645 and $0 for the nine months ended September 30, 2016 and 2015, respectively. Share-based expense totaled $70,961 and $0 for the three months ended September 30, 2016 and 2015, respectively.
Fair value of financial instruments
The Company's financial instruments consist primarily of cash, accounts payable and accrued expenses, and debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
The following table summarizes fair value measurements by level at September 30, 2016 and December 31, 2015 measured at fair value on a recurring basis:
September 30, 2016
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
871,625
|
|
|
$
|
871,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31,080
|
|
|
$
|
31,080
|
|
Convertible Notes
Convertible notes are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured. After initial measurement, they are carried at amortized cost using the effective interest method.
Derivative Financial Instruments
The fair value of an embedded conversion option that is convertible into a variable amount of shares and warrants that include price protection reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for treatment as a derivative under ASC 815
“Derivatives and Hedging,”
since “down-round protection” is not an input into the calculation of the fair value of the conversion option and warrants and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The Black-Scholes option valuation model was used to estimate the fair value of the conversion options. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time, of other comparative securities, equal to the weighted average life of the options.
Conversion options are recorded as debt discount and are amortized as interest expense over the life of the underlying debt instrument.
Recently Issued Accounting Standards
FASB Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” was issued May 2014 and updates the principles for recognizing revenue. The ASU will supersede most of the existing revenue recognition requirements in GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which a company expects to be entitled in exchange for transferring goods or services to a customer. This ASU also amends the required disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that period. Early adoption is permitted for annual periods beginning after December 15, 2016. The Company is determining its implementation approach and evaluating the potential impacts of the new standard on its existing revenue recognition policies and procedures.
FASB ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” was issued in April 2016 and adds further guidance on identifying performance obligations as well as improving licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective dates are the same as those for Topic 606.
FASB ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” was issued in June 2016 and clarifies the objective of the collectability criterion, presentation of taxes collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition and how guidance in Topic 606 is retrospectively applied. The amendments do not change the core principle of the guidance in Topic 606. The effective dates are the same as those for Topic 606.
FASB ASU 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” was issued in March 2016. This simplifies accounting for several aspects of share-based payment including income tax consequences, classification of awards as either equity or liability and classification on the statement of cash flows. For public entities, this update is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not anticipate a significant impact upon adoption.
FASB ASU 2015-17, “Income Taxes Balance Sheet Classification of Deferred Taxes” was issued in November 2015. This requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position and applies to all entities that present a classified statement of financial position. For public entities, this update is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not anticipate a significant impact upon adoption.
FASB ASU No. 2015-15, Interest—Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” was issued in August 2015 which permits an entity to report deferred debt issuance costs associated with a line-of-credit arrangement as an asset and to amortize such costs over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings under the credit line. The ASU applies to all entities and is effective for public business entities for annual periods beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. The guidance should be applied on a retrospective basis. The Company does not anticipate a significant impact upon adoption.
FASB ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs” was issued in April 2015. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU applies to all entities and is effective for public business entities for annual periods beginning after December 15, 2015, and interim periods thereafter, with early adoption permitted. The guidance should be applied on a retrospective basis. The Company does not anticipate a significant impact upon adoption.
FASB ASU 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” was issued September 2014. This provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company does not anticipate a significant impact upon adoption.
FASB ASU 2014-12, “Compensation - Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” was issued June 2014. This guidance was issued to resolve diversity in accounting for performance targets. A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition and should not be reflected in the award’s grant date fair value. Compensation cost should be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. This update did not have a significant impact upon early adoption.
Management has considered all recent accounting pronouncements issued since the last audit of our consolidated financial statements. The Company's management believes that these recent pronouncements will not have a material effect on the Company's unaudited condensed consolidated financial statements.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 2016 and December 31, 2015:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Furniture
|
|
$
|
5,915
|
|
|
$
|
5,915
|
|
Computers
|
|
|
18,886
|
|
|
|
17,428
|
|
|
|
|
24,801
|
|
|
|
23,344
|
|
Accumulated Depreciation
|
|
|
(16,492
|
)
|
|
|
(12,575
|
)
|
Foreign currency translation effect
|
|
|
(2,080
|
)
|
|
|
(2,313
|
)
|
|
|
$
|
6,229
|
|
|
$
|
8,455
|
|
Depreciation expense for the three and nine months ended September 30 2016 and 2015 amounted to $1,244, $1,433, $3,917, and $4,232, respectively. All of our property and equipment are recorded in Insight (foreign subsidiary) as of September 30, 2016 and December 31, 2015.
