As of July 17 , 2018, we had 3,350,000
stock options and no warrants outstanding. As of July 17 , 2018, we had (i) convertible notes in the aggregate principal
amount of $175,325 outstanding, which bear interest at the rate of 18% per annum and are convertible into shares of our common
stock at a conversion price of $0.03 per share, and (ii) convertible notes in the aggregate principal amount of $325,000 outstanding,
which bear interest at the rate of 10% per annum and are convertible into shares of our common stock at a conversion price of
$0.10 per share.
As of July 17, 2018, the 20,874,524
issued and outstanding shares of our common stock were held by a total of 111 stockholders of record.
ICOX
Innovations Inc.
(formerly
AppCoin Innovations Inc.)
Consolidated
Statements of Cash Flows
|
|
Year
Ended
December 31, 2017
|
|
|
Year
Ended
December 31, 2016
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
$
|
(467,058
|
)
|
|
$
|
(88,196
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
188,934
|
|
|
|
-
|
|
Stock-based
compensation, related party
|
|
|
22,500
|
|
|
|
-
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable, related party
|
|
|
(500,000
|
)
|
|
|
-
|
|
Prepaid
expense
|
|
|
(30,000
|
)
|
|
|
-
|
|
Prepaid
expense, related party
|
|
|
(35,000
|
)
|
|
|
-
|
|
Accrued
interest receivable, related party
|
|
|
(789
|
)
|
|
|
-
|
|
Deferred
service costs
|
|
|
(21
|
)
|
|
|
-
|
|
Accrued
interest payable
|
|
|
35,004
|
|
|
|
15,513
|
|
Accounts
payable and accrued expenses
|
|
|
82,290
|
|
|
|
44,863
|
|
Accounts
payable and accrued expenses, related party
|
|
|
51,616
|
|
|
|
-
|
|
Net
cash (used in) operating activities
|
|
|
(652,524
|
)
|
|
|
(27,820
|
)
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Loan
issued to related party
|
|
|
(99,963
|
)
|
|
|
-
|
|
Investment
in related party
|
|
|
(37
|
)
|
|
|
-
|
|
Net
cash (used in) investing activities
|
|
|
(100,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of convertible notes payable
|
|
|
355,000
|
|
|
|
70,000
|
|
Proceeds
from share issuance
|
|
|
560,000
|
|
|
|
-
|
|
Share
issue costs
|
|
|
(3,533
|
)
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
911,467
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
Net
changes in cash and equivalents
|
|
|
158,943
|
|
|
|
42,180
|
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents at beginning of the year
|
|
|
56,050
|
|
|
|
13,870
|
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents at end of the year
|
|
$
|
214,993
|
|
|
$
|
56,050
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash
paid in interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
$
|
188,934
|
|
|
$
|
-
|
|
Stock-based
compensation, related party
|
|
$
|
22,500
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ICOX
Innovations Inc.
(formerly
AppCoin Innovations Inc.)
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit)
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Stockholders’
Equity (Deficit)
|
|
Balance,
December 31, 2015
|
|
|
6,000,000
|
|
|
$
|
6,000
|
|
|
$
|
63,717
|
|
|
$
|
(137,754
|
)
|
|
$
|
(68,037
|
)
|
Net
loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(88,196
|
)
|
|
|
(88,196
|
)
|
Balance,
December 31, 2016
|
|
|
6,000,000
|
|
|
|
6,000
|
|
|
|
63,717
|
|
|
|
(225,950
|
)
|
|
|
(156,233
|
)
|
Share
issuance, net of offering costs of $3,533
|
|
|
5,600,000
|
|
|
|
5,600
|
|
|
|
550,867
|
|
|
|
-
|
|
|
|
556,467
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
188,934
|
|
|
|
-
|
|
|
|
188,934
|
|
Stock-based
compensation, related party
|
|
|
-
|
|
|
|
-
|
|
|
|
22,500
|
|
|
|
-
|
|
|
|
22,500
|
|
Net
loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(467,058
|
)
|
|
|
(467,058
|
)
|
Balance,
December 31, 2017
|
|
|
11,600,000
|
|
|
$
|
11,600
|
|
|
$
|
826,018
|
|
|
$
|
(693,008
|
)
|
|
$
|
144,610
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
1.
NATURE AND CONTINUANCE OF OPERATIONS
ICOX
Innovations Inc. (formerly AppCoin Innovations Inc., formerly RedStone Literary Agents, Inc.) (the “Company”) was
incorporated under the laws of State of Nevada, U.S. on July 20, 2010, with an authorized capital of 75,000,000 common shares,
having a par value of $0.001 per share. During the period ended December 31, 2010, the Company commenced operations by issuing
shares and developing its publishing service business, focused on representing authors to publishers.
On
August 1, 2017, the Company incorporated a Nevada subsidiary, AppCoin Innovations (USA) Inc., which will be used to operate the
Company’s new business of providing blockchain consulting services.
On
August 17, 2017, the Company changed its name from “RedStone Literary Agents, Inc.” to “AppCoin Innovations
Inc.”
On
February 14, 2018, the Company changed its name from “AppCoin Innovations Inc.” to “ICOX Innovations Inc.”
The
Company’s new business model provides a turnkey set of services for companies to develop and integrate blockchain and cryptocurrency
technologies into their business operations. The Company will enable its customers to focus on their core competencies while providing
the necessary resources and expertise to execute a strategy that will enable companies to integrate new blockchain plus cryptocurrency
technologies into their business operations. The Company will be compensated on a fee-for-services model. The Company may also
accept tokens or coins in payment for its services, to the extent permitted under applicable law.
The
Company’s services will include strategic planning, project planning, structure development and administration, business
plan modelling, technology development support, whitepaper preparation, due diligence reporting, governance planning and management.
Going
Concern
These
consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize
its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred
losses since inception resulting in an accumulated deficit of $693,008 as of December 31, 2017 and further losses are anticipated
in the pursuit of the Company’s new service business opportunity, raising substantial doubt about the Company’s ability
to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable
operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from
normal business operations when they come due. Management intends to finance operating costs over the next twelve months with
existing cash on hand, loans from directors and/or the private placement of common stock.
In
order to address the above factors, subsequent to year end, the Company completed private placements of an aggregate of 9,113,659
subscription receipts at a price of $0.60 per subscription receipt for aggregate gross proceeds of $5,468,195.40.
The
financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts
and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles
(“
GAAP
”) in the United States of America.
Basis
of Consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany transactions and balances
have been eliminated.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates and these differences could be material.
Cash
and Cash Equivalents
Cash
and cash equivalents include short-term, highly liquid investments, such as certificates of deposit or money market funds that
are readily convertible to known amounts of cash and have original maturities of three months or less. All cash balances are held
by major banking institutions.
The
carrying amounts of cash and cash equivalents, prepaid expenses, short-term loans receivable, trade payables and convertible notes
payable approximate their fair value due to the short-term maturity of such instruments.
Contingent
Liabilities:
The
Company accounts for its contingent liabilities in accordance with ASC No. 450 “Contingencies”. A provision is recorded
when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
With
respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal
rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2017 and
2016, the Company was not a party to any litigation that could have a material adverse effect on the Company’s business,
financial position, results of operations or cash flows.
Income
Taxes
The
Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities
are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values
and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
FASB
Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”), clarifies the accounting for uncertainty in
income taxes recognized in the financial statements. ASC 740 provides that a tax benefit from an uncertain tax position may be
recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any
related appeals or litigation processes, based on the technical merits of the position. Income tax positions must meet a more-likely-than-not
recognition threshold to be recognized. ASC 740 also provides guidance on measurement, derecognition, classification, interest
and penalties, accounting in interim periods, disclosure and transition. We have determined that the Company does not have uncertain
tax positions on its tax returns for the years 2017 and prior. Based on evaluation of the 2017 transactions and events, the Company
does not have any material uncertain tax positions that require measurement.
Our
policy is to recognize interest and/or penalties related to income tax matters in income tax expense. We had no accrual for interest
or penalties on our consolidated balance sheets at December 31, 2017 or 2016, and have not recognized interest and/or penalties
in the consolidated statement of operations for the years ended December 31, 2017 or 2016.
We
are subject to taxation in the U.S. and the state of California. All of our tax years are subject to examination by the U.S. and
California tax authorities due to the carry-forward of unutilized net operating losses.
Collectability
of Accounts Receivable
In
considering the collectability of accounts receivable, the Company takes into account the legal obligation for payment by the
customer, as well as the financial capacity of the customer to fund its obligation to the Company.
Earnings
per Share
The
Company computes earnings (loss) per share in accordance with ASC 105, “Earnings per Share” which requires presentation
of both basic and diluted earnings per share on the face of the statement of operations. Basic earnings (loss) per share is computed
by dividing net loss available to common stockholders by the weighted average number of outstanding common shares during the period.
Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Common shares
from the conversion of debt (10,730,310 shares) (Note 3) and exercise of stock options (733,331 shares) (Note 7) have been excluded
as their effect is anti-dilutive.
Stock-Based
Compensation
The
Company has adopted FASB guidance on stock-based compensation. Under FASB ASC 718-10-30-2, all share-based payments to employees,
including grants of employee stock options, are recognized in the income statement based on their fair values. The fair value
of the options is calculated based upon the Black Scholes valuation model. (Note 7)
The
Company has issued stock options to employees and non-employees. Stock options granted to non-employees for services or performance
not yet rendered would be expensed over the service period or until the goals had been reached. The fair value calculation is
recalculated at the end of every reporting period until the goal had been reached, when the expense has been wholly recognized.
The stock options granted to non-employees during the year ended December 31, 2017 were for services already rendered in lieu
of cash compensation and, as such, the service period has already passed and the entirety of the expense was recognized in the
year.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Digital
Currency Valuation
Digital
currencies consist of cryptocurrency denominated assets and are included in current assets. Digital currencies are carried at
their fair market value determined by an average spot rate of the most liquid digital currency exchanges. On an interim basis,
we recognize decreases in the value of the assets caused by market declines. Subsequent increases in the value of these assets
through market price recoveries during the same fiscal year are recognized in the later interim period, but may not exceed the
total previously recognized decreases in value during the same year. Such unrealized gains or losses resulting from changes the
value of the digital currency are recorded in Other Income, net in the consolidated statements of operations. Gains and losses
realized upon sale of digital currencies are also recorded in Other Income, net in the consolidated statement of operations.
Fair
market value is determined by taking the average spot rate from the most liquid digital currency exchanges. Digital currencies
are measured using level one fair values, determined by taking the rate from market currency exchanges. Digital currency prices
are affected by various forces including global supply and demand, interest rates, exchange rates, inflation or deflation and
the global political and economic conditions. The Company may not be able to liquidate its inventory of digital currency at its
desired price if required. A decline in the market prices for digital currencies could negatively impact the Company’s future
operations. The digital currency market is still a new market and is highly volatile; historical prices are not necessarily indicative
of future value; a significant change in the market prices for digital currencies would have a significant impact on the Company’s
earnings and financial position.
The
Company did not hold any digital currency at December 31, 2017 and December 31, 2016.
Revenue
Recognition
Revenue
is recognized in accordance with FASB ASC Topic 606, Revenue Recognition. The Company recognizes revenue when persuasive evidence
of an arrangement exists, the related services are rendered or delivery has occurred, the price is fixed or determinable and collectability
is reasonably assured. The Company has early adopted this policy.
The
Company primarily generates revenues from professional services consulting agreements. These arrangements are generally entered
into on a contingent fee basis. There is no prepayment or retainer required prior to performing services and the entire fees is
earned on a contingent basis. The Company also provides monthly post-business launch support services. The recurring monthly post-business
launch support services are recognized as revenue each month that the subscription is maintained.
The
Company generally enters into arrangements for which revenues are contingent upon achieving a pre-determined deliverable or future
outcome. Any contingent revenue for these arrangements is not recognized until the contingency is resolved and collectability
is reasonably assured.
Differences
between the timing of billings and the recognition of revenue are recognized as either unbilled revenue (a component of accounts
receivable) or deferred revenue on the consolidated balance sheet. Revenues recognized for services performed but not yet billed
to clients are recorded as unbilled revenue.
Reimbursable
expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component
of revenues. Typically, an equivalent amount of reimbursable expenses are included in total direct client service costs. Taxes
collected from customers and remitted to governmental authorities are presented in the statement of operations on a net basis.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Service
costs
The
Company’s policy is to defer direct service costs that relate to the earning of contingent fee revenue. These deferred costs
are expensed when the contingent fee revenue is recognized or when the earning the contingent fee revenue is in doubt.
