As Filed with
the Securities and Exchange Commission on September 22,
2020 Registration No.
333-248693
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM S-1/A
AMENDMENT NO.
2
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
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IGEN Networks Corp.
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(Exact name of
registrant as specified in its charter)
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Nevada
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7363
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20-5879021
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(State or other
jurisdiction of
incorporation or
organization)
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(Primary Standard
Industrial
Classification Code
Number)
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(I.R.S. Employer
Identification
Number)
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28375 Rostrata
Ave., Lake Elsinore, CA 92532
(855-912-5378)
(Address,
including zip code, and telephone number, including area code, of
registrant’s principal executive offices)
Neil G.
Chan
c/o Registered
Agents, Inc.
401 Ryland St,
Suite 200-A
Reno, NV
89502
(Name, address,
including zip code, and telephone number, including area code, of
agent for service)
Copy to:
James B.
Parsons
Parsons/Burnett/Bjordahl/Hume, LLP
10016 Edmonds
Way, Suite C-325
Edmonds, WA
98020
Phone: (425)
451-8036
Fax: (425)
451-8568
Approximate date of
commencement of proposed sale to the public: From
time-to-time after the effective date of this Registration
Statement.
If any of the
securities being registered on this Form are to be offered on a
delay or continuous basis pursuant to Rule 415 under the Securities
Act of 1933 check the following box: ☒
If this Form is filed
to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering: ☐
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering: ☐
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering: ☐
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definition of “large accelerated
filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☒
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(Do not check if a smaller reporting
company)
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Emerging growth company
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☐
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If an emerging growth company, indicate by
check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial
accounting standards provided in Section 7(a)(2)(B) of the
Securities Act. ☐
CALCULATION OF REGISTRATION FEE
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Title of each Class of
Securities to be
Registered
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Amount to be
Registered(1)
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Proposed
Maximum
Aggregate
Offering
Price(2)
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Amount
of
Registration
Fee(3)(4)
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Common stock, par value
$0.001 per share
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160,256,410 |
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$ |
2,500,000 |
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$ |
324.50 |
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(1)
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Represents shares of
our common stock offered for resale by Crown Bridge Partners, LLC,
a New York limited liability company, (the “Selling Stockholder”),
including 8,000,000 initial commitment shares and an estimate of
the number of additional commitment shares and shares that we have
the right to put to the Selling Stockholder pursuant to the Equity
Purchase Agreement we finalized on July 27, 2020, with the Selling
Stockholder. In the event the number of shares being registered
hereunder is insufficient to cover all of the shares we put to
Crown Bridge Partners, LLC, we will amend this registration
statement or file a new registration statement to register those
additional shares. Pursuant to Rule 416 under the Securities Act of
1933, this registration statement also includes an indeterminate
number of additional shares of our common stock as may, from
time-to-time, become issuable by reason of a stock dividend, stock
split, recapitalization or other similar transaction.
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(2)
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The offering price of
$0.0156 per share has been estimated solely for the purpose of
computing the amount of the registration fee in accordance with
Rule 457(c) of the Securities Act, on the basis of the last sale
price of the registrant’s common stock as reported on the OTCQB
tier of the OTC Markets Group, Inc. on August 13, 2020.
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(3)
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Computed in accordance
with Section 6(b) of the Securities Act of 1933.
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(4)
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Previously paid.
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In
accordance with Rule 416(a) of the Securities Act, the registrant
is also registering hereunder an indeterminate number of shares
that may be issued and resold resulting from stock splits, stock
dividends or similar transaction.
The
registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or
until the registration statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to
said Section 8(a), may determine.
The information in this
Prospectus is not complete and may be changed. We may not sell
these securities until after the registration statement filed with
the Securities and Exchange Commission is declared effective. This
preliminary Prospectus is not an offer to sell these securities and
is not soliciting an offer to buy these securities, in any state
where the offer or sale of these securities is not permitted.
SUBJECT TO
COMPLETION, DATED ____________________________
PRELIMINARY
PROSPECTUS
IGEN NETWORKS
CORP.
