Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
1.
General:
Validian Corporation (the Corporation) was incorporated in the State of Nevada on April 12, 1989 as CCC Funding Corp. The Corporation underwent several name changes before being renamed to Validian Corporation on January 28, 2003.
Since August 3, 1999, the efforts of the Corporation have been devoted to the development of a high speed, highly secure method of transacting business using the internet, and to the sale and marketing of the Corporations products.
2.
Summary of significant accounting policies:
(a)
Future operations:
The consolidated financial statements have been prepared assuming that the Corporation will continue as a going concern. The Corporation has had limited revenues to date, has negative working capital of $3,712,793, has accumulated a deficit of $52,660,416 as at December 31, 2016, and has incurred a loss of $4,261,008 and negative cash flow from operations of $1,744,539 for the year then ended. Furthermore, the Corporation failed to settle certain of its promissory notes and 10% senior convertible notes when they matured on various dates during the years 2007 through 2016, resulting in a condition of default for all of the 10% senior convertible notes and the promissory notes; a significant portion of these notes remain in default as at December 31, 2016. In addition, the Corporation expects to continue to incur operating losses for the foreseeable future, and has no lines of credit or other financing facilities in place.
If the Corporation obtains further financing and generates revenue, it expects to incur operating expenditures of approximately $1,472,000 for the year ending December 31, 2017. In the event the Corporation cannot raise the funds necessary to finance its research and development and sales and marketing activities, it may have to cease operations.
All of the factors above raise substantial doubt about the Corporations ability to continue as a going concern. Managements plans to address these issues include raising capital through the private placement of equity, the exercise of previously-issued equity instruments and through the issuance of additional promissory notes and convertible notes.
The Corporations ability to continue as a going concern is subject to managements ability to successfully implement these plans. Failure to do so could have a material adverse effect on the Corporations position and or results of operations and could also result in the Corporations ceasing operations. The consolidated financial statements do not include adjustments that would be required if the assets are not realized and the liabilities settled in the normal course of operations.
Even if successful in obtaining financing in the near term, the Corporation cannot be certain that cash generated from its future operations will be sufficient to satisfy its liquidity requirements in the longer term, and it may need to continue to raise capital by issuing additional equity or by obtaining credit facilities. The Corporations future capital requirements will depend on many factors, including, but not limited to, the market acceptance of its products and the level of its promotional activities and advertising required to generate product sales. No assurance can be given that any such additional funding will be available or that, if available, it can be obtained on terms favorable to the Corporation.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
2.
Summary of significant accounting policies (continued):
(b)
Principles of consolidation:
These consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America and include the accounts of Validian Corporation and its wholly-owned subsidiaries, Sochrys Technologies Inc. and Evolusys S.A. All intercompany balances and transactions have been eliminated.
(c)
Cash and cash equivalents:
Cash and cash equivalents include liquid investments with original maturity dates of three months or less.
(d)
Property and equipment:
Property and equipment is stated at cost less accumulated depreciation, and includes computer hardware and software. These assets are being depreciated on a straight-line basis over their estimated useful lives, as follows: computer hardware: 2 years; computer software: 1 year.
(e)
Leases:
Leases are classified as either capital or operating in nature. Capital leases are those which substantially transfer the benefits and risk of ownership to the Corporation. Assets acquired under capital leases are depreciated as described in note 1(d). Obligations recorded under capital leases are reduced by the principal portion of lease payments. The imputed interest portion of lease payments is charged to expense.
(f)
Prepaid expenses:
Prepaid consulting fees related to services to be rendered within twelve months from the balance sheet date are included in prepaid expenses. These costs are charged to expenses as the services are rendered. If for any reason circumstances arise which would indicate that the services will not be performed in the future, any remaining balance included in prepaid expenses will be charged to expense immediately.
(g)
Income taxes:
Deferred income taxes are determined using the asset and liability method, whereby deferred income tax is recognized based on temporary differences using enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Temporary differences between the carrying values of assets or liabilities used for tax purposes and those used for financial reporting purposes arise in one period and reverse in one or more subsequent periods. In assessing the realizability of deferred tax assets, management considers known and anticipated factors impacting whether some portion or all of the deferred tax assets will not be realized. To the extent that the realization of deferred tax assets is not considered to be more likely than not, a valuation allowance is provided.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
2.
Summary of significant accounting policies (continued):
(h)
Revenue recognition:
Revenue from sale of product licenses is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable.
Revenue from product support contracts is recognized ratably over the life of the contract. Revenue from services is recognized at the time such services are rendered.
For contracts with multiple elements such as product licenses, product support and services, the Corporation follows the residual method. Under this method, the total fair value of the undelivered elements of the contract, as indicated by vendor specific objective evidence, is deferred and subsequently recognized when all criteria for recognizing revenue have been met. The difference between the total contract fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements. Vendor specific objective evidence for support and consulting services is obtained from contracts where these elements have been sold separately. Where the Corporation cannot determine the fair value of all of the undelivered elements, revenue is deferred until such time as it can be determined, or until all of the elements are delivered.
Revenues that have been prepaid but for which all elements have not been delivered, are reflected as deferred revenue on the consolidated balance sheet.
(i)
Research and development:
Costs related to research, design and development of software products are charged to research and development expenses as incurred unless they meet the generally accepted criteria for deferral and amortization. Software development costs incurred prior to the establishment of technological feasibility do not meet these criteria and are expensed as incurred. To date the Corporation has not capitalized any software development costs.
(j)
Advertising expense:
Advertising costs are expensed upon the start of the scheduled advertising.
(k)
Foreign currency translation:
The functional currency for the financial statements of the Corporation is the United States dollar. Exchange gains or losses are realized due to differences in the exchange rate at the transaction date versus the rate in effect at the settlement or balance sheet date. Exchange gains and losses are recorded in the statement of operations.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
2.