Reclassification
Certain
reclassifications have been made to the 2016 financial statements in order for them to conform to the 2017 presentation. Such
reclassifications have no impact on the Company’s financial position or results or operations.
Recently
Adopted Accounting Pronouncements
Statement
of Cash Flows (ASU 2016-15)
This
update provides specific guidance to clarify how entities should classify certain cash receipts and cash payments on the statement
of cash flows. The update also clarifies the application of the predominance principle when cash receipts and cash payments have
aspects of more than one class of cash flows. We will be required to adopt this standard effective January 1, 2018. We do not
expect the adoption of this update to have a material effect on our financial statements.
Financial
Instruments – Recognition and Measurement (ASU 2016-01)
This
update retains the current accounting for classifying and measuring investments in debt securities and loans, but requires equity
investments to be measured at fair value with subsequent changes recognized in net income, except for those accounted for under
the equity method or requiring consolidation. We will be required to adopt this standard effective January 1, 2018. We do not
expect the adoption of this update to have a material effect on our financial statements.
3.
ACCOUNTS RECEIVABLE
As
at December 31, 2017, the Company had outstanding accounts receivable of $500,000 (2016 - $0). The entire amount was received
subsequent to year end.
4.
NOTES PAYABLE
On
September 14, 2015, the Company entered into a private placement subscription agreement and issued an unsecured convertible note
(the “
First Note
”) in the principal amount of $73,825 to one subscriber. The First Note, and accrued interest,
will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded
annually. The principal amount of the First Note, plus any interest accrued thereon, may be converted into shares of common stock
of the Company at a conversion price of $0.03 per share. As at December 31, 2017, the First Note had a balance outstanding of
$104,334 (2016 - $91,734), comprised of a principal amount of $73,825 and accrued interest of $30,509 (2016 - $17,909). The Company
has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
4.
NOTES PAYABLE (CONT’D)
On
December 31, 2016, the Company entered into a private placement subscription agreement and issued an unsecured convertible note
(the “
Second Note
”) in the principal amount of $50,000 to one subscriber. The Second Note, and accrued interest,
will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded
annually. The principal amount of the Second Note, plus any interest accrued thereon, may be converted into shares of common stock
of the Company at a conversion price of $0.03 per share. As at December 31, 2017, the Second Note had a balance outstanding of
$59,025 (2016 - $50,025), comprised of a principal amount of $50,000 and accrued interest of $9,025 (2016 - $25). The Company
has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On
December 31, 2016, the Company entered into a private placement subscription agreement and issued an unsecured convertible note
(the “
Third Note
”) in the principal amount of $21,500 to one subscriber. The Third Note included repayment
of the principal amount of $20,000 for an unsecured note issued on June 6, 2016 plus a $1,500 restructuring fee. The Third Note,
and accrued interest, will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest
per annum, compounded annually. The principal amount of the Third Note, plus any interest accrued thereon, may be converted into
shares of common stock of the Company at a conversion price of $0.03 per share. As at December 31, 2017, the Third Note had a
balance outstanding of $25,380 (2016 - $21,511), comprised of a principal amount of $21,500 and accrued interest of $3,880 (2016
- $11). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On
March 2, 2017, the Company entered into a private placement subscription agreement and issued an unsecured convertible note (the
“
Fourth Note
”) in the principal amount of $20,000 to one subscriber. The Fourth Note, and accrued interest,
will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded
annually. The principal amount of the Fourth Note, plus any interest accrued thereon, may be converted into shares of common stock
of the Company at a conversion price of $0.03 per share. As at December 31, 2017, the Fourth Note had a balance outstanding of
$22,998 (2016 - $0), comprised of a principal amount of $20,000 and accrued interest of $2,998 (2016 - $0). The Company has determined
that no beneficial conversion feature exists due to the share value on the date of issuance.
On
June 8, 2017, the Company entered into a private placement subscription agreement and issued an unsecured convertible note (the
“
Fifth Note
”) in the principal amount of $10,000 to one subscriber. The Fifth Note, and accrued interest, will
mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded annually.
The principal amount of the Fifth Note, plus any interest accrued thereon, may be converted into shares of common stock of the
Company at a conversion price of $0.03 per share. As at December 31, 2017, the Fifth Note had a balance outstanding of $11,016
(2016 - $0), comprised of a principal amount of $10,000 and accrued interest of $1,016 (2016 - $0). The Company has determined
that no beneficial conversion feature exists due to the share value on the date of issuance.
On
September 7, 2017, the Company received a $250,000 loan from a less than 5% shareholder. The loan is unsecured, repayable on demand
and is non-interest bearing. On October 30, 2017, this loan was used to subscribe to an unsecured convertible debenture (the “
Sixth
Note
”) in the principal amount of $250,000 to one subscriber. The Sixth Note, and accrued interest, will mature three
(3) years from the date of issuance and will bear interest at the rate of 10% interest per annum, compounded annually. The principal
amount of the Sixth Note, plus any interest accrued thereon, may be converted into shares of common stock of the Company at a
conversion price of $0.10 per share. As at December 31, 2017, the Sixth Note had a balance outstanding of $254,247 (2016 - $0),
comprised of a principal amount of $250,000 and accrued interest of $4,247 (2016 - $0). The Company has determined that no beneficial
conversion feature exists due to the share value on the date of issuance.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
4.
NOTES PAYABLE (CONT’D)
On
October 30, 2017, the Company entered into a private placement subscription agreement and issued an unsecured convertible note
(the “
Seventh Note
”) in the principal amount of $75,000 to one subscriber. The Seventh Note, and accrued interest,
will mature three (3) years from the date of issuance and will bear interest at the rate of 10% interest per annum, compounded
annually. The principal amount of the Seventh Note, plus any interest accrued thereon, may be converted into shares of common
stock of the Company at a conversion price of $0.10 per share. As at December 31, 2017, the Seventh Note had a balance outstanding
of $76,274 (2016 - $0), comprised of a principal amount of $75,000 and accrued interest of $1,274 (2016 - $0). The Company has
determined that no beneficial conversion feature exists due to the share value on the date of issuance.
Based
upon the balances as of December 31, 2017, the convertible notes and the related interest will come due in the following years:
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2020
|
|
|
398,825
|
|
|
|
36,030
|
|
|
|
434,855
|
|
2021
|
|
|
71,500
|
|
|
|
12,905
|
|
|
|
84,405
|
|
2022
|
|
|
30,000
|
|
|
|
4,014
|
|
|
|
34,014
|
|
Total
|
|
$
|
500,325
|
|
|
$
|
52,949
|
|
|
$
|
553,274
|
|
5.
NOTES RECEIVABLE – RELATED PARTY
On
November 20, 2017, the Company made a $99,963 loan to WENN Digital Inc., a customer of the Company. This loan is unsecured, will
mature one (1) year from the date of issuance and will bear interest at the rate of 7% interest per annum. As of December 31,
2017, interest of $789 has been accrued. The Company also received a 7.5% stake in the WENN Digital Inc. for making the loan.
6.
RELATED PARTY TRANSACTIONS
In
support of the Company’s efforts and cash requirements, it may rely on advances from stockholders until such time as the
Company can support its operations through revenue generation or attain adequate financing through sales of its equity or traditional
debt financing. There is no formal written commitment for continued support by stockholders. Amounts represent advances or amounts
paid in satisfaction of liabilities.
The
Company’s office premises were provided to it at no cost by one of its directors. The Company’s director did not take
any fees for serving as director during the year ended December 31, 2017.
In
October 2017, the Company signed an agreement with a company in which the Company’s Chairman is a director, officer, and
30.5% shareholder, to provide strategic management services. The agreement is for a two-year term that will automatically be renewed
unless: (i) mutually agreed to by BIG and us, or (ii) written notice of non-renewal is provided by the non-renewing party to the
other at least 90 days prior to the end of the term. This agreement committed the Company to pay $35,000 a month and a signing
bonus of $100,000 payable as follows: (i) $50,000 upon closing of up to $750,000 of equity financing and (ii) $50,000 payable
on signing of the first client agreement. As of December 31, 2017, the Company had trade and other payables owing to this related
party of $51,616.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
6.
RELATED PARTY TRANSACTIONS (CONT’D)
Future
minimum payments per the agreement are:
2018
|
|
$
|
470,000
|
|
2019
|
|
|
350,000
|
|
Total
|
|
$
|
820,000
|
|
On
December 29, 2017, the Company signed a master service agreement with WENN Digital Inc. (“WENN”), a company in which
there is a common director. The agreement was amended on March 15, 2018, pursuant to which the Company changed the scope of services
to provide WENN with the services in connection with WENN’s development of an image rights management and protection platform
(the “Platform”) using blockchain technology, including (i) the business development and technical services, (ii)
the business launch services and (iii) the post-business launch support services.
The
business services agreement with WENN provides that the fees for the services provided in connection with the development and
launch of the Platform (the business development and technical services and business launch services) were deemed earned on the
date of execution of the business services agreement. The Company has waived WENN’s requirement to pay the $250,000 fixed
fee in connection with the business development and technical services as a concession. The Company has recognized the business
development and technical services fee of $500,000 during the year ended December 31, 2017, which WENN paid in January 2018 upon
the completion of its first round of pre-ICO fundraising.
The
fees for the post-business launch support services (the
“Monthly Services”
) are $35,000 per month and they
will be due at the beginning of each month in which the Monthly Services are performed. With respect to the Monthly Services,
the Company has agreed to provide the Monthly Services for one year commencing on the date of the Platform Launch (as defined
below), after which the business services agreement and the provision of the Monthly Services will automatically renew for a one
year period and can be terminated by either our company or WENN with 30 days’ written notice. “Platform Launch”
means the publicized product launch of the Platform to the general public, including the ability of the general public to use
Tokens as the primary means of exchange for transactions on the Platform.
In
addition, the business services agreement with WENN provides that the work fee in the amount of $4,175,000 is deemed earned on
March 15, 2018 and the work fee is subject to a Renegotiation Obligation (as defined below). The business services agreement with
WENN also provides that the additional fee of rights to receive an aggregate of 20,000,000 Platform tokens or coins (the
“Tokens”
)
pursuant to a Simple Agreement for Future Tokens is also deemed earned on the date of execution of the business services agreement
and the additional fee is subject to a Renegotiation Obligation. However, for financial reporting purposes, the work fee and additional
fee are deemed earned on the date of the launch of the Platform. If WENN does not raise more than $40 million in connection with
its offer and sale for cash of (i) one or more Simple Agreements for Future Tokens (
“SAFTs”
), which SAFTs will
entitle the holders thereof to receive Tokens under certain circumstances, and/or, (ii) Tokens, in the event that WENN determines
to offer and sell Tokens in lieu of or in addition to SAFTs in connection with its fundraising efforts (collectively, the
“WENN
Offering”
), prior to May 31, 2018, the Company will be required to return the work fees and additional fee to WENN and
WENN and our company will be required to negotiate in good faith the amount of each of such fee (such requirement to negotiate
is referred to herein as the
“Renegotiation Obligation”
).
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
6.
RELATED PARTY TRANSACTIONS (CONT’D)
The
Company has agreed that WENN will not be responsible for any out-of-pocket expenses incurred by our company in connection with
our performance of the services. In addition, the Company has agreed to pay, and otherwise be financially responsible for (including
through the reimbursement of disbursements made by WENN and its affiliates), (i) all legal costs and expenses incurred by WENN,
our company and any of their affiliates in connection with the WENN Offering; (ii) all business and travel expenses incurred by
WENN, our company and any of their affiliates in connection the WENN Offering; and (iii) all fees and expenses incurred by WENN
in connection with its conversion of cryptocurrencies into US dollars in connection with the WENN Offering, including bank, exchange
and other similar fees and expenses. WENN will have the right to deduct any such amounts from the fees otherwise payable by it
to our company and apply such deducted amounts to the payments to our company.
The
business services agreement will continue for a period of one year unless earlier terminated by either our company or WENN.
Either
the Company or WENN may terminate the business services agreement upon the provision of 30 days’ written notice to the other
party. If the Company provides such notice, WENN may immediately terminate the business services agreement and the Company will
be entitled to no further compensation except for any fees earned prior to the date of the termination. If WENN provides such
notice, the Company may immediately terminate the business services agreement and will be entitled to no further compensation,
except for the following lump sum payments: (i) any fees earned to the effective date of termination; and (ii) a lump sum payment
of $105,000.
For
the purpose of determining our fees earned to the date of the termination in the event that either party terminates the business
services agreement, all fees for services in connection with the development and launch of the Platform (the business development
and technical services and business launch services) and the additional fee of rights to receive an aggregate of 20,000,000 Tokens
are deemed earned on the date of execution of the business services agreement and the work fee is deemed earned as of March 15,
2018. However, the work fees and additional fee are subject to the Renegotiation Obligation. As such, our work fee and additional
fee are not determinable or deemed collectible for the financial reporting purposes until the WENN Offering is completed or, if
applicable, those fees are renegotiated pursuant to the Renegotiation Obligation.