Up to
160,256,410 Shares of Common Stock
This Prospectus relates to the offer and sale from
time-to-time of up to 160,256,410 shares of common stock, par value
$0.001, of IGEN Networks Corp, a Nevada corporation, by Crown
Bridge Partners, LLC, a New York limited liability company (the
“Selling Stockholder”). We are
registering the resale of the above shares of common stock issuable
under an equity line in the amount of $2,500,000 established by the
Equity Purchase Agreement, dated as of July 27, 2020 (the
“Equity Line”), between us and the
Selling Stockholder, as more fully described in this Prospectus.
The resale of such shares by the Selling Stockholder pursuant to
this Prospectus is referred to as the
“Offering.” The Offering consists of
160,256,410 shares which represent 8,000,000 shares issued under
the Equity Purchase Agreement as initial commitment shares, with
the remainder of the shares being registered issuable pursuant to
the Equity Line.
Our
common stock is currently quoted on the OTC Market Group, Inc.’s
OTCQB tier under the symbol “IGEN”. As reported on the OTCQB, the
most recent reported trading price of our common stock was $0.0156
per share on August 13, 2020.
We
are not selling any securities under this Prospectus and will not
receive any proceeds from the sale of shares of common stock by the
Selling Stockholder. We will, however, receive proceeds from sale
of our common stock under the Equity Line to the Selling
Stockholder.
The
Equity Purchase Agreement with the Selling Stockholder provides
that the Selling Stockholder is committed to purchase up to
$2,500,000 (“Maximum Commitment Amount”)
of our common stock over the course of its term. The term of the
Equity Purchase Agreement commenced on July 27, 2020 and will end
on the earlier of (i) the date on which the Selling Stockholder has
purchased common stock from us pursuant to the Equity Purchase
Agreement equal to the Maximum Commitment Amount, (ii) July 27,
2023, or (iii) written notice of termination by us.
We
may draw on the Equity Line from time-to-time, as and when we
determine appropriate in accordance with the terms and conditions
of the Equity Purchase Agreement. The securities included in this
Prospectus represent the common stock issuable to the Selling
Stockholder under the Equity Line.
The Selling Stockholder is an “underwriter” within the meaning of
Section 2(a)(11) of the Securities Act of 1933, as amended (the
“Securities Act”). The Selling
Stockholder may sell the shares of common stock described in this
Prospectus in a number of different ways and at varying prices. We
will pay the expenses incurred in registering the shares of common
stock, including legal and accounting fees. See “Plan of
Distribution” for more information about how the Selling
Stockholder may sell the shares of common stock being offered
pursuant to this Prospectus.
Investing in our common stock is speculative and involves
substantial risks. You should carefully consider the matters
discussed under “Risk Factors” beginning on page 7 of this
Prospectus before making any decision to invest in our common
stock.
Neither the Securities and Exchange Commission (“SEC”) nor
any state securities commission has approved or disapproved of
these securities or determined if this Prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this
Prospectus is__________________ ,
2020
TABLE OF
CONTENTS
ABOUT THIS
PROSPECTUS
As used in this Prospectus, unless otherwise indicated, “we”, “us”,
“our”, and the “Company” refer to IGEN Networks Corp.
This Prospectus is part of a registration statement
that we filed with the Securities and Exchange Commission (the
“SEC”). It omits some of the information contained in the
registration statement and reference is made to the registration
statement for further information with regard to us and the
securities being offered by the Selling Stockholder. You should
rely only on the information provided in this Prospectus or to
which we have referred you. We have not authorized anyone to
provide you with information different from that contained in this
Prospectus. This Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any securities other than the
common stock offered by this Prospectus. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy
any common stock in any circumstances in which such offer or
solicitation is unlawful. The Selling Stockholder may offer to sell
and seek offers to buy shares of our common stock only in
jurisdictions where offers and sales are
permitted.
Neither the delivery of this Prospectus nor any sale
made in connection with this Prospectus shall, under any
circumstances, create any implication that there has been no change
in our affairs since the date of this Prospectus, or that the
information contained by reference to this Prospectus is correct as
of any time after its date. The information in this Prospectus is
accurate only as of the date of this Prospectus, regardless of the
time of delivery of this Prospectus or of any sale of common stock.
The rules of the SEC may require us to update this Prospectus in
the future.