Summary of significant accounting policies (continued):
(l) Stock-based compensation:
The Corporation accounts for stock-based compensation in accordance with the provisions of ASC Topic 718 Compensation stock compensation (ASC Topic 718). ASC Topic 718 requires all share-based payments, including stock options granted by the Corporation to its employees, to be recognized as expenses, based on the fair value of the share-based payments at the date of grant. For purposes of estimating the grant date fair value of stock-based compensation, the Corporation uses the Black Scholes option-pricing model, and has elected to treat awards with graded vesting as a single award. The fair value of awards granted is recognized as compensation expense on a straight-line basis over the requisite service period, which in the Corporations circumstances is the stated vesting period of the award.
In adopting ASC Topic 718, the Corporation applied the modified-prospective transition method. Under this method, the Corporation has recognized compensation costs for all share-based payments granted, modified, or settled after January 1, 2006, as well as for any awards that were granted prior to January 1, 2006 for which the requisite service had not been provided as of that date (unvested awards).
(m) Impairment or disposal of long-lived assets:
The Corporation accounts for long-lived assets in accordance with ASC Topic 360-10 Impairment or disposal of long-lived assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
(n) Use of estimates:
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. Significant management estimates include assumptions used in estimating the fair value of convertible notes issued with common stock.
(o) Accounting for uncertainty in income taxes:
The Corporation does not recognize adjustments in the liability for unrecognized income tax benefits. As of December 31, 2016, the Corporation had approximately $11,540,000 of unrecognized tax benefits, all of which would affect the Corporations effective tax rate if recognized.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
3.
Property and equipment:
|
|
|
|
|
|
|
2016
|
|
|
Accumulated
|
Net book
|
|
Cost
|
depreciation
|
value
|
|
|
|
|
Computer hardware and software
|
$ 34,590
|
$ 34,590
|
$ --
|
|
$ 34,590
|
$ 34,590
|
$ --
|
|
|
|
|
|
|
|
2015
|
|
|
Accumulated
|
Net book
|
|
Cost
|
depreciation
|
value
|
|
|
|
|
Computer hardware and software
|
$ 34,590
|
$ 33,743
|
$ 847
|
|
$ 34,590
|
$ 33,743
|
$ 847
|
4.
Promissory notes payable:
The following table sets forth the financial statement presentation of the promissory note proceeds on issuance, and the changes in the financial statement presentation of the balance allocated to the notes as at and for the years ended December 31, 2016 and 2015:
|
|
|
|
2016
|
2015
|
Balance at beginning of year
|
$ 36,250
|
$ 46,250
|
|
|
|
Note proceeds on issuance
|
82,500
|
--
|
Allocated to common stock and additional paid-in capital for the
|
|
|
relative fair value of stock issued to holders of the notes:
|
|
|
Allocated to common stock par value
|
(750)
|
--
|
Allocated to additional paid-in capital
|
(21,250)
|
--
|
|
(22,000)
|
|
|
|
|
Proceeds allocated to promissory notes on issuance
|
60,500
|
--
|
|
|
|
Accretion recorded as a charge to interest and financing costs
|
19,902
|
--
|
|
|
|
Principal repaid
|
--
|
(10,000)
|
Balance end of period
|
116,652
|
36,250
|
|
|
|
Deferred finance charges
|
(3,868)
|
--
|
|
|
|
Balance at end of year
|
$ 112,784
|
$ 36,250
|
During the year ended December 31, 2016, the Corporation issued $82,500 of its promissory notes, for cash, and repaid $6,000 in accrued interest on the notes.
Under the terms of the notes issued during the year ended December 31, 2016, the Corporation had the option of pre-paying all or any portion of the balance outstanding on the notes at any time, without penalty or bonus, until maturity on January 13, 2017; interest on these notes accrued at the rate of 10% and was due at maturity. These notes, and accrued interest thereon, were repaid in full on January 12, 2017.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
4.
Promissory notes payable (contd):
Holders of the notes issued during the year ended December 31, 2016 were granted 750,000 common shares of the Corporation upon issuance of the notes; $22,000, representing the relative fair value of the common shares at the issuance date, was allocated to the common shares par value and additional paid in capital. The notes are being accreted to their face value, using the interest rate method, over the term of the notes.
The Corporation also incurred $7,500 in finance charges relating to the issuance of these notes. The finance charges were deferred and are being recognized as expense over the term of the notes.
$36,250 of the promissory notes are due on demand, and bear interest at 12%; $82,500 of the notes bear interest at the rate of 10% per annum and matured on January 13, 2017. The promissory notes are unsecured.
Included in interest and financing costs for the year ended December 31, 2016 is $7,594 (2015: $5,192) of interest paid and payable to the holders of the promissory notes; $19,902 (2015: $nil), of accretion charges; and $3,632 (2015: $nil) of finance fees. Interest on the promissory notes paid in cash during the year ended December 31, 2016 was $6,000 (2015: $5,100).
5.
10% Senior convertible notes:
The following table sets forth the financial statement presentation of the 10% senior convertible note proceeds on issuance, and the changes in the financial statement presentation of the balance allocated to the notes as at and for the years ended December 31, 2016 and 2015:
|
|
|
|
2016
|
2015
|
Balance at beginning of year
|
$ 6,721,291
|
$ 6,805,886
|
|
|
|
Note principal on issuance
|
70,000
|
1,173,307
|
Allocated to common stock and additional paid-in capital for
|
|
|
market value of stock issued to holders of the notes:
|
|
|
Allocated to common stock
|
(210)
|
(2,595)
|
Allocated to additional paid-in capital
|
(5,996)
|
(97,472)
|
|
(6,206)
|
(100,067)
|
Allocated to additional paid-in capital for the intrinsic value of the
|
|
|
beneficial conversion feature
|
(11,873)
|
(654,456)
|
Proceeds allocated to 10% senior convertible notes on issuance
|
51,921
|
418,784
|
|
|
|
Accretion recorded as a charge to interest and financing costs
|
18,079
|
754,523
|
Principal repayments in cash
|
(49,794)
|
(298,415)
|
Principal converted pursuant to the terms of the notes
|
(151,500)
|
(702,597)
|
Principal settled through the issuance of Ser. B conv. preferred stock
|
(2,835,025)
|
|
Principal settled through the issuance of Ser. C conv. Preferred stock
|
(2,792,233)
|
|
|
|
|
Principal matured and settled through the issuance of new notes
|
--
|
(256,890)
|
Balance at end of year
|
962,739
|
6,721,291
|
Payable to related parties (note 13)
|
--
|
(566,507)
|
|
$ 962,739
|
$ 6,154,784
|
During the year ended December 31, 2016, the Corporation issued $70,000 of its 10% senior convertible notes, and repaid an aggregate of $49,794 of these notes.