The
Company’s chairman and one of its directors, Cameron Chell, is a director, officer and an indirect shareholder of Business
Instincts Group Inc. which owns 10% of the common stock of WENN and he is also a director, officer and indirect shareholder of
Blockchain Merchant Group, Inc. which owns 2.5% of the common stock of WENN and the Company owns 7.5% of the common stock of WENN.
Mr. Chell is also a director, chairman, and officer of WENN. Mr. Elliott is a former officer of WENN.
7.
SHARE CAPITAL
The
Company’s common stock is issued at a $0.001 par value. 75,000,000 shares have been authorized. As at December 31, 2017,
11,600,000 shares were issued and outstanding (2016 – 6,000,000).
On
October 30, 2017, the Company entered into a private placement subscription agreement with 35 subscribers, pursuant to which it
issued an aggregate of 5,600,000 shares of common stock of the Company at a price of $0.10 per share for aggregate gross proceeds
of $560,000.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
8.
STOCK-BASED COMPENSATION
The
Company has adopted the 2017 Equity Incentive Plan (“the Plan”) under which non-transferable options to purchase common
shares of the Company may be granted to directors, officers, employees, or consultants of the Company. The terms of the Plan provide
that the Board of Directors have the right to grant options to acquire common shares of the Company at not less than the closing
market price of the shares on the day preceding the grant at terms of up to ten years. No amounts are paid or payable by the recipient
on receipt of the options. The maximum number of options available for grant is 3,000,000. On January 22, 2018, the maximum number
of options available for grant was increased to 3,900,000. As of December 31, 2017, there are 2,900,000 stock options issued (2016
– nil) and 100,000 stock options unissued (2016 – nil).
On
October 15, 2017, the Company granted a total of 1,400,000 stock options to its directors and officers. The stock options are
exercisable at the exercise price of $0.10 per share for a period of ten years from the date of grant. The stock options are exercisable
as follows:
|
(i)
|
1/3
upon the date of grant;
|
|
(ii)
|
1/3
on the first anniversary date; and
|
|
(iii)
|
1/3
on the second anniversary date.
|
On
October 15, 2017, the Company granted a total of 1,325,000 stock options to its consultants. These stock options were granted
to consultants who have provided their services for cash compensation below cost, with the stock options providing additional
compensation in lieu of cash. The stock options are exercisable at the exercise price of $0.10 per share for a period of ten years
from the date of grant. Of the stock options granted, 800,000 are exercisable as follows:
|
(i)
|
1/3
upon the date of grant;
|
|
(ii)
|
1/3
on the first anniversary date; and
|
|
(iii)
|
1/3
on the second anniversary date.
|
The
remaining 525,000 stock options are exercisable as follows:
|
(i)
|
1/3
on the first anniversary date;
|
|
(ii)
|
1/3
on the second anniversary date; and
|
|
(iii)
|
1/3
on the third anniversary date.
|
On
November 10, 2017, the Company granted a total of 175,000 stock options to its consultants. The stock options are exercisable
at the exercise price of $0.10 per share for a period of ten years from the date of grant. The stock options are exercisable as
follows:
|
(i)
|
1/3
on the first anniversary date;
|
|
(ii)
|
1/3
on the second anniversary date; and
|
|
(iii)
|
1/3
on the third anniversary date.
|
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
8.
STOCK-BASED COMPENSATION (CONT’D)
Stock
options granted are valued at the fair value calculation based off the Black-Scholes valuation model. The weighted average assumptions
used in the calculation are as follows:
|
|
For
the years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Share
price
|
|
$
|
0.10
|
|
|
|
N/A
|
|
Exercise price
|
|
$
|
0.10
|
|
|
|
N/A
|
|
Time
to maturity (years)
|
|
|
10
|
|
|
|
N/A
|
|
Risk-free
interest rate
|
|
|
2.28%-2.40
|
%
|
|
|
N/A
|
|
Expected
volatility
|
|
|
191.12%-191.75
|
%
|
|
|
N/A
|
|
Dividend per
share
|
|
$
|
0.00
|
|
|
|
N/A
|
|
Forfeiture
rate
|
|
|
Nil
|
|
|
|
N/A
|
|
|
|
Number
of Options
|
|
|
Weighted
Average Grant-Date Fair Value ($)
|
|
|
Weighted
Average Exercise Price ($)
|
|
|
Weighted
Average Remaining Life (Yrs)
|
|
Options
outstanding, December 31, 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
outstanding, December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
2,900,000
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
9.8
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
outstanding, December 31, 2017
|
|
|
2,900,000
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
9.8
|
|
Options
exercisable, December 31, 2017
|
|
|
733,331
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
9.8
|
|
9.
INCOME TAXES
For
the fiscal years 2017 and 2016, there was no provision for income taxes and deferred tax assets have been entirely offset by valuation
allowances.
As
of December 31, 2017 and 2016, the Company had net operating loss carry forwards of approximately $693,008 and $225,850, respectively.
The carry forwards expire through the year 2037. The Company’s net operating loss carry forwards may be subject to annual
limitations, which could reduce or defer the utilization of the losses as a result of an ownership change as defined in Section
382 of the Internal Revenue Code.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
9.
INCOME TAXES (CONT’D)
The
Tax Cuts and Jobs Act was enacted on December 22, 2017 which reduced the U.S. corporate statutory tax rate from 35% to 21% beginning
on January 1, 2018. The Company’s tax expense differs from the “expected” tax expense for Federal income tax
purposes (computed by applying the United States Federal tax rate of 21% to loss before taxes (2016 – 21%)), as follows:
|
|
For
the years ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net
operating loss before taxes
|
|
|
(467,058
|
)
|
|
|
(88,196
|
)
|
Federal
income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Tax
expense (benefit) at the statutory rate
|
|
|
(98,082
|
)
|
|
|
(18,521
|
)
|
Non-deductible
items
|
|
|
|
|
|
|
|
|
Tax
effect of stock-based compensation (non-qualifying options)
|
|
|
44,401
|
|
|
|
-
|
|
Change
in valuation allowance
|
|
|
53,681
|
|
|
|
18,521
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
The
tax effects of the temporary differences between reportable financial statement income and taxable income are recognized as deferred
tax assets and liabilities. The tax effect of significant components of the Company’s deferred tax assets at December 31,
2017 and 2016, respectively, are as follows:
|
|
2017
|
|
|
2016
|
|
Deferred
tax asset:
|
|
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
|
101,110
|
|
|
|
47,429
|
|
Total
gross deferred tax assets
|
|
|
101,110
|
|
|
|
47,429
|
|
Less:
Deferred tax asset valuation allowance
|
|
|
(101,110
|
)
|
|
|
(47,429
|
)
|
Total
net deferred tax assets
|
|
|
-
|
|
|
|
-
|
|
In
assessing the ability to realize the deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment.
The
returns filed from the year 2014 going-forward are subject to examination by the IRS.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
10.
FINANCIAL INSTRUMENTS
Fair
value is an exit price representing the amount that would be received to sell an asset or aid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based measurement that should be determined based on
assumptions that market participants would use in pricing an asset or a liability.
A
three-tier fair value hierarchy is established as a base for considering such assumptions and for inputs used in the valuation
methodologies in measuring fair value:
|
●
|
Level
1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
●
|
Level
2: Observable inputs that reflect quoted prices for identical assets or liabilities in markets that are not active; quoted
prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets
or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other
means.
|
|
●
|
Level
3: unobservable inputs reflecting our own assumptions incorporated in valuation techniques used to determine fair value. These
assumptions are required to be consistent with market participants assumptions that are reasonably available.
|
|
|
○
|
Investment
in related party
|
|
|
As
of December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Investment
in related party
|
|
|
37
|
|
|
|
-
|
|
The
fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value.
11.
SUBSEQUENT EVENTS
On
January 3, 2018, WENN Digital Inc. repaid the outstanding $100,000 loan plus accrued interest of $950.
As
Lead Director, Mr. Geiskopf will be receiving $120,000 in annual compensation.
On
January 22, 2018, we amended our 2017 Equity Incentive Plan to increase the number of shares of our common stock available for
the grant of awards under the plan from 3,000,000 shares to 3,900,000 shares.
On
February 9, 2018, we appointed Edmund C. Moy as a director of the Company. We granted 100,000 stock options to Mr. Moy at an exercise
price of $0.60 per share. Mr. Moy will be receiving $50,000 in annual compensation.
On
February 14, 2018, we changed our name from “AppCoin Innovations Inc.” to “ICOX Innovations Inc.”. The
name change became effective with the OTC Pink operated by the OTC Markets Group at opening for trading on February 14, 2018 under
the stock symbol “ICOX”.
On
February 16, 2018, we appointed Steve Beauregard as Member of the Advisory Board of the Company. We granted 25,000 stock options
at an exercise price of $0.60 per share. Mr. Beauregard will be receiving $25,000 in annual compensation.
On
February 16, 2018, we appointed Russell Stidolph as Member of the Advisory Board of the Company. We granted 50,000 stock options
at an exercise price of $0.60 per share.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
11.
SUBSEQUENT EVENTS (CONT’D)
On
March 13, 2018, we entered into a loan agreement with Michael Blum whereby Mr. Blum advanced $100,000 to us. The principal amount
of $100,000 is repayable on demand (but no longer than a term of six month) and bears simple interest at a rate of 12% per annum,
which is payable upon repayment of the principal amount of $100,000. We are entitled to prepay the whole or any portion of the
principal amount of $100,000, plus accrued interest on the portion of the principal amount of $100,000 being prepaid, at any time.
The loan agreement provides that we must, within five days of the release of funds to us from our private placement of subscription
receipts that closed in March 2018, repay the principal amount of $100,000 plus accrued interest in full. The loan agreement also
provides that if we obtain any indebtedness on terms that are superior to the terms set forth in the loan agreement, then the
terms under the loan agreement will be deemed to be amended, as of March 13, 2018, to match such superior terms in a manner and
on terms as nearly equivalent as practicable to such superior terms.
On
March 12 and 19, 2018, we completed private placements of an aggregate of 9,113,659 subscription receipts at a price of $0.60
per subscription receipt for aggregate gross proceeds of $5,468,195.40. In the event of the occurrence of the escrow release condition
(as defined below), each subscription receipt will automatically convert into one share of our common stock, for no additional
consideration. The subscription amounts will be held by an escrow agent until the escrow release condition. The escrow release
condition is the receipt by our company of conditional approval for the listing of the shares of our common stock on a Canadian
stock exchange. In the event that the escrow release condition is satisfied prior to 5:00 p.m. (Vancouver time) on May 31, 2018,
we will deliver a notice to the escrow agent confirming the escrow release condition has been satisfied. Upon receipt of the notice,
the escrow agent will, as soon as practicable thereafter, release the subscription amounts to our company and each subscription
receipt will automatically convert into one share of our common stock without payment of any additional consideration. If the
escrow release condition is not satisfied by 5:00 p.m. (Vancouver time) on May 31, 2018 or if we deliver a written default notice
to the escrow agent that the escrow release condition will not be satisfied by that time, the subscription receipts will expire
and be of no further force and effect, effective as of the earlier of (i) 5:00 p.m. (Vancouver time) on May 31, 2018 and (ii)
the date of the receipt of the default notice, and the subscribers will be entitled to receive from the escrow agent a refund
of the subscription amounts held in escrow, without interest and less applicable expenses. In connection with the closing of the
private placements, we paid cash finder’s fees in the aggregate amount of $29,399.97 and we agreed to issue 160,865 shares
of our common stock at a deemed price of $0.60 per share as the finder’s fee, which will be issued only if the subscription
receipts are converted into shares of our common stock.
In
connection with this private placement, the Company agreed with each subscriber who purchased these Subscription Receipts to prepare
and file a registration statement with respect to 50% of the Shares issuable upon conversion of the Subscription Receipts with
the United States Securities and Exchange Commission within 90 days following the closing of the private placement and agreed
to use commercially reasonable efforts to have the registration statement declared effective by the United States Securities and
Exchange Commission as soon as possible after filing.
None
of the securities issued in the private placement have been registered under the United States Securities Act of 1933, as amended
(the “1933 Act”), and none of them may be offered or sold in the United States absent registration or an applicable
exemption from the registration requirements of the 1933 Act.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
11.