NOTE 4. NOTES PAYABLE – RELATED PARTIES
Notes payable consisted of the following at September 30, 2016 and December 31, 2015:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Promissory Notes
|
|
$
|
66,864
|
|
|
$
|
-
|
|
Less current portion of notes payable
|
|
|
(66,864
|
)
|
|
|
-
|
|
Long-term notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Dated June 7, 2016
On June 7, 2016, the Company issued a 8% Promissory Note for EUR 4,700 ($5,264). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender.
On June 7, 2016, the Company issued another 8% Promissory Note for EUR 4,700 ($5,264). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender. The note was repaid in September 2016, which included interest of $106.
Dated June 16, 2016
On June 16, 2016, the Company issued a 10% Secured Promissory Note (the “Promissory Note”) for $100,000 and 400,000 shares of our unregistered common stock. The note bears interest at the rate of 10% per annum and is due in full on June 16, 2017. The note is secured by the pledge of 17,910,000 shares of the Company’s common stock, held by its CEO. The 400,000 common shares had a deemed value of $100,000 and were accounted for as a finance cost to the Promissory Note, resulting in a debt discount on day one of $100,000. Unamortized debt discount of $96,970 was reversed and adjusted against loss on extinguishment of debt.
On September 12, 2016, the Promissory Note issued on June 16, 2016 of $100,000 together with accrued interest of $1,511 was replaced by a Convertible Note for $101,511 and warrants to purchase up to 50,755 shares of our common stock. The note bears interest at the rate of 20% per annum and is due in full on September 11, 2017. The Company determined this was a debt extinguishment. The replacement of the note resulted in $101,600 loss on extinguishment of debt included in the unaudited condensed consolidated statements of operations.
Dated June 29, 2016
On June 29, 2016, the Company issued a 8% Promissory Note for EUR 10,000 ($11,200). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender.
Dated June 30, 2016
On June 30, 2016, the Company issued a 8% Promissory Note for EUR 10,000 ($11,200). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender.
Dated August 29, 2016
On August 29, 2016, the Company issued a 8% Promissory Note for EUR 35,000 ($39,200). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender.
As of September 30, 2016 and December 31, 2015, the Company recorded accrued interest related to these promissory notes of $967 and $0, respectively.
NOTE 5. CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following at September 30, 2016 and December 31, 2015:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Convertible Note - December 2015
|
|
$
|
350,000
|
|
|
$
|
500,000
|
|
Convertible Note - February 2016
|
|
|
30,000
|
|
|
|
-
|
|
Convertible Note - March 2016
|
|
|
250,000
|
|
|
|
-
|
|
Convertible Notes - May 2016
|
|
|
75,000
|
|
|
|
-
|
|
Convertible Note - June 2016
|
|
|
15,000
|
|
|
|
-
|
|
Convertible Note - September 2016
|
|
|
250,308
|
|
|
|
-
|
|
|
|
|
970,308
|
|
|
|
500,000
|
|
Less debt discount and debt issuance cost
|
|
|
(404,944
|
)
|
|
|
(29,687
|
)
|
|
|
|
565,364
|
|
|
|
470,313
|
|
Less current portion of convertible notes payable
|
|
|
(545,511
|
)
|
|
|
-
|
|
Long-term convertible notes payable
|
|
$
|
19,853
|
|
|
$
|
470,313
|
|
The Company recognized amortization expense related to the debt discount and deferred financing fees of $188,048 and $0 for the nine months ended September 30, 2016 and 2015, respectively, which are included in interest expense in the consolidated statements of operations.