During the year, holders of the notes exercised the conversion feature and converted $151,500 in principal, plus $36,922 in accrued interest thereon, into 6,280,729 common shares of the Corporations common stock.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
5.
10% Senior convertible notes (continued):
The Corporation also settled $2,835,025 in principal and $248,850 in accrued interest through the issuance of 3,900 shares of its Series B convertible preferred stock, valued at $3,900,000; $2,792,233 in principal and $170,983 in accrued interest through the issuance of 3,580 shares of its Series C convertible preferred stock, valued at $3,579,966; $792,355 in accrued interest through the issuance of 1,005 shares of its Series A convertible preferred stock, valued at $1,005,000; and $400,000 in accrued interest through an exchange of $400,000 in accounts receivable. An aggregate net loss of $1,645,554 was realized in connection with the settlement of principal and accrued interest.
Under the terms of the notes issued during the year ended December 31, 2016, the holders are permitted, at any time, to convert all or a portion of the outstanding principal plus accrued interest thereon into common stock of the company, at a rate of one common share for each $0.03 of debt converted. The Corporation has the option of pre-paying all or any portion of the balance outstanding on the notes at any time, without penalty or bonus, with the permission of the holders. Interest on the notes is accrued until the notes are either repaid by the Corporation or converted by the holders. At the Corporations option, interest may be paid either in cash or in common shares of the Corporation. If interest is paid in common shares, the number of shares required for settlement will be calculated at the rate of conversion in effect for the conversion of the note principal. $50,000 of the notes issued during 2016 are payable on demand; $20,000 of the notes matured on December 31, 2016.
Notwithstanding the stated maturity dates, all of the notes issued during the year ended December 31, 2016 are payable on demand, pursuant to the default provisions of the notes, as described below.
Holders of the notes issued during the year ended December 31, 2016 were granted 210,000 common shares of the Corporation upon issuance of the notes; $6,206, representing the relative fair value of the common shares at the issuance date, was allocated to the common shares par value and additional paid in capital.
At the date of issuance, the conversion feature of the notes issued during the year ended December 31, 2016 was in-the-money. $11,873, representing the relative fair value of the beneficial conversion feature, was allocated to additional paid in capital.
During the year ended December 31, 2015, the Corporation issued an aggregate of $1,173,307 of its 10% senior convertible notes, and settled an aggregate of $1,257,902 of these notes. $885,000 of the notes issued during the year, were issued for cash; $288,307 of the notes were issued in settlement of $256,890 of previously issued 10% senior convertible notes plus $31,417 in accrued interest thereon. During the year, holders of the notes exercised the conversion feature and converted $702,597 in principal, plus $777,015 in accrued interest thereon, into 49,352,824 common shares of the Corporations common stock; $298,415 in principal of the notes, and $12,027 in accrued interest thereon, was repaid in cash; and $54,231 in accrued interest was settled by the Corporation on issuing 1,807,685 shares of its common stock.
Under the terms of the notes issued during the year ended December 31, 2015, the holders are permitted, at any time, to convert all or a portion of the outstanding principal plus accrued interest thereon into common stock of the company, at a rate of one common share for each $0.03 of debt converted. The Corporation has the option of pre-paying all or any portion of the balance outstanding on the notes at any time, without penalty or bonus, with the permission of the holders. Interest on the notes is accrued until the notes are either repaid by the Corporation or converted by the holders. At the Corporations option, interest may be paid either in cash or in common shares of the Corporation. If interest is paid in common shares, the number of shares required for settlement will be calculated at the rate of conversion in effect for the conversion of the note principal. $1,018,307 of the notes are payable on demand; $145,000 of the notes matured on December 31, 2015; and $10,000 of the notes mature on December 31, 2016.
Notwithstanding the stated maturity dates, all of the notes issued during the year ended December 31, 2015 are payable on demand, pursuant to the default provisions of the notes, as described below.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
5.
10% Senior convertible notes (continued):
Holders of the notes issued during the year ended December 31, 2015 were granted 2,595,500 common shares of the Corporation upon issuance of the notes; $100,067, representing the relative fair value of the common shares at the issuance date, was allocated to the common shares par value and additional paid in capital.
At the date of issuance, the conversion feature of the notes issued during the year ended December 31, 2015 was in-the-money. $654,456, representing the relative fair value of the beneficial conversion feature, was allocated to additional paid in capital.
The Corporation failed to settle certain of its 10% senior convertible notes plus accrued interest thereon when they matured on various dates between October 1, 2008 and December 31, 2016. At December 31, 2016, a significant portion of these notes remained in default for non payment. As a result of these non-payment defaults, all of the 10% senior convertible notes are in default at December 31, 2016, in accordance with the default provisions of the notes, and consequently are payable on demand. Interest is accrued at the coupon rate on all notes outstanding past the maturity date.
The following table summarizes information regarding the 10% senior convertible notes outstanding at December 31, 2016:
|
|
Note
|
Conversion
|
Principal
|
Rate
|
$ 451,233
|
$ 0.030
|
11,506
|
0.038
|
500,000
|
0.100
|
$ 962,739
|
|
The maximum number of shares issuable on conversion of all 10% senior convertible notes outstanding at December 31, 2016 was 20,343,846. Interest is payable in stock or in cash, at the discretion of the Corporation, therefore the potential conversion of the interest portion has not been included in our calculated issuance requirement (note 9(a)).
All of the 10% senior convertible notes outstanding at December 31, 2016 were unsecured.
