Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
No
x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
¨
No
x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes
¨
No
x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold as of the last business day of the registrant’s most recently completed second fiscal quarter. $4,362,108 on June 30, 2016.
As of March 28, 2017, there were outstanding 104,048,370 shares of the registrant’s common stock, par value $0.001 per share.
This Report on Form 10-K contains forward looking statements that involve risks and uncertainties. All statements other than statements of historical fact contained in this Report on Form 10-K, including statements regarding future events, our future financial performance, business strategy, and plans and objectives for future operations, are forward-looking statements. In many cases, you can identify forward-looking statements by terminology such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors, including the risks outlined under “Risk Factors” or elsewhere in this Report on Form 10-K, which may cause our or our industry’s actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time, and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.
You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Report on Form 10-K. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this Report on Form 10-K to conform our statements to actual results or changed expectations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
NOTE 1. ORGANIZATION AND BUSINESS
Organization and Operations
IDdriven, Inc., (“IDdriven”, “we”, “us”, or the “Company”) is a Nevada corporation incorporated on January 27, 2014 under the name TiXFi, Inc. Insight Innovators B.V., was incorporated on May 22, 2013 in the Netherlands and has its registered corporate seat in Amersfoort, The Netherlands.
Effective on February 1, 2016, the Company’s corporate name was changed to IDdriven, Inc. Following its December 21, 2015 acquisition of a 100% ownership interest of Insight Innovators, B.V., a Dutch corporation (“Insight”), the Company became an enterprise software company that developed, and is currently marketing and seeking license opportunities for a next-generation Identity and Access Management enterprise solution designed to manage large volumes of users and access rights over various applications in hybrid environments (cloud and on-premises). The Company’s sports and entertainment ticket broker business was sold upon completion of the Insight merger as discussed below.
Change in Fiscal Year.
On January 21, 2016, our Board of Directors approved a change in our Fiscal Year from February 28 to December 31 in connection with our acquisition of Insight Innovators, B.V. The change in fiscal year became effective for our 2015 fiscal year, which began March 1, 2015 and ended December 31, 2015. Insight had a fiscal year of December 31. Due to reverse acquisition with Insight, all of the financial statements prior to the acquisition date are of Insight.
Stock Split
. Effective January 21, 2016, we effected a 1 for 6 forward stock split of our issued and outstanding common stock (the “Forward Stock Split”). All references to shares of our common stock in this report on Form 10-K refers to the number of shares of common stock after giving effect to the Forward Stock Split (unless otherwise indicated).
Share Exchange and Reorganization
On December 21, 2015 (the “Effective Date”), Insight Innovators B.V. merged into IDdriven, and became a 100% subsidiary of IDdriven. Furthermore, the Company entered into and closed on a share exchange agreement with IDdriven and its shareholders. Pursuant to the terms of the share exchange agreement, IDdriven issued 55,980,000 shares of its unregistered common stock to the shareholders of Insight in exchange for 40,074 shares of Insight’s common stock, representing 100% of its issued and outstanding common stock and assumed $46,000 of Insight’s debts and as a result of the share exchange agreement, Insight became a wholly owned subsidiary of TiXFi. In conjunction with the Share Exchange, we purchased 12,000,000 shares of our common stock from Paula Martin, our former Chief Executive Officer and sole director, for a price of approximately $0.0125 per share (an aggregate of $150,000) pursuant to the terms of a Stock Redemption Agreement dated December 21, 2015. In addition, pursuant to the terms and conditions of a Spin-Off Agreement dated December 21, 2015, Ms. Martin acquired all assets and liabilities related our online ticket brokerage business in exchange for the cancellation by Ms. Martin of 18,000,000 shares of our common stock she held.
Merger Financing and Private Placements
Securities Purchase Agreement – Series A Preferred Stock
As of the Effective Date and pursuant to a Securities Purchase Agreement dated December 21, 2015, entered into among the Company and five investors who are unrelated parties (the “Preferred Stock SPA”), we issued an aggregate of 807,568 shares of our Series A Preferred stock, par value $0.001 per share (“Series A Preferred”) in exchange for the consideration described below. See Note 12 - Stockholders’ Equity (Deficit) for a description of the Series A Preferred Designations of Rights, Preferences and Limitations. Pursuant to the Preferred Stock SPA, we issued an aggregate of 551,180 shares (110,236 shares each) of our Series A Preferred in exchange for a $500,000 aggregate principal amount in 8% convertible promissory note previously issued by Insight to five investors that we assumed as of the Effective Date (the “8% Convertible Notes”). The 8% Convertible Notes were cancelled upon issuance of the Series A Preferred. The holders of the 8% Convertible Notes previously advanced $250,000 to Insight under those notes and agreed to advance an additional aggregate amount of $250,000 to us, which was disclosed as subscription receivable and was received in 2016. In addition, we issued during 2015 an aggregate of 256,388 shares (64,097 shares each) of Series A Preferred to four investors in exchange for an aggregate of $307,802 in cash. Of this amount, $111,802 had been previously been advanced on behalf of both Insight and us, and $196,000 was paid to us or on our behalf on the Effective Date. See Note 7 - Convertible Notes Payable.
Securities Purchase Agreement – 10% Insight Convertible Note
As of the Effective Date and pursuant to that certain Securities Purchase Agreement dated December 21, 2015 (the “
Convertible Note SPA
”) we entered into with an unrelated third party, we issued a $500,000 principal amount 10% convertible note (the “
10% Convertible Note
”) in exchange for a $500,000 principal amount 10% convertible note issued by Insight to that investor (the “
10% Insight
Convertible Note
”). The holder of the 10% Insight Convertible Note previously advanced $300,000 to Insight under that note and advanced an additional $200,000 to us on the Effective Date under the terms of the Convertible Note SPA. The holder of the 10% Convertible Note has the right to purchase another convertible note having the same features as the 10% Convertible Note if the holder exercises such right within 90 days of the Effective Date. See Note 7 - Convertible Notes Payable.
Consulting Agreement
As of the Effective Date, we entered into a consulting agreement (the “Consulting Agreement”) with an unrelated third party to assist in the review of our business, operations, financial performance and development initiatives to provide advice to the Company in connection with capital raise transactions and formulation of strategies and introduction to prospective private institutional financial investors. We issued to the consultant 4,080,000 shares of our common stock having a value of $68,000 as consideration for its services under the Consulting Agreement.
Recapitalization
For financial accounting purposes, this transaction was treated as a reverse acquisition by Insight, and resulted in a recapitalization with Insight being the accounting acquirer and IDdriven as the acquired company. The consummation of this reverse acquisition resulted in a change of control. Accordingly, the historical financial statements prior to the acquisition are those of the accounting acquirer, Insight and have been prepared to give retroactive effect to the reverse acquisition completed on December 21, 2015, and represent the operations of Insight. The consolidated financial statements after the acquisition date, December 21, 2015 include the balance sheets of both companies at historical cost, the historical results of Insight and the results of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization.
Going Concern Matters
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the Company’s continuation as a going concern. The Company has incurred operating losses of $1,778,964 during the year ended December 31, 2016 and has an accumulated deficit of $5,255,277 as of December 31, 2016. In addition, current liabilities exceed current assets by $4,022,039 as of December 31, 2016.
Management intends to raise additional operating funds through equity and/or debt offerings. However, there can be no assurance management will be successful in its endeavors. See Note 15 – Subsequent Events.
There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support its working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available to the Company, it may be required to curtail or cease its operations.
Due to uncertainties related to these matters, there exists a substantial doubt about the ability of the Company to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
General principles
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The fiscal year end is December 31.
Consolidation Policy
For December 31, 2016, the consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Insight Innovators B.V. All significant intercompany balances and transactions have been eliminated in consolidation. Prior to December 21, 2015, the financial statements presented are those of Insight.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions about collection of accounts and notes receivable, the valuation and recognition of stock-based compensation expense, the valuation and recognition of derivative liability, valuation allowance for deferred tax assets and useful life of fixed assets.
Functional currency
The accompanying consolidated financial statements are presented in U.S. dollars ("USD"). The Company's wholly owned subsidiary (Insight’s) functional currency is the Euro. The financial statements are translated into USD in accordance with Codification ASC 830, “Foreign Currency Matters”. All assets and liabilities were translated at the current exchange rate, at respective balance sheet dates, shareholders' equity is translated at the historical rates and income statement items are translated at the average exchange rate for the reporting periods. The resulting translation adjustments are reported as other comprehensive income and accumulated other comprehensive income in the shareholders' equity in accordance with Codification ASC 220, “Comprehensive Income”.