SUBSEQUENT EVENTS (CONT’D)
On
March 27, 2018, we entered into a loan agreement with Greg Burnett whereby Mr. Burnett advanced $100,000 to us. The principal
amount of $100,000 is repayable on demand (but no longer than a term of six month) and bears simple interest at a rate of 12%
per annum, which is payable upon repayment of the principal amount of $100,000. We are entitled to prepay the whole or any portion
of the principal amount of $100,000, plus accrued interest on the portion of the principal amount of $100,000 being prepaid, at
any time. The loan agreement provides that we must, within five days of the release of funds to us from our private placement
of subscription receipts that closed in March 2018, repay the principal amount of $100,000 plus accrued interest in full. The
loan agreement also provides that if we obtain any indebtedness on terms that are superior to the terms set forth in the loan
agreement, then the terms under the loan agreement will be deemed to be amended, as of March 27, 2018, to match such superior
terms in a manner and on terms as nearly equivalent as practicable to such superior terms.
ICOX
Innovations Inc.
Condensed
Consolidated Balance Sheets
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
28,448
|
|
|
$
|
214,993
|
|
Accounts
receivable, related party
|
|
|
-
|
|
|
|
500,000
|
|
Prepaid
expenses
|
|
|
84,166
|
|
|
|
30,000
|
|
Prepaid
expenses, related party
|
|
|
35,000
|
|
|
|
35,000
|
|
Deferred
service costs
|
|
|
61,228
|
|
|
|
21
|
|
Deferred
offering costs
|
|
|
121,558
|
|
|
|
-
|
|
Related
party loans receivable and related accrued interest
|
|
|
-
|
|
|
|
100,752
|
|
Subscription
receipts in escrow
|
|
|
5,468,195
|
|
|
|
-
|
|
Total
Current Assets
|
|
|
5,798,595
|
|
|
|
880,766
|
|
|
|
|
|
|
|
|
|
|
Investment,
related party
|
|
|
37
|
|
|
|
37
|
|
Total
Assets
|
|
$
|
5,798,632
|
|
|
$
|
880,803
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
363,504
|
|
|
$
|
131,303
|
|
Accounts
payable and accrued expenses, related party
|
|
|
30,531
|
|
|
|
51,616
|
|
Loans
payable, related party
|
|
|
200,000
|
|
|
|
-
|
|
Accrued
interest on loans payable, related party
|
|
|
723
|
|
|
|
-
|
|
Total
Current Liabilities
|
|
|
594,758
|
|
|
|
182,919
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
500,325
|
|
|
|
500,325
|
|
Accrued
interest on convertible notes
|
|
|
68,744
|
|
|
|
52,949
|
|
Total
Liabilities
|
|
|
1,163,827
|
|
|
|
736,193
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Mezzanine
Equity
|
|
|
|
|
|
|
|
|
Subscription
receipts
|
|
|
5,468,195
|
|
|
|
-
|
|
Total
Mezzanine Equity
|
|
|
5,468,195
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 75,000,000 shares authorized; 11,600,000 shares issued and outstanding as at March 31, 2018 and December
31, 2017, respectively
|
|
|
11,600
|
|
|
|
11,600
|
|
Additional
paid-in-capital
|
|
|
870,536
|
|
|
|
826,018
|
|
Accumulated
deficit
|
|
|
(1,715,526
|
)
|
|
|
(693,008
|
)
|
Total
Stockholders’ Equity (Deficit)
|
|
|
(833,390
|
)
|
|
|
144,610
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
5,798,632
|
|
|
$
|
880,803
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ICOX
Innovations Inc.
Condensed
Consolidated Statement of Operations
(Unaudited)
|
|
Three Months Ended
March 31, 2018
|
|
|
Three Months Ended
March 31, 2017
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Service
revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
General
and administrative expense
|
|
|
514,117
|
|
|
|
29,241
|
|
Consulting
fees, related party
|
|
|
105,000
|
|
|
|
-
|
|
Service
costs
|
|
|
387,080
|
|
|
|
-
|
|
Total
operating expenses
|
|
|
1,006,197
|
|
|
|
29,241
|
|
|
|
|
|
|
|
|
|
|
Net
loss from operations
|
|
|
(1,006,197
|
)
|
|
|
(29,241
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
income, related party
|
|
|
198
|
|
|
|
-
|
|
Note
interest expense
|
|
|
(16,519
|
)
|
|
|
(7,315
|
)
|
Total
other income (expense)
|
|
|
(16,321
|
)
|
|
|
(7,315
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,022,518
|
)
|
|
$
|
(36,556
|
)
|
|
|
|
|
|
|
|
|
|
Loss
per common share – Basic and diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding, basic and diluted
|
|
|
11,600,000
|
|
|
|
6,000,000
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ICOX
Innovations Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Three Months Ended
March 31, 2018
|
|
|
Three Months Ended
March 31, 2017
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
$
|
(1,022,518
|
)
|
|
$
|
(36,556
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
3,229
|
|
|
|
-
|
|
Stock-based
compensation, related party
|
|
|
41,289
|
|
|
|
-
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable, related party
|
|
|
500,000
|
|
|
|
-
|
|
Prepaid
expense
|
|
|
(54,166
|
)
|
|
|
-
|
|
Deferred
service costs
|
|
|
(61,207
|
)
|
|
|
-
|
|
Deferred
offering costs
|
|
|
(121,558
|
)
|
|
|
-
|
|
Accrued
interest receivable, related party
|
|
|
752
|
|
|
|
-
|
|
Accounts
payable and accrued expenses
|
|
|
232,201
|
|
|
|
-
|
|
Accounts
payable and accrued expenses, related party
|
|
|
(21,085
|
)
|
|
|
7,315
|
|
Accrued
interest on loans payable, related party
|
|
|
723
|
|
|
|
(43,893
|
)
|
Accrued
interest on notes payable
|
|
|
15,795
|
|
|
|
-
|
|
Net
cash (used in) operating activities
|
|
|
(486,545
|
)
|
|
|
(73,134
|
)
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Repayment
of loan issued to related party
|
|
|
100,000
|
|
|
|
-
|
|
Net
cash provided by investing activities
|
|
|
100,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of loans payable, related party
|
|
|
200,000
|
|
|
|
-
|
|
Proceeds
from issuance of convertible notes payable
|
|
|
-
|
|
|
|
20,000
|
|
Net
cash provided by financing activities
|
|
|
200,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Net
changes in cash and equivalents
|
|
|
(186,545
|
)
|
|
|
(53,134
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents at beginning of the period
|
|
|
214,993
|
|
|
|
56,050
|
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents at end of the period
|
|
$
|
28,448
|
|
|
$
|
2,916
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash
paid in interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
$
|
3,229
|
|
|
$
|
-
|
|
Stock-based
compensation, related party
|
|
$
|
41,289
|
|
|
$
|
-
|
|
Subscription
receipts - escrow
|
|
$
|
5,468,195
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ICOX
Innovations Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
As
of March 31, 2018 and for the three months ended March 31, 2018 and 2017
1.
NATURE AND CONTINUANCE OF OPERATIONS
ICOX
Innovations Inc. (formerly AppCoin Innovations Inc., formerly RedStone Literary Agents, Inc.) (the “Company”) was
incorporated under the laws of State of Nevada on July 20, 2010, with an authorized capital of 75,000,000 common shares, having
a par value of $0.001 per share. During the period ended December 31, 2010, the Company commenced operations by issuing shares
and developing its publishing service business, focused on representing authors to publishers.
On
February 14, 2018, the Company changed its name from “AppCoin Innovations Inc.” to “ICOX Innovations Inc.”
The
Company’s new business model provides a turnkey set of services for companies to develop and integrate blockchain and cryptocurrency
technologies into their business operations. The Company will enable its customers to focus on their core competencies while providing
the necessary resources and expertise to execute a strategy that will enable companies to integrate new blockchain plus cryptocurrency
technologies into their business operations. The Company will be compensated on a fee-for-services model. The Company may also
accept tokens or coins in payment for its services, to the extent permitted under applicable law.
The
Company’s services will include strategic planning, project planning, structure development and administration, business
plan modeling, technology development support, whitepaper preparation, due diligence reporting, governance planning and management.
Going
Concern
These
consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize
its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred
losses since inception resulting in an accumulated deficit of $1,715,526 as of March 31, 2018 and further losses are anticipated
in the pursuit of the Company’s new service business opportunity, raising substantial doubt about the Company’s ability
to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable
operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from
normal business operations when they come due. Management intends to finance operating costs over the next twelve months with
existing cash on hand, loans from directors and/or the private placement of common stock.
In
order to address the above factors, subsequent to year end, the Company completed private placements of an aggregate of 9,113,659
subscription receipts at a price of $0.60 per subscription receipt for aggregate gross proceeds of $5,468,195.
The
financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts
and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
interim condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting
principles (“
GAAP
”) in the United States of America.
Basis
of Consolidation
The
interim condensed consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany transactions
and balances have been eliminated.
Unaudited
Interim Financial Information
The
accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance
with U.S. GAAP for interim financial information, and with the rules and regulations of the United States Securities and Exchange
Commission (the “SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial
statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily
indicative of the results for the full fiscal year. These unaudited interim condensed consolidated financial statements should
be read in conjunction with the financial statements of the Company for the year ended December 31, 2017 and notes thereto contained
in the information as part of the Company’s Annual Report on Form 10-K, which was filed with the SEC on April 2, 2018.
Use
of Estimates
The
preparation of interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates and these differences could be material.
Deferred
Offering Costs
Costs
that the Company incurred in relation to the private placement that has not yet closed has been recorded as deferred offering
costs on the Condensed Balance Sheet. Once the private placement is closed then these deferred offering costs will be charged
to equity as share issue costs. If the private placement does not close, then these costs will be written off during that period.
Mezzanine
Equity
Subscription
receipts that have been received by the Company in relation to the private placement that has not yet closed has been recorded
as Mezzanine Equity on the Condensed Balance Sheet. These funds are being recorded separately from shareholders’ equity.
Reclassification
Certain
reclassifications have been made to the 2017 financial statements in order for them to conform to the 2018 presentation. Such
reclassifications have no impact on the Company’s financial position or results or operations.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Recently
Adopted Accounting Pronouncements
Statement
of Cash Flows (ASU 2016-15)
This
update provides specific guidance to clarify how entities should classify certain cash receipts and cash payments on the statement
of cash flows. The update also clarifies the application of the predominance principle when cash receipts and cash payments have
aspects of more than one class of cash flows. The Company adopted this standard effective January 1, 2018. The adoption of this
update had no material effect on our financial statements.
Financial
Instruments – Recognition and Measurement (ASU 2016-01)
This
update retains the current accounting for classifying and measuring investments in debt securities and loans, but requires equity
investments to be measured at fair value with subsequent changes recognized in net income, except for those accounted for under
the equity method or requiring consolidation. The Company adopted this standard effective January 1, 2018. The adoption of this
update had no material effect on our financial statements.
3.
NOTES PAYABLE
On
September 14, 2015, the Company entered into a private placement subscription agreement and issued an unsecured convertible note
(the “
First Note
”) in the principal amount of $73,825 to one subscriber. The First Note, and accrued interest,
will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded
annually. The principal amount of the First Note, plus any interest accrued thereon, may be converted into shares of common stock
of the Company at a conversion price of $0.03 per share. As at March 31, 2018, the First Note had a balance outstanding of $107,611
(December 31, 2017 - $104,334), comprised of a principal amount of $73,825 and accrued interest of $33,786 (December 31, 2017
- $30,509). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On
December 31, 2016, the Company entered into a private placement subscription agreement and issued an unsecured convertible note
(the “
Second Note
”) in the principal amount of $50,000 to one subscriber. The Second Note, and accrued interest,
will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded
annually. The principal amount of the Second Note, plus any interest accrued thereon, may be converted into shares of common stock
of the Company at a conversion price of $0.03 per share. As at March 31, 2018, the Second Note had a balance outstanding of $61,243
(December 31, 2017 - $59,025), comprised of a principal amount of $50,000 and accrued interest of $11,243 (December 31, 2017 -
$9,025). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On
December 31, 2016, the Company entered into a private placement subscription agreement and issued an unsecured convertible note
(the “
Third Note
”) in the principal amount of $21,500 to one subscriber. The Third Note included repayment
of the principal amount of $20,000 for an unsecured note issued on June 6, 2016 plus a $1,500 restructuring fee. The Third Note,
and accrued interest, will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest
per annum, compounded annually. The principal amount of the Third Note, plus any interest accrued thereon, may be converted into
shares of common stock of the Company at a conversion price of $0.03 per share. As at March 31, 2018, the Third Note had a balance
outstanding of $26,335 (December 31, 2017 - $25,380), comprised of a principal amount of $21,500 and accrued interest of $4,835
(December 31, 2017 - $3,880). The Company has determined that no beneficial conversion feature exists due to the share value on
the date of issuance.