For investors outside the United
States: We have not done anything
that would permit this offering or possession or distribution of
this Prospectus in any jurisdiction where action for that purpose
is required, other than in the United States. Persons outside the
United States must inform themselves about, and observe any
restrictions relating to, the Offering of securities and the
distribution of this Prospectus outside the United
States.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included and incorporated by reference in this
Prospectus constitute “forward-looking statements.” Words such as
“may,” “will,” “should,” “anticipate,” “estimate,” “expect,”
“projects,” “intends,” “plans,” “believes” and words and terms of
similar substance used in connection with any discussion of future
operating or financial performance, identify forward-looking
statements. Forward-looking statements represent management’s
present judgment regarding future events and are subject to a
number of risks and uncertainties that could cause actual results
to differ materially from those described in the forward-looking
statements. These risks include, but are not limited to, risks and
uncertainties relating to our current cash position and our need to
raise additional capital in order to be able to continue to fund
our operations; our ability to retain our managerial personnel and
to attract additional personnel; competition; our ability to obtain
new projects, and any and other factors, including the risk factors
identified in the documents we have filed, or will file, with the
Securities and Exchange Commission. Please also see the discussion
of risks and uncertainties under the caption “Risk Factors,”
beginning on page 7 of this Prospectus.
In light of these assumptions, risks and uncertainties, the results
and events discussed in the forward-looking statements contained in
this Prospectus or in any document incorporated herein by
reference, might not occur. Investors are cautioned not to place
undue reliance on forward-looking statements, which speak only as
of the respective dates of this Prospectus, or the date of the
document incorporated by reference in this Prospectus. We expressly
disclaim any obligation to update or alter any forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required by federal securities laws.
You
should rely only on information contained or incorporated by
reference in this Prospectus that we have authorized to be
delivered to you in connection with this Offering. We have not
authorized anyone to provide you with information that is
different. The information contained or incorporated by reference
in this Prospectus is accurate only as of the respective dates
thereof, regardless of the time of delivery of this Prospectus or
of any sale of our securities offered hereby. It is important for
you to read and consider all information contained in this
Prospectus, including the documents incorporated by reference
therein, in making your investment decision. You should also read
and consider the information in the documents to which we have
referred you under the captions “Where You Can Find More
Information.”
PROSPECTUS
SUMMARY
This summary
highlights information contained throughout this Prospectus and is
qualified in its entirety to the more detailed information and
financial statements included elsewhere herein. Because this is
only a summary, it is not complete and does not contain all the
information that may be important to you. Before making an
investment decision, you should read carefully this entire
Prospectus, including, but not limited to, the information under
the caption “Risk Factors,” and our financial statements and
related notes.
Our
Business
IGEN Networks Corp.
(“IGEN”, the “Company”, “we”, “our”) was incorporated in the State
of Nevada on November 14, 2006, under the name of Nurse Solutions
Inc. On September 19, 2008, the Company changed its name to Sync2
Entertainment Corporation and traded under the symbol SYTO. On
September 15, 2008, the Company became a reporting issuer in
British Columbia, Canada. On May 26, 2009, the Company changed its
name to IGEN Networks Corp. On March 25, 2015, the Company was
listed on the Canadian Securities Exchange (CSE) under the trading
symbol IGN and the Company became a reporting Venture Issuer in
British Columbia and Ontario, Canada.
The Company’s principal
business is the development and marketing of software services for
the automotive and fleet management industry. The Company works
with T-Mobile and its distribution partners to provide direct and
secure access to information on vehicle assets and driver
performance. The software services are based on the AWS Cloud
Infrastructure delivered to customers over the wireless network and
accessed from consumer mobile or desktop devices. The software
services are marketed through automotive dealers, financial
institutions, and government channels as IGEN commercial and
consumer brands: Nimbo Tracking, CU Trak, and Medallion GPS
PRO.
As of December 31,
2019:
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i)
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IGEN had a 100% equity
position in Nimbo Tracking LLC, a privately held US company based
in Murrieta, CA
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ii)
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IGEN appointed Wireless
Business Consultants (WBC) Sprint’s Master Agent for nationwide
distribution
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iii)
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IGEN appointed REMCOOP
for distribution and marketing for the Territory of Puerto Rico
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iv)
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IGEN took ownership of
Digital Telematics Signature (DTC) patent for greater accuracy in
measuring driver performance
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v)
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IGEN launched Medallion
GPS PRO for Light-Commercial Fleets
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vi)
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IGEN had a software
license and hardware supply agreements with Positioning Universal
Inc.