Translation gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated into Euro at the rate on the date of the transaction and included in the results of operations as incurred. There were no material transaction gains or losses in the periods presented.
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Spot Euro: USD exchange rate
|
|
$
|
1.05
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
Average Euro: USD exchange rate
|
|
$
|
1.08–1.12
|
|
|
$
|
1.10–1.15
|
|
Cash and cash equivalents
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less, at the date acquired. As of December 31, 2016 and 2015, cash primarily consists of cash on hand and in bank. As of December 31, 2016, cash held in a U.S. bank was $9,971 and cash held in foreign bank in the Netherlands was $3,203 (EUR3,050). As of December 31, 2015, all our cash was held in accounts in the Netherlands, are backed by the Dutch Deposit Guarantee Scheme for balances not exceeding EUR100,000.
Accounts receivable and other receivables
Accounts receivable are recorded at the invoiced amount, unsecured and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the statements of cash flows. The Company maintains an allowance for doubtful accounts reflecting estimated potential losses in its accounts receivable balance. In establishing the required allowance, management considers collectability of outstanding receivables adjusted to take into account current market conditions and our clients’ financial conditions, the amount of receivables in dispute, the current receivables aging and current payment patterns. The Company reviews its allowance for doubtful accounts quarterly. Any past due balances over 90 days are reviewed individually for collectability. Account balances are charged off against the allowance after all commercially reasonable means of collection have been exhausted and the potential for recovery is considered remote.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed on the straight-line method. The depreciation and amortization methods are designed to amortize the cost of the assets over their estimated useful lives, in years, of the respective assets as follows:
Computers
|
|
3 Years
|
|
Furniture and Fixtures
|
|
5 Years
|
|
Maintenance and repairs are charged to expense as incurred. Improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.
The long-lived assets of the Company are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and Equipment” (“ASC No. 360”), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended December 31, 2016 and 2015, no impairment losses have been identified.
Revenue recognition
The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) services have been rendered; (iii) the fee is fixed or is determinable; and (iv) collectability is reasonably assured. Determination of criteria (iii) and (iv) are based on management's judgments regarding the fixed nature of the selling prices of the services delivered and the collectability of those amounts. The Company’s agreements do not include general rights of return and do not provide clients with the right to take possession of the software supporting the services being provided. As such, the agreements are accounted for as service contracts.
Revenues from the services rendered are recognized in proportion to the services delivered.
Any amount receivable or received, but unrecognized for revenue recognition purpose is recorded as deferred revenues.
Sales taxes collected from clients and remitted to governmental authorities where applicable are accounted for on a net basis and therefore are excluded from revenues in the statements of operations.
Research and development costs
Research and development costs are charged to the statements of operations and comprehensive income as incurred.
Advertising and marketing expenses
Advertising and marketing expenses are charged to the statement of operations and comprehensive income, as incurred.
Income taxes
The Company accounts for income taxes in accordance with ASC No. 740, “Income Taxes”. This codification prescribes the use of the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and for carry-forward tax losses. Deferred taxes are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Deferred tax liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting, or according to the expected reversal dates of the specific temporary differences, if not related to an asset or liability for financial reporting.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740, “Income Taxes”. Accounting guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements, under which a company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accordingly, the Company would report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company elects to recognize any interest and penalties, if any, related to unrecognized tax benefits in tax expense.
Comprehensive income
The Company applies Statement of Accounting Standards Codification subtopic 220-10, “Comprehensive Income” (“ASC 220-10”). ASC 220-10 establishes standards for the reporting and displaying of comprehensive income and its components. Comprehensive income (loss) generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to shareholders.
Share-Based Expense
ASC 718, "Compensation – Stock Compensation," prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, "Equity – Based Payments to Non-Employees." Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Share-based expense totaled $142,960 and $69,191 for the years ending December 31, 2016 and 2015, respectively.
Earnings per Share
The Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, “Earnings per Share.” Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. As of December 31, 2016 and 2015, convertible preferred shares, convertible notes and stock options outstanding, were dilutive instruments and are not included in the calculation of diluted loss per share as their effect would be antidilutive.
The following is a reconciliation of the numerator and denominator used for the computation of basic and diluted net loss per common shares:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
Net loss available to stockholders
|
|
$
|
(4,265,947
|
)
|
|
$
|
(1,154,123
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares – Basic and Diluted
|
|
|
79,183,202
|
|
|
|
30,967,478
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – Basic and Diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.04
|
)
|
For the year ended December 31, 2016 and 2015, respectively, the following options, warrants, convertible notes and Series A convertible preferred stock were excluded from the computation of diluted net loss per shares as the result of the computation was anti-dilutive:
|
|
Year ended
December 31,
2016
(Shares)
|
|
|
Year ended
December 31,
2015
(Shares)
|
|
Options to purchase shares of common stock
|
|
|
8,173,686
|
|
|
|
8,173,686
|
|
Warrants
|
|
|
450,755
|
|
|
|
-
|
|
Convertible notes payable
|
|
|
70,872,312
|
|
|
|
9,400,688
|
|
Series A convertible preferred stock
|
|
|
6,766,182
|
|
|
|
27,252,013
|
|
|
|
|
86,262,935
|
|
|
|
44,826,387
|
|
Fair value measurements
Fair value is defined as the price that the Company would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent counter-party in the principal market or in the absence of a principal market, the most advantageous market for the investment or liability. A three-tier hierarchy is established to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs); and establishes a classification of fair value measurements for disclosure purposes.
The hierarchy is summarized in the three broad levels listed below:
Level 1
|
|
quoted prices in active markets for identical assets and liabilities
|
Level 2
|
|
other significant observable inputs (including quoted prices for similar assets and liabilities, interest rates, credit risk, etc.)
|
Level 3
|
|
significant unobservable inputs (including the Company’s own assumptions in determining the fair value of assets and liabilities).
|
In accordance with Accounting Standards Codification (“ASC”) 815, the Company’s debt derivative liabilities are measured at fair value on a recurring basis, and are level 3 measurements in the three-tier fair value hierarchy.
There were no transfers between the levels of the fair value hierarchy during the years ended December 31, 2016 and 2015.
Fair value of financial instruments
The Company's financial instruments consist primarily of cash, accounts payable and accrued expenses, and debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
The following table summarizes fair value measurements by level at December 31, 2016 and 2015 measured at fair value on a recurring basis:
December 31, 2016
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,577,652
|
|
|
$
|
2,577,652
|
|
December 31, 2015
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31,080
|
|
|
$
|
31,080
|
|
Convertible notes
Convertible notes are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured. After initial measurement, they are carried at amortized cost using the effective interest method.
Derivative Financial Instruments
The fair value of an embedded conversion option that is convertible into a variable amount of shares and warrants that include price protection reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for treatment as a derivative under ASC 815 “Derivatives and Hedging”, since “down-round protection” is not an input into the calculation of the fair value of the conversion option and warrants and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The Black-Scholes option valuation model was used to estimate the fair value of the conversion options. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time, of other comparative securities, equal to the weighted average life of the options.
Conversion options are recorded as debt discount and are amortized as interest expense over the life of the underlying debt instrument.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company's management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies relating to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company's legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of the contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company's financial statements.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Recently Issued Accounting Standards
In February 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-06, “'Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting.” Among other things, the amendments require a plan’s interest in that master trust and any change in that interest to be presented in separate line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits, respectively. The amendments also remove the requirement to disclose the percentage interest in the master trust for plans with divided interests and require that all plans disclose the dollar amount of their interest in each of those general types of investments. The amendments require all plans to disclose: (a) their master trust’s other asset and liability balances; and (b) the dollar amount of the plan’s interest in each of those balances. Lastly, the amendments eliminate redundant investment disclosures (e.g., those required by Topics 815 and 820) relating to 401(h) account assets. Effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The amendments should be applied retrospectively to each period for which financial statements are presented. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its consolidated financial statements.
In February 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” The amendments clarify that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Subtopic 610-20 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. Effective at the same time as the amendments in Update 2014-09, Revenue from Contracts with Customers (Topic 606). Therefore, public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the amendments in this Update to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the amendments in this Update to annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. All other entities may apply the guidance earlier as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance earlier as of annual reporting periods beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance. An entity is required to apply the amendments in this Update at the same time that it applies the amendments in Update 2014-09. The Company is currently evaluating the potential impact this standard may have on its financial position and results of operations.