3.
NOTES PAYABLE (CONT’D)
On
March 2, 2017, the Company entered into a private placement subscription agreement and issued an unsecured convertible note (the
“
Fourth Note
”) in the principal amount of $20,000 to one subscriber. The Fourth Note, and accrued interest,
will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded
annually. The principal amount of the Fourth Note, plus any interest accrued thereon, may be converted into shares of common stock
of the Company at a conversion price of $0.03 per share. As at March 31, 2018, the Fourth Note had a balance outstanding of $23,886
(December 31, 2017 - $22,998), comprised of a principal amount of $20,000 and accrued interest of $3,886 (December 31, 2017 -
$2,998). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On
June 8, 2017, the Company entered into a private placement subscription agreement and issued an unsecured convertible note (the
“
Fifth Note
”) in the principal amount of $10,000 to one subscriber. The Fifth Note, and accrued interest, will
mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded annually.
The principal amount of the Fifth Note, plus any interest accrued thereon, may be converted into shares of common stock of the
Company at a conversion price of $0.03 per share. As at March 31, 2018, the Fifth Note had a balance outstanding of $11,460 (December
31, 2017 - $11,016), comprised of a principal amount of $10,000 and accrued interest of $1,460 (December 31, 2017 - $1,016). The
Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On
September 7, 2017, the Company received a $250,000 loan from a less than 5% shareholder. The loan is unsecured, repayable on demand
and is non-interest bearing. On October 30, 2017, this loan was used to subscribe to an unsecured convertible debenture (the “
Sixth
Note
”) in the principal amount of $250,000 to one subscriber. The Sixth Note, and accrued interest, will mature three
(3) years from the date of issuance and will bear interest at the rate of 10% interest per annum, compounded annually. The principal
amount of the Sixth Note, plus any interest accrued thereon, may be converted into shares of common stock of the Company at a
conversion price of $0.10 per share. As at March 31, 2018, the Sixth Note had a balance outstanding of $260,411 (December 31,
2017 - $254,247), comprised of a principal amount of $250,000 and accrued interest of $10,411 (December 31, 2017 - $4,247). The
Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On
October 30, 2017, the Company entered into a private placement subscription agreement and issued an unsecured convertible note
(the “
Seventh Note
”) in the principal amount of $75,000 to one subscriber. The Seventh Note, and accrued interest,
will mature three (3) years from the date of issuance and will bear interest at the rate of 10% interest per annum, compounded
annually. The principal amount of the Seventh Note, plus any interest accrued thereon, may be converted into shares of common
stock of the Company at a conversion price of $0.10 per share. As at March 31, 2018, the Seventh Note had a balance outstanding
of $78,123 (December 31, 2017 - $76,274), comprised of a principal amount of $75,000 and accrued interest of $3,123 (December
31, 2017 - $1,274). The Company has determined that no beneficial conversion feature exists due to the share value on the date
of issuance.
Based
upon the balances as of March 31, 2018, the convertible notes and the related interest will come due in the following years:
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2020
|
|
|
398,825
|
|
|
|
47,320
|
|
|
|
446,145
|
|
2021
|
|
|
71,500
|
|
|
|
16,078
|
|
|
|
87,578
|
|
2022
|
|
|
30,000
|
|
|
|
5,346
|
|
|
|
35,346
|
|
Total
|
|
$
|
500,325
|
|
|
$
|
68,744
|
|
|
$
|
569,069
|
|
4.
LOANS PAYABLE – RELATED PARTY
On
March 13, 2018, we entered into a loan agreement with Michael Blum, our Chief Financial Officer, whereby Mr. Blum advanced $100,000
to us. The principal amount of $100,000 is repayable on demand (but no longer than a term of six month) and bears simple interest
at a rate of 12% per annum, which is payable upon repayment of the principal amount of $100,000. We are entitled to repay the
whole or any portion of the principal amount of $100,000, plus accrued interest on the portion of the principal amount of $100,000
being repaid, at any time. The loan agreement provides that we must, within five days of the release of funds to us from our private
placement of subscription receipts that closed in March 2018, repay the principal amount of $100,000 plus accrued interest in
full. The loan agreement also provides that if we obtain any indebtedness on terms that are superior to the terms set forth in
the loan agreement, then the terms under the loan agreement will be deemed to be amended, as of March 13, 2018, to match such
superior terms in a manner and on terms as nearly equivalent as practicable to such superior terms. As at March 31, 2018, interest
accrued is $592.
On
March 27, 2018, we entered into a loan agreement with Greg Burnett, a member of our Advisory Board, whereby Mr. Burnett advanced
$100,000 to us. The principal amount of $100,000 is repayable on demand (but no longer than a term of six month) and bears simple
interest at a rate of 12% per annum, which is payable upon repayment of the principal amount of $100,000. We are entitled to repay
the whole or any portion of the principal amount of $100,000, plus accrued interest on the portion of the principal amount of
$100,000 being repaid, at any time. The loan agreement provides that we must, within five days of the release of funds to us from
our private placement of subscription receipts that closed in March 2018, repay the principal amount of $100,000 plus accrued
interest in full. The loan agreement also provides that if we obtain any indebtedness on terms that are superior to the terms
set forth in the loan agreement, then the terms under the loan agreement will be deemed to be amended, as of March 27, 2018, to
match such superior terms in a manner and on terms as nearly equivalent as practicable to such superior terms. As at March 31,
2018, interest accrued is $131.
Based
upon the balances as of March 31, 2018, the loans payable and the related interest will come due in the following years:
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
2018
|
|
$
|
200,000
|
|
|
$
|
723
|
|
|
$
|
200,723
|
|
Total
|
|
$
|
200,000
|
|
|
$
|
723
|
|
|
$
|
200,723
|
|
5.
RELATED PARTY TRANSACTIONS
In
support of the Company’s efforts and cash requirements, it may rely on advances from stockholders until such time as the
Company can support its operations through revenue generation or attain adequate financing through sales of its equity or traditional
debt financing. There is no formal written commitment for continued support by stockholders. Amounts represent advances or amounts
paid in satisfaction of liabilities.
The
Company’s office premises were provided to it at no cost by one of its directors. This director did not take any fees for
serving as director during the period ended March 31, 2018.
In
October 2017, the Company signed an agreement with a company in which the Company’s Chairman is a director, officer, and
30.5% shareholder, to provide strategic management services. The agreement is for a two-year term that will automatically be renewed
unless: (i) mutually agreed to by BIG and us, or (ii) written notice of non-renewal is provided by the non-renewing party to the
other at least 90 days prior to the end of the term. This agreement committed the Company to pay $35,000 a month and a signing
bonus of $100,000 payable as follows: (i) $50,000 upon closing of up to $750,000 of equity financing and (ii) $50,000 payable
on signing of the first client agreement. As of March 31, 2018, the Company had trade and other payables owing to this related
party of $30,531.
5.
RELATED PARTY TRANSACTIONS (CONT’D)
Future
minimum payments per the agreement are:
2018
|
|
$
|
315,000
|
|
2019
|
|
|
350,000
|
|
Total
|
|
$
|
665,000
|
|
On
December 29, 2017, the Company signed a master service agreement with WENN Digital Inc. (“WENN”), a company in which
there is a common director. The agreement was amended on March 15, 2018, pursuant to which the Company changed the scope of services
to provide WENN with the services in connection with WENN’s development of an image rights management and protection platform
(the “Platform”) using blockchain technology, including (i) the business development and technical services, (ii)
the business launch services and (iii) the post-business launch support services.
The
business services agreement with WENN provides that the fees for the services provided in connection with the development and
launch of the Platform (the business development and technical services and business launch services) were deemed earned on the
date of execution of the business services agreement. The Company has waived WENN’s requirement to pay the $250,000 fixed
fee in connection with the business development and technical services as a concession. The Company has recognized the business
development and technical service fee of $500,000 during the year end December 31, 2017, paid in January by WENN upon the completion
of its first round of pre-ICO fundraising.
The
fees for the post-business launch support services (the
“Monthly Services”
) are $35,000 per month and they
will be due at the beginning of each month in which the Monthly Services are performed. With respect to the Monthly Services,
the Company has agreed to provide the Monthly Services for one year commencing on the date of the Platform Launch (as defined
below), after which the business services agreement and the provision of the Monthly Services will automatically renew for a one
year period and can be terminated by either our company or WENN with 30 days’ written notice. “Platform Launch”
means the publicized product launch of the Platform to the general public, including the ability of the general public to use
Tokens as the primary means of exchange for transactions on the Platform.
In
addition, the business services agreement with WENN provides that the work fee in the amount of $4,175,000 is deemed earned on
March 15, 2018 and the work fee is subject to a Renegotiation Obligation (as defined below). The business services agreement with
WENN also provides that the additional fee of rights to receive an aggregate of 20,000,000 Platform tokens or coins (the
“Tokens”
)
pursuant to a Simple Agreement for Future Tokens is also deemed earned on the date of execution of the business services agreement
and the additional fee is subject to a Renegotiation Obligation. However, for financial reporting purposes, the work fee and additional
fee are deemed earned on the date of the launch of the Platform. If WENN does not raise more than $40 million in connection with
its offer and sale for cash of (i) one or more Simple Agreements for Future Tokens (
“SAFTs”
), which SAFTs will
entitle the holders thereof to receive Tokens under certain circumstances, and/or, (ii) Tokens, in the event that WENN determines
to offer and sell Tokens in lieu of or in addition to SAFTs in connection with its fundraising efforts (collectively, the
“WENN
Offering”
), prior to May 31, 2018, the Company will be required to return the work fees and additional fee to WENN and
WENN and our company will be required to negotiate in good faith the amount of each of such fee (such requirement to negotiate
is referred to herein as the
“Renegotiation Obligation”
).
5.
RELATED PARTY TRANSACTIONS (CONT’D)
The
Company has agreed that WENN will not be responsible for any out-of-pocket expenses incurred by our company in connection with
our performance of the services. In addition, the Company has agreed to pay, and otherwise be financially responsible for (including
through the reimbursement of disbursements made by WENN and its affiliates), (i) all legal costs and expenses incurred by WENN,
our company and any of their affiliates in connection with the WENN Offering; (ii) all business and travel expenses incurred by
WENN, our company and any of their affiliates in connection the WENN Offering; and (iii) all fees and expenses incurred by WENN
in connection with its conversion of cryptocurrencies into US dollars in connection with the WENN Offering, including bank, exchange
and other similar fees and expenses. WENN will have the right to deduct any such amounts from the fees otherwise payable by it
to our company and apply such deducted amounts to the payments to our company.
The
business services agreement will continue for a period of one year unless earlier terminated by either our company or WENN.
Either
the Company or WENN may terminate the business services agreement upon the provision of 30 days’ written notice to the other
party. If the Company provides such notice, WENN may immediately terminate the business services agreement and the Company will
be entitled to no further compensation except for any fees earned prior to the date of the termination. If WENN provides such
notice, the Company may immediately terminate the business services agreement and will be entitled to no further compensation,
except for the following lump sum payments: (i) any fees earned to the effective date of termination; and (ii) a lump sum payment
of $105,000.
For
the purpose of determining our fees earned to the date of the termination in the event that either party terminates the business
services agreement, all fees for services in connection with the development and launch of the Platform (the business development
and technical services and business launch services) and the additional fee of rights to receive an aggregate of 20,000,000 Tokens
are deemed earned on the date of execution of the business services agreement and the work fee is deemed earned as of March 15,
2018. However, the work fees and additional fee are subject to the Renegotiation Obligation. As such, our work fee and additional
fee are not determinable or deemed collectible for the financial reporting purposes until the WENN Offering is completed or, if
applicable, those fees are renegotiated pursuant to the Renegotiation Obligation.
The
Company’s chairman and one of its directors, Cameron Chell, is a director, officer and an indirect shareholder of Business
Instincts Group Inc. which owns 10% of the common stock of WENN and he is also a director, officer and indirect shareholder of
Blockchain Merchant Group, Inc. which owns 2.5% of the common stock of WENN and the Company owns 7.5% of the common stock of WENN.
Mr. Chell is also a director, chairman, and officer of WENN. Mr. Elliott is a former officer of WENN.
6.
SHARE CAPITAL
The
Company’s common stock is issued at a $0.001 par value. 75,000,000 shares have been authorized. As at March 31, 2018, 11,600,000
shares were issued and outstanding (December 31, 2017 – 11,600,000).