Included in interest and financing costs for the year ended December 31, 2016 is $368,784 (2015: $685,623) in coupon rate interest accrued on the 10% senior convertible notes; and $18,079, (2015: $754,523) in accretion related to the relative fair value of the equity components of the 10% senior convertible notes at issuance.
At December 31, 2016, the fair value of the stock issuable to fully convert the 10% senior convertible note principal, was $610,315, which is $352,424 lower than the principal amount of the notes.
6. Convertible promissory notes:
During the year ended December 31, 2016, the Corporation issued $973,611 of its convertible promissory notes for cash. The notes bear interest at the rate of 8% until they mature, or until there is an event of default; thereafter, any portion of the principal or interest which has not been settled will be subject to interest at the rate of 22% per annum.
$55,000 of the notes issued during the year ended December 31, 2016 had a maturity date of on January 5, 2017, and could be prepaid during the period from issuance to July 3, 2016, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which is unpaid at July 3, 2016, or thereafter, into common stock of the Company. The rate of conversion for these notes was calculated as the average of the lowest three trading prices during the twenty trading days immediately preceding such conversion, discounted by 40%.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
6. Convertible promissory notes (continued):
$50,000 of the notes issued during the year ended December 31, 2016 had a maturity date of November 8, 2016, and could be prepaid during the period from issuance to July 29, 2016, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which was unpaid at July 29, 2016 or thereafter, into common stock of the Company. The rate of conversion for these notes was calculated as the average of the lowest three trading prices during the ten trading days immediately preceding such conversion, discounted by 49%.
$40,000 of the notes issued during the year ended December 31, 2016 had a maturity date of February 22, 2017, and could be prepaid during the period from issuance to August 20, 2016, in part or in full, at various rates ranging from 120% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which is unpaid at any time, into common stock of the Company. The rate of conversion for these notes was calculated as the average of the lowest three trading prices during the twenty trading days immediately preceding such conversion, discounted by 45%.
$111,111 of the notes issued during the year ended December 31, 2016 had a maturity date of March 2, 2018. The holder had the option to convert any balance of principal and interest which was unpaid at August 29, 2016 or thereafter, into common stock of the Company. The rate of conversion for these notes was calculated as the average of the lowest two trading prices during the twenty-five trading days immediately preceding such conversion, discounted by 40%.
$100,000 of the notes issued during the year ended December 31, 2016 had a maturity date of December 15, 2016, and could be prepaid during the period from issuance to September 11, 2016, in full, at various rates ranging from 135% to 150% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which was unpaid at September 11, 2016 or thereafter, into common stock of the Company. The rate of conversion for these notes was calculated as the average of the lowest three trading prices during the twenty trading days immediately preceding such conversion, discounted by 45%.
$30,000 of the notes issued during the year ended December 31, 2016 had a maturity date of May 9, 2017, and could be prepaid during the period from issuance to November 5, 2016, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which is unpaid at November 5, 2016, or thereafter, into common stock of the Company. The rate of conversion for these notes was calculated as the average of the lowest three trading prices during the twenty trading days immediately preceding such conversion, discounted by 45%.
$262,500 of the notes issued during the year ended December 31, 2016 mature on August 24, 2017, and may be prepaid during the period from issuance to February 24, 2017, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at February 24, 2017, or thereafter, into common stock of the Company. The rate of conversion for these notes is calculated as 55% of the lowest closing bid price of the common stock during the ten prior trading days including the day upon which the conversion request is executed.
$100,000 of the notes issued during the year ended December 31, 2016 mature on May 31, 2017, and may be prepaid during the period from issuance to February 27, 2017, in full, at various rates ranging from 140% to 150% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at February 27, 2017, or thereafter, into common stock of the Company. The rate of conversion for these notes is calculated as the average of the lowest three trading prices during the twenty trading days immediately preceding such conversion, discounted by 45%.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
6. Convertible promissory notes (continued):
$60,000 of the notes issued during the year ended December 31, 2016 mature on November 30, 2017, and may be prepaid during the period from issuance to May 28, 2017, in part or in full, at various rates ranging from 120% to 150% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at May 28, 2017, or thereafter, into common stock of the Company. The rate of conversion for these notes is calculated as the average of the lowest three trading prices during the twenty trading days immediately preceding such conversion, discounted by 45%.
$165,000 of the notes issued during the year ended December 31, 2016 mature on December 29, 2017, and may be prepaid during the period from issuance to May 26, 2017, in full, at various rates ranging from 120% to 150% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at May 26, 2017, or thereafter, into common stock of the Company. The rate of conversion for these notes is calculated as the average of the lowest three trading prices during the twenty trading days immediately preceding such conversion, discounted by 40%.
$858,278, representing the relative fair value of the beneficial conversion feature of the notes at date of issuance, was allocated to additional paid in capital; the notes are being accreted to their face value over the term of the notes, through periodic charges to interest expense using the effective interest rate method.
$22,250 in finance fees were incurred in relation to the convertible promissory notes issued during 2016, and are being charged to interest and financing costs over the term of the notes, using the effective interest rate method.
$57,611 in original issue discounts were incurred in relation to the convertible promissory notes issued during 2016, and are being charged to interest and financing costs over the term of the notes, using the effective interest rate method.
During the year ended December 31, 2016, holders of the convertible promissory notes exercised the conversion feature of the notes, and converted $315,500 of note principal, and $13,142.32 of accrued interest on the notes, into 23,962,703 common shares of the Corporation.
Also during the year ended December 31, 2016, the Corporation exercised the prepayment option and issued aggregate cash payments of $477,335 in settlement of $316,111 in principal amount, plus accrued interest and prepayment bonus thereon of $161,224.
During the year ended December 31, 2015, the Corporation issued $449,000 of its convertible promissory notes for cash.
$53,500 of the notes issued during the year ended December 31, 2015 had a maturity date of October 12, 2015, and could be prepaid during the period from issuance to July 7, 2015, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which was unpaid at July 7, 2015 or thereafter, into common stock of the Company.