Dated – Issued in Fiscal Year 2015
On December 21, 2015, the Company issued a 10% Convertible Note (the “10% Convertible Note”) in the amount of $500,000, in exchange for a promissory note for $500,000 originally issued by Insight on October 20, 2015 to an unrelated third party investor (the “Investor”). The Company assumed accrued interest of $3,838 due from this previous promissory note. The 10% Convertible Note bears interest at the rate of 10% per annum and matures May 1, 2017. The holder is entitled to convert any portion of the outstanding and unpaid conversion amount in to fully paid and non-assessable shares of Common Stock. The conversion price (the “Conversion Price”) is 75% of the volume weighted average price of the Common Stock for the ten (10) trading days immediately prior to the applicable conversion date, subject to adjustment herein but in no event: (i) lower than $4,000,000 divided by the total number of shares of Common Stock outstanding immediately prior to the conversion date; or (ii) greater than $12,000,000 divided by the total number of shares of common stock outstanding immediately prior to the conversion date.
On July 22, 2016, $150,000 of the Convertible Note was converted into 941,620 common shares at market trading price $0.27 per share. The conversion generated $56,534 gain on extinguishment of debt in the unaudited condensed consolidated statements of operations.
Dated – Issued in Fiscal Year 2016
During the nine months ended September 30, 2016, the Company issued a total Convertible Notes in the amount of $620,308 and warrants to purchase up to 450,755 shares of our common stock, with the following terms:
|
·
|
Terms 6 – 18 months
|
|
|
|
|
·
|
Annual interest rates ranging from 8% to 20%
|
|
|
|
|
·
|
Convertible at the option of the holders either at issuance or 6 months from issuance.
|
|
|
|
|
·
|
Conversion prices are typically based on the discounted (20% - 25% discount) lowest trading prices of the Company’s shares during various periods prior to conversion. Certain notes are subject to adjustment to not convert in a value band, not lower than $4,000,000 to $6,000,000 or higher than $12,000,000 to $18,000,000, divided by the total number of shares of common stock outstanding immediately prior to the conversion date.
|
Certain notes include financing costs paid, recorded as debt discounts, totaling to $17,500 and the Company received cash of $425,000.
The Company determined that the conversion feature met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and therefore bifurcated the embedded conversion option once the note becomes convertible and accounted for it as a derivative liability. The fair value of the conversion feature was recorded as a debt discount and amortized to interest expense over the term of the note.
The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the notes that became convertible as of September 30, 2016 and December 31, 2015 amounted to $871,625 and $31,080, respectively. During the nine months ended September 30, 2016, $548,333 of the value assigned to the derivative liability was recognized as a debt discount to the notes and warrants, $313,217 was recognized as a “day 1” derivative loss, $160,771 value of derivative liability on the date of conversion was extinguished and $139,766 was recorded as gain on change in fair value of derivative liability.
Warrants
We accounted for the issuance of the Warrants in accordance with ASC 815 as a derivative (see Note 6).
On March 28, 2016, the Company issued a Convertible Note in the amount of $250,000 and warrants to purchase up to 250,000 shares of our common stock. The warrants are exercisable into 250,000 shares of common stock, for a period of five years from issuance, at a price of $0.40 per share.
On September 12, 2016, the Company issued a Convertible Note in the amount of $101,511 and warrants to purchase up to 50,755 shares of our common stock. The warrants are exercisable into 50,775 shares of common stock, for a period of one year from issuance, at 120% of the lowest trading price during 20 trading day prior to the exercise date.
On September 12, 2016, the Company issued a Convertible Note in the amount of $150,000 of which $50,000 was received as of September 30, 2016, and warrants to purchase up to 75,000 shares of our common stock. The warrants are exercisable into 75,000 shares of common stock, for a period of one year from issuance, at 120% of the lowest trading price during 20 trading day prior to the exercise date.
On September 21, 2016, the Company issued Convertible Notes in the amount of $150,000 of which $50,000 was received as of September 30, 2016, and warrants to purchase up to 75,000 shares of our common stock. The warrants are exercisable into 75,000 shares of common stock, for a period of one year from issuance, at 120% of the lowest trading price during 20 trading day prior to the exercise date.