In January 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” These amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Effective for public business entities that are a SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This new standard will be effective for the Company on January 1, 2018, however, early adoption is permitted with prospective application to any business development transaction.
In December 2016, the FASB has issued Accounting Standards Update (ASU) No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” The amendments affect narrow aspects of the guidance issued in ASU 2014-09 including Loan Guarantee Fees, Contract Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining Performance Obligations, Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable, Refund Liability, Advertising Costs, Fixed Odds Wagering Contracts in the Casino Industry, and Costs Capitalized for Advisors to Private Funds and Public Funds. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements for FASB Accounting Standards Codification Topic 606. Public entities should apply Topic 606 (and related amendments) for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Restricted Cash (a consensus of the FASB Emerging Issue Task Force) (“ASU 2016-18”). This new standard addresses the diversity that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within the year of adoption, with early adoption permitted. The Company does not expect that the adoption of ASU 2016-18 will have a material impact on its consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory. This new standard eliminates the exception for an intra-entity transfer of an asset other than inventory. Under the new standard, entities should recognize the income tax consequences on an intra-entity transfer of an asset other than inventory when the transfer occurs. This new standard will be effective for the Company on January 1, 2018 and will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the potential impact this standard may have on its financial position and results of operations.
In August, 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”). The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under ASC Topic 230, Statement of Cash Flows. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period. The Company has not yet completed the analysis of how adopting this guidance will affect its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard requires recognition of the income tax effects of vested or settled awards in the income statement and involves several other aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This new standard will be effective for the Company on January 1, 2017. The adoption of this standard is not expected to have a material impact on its financial position, results of operations or statements of cash flows upon adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for us on January 1, 2019. The adoption of this standard is not expected to have a material impact on its net financial position, but will impact our assets and liabilities. The Company is currently evaluating the potential impact that this standard may have on our results of operations.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The guidance may be adopted on either a prospective or retrospective basis. The Company does not expect the adoption of this guidance to have a material effect on the Company’s consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The new standard applies only to inventory for which cost is determined by methods other than last-in, first-out and the retail inventory method, which includes inventory that is measured using FIFO or average cost. Inventory within the scope of this standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This new standard will be effective for us on January 1, 2017. The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations or statements of cash flows upon adoption.
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB has subsequently issued the following amendments to ASU 2014-09 which have the same effective date and transition date of January 1, 2018:
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performance obligations and licensing implementation guidance.
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes collected from customers.
In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain narrow aspects of the guidance issued in ASU 2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples.
The Company is currently evaluating the method of adoption and the potential impact that Topic 606 may have on our financial position and results of operations.
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
NOTE 3. OTHER RECEIVABLES AND PREPAID EXPENSES
Other receivables and prepaid expenses consisted of the following at December 31, 2016 and 2015:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Value added tax
|
|
$
|
3,175
|
|
|
$
|
18,195
|
|
Other receivable
|
|
|
839
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
7,500
|
|
|
|
5,000
|
|
Total other receivables and prepaid expenses
|
|
$
|
11,514
|
|
|
$
|
23,195
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Long-term rent deposit
|
|
$
|
16,648
|
|
|
$
|
17,283
|
|
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2016 and 2015:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Furniture
|
|
$
|
5,915
|
|
|
$
|
5,915
|
|
Computers
|
|
|
18,886
|
|
|
|
17,428
|
|
|
|
|
24,801
|
|
|
|
23,344
|
|
Accumulated Depreciation
|
|
|
(17,593
|
)
|
|
|
(12,575
|
)
|
Foreign currency translation effect
|
|
|
(2,439
|
)
|
|
|
(2,313
|
)
|
|
|
$
|
4,769
|
|
|
$
|
8,455
|
|
Depreciation expense for the year ended December 31, 2016 and 2015 amounted to $5,018 and $5,733, respectively.
All of our property and equipment are recorded in Insight (foreign subsidiary) as of December 31, 2016 and 2015.
NOTE 5. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at December 31, 2016 and 2015:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Income tax and social security premiums
|
|
$
|
2,275
|
|
|
$
|
4,107
|
|
Holiday allowance
|
|
|
4,864
|
|
|
|
9,054
|
|
Other current liabilities
|
|
|
20,192
|
|
|
|
4,585
|
|
|
|
$
|
27,331
|
|
|
$
|
17,746
|
|
NOTE 6. NOTES PAYABLE
Notes Payable
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Promissory Notes – December 2016
|
|
$
|
51,000
|
|
|
$
|
-
|
|
Less current portion of notes payable
|
|
|
51,000
|
|
|
|
-
|
|
Long-term notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2016 and 2015, the Company recorded accrued interest related to this promissory note of $28 and $0, respectively.
Dated June 16, 2016
On June 16, 2016, the Company issued a 10% Secured Promissory Note (the “Promissory Note”) for $100,000 and 400,000 shares of our unregistered common stock. The note bears interest at the rate of 10% per annum and is due in full on June 16, 2017. The note is secured by the pledge of 17,910,000 shares of the Company’s common stock, held by its CEO. The 400,000 common shares had a deemed value of $100,000 and were accounted for as a finance cost to the Promissory Note, resulting in a debt discount on day one of $100,000. Unamortized debt discount of $96,970 was reversed and adjusted against loss on extinguishment of debt. The Company charged to operations amortization of deferred financing cost of $3,030 during the year ended December 31, 2016.
On September 12, 2016, the Promissory Note issued on June 16, 2016 of $100,000 together with accrued interest of $1,511 was replaced by a Convertible Note for $101,511 and warrants to purchase up to 50,755 shares of our common stock. The note bears interest at the rate of 20% per annum and is due in full on September 11, 2017. The Company determined this was a debt extinguishment. The replacement of the note resulted in $101,600 loss on extinguishment of debt included in the consolidated statements of operations.
Dated December 30, 2016
On December 30, 2016, the Company issued a 20% Promissory Note for $51,000. The note bears interest at a rate of 20% per annum and the maturity date is the twelve months from the issue date.
Notes Payable – Related Parties
Notes payable – related party consisted of the following at December 31, 2016 and 2015:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Promissory Notes
|
|
$
|
38,850
|
|
|
$
|
-
|
|
Less current portion of notes payable
|
|
|
38,850
|
|
|
|
-
|
|
Long-term notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Dated June 7, 2016
On June 7, 2016, the Company issued an 8% Promissory Note for EUR 4,700 ($5,264). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender. The note was repaid in October 2016.
On June 7, 2016, the Company issued another 8% Promissory Note for EUR 4,700 ($5,264). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender. The note was repaid in September 2016.
Dated June 29, 2016
On June 29, 2016, the Company issued an 8% Promissory Note for EUR 10,000 ($10,500). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender.
Dated June 30, 2016
On June 30, 2016, the Company issued an 8% Promissory Note for EUR 10,000 ($10,500). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender.
Dated August 29, 2016
On August 29, 2016, the Company issued an 8% Promissory Note for EUR 35,000 ($36,750). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender. EUR18,000 ($18,900) of note was repaid in December 2016.
As of December 31, 2016 and 2015, the Company recorded accrued interest related to these promissory notes - related party of $2,046 and $0, respectively.
NOTE 7. CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following at December 31, 2016 and 2015:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Convertible Note - December 2015
|
|
$
|
350,000
|
|
|
$
|
500,000
|
|
Convertible Note - February 2016
|
|
|
30,000
|
|
|
|
-
|
|
Convertible Note - March 2016
|
|
|
250,000
|
|
|
|
-
|
|
Convertible Notes - May 2016
|
|
|
75,000
|
|
|
|
-
|
|
Convertible Note - June 2016
|
|
|
15,000
|
|
|
|
-
|
|
Convertible Notes - September 2016
|
|
|
201,511
|
|
|
|
-
|
|
Convertible Notes -October 2016
|
|
|
148,798
|
|
|
|
-
|
|
Convertible Notes - November 2016
|
|
|
25,000
|
|
|
|
-
|
|
Convertible Notes - December 2016
|
|
|
75,000
|
|
|
|
-
|
|
|
|
|
1,170,309
|
|
|
|
500,000
|
|
Less debt discount and debt issuance cost
|
|
|
(414,118
|
)
|
|
|
(29,687
|
)
|
|
|
|
756,191
|
|
|
|
470,313
|
|
Less current portion of convertible notes payable
|
|
|
756,191
|
|
|
|
-
|
|
Long-term convertible notes payable
|
|
$
|
-
|
|
|
$
|
470,313
|
|
The Company recognized amortization expense related to the debt discount and deferred financing fees of $345,850 and $632 for the year ended December 31, 2016 and 2015, respectively, which are included in interest expense in the consolidated statements of operations.