On
March 12 and 19, 2018, we completed private placements of an aggregate of 9,113,659 subscription receipts at a price of $0.60
per subscription receipt for aggregate gross proceeds of $5,468,195. In the event of the occurrence of the escrow release condition
(as defined below), each subscription receipt will automatically convert into one share of our common stock, for no additional
consideration. The subscription amounts will be held by an escrow agent until the escrow release condition. The escrow release
condition is the receipt by our company of conditional approval for the listing of the shares of our common stock on a Canadian
stock exchange. In the event that the escrow release condition is satisfied prior to 5:00 p.m. (Vancouver time) on May 31, 2018,
we will deliver a notice to the escrow agent confirming the escrow release condition has been satisfied. Upon receipt of the notice,
the escrow agent will, as soon as practicable thereafter, release the subscription amounts to our company and each subscription
receipt will automatically convert into one share of our common stock without payment of any additional consideration. If the
escrow release condition is not satisfied by 5:00 p.m. (Vancouver time) on May 31, 2018 or if we deliver a written default notice
to the escrow agent that the escrow release condition will not be satisfied by that time, the subscription receipts will expire
and be of no further force and effect, effective as of the earlier of (i) 5:00 p.m. (Vancouver time) on May 31, 2018 and (ii)
the date of the receipt of the default notice, and the subscribers will be entitled to receive from the escrow agent a refund
of the subscription amounts held in escrow, without interest and less applicable expenses. In connection with the closing of the
private placements, we paid cash finder’s fees in the aggregate amount of $29,400 and we agreed to issue 160,865 shares
of our common stock at a deemed price of $0.60 per share as the finder’s fee, which will be issued only if the subscription
receipts are converted into shares of our common stock.
In
connection with this private placement, the Company agreed with each subscriber who purchased these Subscription Receipts to prepare
and file a registration statement with respect to 50% of the Shares issuable upon conversion of the Subscription Receipts with
the United States Securities and Exchange Commission within 90 days following the closing of the private placement and agreed
to use commercially reasonable efforts to have the registration statement declared effective by the United States Securities and
Exchange Commission as soon as possible after filing.
None
of the securities issued in the private placement have been registered under the United States Securities Act of 1933, as amended
(the “1933 Act”), and none of them may be offered or sold in the United States absent registration or an applicable
exemption from the registration requirements of the 1933 Act.
7.
STOCK-BASED COMPENSATION
The
Company has adopted the 2017 Equity Incentive Plan (“the Plan”) under which non-transferable options to purchase common
shares of the Company may be granted to directors, officers, employees, or consultants of the Company. The terms of the Plan provide
that the Board of Directors have the right to grant options to acquire common shares of the Company at not less than the closing
market price of the shares on the day preceding the grant at terms of up to ten years. No amounts are paid or payable by the recipient
on receipt of the options. As of December 31, 2017, the maximum number of options available for grant was 3,000,000 shares. On
January 22, 2018, the maximum number of options available for grant was increased to 3,900,000 shares. As of March 31, 2018, there
are 3,075,000 stock options issued (December 31, 2017 – 2,900,000) and 825,000 stock options unissued (December 31, 2017
– 100,000).
7.
STOCK-BASED COMPENSATION (CONT’D)
On
February 9, 2018, the Company granted a total of 100,000 stock options to a director. The stock options are exercisable at the
exercise price of $0.60 per share for a period of ten years from the date of grant. The stock options are exercisable as follows:
|
(i)
|
1/3
upon the date of grant;
|
|
|
|
|
(ii)
|
1/3
on the first anniversary date; and
|
|
|
|
|
(iii)
|
1/3
on the second anniversary date.
|
On
February 16, 2018, the Company granted a total of 75,000 stock options to two consultants. The stock options are exercisable at
the exercise price of $0.60 per share for a period of ten years from the date of grant. The stock options are exercisable as follows:
|
(i)
|
1/3
on the first anniversary date;
|
|
|
|
|
(ii)
|
1/3
on the second anniversary date; and
|
|
|
|
|
(iii)
|
1/3
on the third anniversary date.
|
Stock
options granted are valued at the fair value calculation based off the Black-Scholes valuation model. The weighted average assumptions
used in the calculation are as follows:
|
|
Three
Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Share
price
|
|
$
|
0.60
|
|
|
|
N/A
|
|
Exercise
price
|
|
$
|
0.60
|
|
|
|
N/A
|
|
Time
to maturity (years)
|
|
|
10
|
|
|
|
N/A
|
|
Risk-free
interest rate
|
|
|
2.83%-2.87
|
%
|
|
|
N/A
|
|
Expected
volatility
|
|
|
187.27%-187.29
|
%
|
|
|
N/A
|
|
Dividend
per share
|
|
$
|
0.00
|
|
|
|
N/A
|
|
Forfeiture
rate
|
|
|
Nil
|
|
|
|
N/A
|
|
|
|
Number
of
Options
|
|
|
Weighted
Average
Grant-Date
Fair Value ($)
|
|
|
Weighted
Average
Exercise
Price ($)
|
|
|
Weighted
Average
Remaining
Life (Yrs)
|
|
Options
outstanding, December 31, 2017
|
|
|
2,900,000
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
9.5
|
|
Granted
|
|
|
175,000
|
|
|
|
0.60
|
|
|
|
0.60
|
|
|
|
9.9
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
outstanding, March 31, 2018
|
|
|
3,075,000
|
|
|
|
0.12
|
|
|
|
0.13
|
|
|
|
9.5
|
|
Options
exercisable, March 31, 2018
|
|
|
766,664
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
9.5
|
|
8.
SUBSEQUENT EVENTS
On
April 13, 2018, we entered into a loan agreement with a subscriber whereby the subscriber advanced $200,000 to us. The principal
amount of $200,000 is repayable on demand (but no longer than a term of six month) and bears simple interest at a rate of 12%
per annum, which is payable upon repayment of the principal amount of $200,000. We are entitled to repay the whole or any portion
of the principal amount of $200,000, plus accrued interest on the portion of the principal amount of $200,000 being repaid, at
any time.
Management’s
Discussion and Analysis of Financial Condition
and Results of Operations
Our
management’s discussion and analysis provides a narrative about our financial performance and condition that should be read
in conjunction with the audited and unaudited consolidated financial statements and related notes thereto included in this
prospectus. This discussion contains forward looking statements reflecting our current expectations and estimates and assumptions
about events and trends that may affect our future operating results or financial position. Our actual results and the timing
of certain events could differ materially from those discussed in these forward-looking statements due to a number of factors,
including, but not limited to, those set forth in the sections of this prospectus titled “Risk Factors” beginning
at page 5 above and “Forward-Looking Statements” beginning at page 13 above.
Overview
We
were incorporated under the laws of the State of Nevada on July 20, 2010. Following incorporation, we commenced the business of
representing authors to publishers. Upon the resignation of Mary Wolf as an officer of our company on August 28, 2014, we ceased
pursuing the business of representing authors to publishers and sought new business opportunities.
In
July 2017, we decided to operate a new business of providing services for blockchain and cryptocurrency technologies.
Our
new business is a services and development business that provides a turnkey set of services for companies to develop and integrate
blockchain and cryptocurrency technologies into their business operations. We anticipate that we will enable companies to focus
on their core competencies while providing the necessary resources and expertise to execute a strategy that will enable companies
to integrate new blockchain plus cryptocurrency technologies into their business operations. Our plan is to be compensated on
a fee-for-services model. We may also accept tokens, coins or equity in payment for our services, to the extent permitted under
applicable law.
On December 29, 2017, we entered into a business
services agreement with WENN, on March 19, 2018, we entered into the amendment no. 1 to business services agreement dated as of
March 15, 2018 with WENN, and, on July 9, 2018, we entered into the amendment no. 2 to business services agreement dated as
of July 9, 2018 with WENN. Pursuant to the business services agreement, we agreed to provide WENN with the services in connection
with WENN’s development of the Platform using blockchain technology, including (i) the business development and technical
services, (ii) the business launch services and (iii) the post-business launch support services.
WENN has entered into a licensing partnership
agreement with Eastman Kodak Company, which announced the launch of the KODAKOne blockchain platform and KODAKCoin ICO. We are
providing the services relating to the KODAKOne blockchain platform and the KODAKCoin ICO pursuant to a business services agreement
dated December 29, 2017, as amended as of March 15, 2018 and July 9 , 2018 with WENN.
Year
Ended December 31, 2017 and December 31, 2016
Results
of Operations
Revenue
We
had revenues of $500,000 for the year ended December 31, 2017 compared to $0 in 2016.
The business services agreement dated December
29, 2017, as amended as of March 15, 2018 and July 9, 2018 with WENN provides that the fees for the services provided in
connection with the development and launch of the Platform (the business development and technical services and business launch
services) were deemed earned on the date of execution of the business services agreement. We have waived WENN’s requirement
to pay the $250,000 fixed fee in connection with the business development and technical services as a concession. We have recognized
the business development and technical services fee of $500,000 during the year ended December 31, 2017, which WENN paid in January
2018 upon the completion of its first round of pre-ICO fundraising.
Operating
Expenses
We
incurred operating expenses of $932,843 and $74,183 for the years ended December 31, 2017 and 2016, respectively, representing
an increase of $858,660 between the two periods. These expenses consisted primarily of consulting fees, service costs, professional
fees, stock-based compensation, interest and bank charges, and other general and administrative expenses. The increase in operating
expenses between the two periods related to an increase in consulting fees from $9,000 in 2016 to $547,542 in 2017 due to our
company entering into a consulting agreement with Business Instincts Group and other individuals to provide strategic and project
management services, an increase in service costs from $0 in 2016 to $199,920 in 2017 due to services provided to our customer,
an increase in professional fees from $58,625 in 2016 to $87,014 in 2017 due to additional legal and accounting costs incurred
due to the change in business, an increase in interest and bank charges from $1,500 in 2016 to $1,896 as bank fees has increased
to higher level of activities in 2017, and an increase in other general and administrative expenses from $5,058 in 2016 to $96,471
in 2017 as travel costs and advertising expenses have risen as we met with investors, potential clients, and sought to brand our
company, and includes the stock-based compensation issued to our directors in 2017.
Other
Income (Expense)
Other
income includes $789 interest earned on a loan receivable form a related party compared to $0 for the same period last year. Other
expenses include, interest expense on convertible notes payable of $35,004 for the year ended December 31, 2017 compared to $14,013
for the same period last year
Net
Loss from Operations
We
incurred net losses from operations of $432,843 and $74,183 for the years ended December 31, 2017 and 2016, respectively, representing
a decrease of $358,660, primarily attributable to the factors discussed above under the heading “Operating Expenses”.
Liquidity
and Capital Resources
Working
Capital
|
|
As
at
December 31, 2017
|
|
|
As
at
December 31, 2016
|
|
Current
Assets
|
|
$
|
880,766
|
|
|
$
|
56,050
|
|
Current
Liabilities
|
|
$
|
182,919
|
|
|
$
|
49,013
|
|
Working
Capital
|
|
$
|
697,847
|
|
|
$
|
7,037
|
|
Current
Assets
Current
assets of $880,766 as at December 31, 2017 and $56,050 as at December 31, 2016 were comprised of only cash and cash equivalents,
accounts receivable, prepaid expenses, and an outstanding loan receivable. The increase in current assets as at December 31, 2017
was due to our company receiving $325,000 in connection with the purchase of convertible notes, $560,000 for a private placement
in exchange for shares and $500,000 in revenue.
Current
Liabilities
Current
liabilities as at December 31, 2017 were attributable to $131,303 in accounts payable and accrued expenses and $51,616 in accounts
payable, related party compared to $49,013 in accounts payable and accrued expenses as at December 31, 2016.
Cash
Flow
Our
cash flows for the year ended December 31, 2017 and December 31, 2016 are as follows:
|
|
Year
ended December 31, 2017
|
|
|
Year
ended December 31, 2016
|
|
Net
cash (used in) operating activities
|
|
$
|
(652,524
|
)
|
|
$
|
(27,820
|
)
|
Net
cash (used in) investing activities
|
|
|
(100,000
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
911,467
|
|
|
|
70,000
|
|
Net
changes in cash and cash equivalents
|
|
$
|
158,943
|
|
|
$
|
42,180
|
|
Operating
Activities
Net
cash used in operating activities was $652,524 for the year ended December 31, 2017, as compared to $27,820 for the year ended
December 31, 2016, an increase of $624,704. The increase in net cash used in operating activities was primarily due to the payment
of prepaid expenses, the increase in accounts receivable outstanding, and an increase in operating expenses as a result of an
increase in the commencement of new business operations.
Investing
Activities
Net
cash used in investing activities was $100,000 for the year ended December 31, 2017 was due to the outstanding loan to a related
party and the investment in a related party, as compared to $0 for the year ended December 31, 2016.