The following table summarizes information relating to outstanding and exercisable warrants as of September 30, 2016:
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
Number
of Shares
|
|
|
Weighted Average Remaining Contractual life (in years)
|
|
|
Weighted Average
Exercise Price
|
|
|
Number
of Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
250,000
|
|
|
|
4.49
|
|
|
$
|
0.40
|
|
|
|
250,000
|
|
|
$
|
0.40
|
|
|
50,755
|
|
|
|
2.92
|
|
|
$
|
0.16
|
|
|
|
50,755
|
|
|
$
|
0.16
|
|
|
75,000
|
|
|
|
2.92
|
|
|
$
|
0.16
|
|
|
|
75,000
|
|
|
$
|
0.16
|
|
|
75,000
|
|
|
|
2.97
|
|
|
$
|
0.16
|
|
|
|
75,000
|
|
|
$
|
0.16
|
|
A summary of activity during the period ended September 30, 2016 follows:
|
|
Number
of Shares
|
|
|
Weighted- Average Exercise Price
|
|
Balances as of December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
Issued
|
|
|
450,755
|
|
|
|
0.29
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled/expired
|
|
|
-
|
|
|
|
-
|
|
Balances as of September 30, 2016
|
|
|
450,755
|
|
|
$
|
0.29
|
|
NOTE 6.
DERIVATIVE LIABILITY
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “
Derivatives and Hedging,”
and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of September 30, 2016. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note and warrants is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in September 30, 2016 and December 31, 2015:
|
Nine Months Ended
|
|
Year Ended
|
|
September 30,
|
|
December 31,
|
|
2016
|
|
2015
|
|
(unaudited)
|
|
|
Expected term
|
|
0.18 - 4.49 years
|
|
|
1.33 - 1.36 years
|
Expected average volatility
|
|
101% - 146%
|
|
|
108% - 110%
|
Expected dividend yield
|
|
-
|
|
|
-
|
Risk-free interest rate
|
|
0.36% - 1.21%
|
|
|
0.80%
|
The following table summarizes the derivative liabilities included in the balance sheet at September 30, 2016:
Fair Value Measurements Using Significant Observable Inputs (Level 3)
|
|
Balance - December 31, 2015
|
|
$
|
31,080
|
|
Addition of new derivative liabilities upon issuance of convertible notes as debt discounts
|
|
|
537,874
|
|
Addition of new derivative liabilities recognized as loss on convertible notes
|
|
|
227,133
|
|
Addition of new derivative liabilities recognized as issuance of warrants as debt discounts
|
|
|
10,459
|
|
Addition of new derivative liabilities recognized as loss on warrants
|
|
|
86,084
|
|
Reduction of derivatives liabilities from conversion of convertible note to common shares
|
|
|
(160,771
|
)
|
Loss on change in fair value of the derivative liabilities
|
|
|
139,766
|
|
Balance – September 30, 2016
|
|
$
|
871,625
|
|
ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item. The following table summarizes the loss on derivative liability included in the income statement for the financial periods ended September 30, 2016 and 2015, respectively.
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Day one loss due to derivative liabilities on convertible notes and warrants
|
|
$
|
313,217
|
|
|
$
|
-
|
|
Loss on change in fair value of the derivative liabilities
|
|
|
139,766
|
|
|
|
-
|
|
Net loss on derivative liability
|
|
$
|
452,983
|
|
|
$
|
-
|
|
NOTE 7. RELATED PARTY CONSIDERATIONS
Rent
Insight leases approximately 4,000 square feet of space in The Netherlands from a related party landlord, owned by immediate family member of management. The terms of the lease require that Insight pay €1,500 per month (approximately $1,680 per month) on a month to month basis to a related party landlord, owned by immediate family member of management.
Total rent expenses for the nine months ended September 30, 2016 and 2015 were $15,075 and $15,165, respectively. Total rent expenses for the three months ended September 30, 2016 and 2015 were $5,040 and $5,040, respectively.
Management Contracts
During the years ended December 31, 2015 and 2014, the Company entered into management contracts with officers and directors of the Company who are also major shareholders, whereby they received cash salaries, stock option grants and other commitments (see note 10).