Founder Loans – April 2015
On April 3, 2015 the Company entered into three convertible loan agreements with an aggregate principal amount of €39,999 ($44,799) with entities owned and controlled by the founders of the Company, all of who are related parties (the “Founder Loans”). The Founder Loans are convertible into common shares of Insight at any time between the date of issue of the notes and their settlement date at the option of the holder. On issue, the Founder Loans were convertible at a price of €1 ($1.12) per common share. The net proceeds received from the issue of the Founder Loans had been split between a liability component and an equity component. Since the bearing interest on the Founder Loans are regarded to equal the market interest rate for similar notes that have no conversion rights, the equity component of the Founder Loans is measured at zero. On June 16, 2015 the holders of the Founder Loans converted them into 39,999 shares of Insight’s common stock.
8% Convertible Notes – August 2015
On August 7, 2015, Insight entered into a Securities Purchase Agreement with five investors who purchased an aggregate principal amount of $500,000 8% Secured Convertible Promissory Notes (the “August 2015 Convertible Notes”). The aggregate purchase price of the August 2015 Convertible Notes was paid $250,000 upon issuance of the notes in August 2015 and $250,000 was payable prior to the date Insight completed a transaction whereby its shares were registered under the Exchange Act of 1934, as amended. The August 2015 Convertible Notes were convertible into an aggregate of 25% of the issued and outstanding shares of Insight’s common stock.
On December 21, 2015 as part of the merger with the Company, the August 2015 Convertible Notes were assumed by the Company and then exchanged for 551,180 shares of the Company’s Series A Preferred. See Note 1- Organization And Business. On conversion we realized a gain on extinguishment of debt of $8,146 and a subscription receivable for $250,000.
The net proceeds received from the issue of the August 2015 Convertible Note was split between a liability component and an equity component. Since the bearing interest on the note is regarded to equal the market interest rate for similar notes that have no conversion rights, the equity component of the convertible notes is measured at zero.
10% Convertible Note – December 2015
On December 21, 2015, the Company issued a 10% Convertible Note (the “10% Convertible Note”) in the amount of $500,000, in exchange for a promissory note for $500,000 originally issued by Insight on October 20, 2015 to an unrelated third party investor (the “Investor”). The company assumed accrued interest of $3,838 due from this previous promissory note. The 10% Convertible Note bears interest at the rate of 10% per annum and matures May 1, 2017. The holder is entitled to convert any portion of the outstanding and unpaid conversion amount in to fully paid and non-assessable shares of Common Stock. The conversion price (the “Conversion Price”) is 75% of the volume weighted average price of the Common Stock for the ten (10) trading days immediately prior to the applicable conversion date, subject to adjustment herein but in no event: (i) lower than $4,000,000 divided by the total number of shares of Common Stock outstanding immediately prior to the conversion date; or (ii) greater than $12,000,000 divided by the total number of shares of common stock outstanding immediately prior to the conversion date.
On July 22, 2016, $150,000 of the Convertible Note was converted into 941,620 common shares at market trading price $0.27 per share. $160,771 value of derivative liability on the date of conversion was extinguished and the conversion generated $56,534 gain on extinguishment of debt in the consolidated statements of operations.
Additional features of the 10% Convertible Note include:
|
●
|
Liquidation Preference
. Upon a liquidation event, we will first pay to the Investor the principal amount owing, plus all accrued and unpaid interest, and any other fees or liquidated damages then due and owing thereon. After full payment of the liquidation preference amount to Investor, we will then distribute the remaining assets to holders of common stock, other junior securities (if any). The 10% Convertible Note is intended to rank senior to our common stock or any equivalents thereof, or any preferred stock we may designate, including the Series A Preferred, in respect of any dividends or distributions many in respect thereof.
|
|
●
|
Mandatory Conversion
. The 10% Convertible Note shall automatically convert into shares of our common stock at the Conversion Price without any action of the holder upon the occurrence of any of the following events after the closing date of the Share Exchange: (i) the completion of a public offering of our securities for gross proceeds of at least $5,000,000 pursuant to an effective registration statement under the Securities Act; or (ii) if we complete one or more financing transactions for gross proceeds of at least $5,000,000.
|
|
●
|
Ownership Limitations
. The 10% Convertible Note is not convertible to the extent that (a) the number of shares of our common stock beneficially owned by the Investor and (b) the number of shares of our common stock issuable upon the conversion of the 10% Convertible Note or otherwise would result in the beneficial ownership by holder of more than 4.99% of our then outstanding common stock. This ownership limitation can be increased or decreased to any percentage not exceeding 9.99% by the Investor upon 61 days’ notice to us.
|
|
●
|
Certain Adjustments
. The conversion price of the 10% Convertible Note is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
|
|
●
|
Negative Covenants
. As long as the 10% Convertible Note is outstanding, unless the holders of at least 75% of the then outstanding principal amount of the 10% Convertible Note shall have otherwise given prior written consent, we agreed that we will not amend our charter documents and bylaws in any manner that materially and adversely affects any rights of the holder, repurchase our common stock or certain other securities, pay dividends or distributions on any securities junior to the 10% Convertible Note, sell, lease or otherwise dispose of any significant portion of our assets outside the ordinary course of business or enter into any agreement with respect to any of the foregoing.
|
|
●
|
Redemption Upon Triggering Events
. If we fail to meet our obligations under the terms of the 10% Convertible Note, it will become immediately due and payable and subject to penalties provided for within the note.
|
|
●
|
Piggy-Back Registration Rights.
The holder of the 10% Convertible Note is entitled to Piggy-Back Registration Rights as provided for in the Piggy-Back Registration Rights Agreement provided for in Exhibit B to the Securities Purchase Agreement.
|
Dated – Issued in Fiscal Year 2016
During the year ended December 31, 2016, the Company issued a total Convertible Notes in the amount of $820,308 and warrants to purchase up to 450,755 shares of our common stock, with the following terms:
|
·
|
Annual interest rates ranging from 8% to 20%
|
|
|
|
|
·
|
Convertible at the option of the holders either at issuance or 6 months from issuance.
|
|
|
|
|
·
|
Conversion prices are typically based on the discounted (20% - 25% discount) lowest trading prices of the Company’s shares during various periods prior to conversion. Certain notes are subject to adjustment to not convert in a value band, not lower than $4,000,000 to $6,000,000 or higher than $12,000,000 to $18,000,000, divided by the total number of shares of common stock outstanding immediately prior to the conversion date.
|
Certain notes include financing costs paid, recorded as debt discounts, totaling to $17,500 and the Company received cash of $625,000.
The Company determined that the conversion feature met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and therefore bifurcated the embedded conversion option once the note becomes convertible and accounted for it as a derivative liability. The fair value of the conversion feature was recorded as a debt discount and amortized to interest expense over the term of the note.
The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the notes that became convertible as of December 31, 2016 and 2015 amounted to $2,577,652 and $31,080, respectively. During the year ended December 31, 2016, $709,751 of the value assigned to the derivative liability was recognized as a debt discount to the notes and warrants, $430,796 was recognized as a “day 1” derivative loss and $5,558 was recognized as loss on debt extinguishment of note .
During the year ended December 31, 2016, the Company amended the term of Convertible Note – June 2016 and replaced the one of Convertible Notes - September 2016 and recorded gain on debt extinguishment of $3,454.
Collateral. The Company’s obligations pursuant to the Convertible Notes issued by the Company on September 12, 2016 and September 21, 2016 are secured by a pledge of the shares of Common Stock owned by Berlisa B.V. (18,660,000 shares), a company owned or controlled by Geurt van Wijk, our Chief Operating Officer and Director, and Sterling Skies B.V. (18,6660,000 shares), a company owned or controlled by Remy de Vries, our Chief Technology Officer, and a pledge of 17,910,000 shares of Common Stock owned by Eagle Consulting LLC, a company owned or controlled by Arend D. Verweij, our Chief Executive Officer. In addition, the Company’s obligations pursuant to the Convertible Notes issued by the Company on September 12, 2016 and September 21, 2016 are also secured by a grant of a security interest in all of the intellectual property of the Company, whether currently owned or existing or that is acquired or comes into existence following the date of grant.