$53,500 of the notes issued during the year ended December 31, 2015 had a maturity date of December 4, 2015, and could be prepaid during the period from issuance to August 28, 2015, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which was unpaid at August 28, 2015, or thereafter, into common stock of the Company. .
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
6. Convertible promissory notes (continued):
$53,500 of the notes issued during the year ended December 31, 2015 matured on December 31, 2015 and could be prepaid during the period from issuance to September 23, 2015, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which is unpaid at September 23, 2015, or thereafter, into common stock of the Company.
$43,000 of the notes issued during the year ended December 31, 2015 matured on March 9, 2016, and could be prepaid during the period from issuance to November 30, 2015, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which is unpaid at November 30, 2015, or thereafter, into common stock of the Company.
$64,000 of the notes issued during the year ended December 31, 2015 mature on April 27, 2016, and could be prepaid during the period from issuance to January 19, 2016, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which was unpaid at January 19, 2016, or thereafter, into common stock of the Company.
$54,000 of the notes of the notes issued during the year ended December 31, 2015 mature on Jun 4, 2016 and could be prepaid during the period from issuance to February 28, 2016, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which was unpaid at February 28, 2016, or thereafter, into common stock of the Company.
$54,000 of the notes issued during the year ended December 31, 2015 mature on July 23, 2016 and may be prepaid during the period from issuance to April 19, 2016, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at April 19, 2016, or thereafter, into common stock of the Company.
$73,500 of the notes issued during the year ended December 31, 2015 mature on November 20, 2017 and may be prepaid during the period from issuance to April 18, 2016, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert all or any amount of the outstanding principal face amount of the note, plus accrued interest thereon, into common stock of the Company.
The rate of conversion for $375,500 of the notes issued by the Corporation during the year ended December 31, 2015 is the average of the lowest three trading prices during the ten trading days immediately preceding such conversion, discounted by 49%; the rate of conversion for $73,500 of the notes issued by the Corporation during the year ended December 31, 2015 is the average of the lowest three trading prices during the ten trading days immediately preceding such conversion, discounted by 45%.
$430,436, representing the relative fair value of the beneficial conversion feature of the notes at date of issuance, was allocated to additional paid in capital; the notes are being accreted to their face value over the term of the notes, through periodic charges to interest expense using the effective interest rate method.
$29,000 in finance fees were incurred in relation to the convertible promissory notes issued during 2015, and are being charged to interest and financing costs over the term of the notes, using the effective interest rate method.
$3,500 in original issue discounts were incurred in relation to the convertible promissory notes issued during 2015, and are being charged to interest and financing costs over the term of the notes, using the effective interest rate method.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
6. Convertible promissory notes (continued):
During the year ended December 31, 2015, holders of the convertible promissory notes exercised the conversion feature of the notes, and converted $187,500 of note principal, and $7,495 of accrued interest on the notes, into 11,399,708 common shares of the Corporation.
Also during the year ended December 31, 2015, the Corporation exercised the prepayment option and issued aggregate cash payments of $358,827 in settlement of $241,000 in principal amount, plus accrued interest and prepayment bonus thereon of $117,827.
The discount to market conversion feature of the convertible promissory notes causes a theoretical possibility that the Corporation may be required to settle the notes by issuing more shares than are authorized. Furthermore, this feature causes the notes to fall within the FAS 133 definition of a derivative liability. Management has calculated that the maximum number of shares required to convert the principal plus accrued interest on the convertible notes at December 31, 2016 was 34,618,076, which represents approximately 13% of the authorized, unissued shares at that date, and has also estimated that the fair value of the notes at December 31, 2016 approximates face value, therefore no adjustment for fair value restatement has been made.
At December 31, 2016, the fair value of the stock issuable to fully convert the convertible promissory note principal was $1,019,678, which exceeds the principal amount by $432,178.
7.
Stockholders deficiency:
(a)
Common stock transactions:
In connection with the issuance of the Corporations 10% senior convertible notes during the year ended December 31, 2016, the Corporation issued an aggregate of 210,000 shares of its common stock, with a relative fair value of $6,206, to the holders of the notes (note 5).
During the year ended December 31, 2016, the Corporation issued an aggregate of 9,100,000 shares of its common stock to consultants as partial consideration for services rendered and to be rendered. $283,330, representing the fair value of the stock at issuance, was allocated to shares and to additional paid in capital. $54,480, representing the value of services not yet rendered as at December 31, 2016, was charged to prepaid expense; $228,850 was charged to expense.
On various dates during the year ended December 31, 2016, holders of the 10% senior convertible notes exercised the conversion feature of the notes, and converted an aggregate of $151,500 in principal and $36,922 in accrued interest, in exchange for 6,280,729 common shares of the Corporation (note 5).
During the year ended December 31, 2016, holders of the convertible promissory notes exercised the conversion feature of the notes, and converted an aggregate of $315,500 in principal and $13,142 in accrued interest, in exchange for 23,962,703 shares of the Corporations common stock. (note 6).
On various dates during the year ended December 31, 2016, the Corporation issued an aggregate of 200,000 shares of its common stock, valued at $5,740, in settlement of $6,000 in accounts payable. A net gain of $260 has been recognized in connection with this transaction.
In connection with the issuance of the Corporations promissory notes on August 10, 2016, the Corporation issued 750,000 shares of its common stock, with a relative fair value of $22,000, to the holders of the notes (note 4).
During the year ended December 31, 2016, holders of the Corporations Series C convertible preferred shares exercised the conversion feature of the shares and converted an aggregate of 429 Series C convertible preferred shares, in exchange for 14,300,000 shares of the Corporations common stock.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
7. Stockholders deficiency (continued):
In connection with the issuance of the Corporations 10% senior convertible notes during the year ended December 31, 2015, the Corporation issued 2,595,500 shares of its common stock, with a relative fair value of $100,067, to the holders of the notes (note 5).
During the year ended December 31, 2015, the Corporation issued an aggregate of 13,300,000 shares of its common stock to consultants as partial consideration for services rendered and to be rendered. $505,300, representing the fair value of the stock at issuance, was allocated to shares and to additional paid in capital. $237,704, representing the value of services not yet rendered as at December 31, 2015, was charged to prepaid expense; $267,596 was charged to expense.