During the nine months ended September 30, 2016 and 2015, the Company incurred management fees of $376,189 and $244,275, respectively, to directors and/or officers of the Company. During the three months ended September 30, 2016 and 2015, the Company incurred management fees of $125,669 and $92,400, respectively, to directors and/or officers of the Company.
NOTE 8. CONCENTRATIONS
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the periods ended September 30, 2016 and 2015
Customer
|
|
Nine Months Ended
September 30,
2016
|
|
|
Nine Months Ended
September 30,
2015
|
|
EU OCG UK
|
|
|
-
|
%
|
|
|
100
|
%
|
EU PWN
|
|
|
100
|
%
|
|
|
-
|
%
|
All of our sales were generated in foreign countries by Insight during the periods ended September 30, 2016 and 2015.
NOTE 9. STOCKHOLDERS’ DEFICIT
On January 21, 2016 with an effective date of February 1, 2016, the Company filed Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) with the Secretary of State of the State of Nevada to:
|
·
|
Increase the number of authorized shares of common stock, $0.001 par value from 100,000,000 to 500,000,000;
|
|
·
|
Create a class of preferred stock consisting of 10,000,000 shares, the designations and attributes of which are left for future determination by our board of directors (“Preferred Stock”);
|
|
·
|
Designate 808,000 shares of Preferred Stock as its Series A Preferred;
|
|
·
|
Effect a 1 for 6 forward stock split of the Company’s issued and outstanding common stock;
|
Preferred Stock
The Company has authorized 10,000,000 preferred shares with a par value of $0.001 per share. The Board of Directors is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes.
Series A Convertible Preferred Stock
The Company has designated 808,000 shares of Series A Convertible Preferred Stock. As at September 30, 2016 and December 31, 2015, the Company had 641,332 and 807,568 shares of Series A Convertible preferred stock issued and outstanding, respectively.
The designations, rights and preferences of the Series A Preferred include:
|
·
|
the stated value of the Series A Preferred is $1.00 per share.
|
|
|
|
|
·
|
the shares have no voting rights, provided, however, that for so long as any shares are outstanding, we many not, without the affirmative vote of at least 51% of the then outstanding shares of the Series A Preferred, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred or alter or amend the Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation (as defined) senior to, or otherwise in
pari passu
with, the Series A Preferred, (c) amend our articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders, (d) increase the number of authorized shares of Series A Preferred, or (e) enter into any agreement with respect to any of the foregoing.
|
|
|
|
|
·
|
each share is convertible at the option of the holder based upon a conversion price of $0.0296 per share into shares of our common stock at any time. The rate of conversion is subject to adjustment as discussed below.
|
|
|
|
|
·
|
Upon our liquidation, dissolution or winding-up, the holders will be entitled to receive out of our assets, whether capital or surplus, an amount equal to the stated value per share, $1.00, plus any accrued and unpaid dividends thereon.
|
|
|
|
|
·
|
the conversion price of the Series A Preferred is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events by adjustment of the conversion price by its multiplication by a fraction the numerator of which is the number of shares of common stock outstanding immediately before such event, and the denominator of which is the number of shares outstanding immediately after such event.
|
|
·
|
If, at any time while the Series A Preferred is outstanding, the Company or any subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to re-price, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of common stock at an effective price per share that is lower than a conversion price then in effect for any of the Series A Preferred, as adjusted, then the conversion price for shares of Series A Preferred shall be reduced to equal the lower issuance price.
|
|
|
|
|
·
|
As long as any shares of Series A Preferred are outstanding, unless the holders of at least 51% in Stated Value of the then outstanding shares of such Series A Preferred shall have given prior written consent, the Corporation shall not, and shall not permit any Subsidiary to, directly or indirectly:
a) The Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents (or a combination of units thereof) involving a variable rate transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of common stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the common stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price.
|
During the year ended December 31, 2015, we issued 807,568 shares of Series A Convertible Preferred stock, to five individuals, as part of the merger with Insight. The shares were issued for cash of $557,802 and exchange of a convertible note payable and accrued interest of $257,912.
During the period ended September 30, 2016, 166,236 shares of Series A Convertible Preferred Stock, were converted into 5,609,789 shares of common stock.