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The Company’s head
office is located at 28375 Rostrata Ave, Lake Elsinore CA 92532,
United States
Direct line is
855-912-5378
The Company currently
owns the DTC patent for normalization of driver behavior data for
consistent and accurate measurement of driver performance
regardless of asset-type or data source. The Company acquired the
DTC patent, via a patent ownership agreement, on March 16, 2020.
The Company has secured trademarks and distribution licenses
through increased ownership of privately held technology
companies.
The Company is not
aware of any government approval or regulations, other than those
governing the normal course of business, which will affect its own
business. However, the Company is invested in and foresees future
investment in, or possible joint ventures with, companies for which
local, regional or national regulatory approvals, particularly
those pertaining to wireless networks or GPS-based applications,
may apply.
The Company is not
aware of any significant costs or effects of compliance with
environmental laws.
Equity Purchase Agreement with Crown
Bridge Partners, LLC
On July 27, 2020, we
executed an Equity Purchase Agreement with Crown Bridge Partners,
LLC (“Crown Bridge Partners” or the
“Selling Stockholder”), which was
finalized and effected on July 27, 2020 (the “Equity
Line”). Under the Equity Line, we have the right to
sell to Crown Bridge Partners up to $2,500,000 of shares of our
common stock for a period of up to three (3) years, commencing on
the execution date of the agreement. Under the Equity Line, the
Selling Stockholder is committed to purchase, on an unconditional
basis, shares of our common stock (“Put
Shares”).
The Equity Purchase
Agreement provides that that we have the right, but not the
obligation, to deliver to Crown Bridge Partners from time-to-time,
a “put notice” stating the number of shares and purchase price of
common shares we intend to sell to Crown Bridge Partners. The
purchase price of the shares will be 80% of the lesser of the (i)
“market price,” defined as the lowest traded price for any trading
day during the 13 trading days immediately preceding delivery of
the put notice, or (ii) the valuation price, which is the lowest
traded price of the shares during the five trading days following
the clearing date associated with the applicable put notice. Each
put notice shall be (i) in a minimum amount not less than $10,000,
and (ii) a maximum amount up to the lesser of (a) $175,000, or (b)
200% of the Average Daily Trading Value. Average Daily Trading
Value is defined as the average trading volume of our common stock
in the thirteen (13) trading days immediately preceding delivery of
the respective put notice (the “pricing
period”), multiplied by the lowest traded price of
the of our shares during the pricing period. We may not deliver a
new put notice until ten trading days after the clearing of the
prior put notice.
As a term of the Equity Purchase Agreement, we entered into a
Registration Rights Agreement with Crown Bridge Partners, whereby
we agreed to register for resale by Crown Bridge Partners the
shares of common stock purchased pursuant to the Equity Purchase
Agreement. Accordingly, we filed a registration statement with the
SEC on Form S-1, of which this Prospectus is a part, and which
covers the resale of shares to be issued under the Registration
Rights Agreement.
The Offering
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Securities offered by the Selling
Stockholder
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160,256,410 shares of
common stock (including 8,000,000 initial commitment shares and
shares issuable pursuant to the Equity Line).
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Common stock outstanding before Offering
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1,105,477,145
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Common stock outstanding after Offering
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1,265,733,555 shares, assuming the issuance
of an additional 160,256,410 shares pursuant to the Equity Purchase
Agreement
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Use of Proceeds
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We will not receive any
proceeds from the sale of common stock by the Selling Stockholder.
However, we will receive proceeds from the sale of shares to Crown
Bridge Partners pursuant to our exercise of a put right granted to
us in the Equity Purchase Agreement. Any such proceeds will be used
for general corporate and business operations purposes and film
production and distribution activities.
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Risk Factors
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An investment in our
securities involves a high degree of risk and could result in a
loss of your entire investment. Further, the issuance to, or sale
by, the Selling Stockholder of a significant amount of shares being
registered in connection with this Prospectus at any given time,
could cause the market price of our common stock to decline and to
be highly volatile. We do not have the right to control the timing
and amount of any sales of such shares by the Selling Stockholder.