Warrants
We accounted for the issuance of the Warrants in accordance with ASC 815 as a derivative (see Note 8).
On March 28, 2016, the Company issued a Convertible Note in the amount of $250,000 and warrants to purchase up to 250,000 shares of our common stock. The warrants are exercisable into 250,000 shares of common stock, for a period of five years from issuance, at a price of $0.40 per share.
On September 12, 2016, the Company issued a Convertible Note in the amount of $101,511 and warrants to purchase up to 50,755 shares of our common stock. The warrants are exercisable into 50,775 shares of common stock, for a period of one year from issuance, at 120% of the lowest trading price during 20 trading day prior to the exercise date.
On September 12, 2016, the Company issued a Convertible Note in the amount of $150,000 of which $150,000 was received as of December 31, 2016, and warrants to purchase up to 75,000 shares of our common stock. The warrants are exercisable into 75,000 shares of common stock, for a period of one year from issuance, at 120% of the lowest trading price during 20 trading day prior to the exercise date.
On September 21, 2016, the Company issued Convertible Notes in the amount of $150,000 of which $150,000 was received as of December 31, 2016, and warrants to purchase up to 75,000 shares of our common stock. The warrants are exercisable into 75,000 shares of common stock, for a period of one year from issuance, at 120% of the lowest trading price during 20 trading day prior to the exercise date.
The following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2016:
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
Number
of Shares
|
|
|
Weighted Average Remaining Contractual life (in years)
|
|
|
Weighted Average
Exercise Price
|
|
|
Number
of Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
250,000
|
|
|
|
4.24
|
|
|
$
|
0.40
|
|
|
|
250,000
|
|
|
$
|
0.40
|
|
|
50,755
|
|
|
|
2.67
|
|
|
$
|
0.0144
|
|
|
|
50,755
|
|
|
$
|
0.0144
|
|
|
75,000
|
|
|
|
2.67
|
|
|
$
|
0.0144
|
|
|
|
75,000
|
|
|
$
|
0.0144
|
|
|
75,000
|
|
|
|
2.70
|
|
|
$
|
0.0144
|
|
|
|
75,000
|
|
|
$
|
0.0144
|
|
A summary of activity during the period ended December 31, 2016 follows:
|
|
Number
of Shares
|
|
|
Weighted- Average Exercise Price
|
|
Balances as of December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
Issued
|
|
|
450,755
|
|
|
|
0.23
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled/expired
|
|
|
-
|
|
|
|
-
|
|
Balances as of December 31, 2016
|
|
|
450,755
|
|
|
$
|
0.23
|
|
NOTE 8.
DERIVATIVE LIABILITIES
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “
Derivatives and Hedging,”
and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of December 31, 2016. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note and warrants is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in December 31, 2016 and 2015:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Expected term
|
|
0.10 - 5.00 years
|
|
|
1.33 - 1.36 years
|
|
Expected average volatility
|
|
98% - 169
|
%
|
|
108% - 110
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free interest rate
|
|
0.36% - 1.93
|
%
|
|
|
0.80
|
%
|
The following table summarizes the derivative liabilities included in the balance sheet at December 31, 2016:
Fair Value Measurements Using Significant Observable Inputs (Level 3)
|
|
Balance - December 31, 2015
|
|
$
|
31,080
|
|
Addition of new derivative liabilities upon issuance of convertible notes as debt discounts
|
|
|
704,849
|
|
Addition of new derivatives liabilities recognized as loss on convertible notes
|
|
|
344,712
|
|
Addition of new derivatives liabilities recognized as issuance of warrants as debt discounts
|
|
|
4,902
|
|
Addition of new derivative liabilities recognized as loss on warrants
|
|
|
86,084
|
|
Reduction of derivatives liabilities from conversion of convertible note to common shares
|
|
|
(160,771
|
)
|
Loss on debt extinguishment
|
|
|
2,103
|
|
Loss on change in fair value of the derivative liabilities
|
|
|
1,564,693
|
|
Balance – December 31, 2016
|
|
$
|
2,577,652
|
|
ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item. The following table summarizes the loss on derivative liability included in the income statement for the financial periods ended December 31, 2016 and 2015, respectively.
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Day one loss due to derivative liabilities on convertible notes and warrants
|
|
$
|
430,796
|
|
|
$
|
-
|
|
Loss on change in fair value of the derivative liabilities
|
|
|
1,564,693
|
|
|
|
761
|
|
Loss on change in the fair value of derivative liabilities
|
|
$
|
1,995,489
|
|
|
$
|
761
|
|
NOTE 9. INCOME TAXES
IDdriven, Inc. was formed in January 2014 under the name TiXFi, Inc. Prior to the Share Exchange in December 2015, the Company only had operations in the United States. In December 2015, the Company became the parent of Insight Innovators B.V., a wholly owned Netherlands subsidiary, which files tax returns in The Netherlands.
The Netherlands and U.S. components of (loss) income before income taxes were as follows:
|
|
For The Years Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
The Netherlands
|
|
$
|
(631,576
|
)
|
|
$
|
(952,639
|
)
|
United States
|
|
|
(3,634,371
|
)
|
|
|
(235,984
|
)
|
Loss before income taxes
|
|
$
|
(4,265,947
|
)
|
|
$
|
(1,188,623
|
)
|
The income tax provision (benefit) for the years ended December 31, 2016 and 2015 consists of the following:
|
|
For The Years Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Income tax expense (benefit) at statutory rate:
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
(147,394
|
)
|
|
$
|
(227,660
|
)
|
United States
|
|
|
(376,876
|
)
|
|
|
(80,234
|
)
|
Total
|
|
|
(524,270
|
)
|
|
|
(307,894
|
)
|
Change in valuation allowance
|
|
|
524,270
|
|
|
|
273,394
|
|
Income tax expense (benefit) per books
|
|
$
|
-
|
|
|
$
|
(34,500
|
)
|
Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts recorded for tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
NOL Carryover:
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
315,236
|
|
|
$
|
167,842
|
|
United states
|
|
|
457,111
|
|
|
|
80,235
|
|
Total
|
|
|
772,347
|
|
|
|
248,077
|
|
Valuation allowance
|
|
|
(772,347
|
)
|
|
|
(248,077
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The reconciliation of the effective income tax rate to the U.S. federal statutory rate as of December 31, 2016 and 2015:
Federal income tax rate
|
|
|
34.0
|
%
|
Increase in valuation allowance
|
|
(34.0
|
%)
|
Effective income tax rate
|
|
|
0.0
|
%
|
The reconciliation of the effective income tax rate to the Netherlands statutory rate as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Income tax rate
|
|
|
23.3
|
%
|
|
|
23.9
|
%
|
Increase in valuation allowance
|
|
(23.3
|
%)
|
|
(23.9
|
%)
|
Effective income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
At December 31, 2016 and 2015, the Company had approximately $1,345,000 and $713,000, respectively of foreign net operating losses (“NOLs”) that may be available to offset future taxable income, which begin to expire in 2023. At December 31, 2016 and 2015, the Company had approximately $1,344,500 and $236,000, respectively, of federal (U.S.) NOLs that may be available to offset future taxable income, which begin to expire in 2034. In accordance with Section 382 of the U.S. Internal Revenue Code, the usage of the Company’s net operating loss carry forwards are subject to annual limitations following greater than 50% ownership changes.
The Company assesses the likelihood that deferred tax assets will be realized. ASC 740,
“Income Taxes”
requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of December 31, 2016. As at December 31, 2014, the Company had a tax position, for which we have established a tax benefit of $34,500, for the carry back of losses incurred during the year ended December 31, 2015. For the years ended December 31, 2016 and 2015, the increase in the valuation allowance was $524,270 and $273,394, respectively.
The Company’s tax returns are subject to examination by tax authorities beginning with the year ended December 31, 2014 (U.S) and December 31, 2013 (Netherlands).
NOTE 10. COMMITMENTS AND CONTINGENCIES
Rent commitment
Insight leases approximately 4,000 square feet of space at Nijverheidsweg Noord 78, 3812PM Amersfoort, The Netherlands. The terms of the lease require that Insight pay €1,500 per month (approximately $1,680 per month) on a month to month basis to a related party landlord, owned by immediate family member of management.
Total rent expenses for the year ended December 31, 2016 and 2015 were $19,935 and $20,160, respectively. Rent payable as of December 31, 2016 and 2015 amounted to $17,152 and $3,937, respectively and included under accounts payable in the consolidated balance sheet.