Financing
Activities
Financing
activities provided cash of $911,467 for the year ended December 31, 2017 and $70,000 for the year ended December 31, 2016. On
March 2, 2017, we issued an unsecured convertible note in the principal amount of $20,000. On June 8, 2017, we issued an unsecured
convertible note in the principal amount of $10,000. On October 30, 2017, we issued two unsecured convertible notes with a combined
principal amount of $325,000.
On October 30,
2017, we issued an aggregate of 5,600,000 shares of common stock to 35 subscribers for total consideration of $560,000 and paid
offering costs of $3,533.
Three
Months Ended March 31, 2018 and March 31, 2017
Results
of Operations
Revenue
We
had no revenue for the three months ended March 31, 2018 and 2017.
Operating
Expenses
We
incurred general and administrative expenses of $514,117 and $29,241 for the three months ended March 31, 2018 and 2017, respectively,
representing an increase of $484,876 between the two periods. These expenses consisted primarily of consulting fees, professional
fees, bank charges, and other general and administrative costs. The increase in consulting fees between the two periods from $20,800
in 2017 to $297,188 in 2018 was due to the entering into of a consulting agreement with Business Instincts Group to provide strategic
and project management services as well as consulting agreements with our senior and executive staff. Business Instincts Group
is a related party as Cameron Chell is a common director of the companies. Professional fees increased from $7,201 in 2017 to
$108,198 in 2018 and the increase was primarily due to an increase in legal services related to the evaluation of potential business
opportunities and regulatory compliance. The increase in bank charges from $nil in 2017 to $451 in 2018 was due to the increased
bank activity. The increase in other general and administrative costs increased from $1,240 in 2017 to $213,282 in 2018 due to
increased travel costs, advertising and marketing costs, compliance fees, and stock-based compensation. Service costs increased
from $nil in 2017 to $387,080 in 2018 is a result of services rendered for our client in our new business or operations.
Consulting
fees of $297,188 in the first quarter of 2018 relate in part to $105,000 paid to Business Instincts Group Inc., $36,995 to our
directors, $34,000 paid to our president, Bruce Elliott, for management services, $30,000 paid to our chief financial officer,
Michael Blum, for management services, $26,846 paid for development services, $24,000 paid for accounting services, $15,000 paid
for financial services, $12,500 paid for recruiting services, $9,122 paid to our Advisory Board members, and $3,228 in stock-based
compensation.
Service
fees of $387,080 in 2017 relate to $187,610 for public relation and marketing services, $113,291 for legal services, $50,000 for
website fees and logo design, $27,254 for business travel, $5,116 for due diligence, $1,908 to establish a social media presence,
and $1,051 for office supplies.
Other
Income (Expense)
Other
income includes $198 of interest earned on a loan receivable from a related party compared to $0 for the same period last year.
Other expenses include interest expense on convertible notes payable of $16,519 for the three months ended March 31, 2018 compared
to $7,315 for the same period last year.
Net
Loss from Operations
We
incurred net losses from operations of $1,006,197 and $29,241 for the three months ended March 31, 2018 and 2017, respectively,
representing an increase of $976,956, primarily attributable to the factors discussed above under the heading “Operating
Expenses”.
Liquidity
and Capital Resources
Working
Capital
|
|
As
at
March 31, 2018
|
|
|
As
at
December 31, 2017
|
|
Current
Assets
|
|
$
|
5,798,595
|
|
|
$
|
880,766
|
|
Current
Liabilities
|
|
$
|
1,163,827
|
|
|
$
|
182,919
|
|
Working
Capital
|
|
$
|
5,203,837
|
|
|
$
|
697,847
|
|
Current
Assets
Current
assets were $5,798,595 as at March 31, 2018 and $880,766 as at December 31, 2017. The increase in current assets as at March 31,
2018 was due recording the funds held in escrow relating to the private placement, deferred service costs held until certain milestones
are reached and deferred offering costs held until the closing of the private placement partially offset by the payment of business
expenses.
Current
Liabilities
Current
liabilities as at March 31, 2018 were attributable to $394,035 in accounts payable and accrued expenses, and current loans payable
of $200,723 compared to $182,919 in accounts payable and accrued expenses as at December 31, 2017.
Cash
Flow
Our
cash flows for the three months ended March 31, 2018 and March 31, 2017 are as follows:
|
|
Three
months ended
March 31, 2018
|
|
|
Three
months ended
March 31, 2017
|
|
Net
cash (used in) operating activities
|
|
$
|
(486,545
|
)
|
|
$
|
(73,134
|
)
|
Net
cash provided by investing activities
|
|
|
100,000
|
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
200,000
|
|
|
|
20,000
|
|
Net
changes in cash and cash equivalents
|
|
$
|
(186,545
|
)
|
|
$
|
(53,134
|
)
|
Operating
Activities
Net
cash used in operating activities was $486,545 for the three-month period ended March 31, 2018, as compared to $73,134 for the
three-month period ended March 31, 2018, an increase of $413,411. The increase in net cash used in operating activities was primarily
due an increase in operating expenses, deferred service costs, and deferred offering costs partially offset by receipts of accounts
receivable, and an increase in the accounts payable outstanding.
Investing
Activities
Investing
activities provided cash of $100,000 for the three-month period ended March 31, 2018 as compared to $0 for the three-month period
ended March 31, 2017. The cash received was from the repayment of the loan made to WENN Digital Inc.
Financing
Activities
Financing
activities provided cash of $200,000 for the three months ended March 31, 2018 and $20,000 for the three months ended March 31,
2017. To help fund our operating activities until our private placement closes, we received a $100,000 loan from Michael Blum,
the chief financial officer of our company, and a $100,000 loan from Greg Burnett, a member of our advisory board.
Recent
Financing Activities
On March 12 and 19,
2018, we completed private placements of an aggregate of 9,113,659 subscription receipts at a price of $0.60 per subscription
receipt for aggregate gross proceeds of $5,468,195.40. On May 31, 2018, upon the occurrence of the escrow release condition
(as defined below), each subscription receipt was automatically converted into one share of our common stock, for
no additional consideration. The subscription amounts were held by an escrow agent until the escrow release condition. The escrow
release condition was the receipt by our company of conditional approval for the listing of the shares of our common stock on
a Canadian stock exchange. On May 29, 2018, the TSX Venture Exchange in Canada conditionally approved the listing of the shares
of our common stock subject to our company fulfilling all requirements of the TSX Venture Exchange. Upon the escrow release
condition being satisfied prior to 5:00 p.m. (Vancouver time) on May 31, 2018, we delivered a notice to the escrow
agent confirming that the escrow release condition had been satisfied. Upon receipt of the notice, the escrow agent released
the subscription amounts to our company and each subscription receipt automatically converted into one share of our
common stock without payment of any additional consideration. In connection with the closing of the private placements, we paid
cash finder’s fees in the aggregate amount of $29,399.97 and we issued 160,865 shares of our common stock at a deemed
price of $0.60 per share as the finder’s fee.
On
April 13, 2018, we entered into a loan agreement with Oceanside Strategies Inc., whereby Oceanside Strategies Inc. advanced
$200,000 to us. The principal amount of $200,000 is repayable on demand (but no longer than a term of six month) and bears
simple interest at a rate of 12% per annum, which is payable upon repayment of the principal amount of $200,000. We are
entitled to prepay the whole or any portion of the principal amount of $200,000, plus accrued interest on the portion of the
principal amount of $200,000 being prepaid, at any time.
The
loan agreement provides that we must, within five days of the release of funds to us from our private placement of
subscription receipts that closed in March 2018, repay the principal amount of $200,000 plus accrued interest in full. The
loan agreement also provides that if we obtain any indebtedness on terms that are superior to the terms set forth in the loan
agreement, then the terms under the loan agreement will be deemed to be amended, as of April 13, 2018, to match such superior
terms in a manner and on terms as nearly equivalent as practicable to such superior terms.
Cash
Requirements
We expect that we will require $5.515
million, including our current working capital, to fund our operating expenditures for the next twelve months. Projected working
capital requirements for the next twelve months are as follows:
Estimated
Working Capital Expenditures During the Next Twelve Months
Operating
expenses
|
|
$
|
2,015,000
|
|
General
and administrative expenses
|
|
|
3,350,000
|
|
Estimated
costs of the listing on a Canadian stock exchange and related expenses
|
|
|
150,000
|
|
Total
|
|
$
|
5,515,000
|
|
Estimated
operating expenses for the next 12 months are comprised of blockchain platform launch related expenses such as project management
and consulting, legal fees, support agents and monitoring expenses, and blockchain and software expenses. We intend to spend between
$0.5 million and $1 million on various expenses to assist companies to develop and integrate blockchain and cryptocurrency technologies
into their business operations.
Estimated general and administrative expenses
for the next 12 months comprised of: $2,250,000 for consulting fees; $250,000 for legal and professional fees; $180,000
for marketing and advertising expenses; $102,000 for trade shows; $250,000 for travel expenses; $198,000 for office rent;
and $120,000 for miscellaneous and office expenses. Professional fees are expected to include fees related to complying with public
reporting requirements, maintaining our quotation on the OTC Pink, conducting capital raises and expenses in connection with our
new business.
Pursuant to a business services agreement
dated December 29, 2017, as amended as of March 15, 2018 and July 9, 2018, with our first client, WENN, WENN paid us $500,000
in fees in connection with the services relating to the business launch. See Business – Recent Developments for additional
information.
We
will require additional cash resources, including from the sale of subscription receipts completed in March 2018 to meet our planned
capital expenditures and working capital requirements for the next 12 months. We expect to derive such cash through the sale of
subscription receipts completed in March 2018 and, if additional cash resources are necessary, through the sale of other equity
or debt securities or by obtaining a credit facility. The sale of additional equity securities will result in dilution to our
stockholders. The incurrence of indebtedness will result in debt service obligations, could cause additional dilution to our stockholders,
and could require us to agree to financial covenants that could restrict our operations or modify our plans to source a new business
opportunity. Financing may not be available in amounts or on terms acceptable to us, if at all. Failure to raise additional funds
could cause our company to fail.
Going
Concern
Our
consolidated financial statements are prepared using generally accepted accounting principles in the United States of America
applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course
of business. We have not yet established a source of revenues sufficient to cover our operating costs and to allow us to continue
as a going concern. We have incurred losses since inception resulting in an accumulated deficit of $1,715,526 as at March
31, 2018 (December 31, 2017: $693,008). Our ability to operate as a going concern is dependent on obtaining
adequate capital to fund operating losses until we become profitable.
In
its report on our financial statements for the years ended December 31, 2017 and 2016, our independent registered public accounting
firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources.
Changes
in and Disagreements with Accountants
on Accounting and Financial Disclosure
On
January 16, 2018, Pritchett, Siler & Hardy P.C. resigned as the independent registered public accounting firm for our company,
following the acquisition of Pritchett, Siler & Hardy P.C. by Haynie & Company, CPA. On January 22, 2018, we engaged Haynie
& Company, Salt Lake City, Utah, as our new independent registered public accounting firm. The change of our independent registered
public accounting firm from Pritchett, Siler & Hardy P.C. to Haynie & Company was approved by our board of directors.
The
report of Pritchett, Siler & Hardy P.C. on our financial statements for the fiscal years ended December 31, 2016 and 2015
did not contain an adverse or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting
principles, except that such report on our financial statements contained an explanatory paragraph in respect to the substantial
doubt about our ability to continue as a going concern.
During
the two most recent fiscal years ended December 31, 2017 and 2016 and in the subsequent interim period through the date of resignation,
there were (i) no disagreements between our company and Pritchett, Siler & Hardy P.C. on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures, which disagreement, if not resolved to the satisfaction
of Pritchett, Siler & Hardy P.C., would have caused Pritchett, Siler & Hardy P.C. to make reference thereto in its reports
on the consolidated financial statements for such years, and (ii) no “reportable events” as that term is defined in
Item 304(a)(1)(v) of Regulation S-K, except as disclosed below.
In
connection of the audit of our financial statements as of and for the year ended December 31, 2016 and 2015 and the review of
our financial statements as of and for the subsequent interim period through the date of resignation, Pritchett, Siler & Hardy
P.C. advised us that it had identified following deficiencies that existed in the design or operation of our internal control
over financial reporting to be material weaknesses: (1) lack of a functioning audit committee; (2) the fact that we only had a
single director and officer, resulting in ineffective oversight in the establishment and monitoring of required internal controls
and procedures; (3) inadequate segregation of duties consistent with control objectives; and (4) management dominated by a single
individual without adequate compensating controls. We agreed with Pritchett, Siler & Hardy P.C. on these matters.