Common Stock
The Company has authorized 500,000,000 common shares with a par value of $0.001 per share. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
During the period ended September 30, 2016, the Company issued 7,651,409 shares of common stock, as follows:
|
·
|
700,000 shares of common stock to consultants, for services valued at $100,000.
|
|
|
|
|
·
|
5,609,789 shares of common stock in a conversion of 166,236 shares of Series A Convertible Preferred Stock.
|
|
|
|
|
·
|
400,000 shares of common stock, with a value of $100,000, issued as part of a $100,000 Promissory Note.
|
|
|
|
|
·
|
941,620 shares of common stock in a conversion of $150,000 of Convertible Notes valued at $254,238.
|
As at September 30, 2016 and December 31, 2015 the Company had 82,561,409 and 74,910,000 shares of common stock issued and outstanding, respectively.
NOTE 10. INCENTIVE STOCK PLANS
2015 Stock Option Grants
We granted stock options, which was adopted by our board of directors on December 21, 2015, provides for equity incentives to be granted to our employees, executive officers or directors.
During the year ended December 31, 2015 we issued options to purchase an aggregate of 8,173,686 shares of our unregistered common stock at a price of $0.04893 per share for 1/3 of the shares, $0.05873 per share for 1/3 of the shares, and $0.06852 per share for 1/3 of the shares. The options had an aggregate value totaling $71,630 and were issued to Messrs. Verweij, van Wijk and de Vries, executive officers of our company.
A summary of activity during the period ended September 30, 2016 follows:
|
|
Options Outstanding
|
|
|
|
Number
of Shares
|
|
|
Weighted- Average Exercise Price
|
|
|
Fair Value
on Grant Date
|
|
|
Intrinsic
Value
|
|
Balances as of December 31, 2015
|
|
|
8,173,686
|
|
|
$
|
0.0587
|
|
|
$
|
71,630
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled/expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balances as of September 30, 2016
|
|
|
8,173,686
|
|
|
$
|
0.0587
|
|
|
$
|
71,630
|
|
|
$
|
-
|
|
The outstanding options have a weighted-average remaining contract term of 4.23 years. As of September 30, 2016, all options remain unvested.
One-third of the options granted vest at the end of the first, second and third year after the date of the award date of December 21, 2015. After vesting, the option generally can be exercised for the period remaining in the 5-year term from issuance date. Total compensation cost expected to be recognized in future for unvested options at September 30, 2016 amounted to $37,794. During the three and nine months ended September 30, 2016, the Company charged to operations stock based compensation expense of $10,961 and $32,645, respectively.
The fair value of each option on the date of grant is estimated using the Black Scholes option valuation model. The following weighted-average assumptions were used for options granted during the year ended December 31, 2015:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
Expected term
|
|
5 years
|
|
Expected average volatility
|
|
|
95
|
%
|
Expected dividend yield
|
|
|
-
|
|
Risk-free interest rate
|
|
|
1.67
|
%
|
Expected annual forfeiture rate
|
|
|
-
|
|
The following table summarizes information relating to outstanding and exercisable stock options as of September 30, 2016:
Options Outstanding
|
|
|
Options Exercisable
|
|
Number of Shares
|
|
|
Weighted Average Remaining
Contractual life (in years)
|
|
|
Weighted Average
Exercise Price
|
|
|
Number
of Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
8,173,686
|
|
|
|
4.23
|
|
|
$
|
0.0587
|
|
|
|
-
|
|
|
|
-
|
|
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company's stock exceeded the exercise price of the stock options at September 30, 2016 for those stock options for which the quoted market price was in excess of the exercise price ("in-the-money options"). As of September 30, 2016, the aggregate intrinsic value of options outstanding was $nil, as we did not have options available for exercise. As of September 30, 2016, no options to purchase shares of common stock were exercisable.
NOTE 11. SUBSEQUENT EVENTS
Management evaluated all activities of the Company through the issuance date of the Company’s unaudited condensed consolidated financial statements and concluded that no subsequent events have occurred that would require adjustments or disclosure into the unaudited condensed consolidated financial statements.