On various dates during the year ended December 31, 2015, holders of the 10% senior convertible notes exercised the conversion feature of the notes, and converted an aggregate of $702,597 in principal and $778,015 in accrued interest, in exchange for 49,352,824 common shares of the Corporation (note 5).
(a)
Common stock transactions (continued):
Also on various dates during the year ended December 31, 2015, the Corporation issued an aggregate of 1,807.685 of its common shares to holders of its 10% senior convertible notes, in settlement of $54,231 in accrued interest on the notes.
During the year ended December 31, 2015, holders of the convertible promissory notes exercised the conversion feature of the notes, and converted an aggregate of $187,500 in principal and $7,495 in accrued interest, in exchange for 11,399,708 shares of the Corporations common stock. (note 6).
On December 7, 2015, the Corporation issued 166,667 shares of its common stock, valued at $6,000, in settlement of $5,000 in accounts payable. A loss of $1,000 has been recognized in connection with this transaction.
(b)
Preferred stock transactions:
On May 31, 2016, the Corporations board of directors created three new classes of preferred stock:
Series A Convertible Preferred Stock, par value $0.001 per share, stated value $1,000 per share. Convertible at any time by the shareholder into common stock of the Corporation, at $0.10 per common share. 10,000 shares authorized.
Series B Convertible Preferred Stock, par value $0.001 per share, stated value $1,000 per share. Convertible at any time by the shareholder into common stock of the Corporation, at the rate of $0.03 per common share. 5,000 shares authorized.
Series C Convertible Preferred Stock, par value $0.001 per share, stated value $1,000 per share. Convertible at any time by the shareholder into common stock of the Corporation, at the rate of $0.03 per common share. 5,000 shares authorized.
On June 2, 2016, the Corporation issued 1,225 shares of its Series A Convertible Preferred stock for cash proceeds of $1,225,000.
Also on June 2, 2016, the Corporation issued 1,005 shares of its Series A Convertible Preferred stock, valued at $1,005,000, to holders of its 10% senior convertible notes in settlement of $792,355 of accrued interest; a loss of $212,645 has been recognized in connection with this transaction.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
7. Stockholders deficiency (continued):
On June 2, 2016, the Corporation issued 3,900 shares of its Series B Convertible Preferred stock, valued at $3,900,000, to holders of its 10% senior convertible notes in settlement of $2,835,025 in principal and $248,850 of accrued interest; a loss of $816,125 has been recognized in connection with this transaction.
On various dates during the year ended December 31, 2016, the Corporation issued an aggregate of 3,580 shares of its Series C Convertible Preferred stock, valued at $3,580,000, to holders of its 10% senior convertible notes in settlement of $2,792,233 in principal and 170,983 of accrued interest; an aggregate net loss of $616,784 has been recognized in connection with these transactions.
During the year ended December 31, 2016, holders of the Corporations Series C convertible preferred shares exercised the conversion feature of the shares and converted an aggregate of 429 Series C convertible preferred shares, in exchange for 14,300,000 shares of the Corporations common stock.
(b) Preferred stock transactions (continued):
$170,950, representing the effective discount implicit on issuance of 1,255 of the Series C convertible preferred shares, was recognized in relation to the fair value of the beneficial conversion feature of the shares at the date of issuance.
(c)
Transactions involving stock options:
The Corporation has two incentive equity plans, under which a maximum of 10,000,000 options to purchase 10,000,000 common shares may be granted to officers, employees and consultants of the Corporation. The granting of options, and the terms associated with them, occurs at the discretion of the board of directors, who administers the plan. The fair value of unvested options are determined at the date of grant and are included in expense over the vesting period. As of December 31, 2016, a total of 7,500,000 options were granted under these plans, all with an exercise price of $0.04. The options expire on dates between May 12, 2020 and November 20, 2020, and are fully vested. 2,500,000 options remained available for grant under these plans as of December 31, 2016.
There were no transactions involving stock options during the year ended December 31, 2016.
On May 12, 2015, the Company granted 6,500,000 options to consultants of the Company, in consideration for past service. The options vested immediately, have an exercise price of $0.04, and an expiry date of May 12, 2020, with provision for early expiration in the event the holder ceases to be engaged by the Company prior to the stated expiry date. $207,794, representing the fair value of the options at the date of issuance, has been included in expense. The fair value of the options was determined using the following weighted average assumptions: expected dividend yield of 0%; risk-free interest rate of 1.58%; expected volatility of 296%; and an expected life of 5 years.
On November 20, 2015, the Company granted 1,000,000 options to consultants of the Company, in consideration for past service. The options vested immediately, have an exercise price of $0.04, and an expiry date of November 20, 2020, with provision for early expiration in the event the holder ceases to be engaged by the Company prior to the stated expiry date. $35,959, representing the fair value of the options at the date of issuance, has been included in expense. The fair value of the options was determined using the following weighted average assumptions: expected dividend yield of 0%; risk-free interest rate of 1.69%; expected volatility of 291%; and an expected life of 5 years.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
7. Stockholders deficiency (continued):
(d)
Summary of stock-based compensation:
The following table presents the total of stock-based compensation included in the expenses of the Corporation for the years ended December 31, 2016 and 2015:
|
|
|
|
2016
|
2015
|
Selling, general and administrative
|
$ 466,554
|
$ 470,443
|
Research and development
|
--
|
95,905
|
Total stock-based compensation included in expenses
|
$ 466,554
|
$ 566,348
|
8.
Interest and financing costs:
Interest and financing costs include accrued interest, accretion and amortization of deferred financing costs and original issue discount relating to the convertible promissory notes; accrued interest, accretion and amortization of deferred financing costs on the promissory notes; and accrued interest and accretion on the 10% senior convertible notes.
9.
Loss on extinguishment of debt and accrued liabilities:
On various dates during the year ended December 31, 2016, the Corporation issued an aggregate of 200,000 shares of its common stock, valued at $5,740, in settlement of $6,000 in accounts payable. A net gain of $260 has been recognized in connection with this transaction.