Management Agreements
Insight entered into Management Agreements with Berlisa B.V., Eagle Consulting LLC and Sterling Skies B.V. (entities that are owned by Messrs. Verweij, van Wijk and de Vries, executive officers of our company and related parties) on July 1, 2014 for a period of one year which expired on June 30, 2015 with a monthly fee of €7,500 per month.
The Company charged $498,538 and $360,825 during the years ended December 31, 2016 and 2015, respectively to operations for the management fees stemming from these Management Agreements.
As of December 31, 2016 and 2015, the management fees payable was $296,816 and $33,399 and accrued interest on the payable amount of $9,172 and $0, respectively.
Employment Agreements
Arend D. Verweij
. Under the terms of the December 21, 2015 employment agreement we entered into with Mr. Verweij, he agreed to serve as our Chief Executive Officer and Chairman of the board of directors for a period of two years, that term automatically renewable for one year periods thereafter unless notice by either of Mr. Verweij or us is provided to the other to the contrary within 30 days prior to the expiration of any such period. The employment agreement provides for, among other things, Mr. Verweij’s full time service in our U.S. offices, for a base annual salary in the amount of $180,000, subject to the possible increase at each anniversary thereof to be determined by a majority of the independent members of the board of directors in its discretion; provided, however, that Mr. Verweij’s annual salary will be increased to $252,000 upon our entry into fully executed contracts with at least three customers who are unrelated parties that have a minimum of 500 users of the software system being licensed by our subsidiary, Insight, and each of such three contracts are in full force and effect.
Additionally, Mr. Verweij is eligible to receive a performance bonus during each year of employment of up to 100% of the base salary. The award of each year’s performance bonus, if any, is to be based upon certain performance criteria specified in the employment agreement and to be further determined by a majority of the independent members of the board of directors or a compensation committee to be made up of at least a majority of independent members appointed by the board or directors. Moreover, Mr. Verweij will receive a stock option grant entitling him to purchase an aggregate of 3,065,130 shares of our common stock which vests one-third on each of the three anniversary dates of his employment, but only if he is still in our employ on the date of vesting. The exercise prices of the option shares as to one third their number on their three respective vesting anniversaries are $0.04893, $0.05873 and $0.06852 per share. The number of unvested option shares available as of a given time during his employ are subject to appropriate adjustment in the event we undertake or undergo, as applicable, a stock split, reverse stock split, merger, recapitalization and similar transactions, and should Mr. Verweij cease to be in our employ, except for under certain specified circumstances, he will have one month to exercise vested options or otherwise they will become void. Those certain specified circumstances are his termination by us without cause, his termination for good reason, or his termination by reason of a change in control.
Further, Mr. Verweij shall be entitled to five weeks’ paid vacation, as well as in respect of all conventional holidays, a $1,500 monthly health insurance allowance, reimbursement of his out of pocket expenses incurred in connection with his employment, and such other perquisites and benefits as are or as may be made available to other of our executive employees. As of the date of this report, the board of directors has not established a complete set of performance benchmarks for purposes of determining bonuses payable to Mr. Verweij or other of our executives.
If Mr. Verweij’s employment is terminated by us, for cause, or by Mr. Verweij without good reason, he shall be entitled to be paid his accrued salary through, and earned but unused compensated absence time as of, the date of termination, but all remaining unvested stock options will be immediately forfeited by him.
Should we terminate Mr. Verweij’s employment without cause, or should he terminate the same for good reason, he shall be entitled to (i) be paid his then current base salary earned through the date of termination, together with all reimbursements and other amounts owed to him through such date pursuant, including any accrued but unused vacation/holiday time, (ii) an amount equal to one hundred percent (100%) of the greater of (A) his bonus for the year of termination or (B) the bonus actually earned for the year prior to the year of termination, if any, (iii) a lump-sum severance payment severance in an amount equal to the lesser of (A) one (1) times the base salary in the year of such termination or (B) the amount of base salary owed to him for the remainder of the first two years of his employment, (iv) we will continue to provide him with those medical, life and disability insurance benefits, if any, which are provided to him on the last day of his employment by us (or reimburse him for COBRA) for a period of five years, and (v) all stock options granted to him shall immediately vest, and any transfer restrictions thereon shall cease to be effective.
Finally, during the term of his employment and for a period of (i) one year thereafter if we terminate his employment without cause or he terminates his employment for good reason or (ii) two years otherwise, Mr. Verweij agreed to not engage in any competitive business or activities anywhere in the world, and during and subsequent to his employment, he has agreed to keep certain of our important or sensitive information confidential.
Geurt van Wijk
. Under the terms of the December 21, 2015 employment agreement we entered into with Mr. van Wijk, he agreed to serve as our Chief Operating Officer for a period of two years, that term automatically renewable for one year periods thereafter unless notice by either of Mr. van Wijk or us is provided to the other to the contrary within 30 days prior to the expiration of any such period. The employment agreement provides for, among other things, Mr. van Wijk’s full time service from our offices in the Netherlands, for a base annual salary equal to EURO 120,000, subject to the possible increase at each anniversary thereof to be determined by a majority of the independent members of the board of directors in its discretion; provided, however, that Mr. van Wijk’s annual salary will be increased to EURO 150,000 upon our entry into fully executed contracts with at least three customers who are unrelated parties that have a minimum of 500 users of the software system being licensed by our subsidiary, Insight, and each of such three contracts are in full force and effect.
Additionally, Mr. van Wijk is eligible to receive a performance bonus during each year of employment of up to 75% of the base salary. The award of each year’s performance bonus, if any, is to be based upon certain performance criteria specified in the employment agreement and to be further determined by a majority of the independent members of the board of directors or a compensation committee to be made up of at least a majority of independent members appointed by the board or directors. Moreover, Mr. van Wijk will receive a stock option grant entitling him to purchase an aggregate of 2,554,278 shares of our common stock which vest one-third on each of the three anniversary dates of his employment, but only if he is still in our employ on the vesting dates. The exercise prices of the option shares as to one third their number on their three respective vesting anniversaries are $0.04893, $0.05873 and $0.06852 per share. The number of unvested option shares available as of a given time during his employ are subject to appropriate adjustment in the event we undertake or undergo, as applicable, a stock split, reverse stock split, merger, recapitalization and similar transactions, and should Mr. van Wijk cease to be in our employ, except for under certain specified circumstances, he will have one month to exercise vested options or otherwise they will become void. Those certain specified circumstances are his termination by us without cause, his termination for good reason, or his termination by reason of a change in control.
Further, Mr. van Wijk shall be entitled to five weeks’ paid vacation, as well as in respect of all conventional holidays, a EURO 1,350 monthly vehicle allowance, which will stop when his annual base salary reaches EURO 150,000, reimbursement of his out of pocket expenses incurred in connection with his employment, and such other perquisites and benefits as are or as may be made available to other of our executive employees. As of the date of this report, the board of directors has not established a complete set of performance benchmarks for purposes of determining bonuses payable to Mr. van Wijk or other of our executives.
If Mr. van Wijk’s employment is terminated by us, for cause, or by Mr. van Wijk without good reason, he shall be entitled to be paid his accrued salary through, and earned but unused compensated absence time as of, the date of termination, but all remaining unvested stock options will be immediately forfeited by him.
Should we terminate Mr. van Wijk’s employment without cause, or should he terminate the same for good reason, he shall be entitled to (i) be paid his then current base salary earned through the date of termination, together with all reimbursements and other amounts owed to him through such date pursuant, including any accrued but unused vacation/holiday time, (ii) an amount equal to one hundred percent (100%) of the greater of (A) his bonus for the year of termination or (B) the bonus actually earned for the year prior to the year of termination, if any, (iii) a lump-sum severance payment severance in an amount equal to the lesser of (A) one (1) times the base salary in the year of such termination or (B) the amount of base salary owed to him for the remainder of the first two years of his employment, (iv) we will continue to provide him with those medical, life and disability insurance benefits, if any, which are provided to him on the last day of his employment by us (or reimburse him for COBRA) for a period of five years, and (v) all stock options granted to him shall immediately vest, and any transfer restrictions thereon shall cease to be effective.
Finally, during the term of his employment and for a period of (i) one year thereafter if we terminate his employment without cause or he terminates his employment for good reason or (ii) two years otherwise, Mr. van Wijk agreed to not engage in any competitive business or activities anywhere in the world, and during and subsequent to his employment, he has agreed to keep certain of our important or sensitive information confidential.