Prior to making an investment decision, you should carefully
consider all of the information in this Prospectus and, in
particular, you should evaluate the risk factors set forth under
the caption “Risk Factors” beginning on page 7.
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OTCQB trading symbol
Placement Agent
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IGEN
J.H. Darbie & Co.,
Inc. acted as the placement agent for the Company with respect to
the Equity Purchase Agreement. J.H. Darbie & Co., Inc. will
receive a finder’s fee of two percent (2%) of the gross proceeds
received by Company pursuant to the Equity Line.
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Selling Stockholder
The Selling
Stockholder, Crown Bridge Partners, LLC, a New York limited
liability company, is committed to purchase, on an unconditional
basis, shares of our common stock (“Put
Shares”) at an aggregate price of up to $2,500,000
over the term of the Equity Purchase Agreement. Based on the
trading price of our common stock as of July 27, 2020, we estimate
Crown Bridge Partners would purchase an aggregate of 160,256,410
shares of common stock under the Equity Purchase Agreement if the
entire $2,500,000 amount had been drawn. The Offering consists of
8,000,000 shares issued as initial commitment shares pursuant to
the Equity Purchase Agreement and the remainder constitutes an
estimate of the number of additional commitment shares and Put
Shares issuable pursuant to the Equity Line. Such shares would
represent approximately 24.8% of our outstanding common stock as
September 4, 2020, resulting in significant ownership dilution to
our existing common stockholders. This Prospectus relates to the
future sale of these shares, from time-to-time, by Crown Bridge
Partners.
Plan of distribution
The Selling
Stockholder, including any of its pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of
its securities covered hereby that were acquired under the Equity
Line. Sales may be made on the OTCQB or any other stock exchange,
market or trading facility on which the securities are traded, or
in private transactions. These sales may be at the prevailing
market price or related to the then current market price, fixed
prices or negotiated prices. See “The Offering - Plan of
Distribution.”
RISK
FACTORS
An investment in IGEN common stock is speculative, involves
significant risks and should not be made by anyone who cannot
afford to lose his or her entire investment. Before you invest in
our common stock, you should be aware that our business faces
numerous financial and market risks, including those described
below, as well as general economic and business risks. You should
consider carefully the following risks and uncertainties, together
with all other information contained in this Prospectus, before
deciding to invest in our common stock. The risks and uncertainties
identified below are not the only risks and uncertainties we face.
If any of the following events or risks should occur, our business,
operating results and financial condition would likely suffer
materially and you could lose part or all of your
investment.
Risks Relating to Our
Business
Our auditors have expressed a
going concern modification to their audit report.
Our independent
auditors include a modification in their report to our financial
statements, expressing that certain matters regarding the Company
raise substantial doubt as to our ability to continue as a going
concern. Note 1 to the December 31, 2019 and 2018 consolidated
financial statements, states that the Company has recurring losses
from operations and has a negative operating cash flow since
inception that raise substantial doubt about our ability to
continue as a going concern. Management anticipates that the
Company can attain profitable status and improve liquidity through
continued business development and additional debt or equity
investment in the Company. There can be no assurance that necessary
debt or equity financing will be available, or will be available,
on terms acceptable to the Company, in which case we may be unable
to meet our obligations. If we are unable to obtain adequate
financing or achieve profitability, there will be substantial doubt
about our ability to continue as a going concern in the future.
If we fail
to maintain an effective system of internal controls over financial
reporting, we may not be able to accurately report our financial
results, which could have a material adverse effect on our share
price.
Effective internal
controls are necessary for us to provide accurate financial
reports. Section 404 of the Sarbanes-Oxley Act of 2002 and related
SEC rules require, among other things, management to assess
annually the effectiveness of our internal control over financial
reporting. For the year ended December 31, 2019, we identified
material weaknesses in our internal controls over financial
reporting: namely (1) a material weakness related to the discovery
of an error in a prior period financial statements related to
revenue recognition, and (2) a material weakness related to the
proper valuation of derivative instruments and share-based
compensation amounts using the appropriate valuation models to
determine reasonable estimates of fair value. If our controls fail,
or management and/or our independent auditors conclude in their
reports that our internal control over financial reporting was not
effective, investors could lose confidence in our reported
financial information, which could negatively affect the value of
our shares. Also, we could be subject to sanctions or
investigations by the SEC or other regulatory authorities, which
would require additional financial and management resources.