On June 2, 2016, the Corporation issued 1,005 shares of its Series A Convertible Preferred stock, valued at $1,005,000, to holders of its 10% senior convertible notes in settlement of $792,355 of accrued interest; a loss of $212,645 has been recognized in connection with this transaction.
Also on June 2, 2016, the Corporation issued 3,900 shares of its Series B Convertible Preferred stock, valued at $3,900,000, to holders of its 10% senior convertible notes in settlement of $2,835,025 in principal and $248,850 of accrued interest; a loss of $816,125 has been recognized in connection with this transaction.
On various dates during the year ended December 31, 2016, the Corporation issued an aggregate of 3,580 shares of its Series C Convertible Preferred stock, valued at $3,580,000, to holders of its 10% senior convertible notes in settlement of $2,792,233 in principal and $170,983 of accrued interest; an aggregate net loss of $616,784 has been recognized in connection with these transactions.
On December 7, 2015, the Corporation issued 166,667 shares of its common stock, valued at $6,000, in settlement of $5,000 in accounts payable. A loss of $1,000 has been recognized in connection with this transaction.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
10.
Loss per share:
As the Corporation incurred a net loss during the years ended December 31, 2016 and 2015, the loss and diluted loss per common share are based on the weighted-average common shares outstanding during the year. The following outstanding instruments could have a dilutive effect in the future:
|
|
|
|
2016
|
2015
|
Stock issuable on conversion of the 10% senior
|
|
|
convertible notes
|
20,343,846
|
208,786,819
|
Stock issuable on conversion of the convertible
|
|
|
promissory notes and accrued interest thereon
|
34,618,076
|
15,873,801
|
Stock issuable on exercise of the stock options
|
7,500,000
|
7,500,000
|
|
62,461,922
|
232,160,620
|
11.
Related party transactions:
Included in 10% senior convertible notes (note 5) is $nil (2015: $518,949) payable to the director and to a company controlled by the director, and $nil (2015: $47,558) payable to an individual related to the director and a company controlled by an individual related to the director.
$4,001 (2015: $367,051) in accrued interest charges relating to these notes is included in accrued liabilities; $24,007 (2015: $60,487) in coupon-rate interest on these notes is included in interest and finance costs. $8,452 (2015: $56,939) and $65,767 (2015: $nil) was paid to a director in settlement of note principal, and accrued interest, respectively.
12.
Guarantees and Commitments:
a)
Guarantees
The Corporation has entered into agreements which contain features which meet the definition of a guarantee under ASC Topic 460 Guarantees (Topic 460). Topic 460 defines a guarantee to be a contract that contingently requires the Corporation to make payments (either in cash, financial instruments, other assets, common stock of the Corporation or through the provision of services) to a third party based on changes in an underlying economic characteristic (such as interest rates or market value) that is related to an asset, liability or an equity security of the other party.
The Corporation has the following guarantees which are subject to the disclosure and measurement requirements of Topic 460:
The Corporation includes standard intellectual property indemnification clauses in its software license and service agreements. Pursuant to these clauses, the Corporation holds harmless and agrees to defend the indemnified party, generally the Corporations business partners and customers, in connection with certain patent, copyright or trade secret infringement claims by third parties with respect to the Corporations products. The term of the indemnification clauses is generally perpetual from the date of execution of the software license and service agreement. In the event an infringement claim against the Corporation or an indemnified party is successful, the Corporation, at its sole option, agrees that it will do one of the following: (i) procure for the indemnified party the right to continue use of the software; (ii) provide a modification to the software so that its use becomes non-infringing; (iii) replace the software with software which is substantially similar in functionality and performance; or (iv) refund the residual value of the software license fees paid by the indemnified party for the infringing software. The Corporation believes the estimated fair value of these intellectual property indemnification clauses is minimal.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
12. Guarantees and Commitments (continued):
a)
Guarantees (continued)
Historically, the Corporation has not made any significant payments related to the above-noted indemnities and accordingly, no liability related to the contingent features of these guarantees has been accrued in the financial statements.
13. Fair value measurements:
The carrying value of cash and cash equivalents, value added taxes recoverable, accounts payable and accrued liabilities approximates fair value due to the short term to maturity of these instruments. The carrying value of the promissory notes, 10% senior convertible notes and convertible promissory notes, approximates fair value due to the issuance subsequent to December 31, 2016 of new debt instruments having similar terms and conditions.
14. Income taxes:
Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities as reported for financial reporting purposes and such amounts as measured by tax laws. The tax effects of temporary differences that gave rise to significant portions of the deferred tax asset and deferred tax liability are as follows:
|
|
|
|
2016
|
2015
|
Deferred tax asset:
|
|
|
Net operating loss carryforwards
|
$ 10,490,000
|
$ 9,980,000
|
Capital loss carryforwards
|
1,050,000
|
1,050,000
|
Total gross deferred tax asset
|
11,540,000
|
11,030,000
|
|
|
|
Valuation allowance
|
(11,540,000)
|
(11,030,000)
|
|
|
|
Net deferred taxes
|
$ --
|
$ --
|
Income tax expense attributable to loss before income taxes was $nil (2015 - $nil) and differed from the amounts computed by applying the U.S. federal income tax rate of 34% (2015 - 34%) to the net loss as a result of the following:
|
|
|
|
2016
|
2015
|
Expected tax rate
|
34%
|
34%
|
Expected tax recovery applied to net
|
|
|
loss before income taxes
|
$ (1,449,000)
|
$ (1,106,000)
|
|
|
|
Increase (decrease) in taxes resulting from:
|
|
|
Change in valuation allowance
|
510,000
|
580,000
|
Compensation expense
|
159,000
|
193,000
|
Interest and financing costs
|
204,000
|
399,000
|
Other
|
(576,000)
|
(66,000)
|
|
|
|
|
$ --
|
$ --
|
The Corporation has net operating losses of $31,016,000 which are available to reduce U.S. taxable income and which expire as follows:
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
14. Income taxes (continued):
|
|
|
|
2019
|
$ 391,000
|
2020
|
675,000
|
2021
|
521,000
|
2022
|
897,000
|
2023
|
1,671,000
|
2024
|
4,205,000
|
2025
|
3,381,000
|
2026
|
3,088,000
|
2027
|
2,623,000
|
2028
|
2,401,000
|
2029
|
1,299,000
|
2030
|
1,258,000
|
2031
|
1,298,000
|
2032
|
1,229,000
|
2033
|
1,475,000
|
2034
|
1,404,000
|
2035
|
1,704,000
|
2036
|
1,496,000
|
|
$ 31,016,000
|
The losses noted above are estimates, as the related tax returns have not been filed by the Corporation.