Remy de Vries
. As of December 21, 2015, we entered additionally into an employment agreement with Mr. de Vries to serve as our Chief Technology Officer for a period of two years, that term automatically renewable for one year periods thereafter unless notice by either of Mr. de Vries or us is provided to the other to the contrary within 30 days prior to the expiration of any such period. The employment agreement provides for, among other things, Mr. de Vries’ full time service from our offices in the Netherlands, for a base annual salary equal to EURO 120,000, subject to the possible increase at each anniversary thereof to be determined by a majority of the independent members of the board of directors in its discretion; provided, however, that Mr. de Vries’ annual salary will be increased to EURO 150,000 upon our entry into fully executed contracts with at least three customers who are unrelated parties that have a minimum of 500 users of the software system being licensed by our subsidiary, Insight, and each of such three contracts are in full force and effect.
Additionally, Mr. de Vries is eligible to receive a performance bonus during each year of employment of up to 75% of the base salary. The award of each year’s performance bonus, if any, is to be based upon certain performance criteria specified in the employment agreement and to be further determined by a majority of the independent members of the board of directors or a compensation committee to be made up of at least a majority of independent members appointed by the board or directors. Moreover, Mr. de Vries will receive a stock option grant entitling him to purchase an aggregate of 2,554,278 shares of our common stock which vest one-third on each of the anniversary dates of his employment, but only if he is still in our employ on the vesting date. The exercise prices of the option shares as to one third their number on their three respective vesting anniversaries are $0.04893, $0.05873 and $0.06852 per share. The number of unvested option shares available as of a given time during his employ are subject to appropriate adjustment in the event we undertake or undergo, as applicable, a stock split, reverse stock split, merger, recapitalization and similar transactions, and should Mr. de Vries cease to be in our employ, except for under certain specified circumstances, he will have one month to exercise vested options or otherwise they will become void. Those certain specified circumstances are his termination by us without cause, his termination for good reason, or his termination by reason of a change in control.
Further, Mr. de Vries shall be entitled to five weeks’ paid vacation, as well as in respect of all conventional holidays, a EURO 1,350 monthly vehicle allowance, which will stop when his annual base salary reaches EURO 150,000, reimbursement of his out of pocket expenses incurred in connection with his employment, and such other perquisites and benefits as are or as may be made available to other of our executive employees. As of the date of this report, the board of directors has not established a complete set of performance benchmarks for purposes of determining bonuses payable to Mr. de Vries or other of our executives.
If Mr. de Vries’ employment is terminated by us, for cause, or by Mr. de Vries without good reason, he shall be entitled to be paid his accrued salary through, and earned but unused compensated absence time as of, the date of termination, but all remaining unvested stock options will be immediately forfeited by him.
Should we terminate Mr. de Vries’ employment without cause, or should he terminate the same for good reason, he shall be entitled to (i) be paid his then current base salary earned through the date of termination, together with all reimbursements and other amounts owed to him through such date pursuant, including any accrued but unused vacation/holiday time, (ii) an amount equal to one hundred percent (100%) of the greater of (A) his bonus for the year of termination or (B) the bonus actually earned for the year prior to the year of termination, if any, (iii) a lump-sum severance payment severance in an amount equal to the lesser of (A) one (1) times the base salary in the year of such termination or (B) the amount of base salary owed to him for the remainder of the first two years of his employment, (iv) we will continue to provide him with those medical, life and disability insurance benefits, if any, which are provided to him on the last day of his employment by us (or reimburse him for COBRA) for a period of five years, and (v) all stock options granted to him shall immediately vest, and any transfer restrictions thereon shall cease to be effective.
Finally, during the term of his employment and for a period of (i) one year thereafter if we terminate his employment without cause or he terminates his employment for good reason or (ii) two years otherwise, Mr. de Vries agreed to not engage in any competitive business or activities anywhere in the world, and during and subsequent to his employment, he has agreed to keep certain of our important or sensitive information confidential.
Litigation
From time to time we may be a defendant and/or plaintiff in various other legal proceedings arising in the normal course of our business. We are currently not a party to any material legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, we are not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Furthermore, as of the date, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party adverse to our company or has a material interest adverse to us.
NOTE 11. RELATED PARTY CONSIDERATIONS
Loans Receivable
During December 2013, the Company loaned approximately $68,500 (Euro 50,000) to a related party, which was repaid on January 9, 2014. During the year ended December 31, 2014, the Company loaned additional $61,000 (€50,000), of which $24,400 (€20,000) was received on October 31, 2014. During the year ended December 31, 2015, the Company received the balance of $36,600 (€30,000).
As of December 31, 2016 and 2015, balance in loan receivable, related party was $0, respectively.
The Company recognized interest income of $0 and $2,730 for the years ended December 31, 2016 and 2015, respectively, in connection with the loans.
Rent
Insight leases approximately 4,000 square feet of space in The Netherlands from a related party landlord, owned by immediate family member of management (see note 10).
Management Contracts
During the years ended December 31, 2016 and 2015, the Company entered into management contracts with officers and directors of the Company who are also major shareholders, whereby they received cash salaries, stock option grants and other commitments (see note 10).
NOTE 12. CONCENTRATIONS
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the years ended December 31, 2016 and 2015. In 2015 Insight Innovators decided to stop with consultancy and move forward as a product company.
|
|
Year Ended
|
|
|
Year Ended
|
|
Customer
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
EU OCG UK
|
|
|
-
|
%
|
|
|
75
|
%
|
EU Key Talk
|
|
|
-
|
%
|
|
|
22
|
%
|
EU PWN
|
|
|
96
|
%
|
|
|
-
|
%
|
$57,538 of our total sales of $60,038 was generated in foreign countries by Insight during the year ended December 31, 2016. All of our sales were generated in foreign countries by Insight during the year ended December 31, 2015.
NOTE 13. STOCKHOLDERS’ DEFICIT
On January 21, 2016 with an effective date of February 1, 2016, the Company filed Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) with the Secretary of State of the State of Nevada to:
|
·
|
Increase the number of authorized shares of common stock, $0.001 par value from 100,000,000 to 500,000,000;
|
|
·
|
Create a class of preferred stock consisting of 10,000,000 shares, the designations and attributes of which are left for future determination by our board of directors (“Preferred Stock”);
|
|
·
|
Designate 808,000 shares of Preferred Stock as its Series A Preferred;
|
|
·
|
Effect a 1 for 6 forward stock split of the Company’s issued and outstanding common stock;
|
Preferred Stock
The Company has authorized 10,000,000 preferred shares with a par value of $0.001 per share. The Board of Directors is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes.
Series A Convertible Preferred Stock
The Company has designated 808,000 shares of Series A Convertible Preferred Stock.
The designations, rights and preferences of the Series A Preferred include:
|
·
|
the stated value of the Series A Preferred is $1.00 per share.
|
|
|
|
|
·
|
the shares have no voting rights, provided, however, that for so long as any shares are outstanding, we many not, without the affirmative vote of at least 51% of the then outstanding shares of the Series A Preferred, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred or alter or amend the Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation (as defined) senior to, or otherwise in
pari passu
with, the Series A Preferred, (c) amend our articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders, (d) increase the number of authorized shares of Series A Preferred, or (e) enter into any agreement with respect to any of the foregoing.
|
|
|
|
|
·
|
each share is convertible at the option of the holder based upon a conversion price of $0.1778 ($0.0296 per share post forward stock split), into shares of our common stock at any time. The rate of conversion is subject to adjustment as discussed below.
|
|
|
|
|
·
|
Upon our liquidation, dissolution or winding-up, the holders will be entitled to receive out of our assets, whether capital or surplus, an amount equal to the stated value per share, $1.00, plus any accrued and unpaid dividends thereon.
|
|
|
|
|
·
|
the conversion price of the Series A Preferred is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events by adjustment of the conversion price by its multiplication by a fraction the numerator of which is the number of shares of common stock outstanding immediately before such event, and the denominator of which is the number of shares outstanding immediately after such event.
|
|
|
|
|
·
|
If, at any time while the Series A Preferred is outstanding, the Company or any subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to re-price, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of common stock at an effective price per share that is lower than a conversion price then in effect for any of the Series A Preferred, as adjusted, then the conversion price for shares of Series A Preferred shall be reduced to equal the lower issuance price.
|
|
·
|
As long as any shares of Series A Preferred are outstanding, unless the holders of at least 51% in Stated Value of the then outstanding shares of such Series A Preferred shall have given prior written consent, the Corporation shall not, and shall not permit any Subsidiary to, directly or indirectly:
a) The Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents (or a combination of units thereof) involving a variable rate transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of common stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the common stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price.
|
During the year ended December 31, 2016, 607,289 shares of Series A Convertible Preferred Stock were converted into 20,505,777 shares of common stock.