During
our two most recent fiscal years ended December 31, 2017 and 2016 and in the subsequent interim period through the date of resignation,
we have not consulted with Haynie & Company regarding either (i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and
neither a written report nor oral advice was provided to our company that Haynie & Company concluded was an important factor
considered by our company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter
that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions)
or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).
Directors
and Executive Officers
Directors
and Executive Officers
The
following individuals serve as our directors and executive officers. All of our directors hold office until the next annual meeting
of our stockholders or until their successors have been elected and qualified, or until their death, resignation or removal. Our
executive officers are appointed by our board of directors and hold office until their death, resignation or removal from office.
Name
|
|
Position
|
|
Age
|
|
Date
First Elected
or Appointed
|
Bruce
Elliott
|
|
President
|
|
54
|
|
October
15, 2017
|
Michael
Blum
|
|
Chief
Financial Officer, Secretary, Treasurer and Director
|
|
41
|
|
October
9, 2017
|
Cameron
Chell
|
|
Chairman
and Director
|
|
49
|
|
August
21, 2017
|
James
P. Geiskopf
|
|
Lead
Director
|
|
58
|
|
August
28, 2014
|
Edmund
C. Moy
|
|
Director
|
|
60
|
|
February
9, 2018
|
James Carter
|
|
Director
|
|
72
|
|
May 17, 2018
|
Alphonso Jackson
|
|
Director
|
|
72
|
|
June 22, 2018
|
Business
Experience
The
following is a brief account of the education and business experience during at least the past five years of each director and
executive officer, indicating the person’s principal occupation during that period, and the name and principal business
of the organization in which such occupation and employment were carried out.
Bruce
Elliott
On
October 15, 2017, Bruce Elliott was appointed as the president of our company. From April 2012 to October 2017, Mr. Elliott served
as director of Boston Limited, Isle of Man, a regulated fiduciary and corporate service provider. From January 2013 to October
2017, Mr. Elliott served as director of Boston Ventures Limited, Isle of Man. From December 2017 to February 2018, Mr. Elliott
served as the chief marketing officer of WENN.
Mr.
Elliott is a 25-year eCommerce veteran having held senior leadership roles in privately held and listed companies in online payments,
gaming, venture capital and trust and corporate service sectors in North America and Europe. Mr. Elliott is a recognized international
conference speaker on entrepreneurship, venture capital and emerging technology trends and has also led venture capital investments
into clean tech, gaming, blockchain and fintech companies. Career highlights include Executive Vice President Marketing and Sales
of AIM listed Neteller plc, Director of Boston Group Limited and Managing Director of Boston Ventures Limited.
Michael
Blum
On
October 9, 2017, Michael Blum was appointed as the chief financial officer, secretary, treasurer and a director of our company.
Mr.
Blum started his career in Silicon Valley where he eventually joined PayPal as country manager, Germany and later ran the payments
business for eBay in South East Asia and the Pacific. In 2005, he moved into the world of finance, co-founding a hedge fund, Falconhenge
Partners which then became part of Magnetar Capital. Since January 2008, Mr. Blum has been a co-founder and the President at Hedgeye
Risk Management, a leading online financial media company and he is a director at Hedgeye Cares, the company’s employee
driven charity. Since August 2016, he has also served as president of Seven7, LLC, a sports and entertainment focused venture
fund. Since July 2013, he has served as managing director at Asia Leisure Capital SA, a hotel and casino management and investment
firm. He was previously co-founder and chief financial officer of Firefly Systems Inc. from January 2014 to February 2017. Mr.
Blum graduated from Yale University with a Bachelor of Arts in Economics and International studies in 1998.
We
believe that Mr. Blum is qualified to serve on our board of directors because of his extensive business management and financial
expertise derived from his past occupation.
Cameron
Chell
On
August 21, 2017, Cameron Chell was appointed as the president and chief executive officer and a director of our company. On October
15, 2017, Mr. Chell resigned as our president and chief executive officer in order to accommodate the appointment of Bruce Elliott
as our president. On the same day, Mr. Chell was appointed as the non-executive chairman.
Mr.
Chell has been the CEO of Business Instincts Group since November 2009. Business Instincts Group is a venture creation accelerator
and services firm whose focus is building high-tech startups. The companies that Business Instincts Group has helped build include
Draganfly, RaptorRig, ColdBore, UrtheCast, the first commercial video platform on the International Space Station and Slyce, the
visual purchasing engine. As well, Mr. Chell has founded several startups including Futurelink, the original cloud computing company.
Mr. Chell is currently involved with creating and sourcing new projects, and overseeing corporate development for Business Instincts
Group. Business Instincts Group’s venture creation process involves management services that integrate a proprietary strategic
planning process (The RIPKIT) into organizations fostering strategic growth, valuation appreciation, liquidity, and management
accountability. In this regard Mr Chell’s primary responsibility is to provide project and strategic management facilitation
while working with his co-founders, executives, and investors to determine what is most important and specifically how to get
it done. Mr. Chell has also been a director and secretary of WENN from December 2017 and chairman of WENN from February 2018.
We
believe that Mr. Chell is qualified to serve on our board of directors because of his extensive business experience derived from
his current and past occupation.
James
P. Geiskopf
Effective
August 28, 2014, Mr. Geiskopf was appointed as president, secretary, treasury and director of our company. On August 21, 2017,
Mr. Geiskopf resigned as our president. On October 9, 2017, Mr. Geiskopf resigned as our secretary and treasurer. Mr. Geiskopf
has been our lead director since August 21, 2017.
Mr.
Geiskopf currently serves on the board of directors of nFusz, Inc., formerly bBooth, Inc. (since May 7, 2014), a company having
shares of common stock registered under the Securities Exchange Act of 1934. He served as a director of Electronic Cigarettes
International Group, Ltd. from June 2013 to March 2017. He was the president, secretary, treasurer and a director of Searchbyheadlines.com
(now Naked Brand Group Inc.) from December 22, 2011 to July 30, 2012, and the president and director of The Resource Group from
2007 to 2009. From 1986 to 2007, he served as the president and chief executive officer of Budget Rent-a-Car of Fairfield, California.
Mr. Geiskopf also served on the board of directors of Suisun Valley Bank from 1986 to 1993 and on the board of directors of Napa
Valley Bancorp. from 1991 to 1993.
We
believe that Mr. Geiskopf is qualified to serve on our board of directors because of his extensive business management and financial
expertise derived from his past occupation and his past and current board participation.
Edmund
C. Moy
On
February 9, 2018, we appointed Edmund C. Moy as a director of our company.
Mr.
Moy has been self-employed since July 2013. He has provided autographs for Numismatic Guarantee Corporation since December 2015
and to Profession Coin Grading Services, a division of Collectors Universe (CLCT: NASDAQ) from November 2013 to November 2015.
Mr. Moy has also been an author with Whitman Publishing since December 2013, and was a provider of endorsement to Fortress Gold
Group from August 2014 to July 2017 and to Morgan Gold from November 2011 to July 2014. As a consultant since August 2013, he
has advised the U.S. Department of Labor and the U.S. Department of Transportation during most of 2017 and worked on projects
to develop the first Bitcoin IRA and the first state gold bullion depository in America. He has also been a professional speaker
since August 2013. He was the vice president for corporate infrastructure of L&L Energy, Inc. from January 2011 to July 2013
and a director of L&L Energy, Inc. from January 2012 to September 2012. From September 2006 to January 2011, Mr. Moy served
as Director of the United States Mint, the world’s largest manufacturer of coins and medals. He was appointed by President
George W. Bush and unanimously confirmed by the U.S. Senate.
He
currently serves on the advisory board or board of directors of several privately-held companies: AID:Tech (a blockchain company
that fights global corruption in foreign aid and relief with digital identification), OmniSparx (develops healthy decentralized
token ecosystems), and Valaurum (which sells the smallest verifiable unit of gold in the world). He is also a member of the Executive
Advisory Board for the School of Business & Economics of Seattle Pacific University, the Board of Regents for Trinity International
University, and the National Council for C3 Leaders.
Mr.
Moy has served on public, private and non-profit boards and advisory boards, including coin.co, Axon Connected, LLC, L&L Energy,
Inc. (NASDAQ: LLEN), Xactimed, Emerald Health Network, Christianity Today International, and Tau Kappa Epsilon International Fraternity.
We
believe that Mr. Moy is qualified to serve on our board of directors because of his extensive business experience derived from
his current and past occupation.
James
Carter
On
May 17, 2018, we appointed James Carter as a director of our company.
Mr.
Carter is a Chartered Professional Accountant with over 45 years’ experience in both the private and public business sectors,
and was Vice President of MFC Bancorp Ltd., an NYSE listed company focused on merchant banking activities from January 1998 to
February 2017. He specialized in conducting corporate evaluations, due diligence reviews, analysis and related negotiations for
corporate acquisitions, as well as designing, negotiating, managing and implementing corporate and debt restructurings and risk
management programs.
He
was based in Europe from 1998 to 2005, and has extensive domestic and international experience encompassing both North American
and European capital markets with particular expertise gained in emerging markets and the natural resources sector.
Mr.
Carter currently serves on the board of directors of Aloro Mining Corp. (since April 2, 2018). During his career, he has served
as an officer and Director of a number of private and publicly traded companies in various industries in both North America and
Europe.
We
believe that Mr. Carter is qualified to serve on our board of directors because of his extensive business management and financial
expertise derived from his past occupation and his past and current board participation.
Alphonso
Jackson
On
June 22, 2018, we appointed Alphonso Jackson as a director of our company. Mr. Jackson has been a member of our advisory board
since June 7, 2018.
Mr.
Jackson is the chief executive officer of A.R. Jackson Advisors, LLC since June 2017. Mr. Jackson has decades of experience in
housing and community development. His expertise includes development of affordable and market rate housing, handling complex
urban development issues and housing finance.
Mr.
Jackson worked for First Data Corporation as its Senior Advisor from January 2015 to June 2017. Based out of the Washington, DC
office, his primary focus was to strengthen First Data Corporation’s relationships with government entities, public policy
initiatives, and maximizing business opportunities in the sector. In addition, Mr. Jackson helped expand and support First Data
Corporation’s many diversity efforts.
From
May 2012 to July 2014, Mr. Jackson served as Vice Chairman of Consumer & Community Banking at JP Morgan Chase in New York
City. From August 2008 to May 2012, he served as the distinguished university professor and Director of the Center for Public
Policy and Leadership at Hampton University in Hampton, Virginia.
Mr.
Jackson was appointed the 13th Secretary of the US Department of Housing and Urban Development in March 2004. Nominated by President
George W. Bush, he was unanimously confirmed by the United States Senate. Mr. Jackson served as the Secretary until April 2008.
Mr.
Jackson holds a Bachelor of Arts degree in political science and a Master’s in education administration from Truman State
University. He also received a Juris Doctor degree from Washington University School of Law in St. Louis, Missouri.
We
believe that Mr. Jackson is qualified to serve on our board of directors because of his extensive business experience derived
from his current and past occupation.
Family
Relationships
There
are no family relationships among our directors or officers.
Involvement
in Certain Legal Proceedings
Except
as disclosed below, none of our directors or executive officers have been involved in any of the following events during the past
ten years:
|
(a)
|
any
bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time;
|
|
|
|
|
(b)
|
any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other
minor offences);
|
|
|
|
|
(c)
|
being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities
or banking activities;
|
|
|
|
|
(d)
|
being
found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated;
|
|
(e)
|
being
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law
or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited
to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent
cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity; or
|
|
|
|
|
(f)
|
being
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with a member.
|
Michael
Blum was a co-founder of Firefly Systems Inc. (“
Firefly
”) and acted as the chief financial officer of Firefly
from January 2014 to February 2017. Firefly was a start-up in the space launch industry. Firefly grew from nothing in January
2014 to a company with 185 employees in the summer of 2016 with NASA as its flagship customer. When a major European investor
backed out of a $32 million funding commitment at the last minute due to the Brexit vote, Firefly’s major stockholder was
unwilling to pick-up the pieces and Firefly failed to close its last round of funding by early 2017. As a result, on April 3,
2017, Firefly filed a bankruptcy petition under Chapter 7 in the United States Bankruptcy Court for the Western District of Texas.
Michael
Blum was elected to the board of directors of XCOR Aerospace, Inc. (“
XCOR
”) in late April 2017. XCOR lost its
only customer one or two weeks after his election and the board of directors of XCOR asked Mr. Blum to fill the role of acting
chief executive officer and Mr. Blum took over as acting chief executive officer on June 27, 2017. Mr. Blum was unable to save
XCOR and, on November 8, 2017, XCOR filed a bankruptcy petition under Chapter 7 in the United States Bankruptcy Court for the
Eastern District of California.