15. Change in non-cash operating working capital:
|
|
|
|
2016
|
2015
|
|
|
|
Value added taxes recoverable
|
$ (10,388)
|
$ 11,323
|
Prepaid expenses
|
(3,064)
|
--
|
Accounts payable
|
51,273
|
62,263
|
Accrued liabilities
|
97,298
|
(82,017)
|
|
$ 135,119
|
$ (8,431)
|
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
16. Supplementary cash flow information:
The Corporation paid no income taxes during the year ended December 31, 2016, nor during the year ended December 31, 2015. Interest paid in cash during the years ended December 31, 2016 and December 31, 2015 were $540,425 and $134,954, respectively.
Non-cash financing activities are excluded from the consolidated statement of cash flows. The following is a summary of such activities:
|
|
|
|
2016
|
2015
|
Issuance of the Corporations common stock as partial consideration for
|
|
|
services rendered
|
$ 283,330
|
$ 505,300
|
Issuance of the Corporations common stock in settlement of 10%
|
|
|
senior convertible notes and accrued interest, on the holders
|
|
|
exercise of the conversion feature
|
188,422
|
1,480,612
|
Issuance of the Corporations common stock in settlement of convertible
|
|
|
promissory notes, and accrued interest thereon
|
328,642
|
194,995
|
Issuance of the Corporations common stock in settlement of
|
|
|
accounts payable and accrued liabilities
|
6,000
|
5,000
|
Issuance of the Corporations Series A convertible preferred shares in settlement
|
|
|
of accrued interest on the 10% senior convertible notes
|
792,355
|
--
|
Issuance of the Corporations Series B convertible preferred shares in settlement
|
|
|
of principal and accrued interest on the 10% senior convertible notes
|
3,083,875
|
--
|
Issuance of the Corporations Series C convertible preferred shares in settlement
|
|
|
of principal and accrued interest on the 10% senior convertible notes
|
2,963,216
|
--
|
Accounts receivable settled with offset of accrued interest on the 10% senior
|
|
|
convertible notes
|
400,000
|
|
Issuance of the Corporations 10% senior convertible notes in
|
|
|
settlement of previously issued 10% senior convertible notes
|
|
|
and accrued interest thereon
|
--
|
288,307
|
Issuance of the Corporations common stock in settlement of
|
|
|
accrued interest on the 10% senior convertible notes
|
--
|
54,231
|
Options granted to consultants in consideration of past service
|
--
|
243,753
|
Total
|
$ 8,045,840
|
$ 2,772,198
|
17.
Subsequent events:
On January 3, 2017, the Corporation issued $78,000 of its convertible promissory notes for cash. The notes bear interest at the rate of 8% until they mature, or until there is an event of default; thereafter, any portion of the principal or interest which has not been settled will be subject to interest at the rate of 22% per annum. The notes mature on November 10, 2017, and may be prepaid in full during the period from issuance to August 2, 2016, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at July 2, 2017 or thereafter, into common stock of the Corporation. The rate of conversion for these notes is calculated as the average of the lowest three closing bid prices during the ten trading days immediately preceding such conversion, discounted by 42%.
On January 12, 2017, the Corporation repaid $82,500 of its promissory notes and $3,526 in accrued interest thereon.
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VALIDIAN CORPORATION
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(In U.S. dollars)
17.
Subsequent events(continued):
On February 13, 2017, the Corporation issued $35,000 of its convertible promissory notes for cash. The notes bear interest at the rate of 8% until they mature, or until there is an event of default; thereafter, any portion of the principal or interest which has not been settled will be subject to interest at the rate of 22% per annum. The notes mature on February 13, 2018, and may be prepaid in full during the period from issuance to August 2, 2016, at various rates ranging from 120% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at August 12, 2017 or thereafter, into common stock of the Corporation. The rate of conversion for these notes is calculated as the average of the lowest three closing bid prices during the twenty trading days immediately preceding such conversion, discounted by 45%.
On February 21, 2017, the Corporation issued $43,000 of its convertible promissory notes for cash. The notes bear interest at the rate of 12% until they mature, or until there is an event of default; thereafter, any portion of the principal or interest which has not been settled will be subject to interest at the rate of 22% per annum. The notes mature on November 30, 2017, and may be prepaid in full during the period from issuance to August 2, 2016, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at August 20, 2017 or thereafter, into common stock of the Corporation. The rate of conversion for these notes is calculated as the average of the lowest three closing bid prices during the ten trading days immediately preceding such conversion, discounted by 42%.
On February 28, 2017, holders of the Corporations convertible promissory notes exercised the conversion feature of the notes and converted $10,000 in principal and interest in exchange for 635,727 shares of the Corporations common stock. On March 7, 2017, holders of the Corporations convertible promissory notes exercised the conversion feature of the notes and converted $45,925 in principal in exchange for 3,000,000 shares of the Corporations common stock. Also on March 7, 2017, holders of the Corporations convertible promissory notes exercised the conversion feature of the notes and converted $15,641 in principal and interest in exchange for 1,081,306 shares of the Corporations common stock.
On March 28, 2017, holders of the Corporations convertible promissory notes exercised the conversion feature of the notes and converted $10,473 in principal and interest in exchange for 865,572 shares of the Corporations common stock.
Except for the foregoing, we have evaluated subsequent events through the date the financial statements were issued. All material events have been disclosed.
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