During the year ended December 31, 2015, we issued 807,568 shares of Series A Convertible Preferred stock, to five individuals, as part of the merger with Insight. The shares were issued for cash of $557,802 and exchange of a convertible note payable and accrued interest of $257,912. As of December 31, 2015, $250,000 was unpaid and a subscription receivable was recorded.
As of December 31, 2016 and 2015, the Company had 200,279 and 807,568, respectively, shares of Series A Convertible preferred stock issued and outstanding, respectively.
Common Stock
The Company has authorized 500,000,000 common shares with a par value of $0.001 per share. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.
During the year ended December 31, 2016, the Company issued 22,547,397 shares of common stock, as follows:
|
·
|
700,000 shares of common stock to consultants, for services valued at $100,000.
|
|
·
|
20,505,777 shares of common stock in a conversion of 607,289 shares of Series A Convertible Preferred Stock.
|
|
·
|
400,000 shares of common stock, with a value of $100,000, issued as part of a $100,000 Promissory Note.
|
|
·
|
941,620 shares of common stock in a conversion of $150,000 of Convertible Notes valued at $254,238.
|
During the year ended December 31, 2015, the Company issued 74,770,308 shares of common stock, as follows:
On December 21, 2015, pursuant to the Share Exchange Agreement (See Note 1), the Company issued 55,980,000 shares of common stock to the stockholders of Insight in exchange for 40,074 shares of Insight’s common stock, representing 100% of its issued and outstanding common stock. As a result of the reverse acquisition accounting, these shares issued to the former Insight stockholders are treated as being outstanding from the date of issuance of the Insight shares.
The following transactions occurred as a result of the reverse acquisition on December 21, 2015:
|
·
|
The Company purchased 12,000,000 shares of its common stock from its former Chief Executive Officer for $150,000 and the shares were cancelled.
|
|
·
|
Our former Chief Executive Officer acquired all assets and liabilities related to our online ticket brokerage business in exchange for the cancellation of 18,000,000 shares of our common stock she held.
|
|
·
|
The Company issued 4,080,000 shares of its unregistered common stock to an unaffiliated third party for compensation valued at $68,000.
|
As at December 31, 2016 and 2015, the Company had 97,457,397 and 74,910,000 shares of common stock issued and outstanding, respectively.
NOTE 14. INCENTIVE STOCK PLANS
2015 Stock Option Grants
We granted stock options, which was adopted by our board of directors on December 21, 2015, provides for equity incentives to be granted to our employees, executive officers or directors.
During the year ended December 31, 2015 we issued options to purchase an aggregate of 8,173,686 shares of our unregistered common stock at a price of $.04893 per share for 1/3 of the shares, $.05873 per share for 1/3 of the shares, and $.06852 per share for 1/3 of the shares. The options had an aggregate value totaling $71,630 were issued to Messrs. Verweij, van Wijk and de Vries, executive officers of our company.
A summary of activity during the year ended December 31, 2016 follows:
|
|
Options Outstanding
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted- Average Exercise Price
|
|
|
Fair Value on Grant Date
|
|
|
Intrinsic
Value
|
|
Balances as of December 31, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
8,173,686
|
|
|
|
0.0587
|
|
|
|
71,630
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balances as of December 31, 2015
|
|
|
8,173,686
|
|
|
$
|
0.0587
|
|
|
$
|
71,630
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balances as of December 31, 2016
|
|
|
8,173,686
|
|
|
$
|
0.0587
|
|
|
$
|
71,630
|
|
|
$
|
-
|
|
The outstanding options have a weighted-average remaining contract term of 3.98 years. As of December 31, 2016, all options remain unvested.
One-third of the options granted vest at the end of the first, second and third year after the date of the award date of December 21, 2015. After vesting, the option generally can be exercised for the period remaining in the 5-year term from issuance date. Total compensation cost expected to be recognized for unvested options at December 31, 2016 amounted to $27,479. During the year ended December 31, 2016 and 2015, the Company charged to operations stock based compensation expense of $42,960 and $1,191, respectively.
The fair value of each option on the date of grant is estimated using the Black Scholes option valuation model. The following weighted-average assumptions were used for options granted during the year ended December 31, 2015:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
Expected term
|
|
5 years
|
|
Expected average volatility
|
|
|
95
|
%
|
Expected dividend yield
|
|
|
-
|
|
Risk-free interest rate
|
|
|
1.67
|
%
|
Expected annual forfeiture rate
|
|
|
-
|
|
The following table summarizes information relating to outstanding and exercisable stock options as of December 31, 2016:
Options Outstanding
|
|
|
Options Exercisable
|
|
Number of Shares
|
|
|
Weighted Average Remaining Contractual life (in years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
|
8,173,686
|
|
|
|
3.98
|
|
|
$
|
0.0587
|
|
|
|
-
|
|
|
|
-
|
|
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company's stock exceeded the exercise price of the stock options at December 31, 2016 for those stock options for which the quoted market price was in excess of the exercise price ("in-the-money options"). As of December 31, 2016, the aggregate intrinsic value of options outstanding was $nil, as we did not have options available for exercise. As of December 31, 2016, no options to purchase shares of common stock were exercisable.
NOTE 15. SUBSEQUENT EVENTS
Issuance of Common Stock
Subsequent to December 31, 2016, the Company issued as follows:
|
·
|
1,646,717 shares of common stock for the conversion of debt and accrued interest of $31,401.
|
|
|
|
|
·
|
3,579,256 shares of common stock in a conversion of 105,946 shares of Series A Convertible Preferred Stock.
|
|
|
|
|
·
|
1,365,000 shares of commons stocks from private placement share subscription, for net proceeds of $24,570.
|
Warrants
Subsequent to December 31, 2016, the Company agreed to issue a total of 9,000,000 stock warrants as follows:
|
·
|
On January 30, 2017, the Company entered into a public relations agreement with an unaffiliated party with warrants to purchase up to 5,000,000 shares of our common stock, subject to the achievement of certain price targets. The warrants are exercisable into 5,000,000 shares of common stock, for a period of 3 years, with 3,000,000 warrants exercisable at a price of $0.05 per share and 2,000,000 warrants exercisable at a price of $0.25 per share.
|
|
|
|
|
·
|
On February 21, 2017, the Company entered into a consulting agreement with an unaffiliated party with warrants to purchase up to 4,000,000 shares of our common stock, subject to the achievement of certain price targets. The warrants are exercisable into 4,000,000 shares of common stock, for a period of three years, with 2,000,000 warrants exercisable at a price of $0.02 per share and 2,000,000 warrants exercisable at a price of $0.25 per share.
|
|
|
|
Subsequent to December 31, 2016, the Company issued a total of 136,500 stock warrants as follows:
|
|
|
|
|
·
|
On February 28, 2017, the Company entered into a share subscription agreement with an unaffiliated party with attached warrants to purchase up to 136,500 shares of our common stock. The warrants are exercisable into 136,500 shares of common stock, for a period of two years from issuance, at a price of $0.02 per share.
|
Promissory Notes
On January 26, 2017, the Company issued a promissory note in the amount of $10,000 to an unaffiliated third party. The $10,000 note bears 20% interest and matures January 25, 2018.
Other Agreements
On February 1, 2017, the Company has entered into a consignment sales agreement with an unaffiliated independent contract for a one year term in which the Company’s products will be sold through the sales agent and will received sales commission at 5% of the net sales.
On February 15, 2017, the Company has entered into an investor relations agreement with an unaffiliated party to help seeking investors for the Company. The future compensation includes cash payment upon closing of the Placement equivalent to 10% of the aggregate gross proceeds from the Placement and Stock warrants at 10% of the aggregate number of common shares sold in the Placement.
On March 19, 2017, the Company has entered into an investor relations agreement with an unaffiliated party to help seeking investors for the Company. The future compensation includes cash payment upon closing of the Placement equivalent to 10% of the aggregate gross proceeds from the Placement and Stock warrants at 10% of the aggregate number of common shares sold in the Placement.