Because we
do not have an audit committee, stockholders will have to rely on
our directors, one of whom is not independent, to perform
these functions.
We do not have an audit
or compensation committee comprised of independent directors. These
functions are performed by the board of directors as a whole. One
member of the board of directors is not an independent director.
Accordingly, there is a potential conflict in that board members
may also be engaged in management and participate in decisions
concerning management, compensation and audit issues, which may
affect management performance.
If
sufficient demand for our services does not materialize, our
business would be materially affected, which could result in the
loss of your entire investment.
Demand for our services
depends on many factors, including:
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the number of customers
we can attract and retain over time;
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the economy in general
and, in periods of rapidly declining economic conditions, customers
may defer services, such as ours, to pay their own debts to remain
solvent;
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the competitive
environment in the software services markets may force us to reduce
prices below desired pricing level or increase promotional
spending; and
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the ability to
anticipate changes in user preferences and to meet customers’ needs
in a timely, cost-effective manner.
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All
these factors could result in immediate and longer-term declines in
demand for our offered services, which could adversely affect our
sales, cash flows and overall financial condition. As a result, an
investor could lose his or her entire investment.
Our future
success depends on our ability to develop services, products and
projects and to sell them to distribution channels. The inability
to establish distribution channels, may severely limit our growth
prospects.
Our business success is
completely dependent on our ability to successfully develop
services, products and projects and secure viable distribution
channels. Revenues derived therefrom will represent vital funds
necessary for our continued operations. The loss or damage of any
of our business relationships and/or revenues derived therefrom,
will result in the inability to market our services, products and
projects.
It is
possible that our projects may infringe on other patented,
trademarked or copyrighted concepts. Litigation arising out of
infringement or other commercial disputes could cause us to incur
expenses and impair our competitive advantage.
We cannot be certain
that our products or projects will not infringe upon existing
patents, trademarks, copyrights or other intellectual property
rights held by third parties. Because we may rely on third parties
to help develop some of our projects, we cannot ensure that
litigation will not arise from disputes involving these third
parties. We may incur substantial expenses in defending against
prospective claims, regardless of their merit. Successful claims
against us may result in substantial monetary liability,
significantly impact our results of operations in one or more
quarters, or materially disrupt the conduct of our business. Our
success depends in part on our ability to obtain and enforce
intellectual property protection for our products and projects, to
preserve our trade secrets and to operate without infringing the
proprietary rights of third parties.
The
validity and breadth of claims covered in our copyrights and
trademarks that we intend to file involve complex legal and factual
questions and, therefore, may be highly uncertain. No assurances
can be given that any future copyright, trademark or other
applications:
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will be issued;
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that the scope of any
future intellectual property protection will exclude competitors or
provide competitive advantages to the Company;
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that any copyrights or
trademarks will be held valid if subsequently challenged;
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that others will not
claim rights in, or ownership of, the potential copyrights or
trademarks or other proprietary rights held by us; or
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that our intellectual
property will not infringe, or be alleged to infringe on the
proprietary rights of others.
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Furthermore, there can
be no assurance that others have not developed or will not develop
similar intellectual properties. Also, whether or not additional
intellectual property protection is issued to the Company, others
may hold or receive protection covering intellectual properties
that were subsequently developed by the Company. No assurance can
be given that others will not, or have not independently developed
or otherwise acquired substantially equivalent intellectual
property.
Dependence
on general economic conditions.
The success of our
Company depends, to a large extent, on certain economic factors
that are beyond our control. Factors such as general economic
conditions, levels of unemployment, interest rates, tax rates at
all levels of government and other factors beyond our control may
have an adverse effect on our ability to sell our services and to
collect sums due and owing to us.
We are
dependent upon our directors, officer and consultants, the loss of
any of whom would negatively affect our business.
We are dependent upon
the experience and efforts of our directors, officers and
consultants to operate our business. We also expect to depend upon
service provider such as actors, editors, writers and camera crews.
If any director or officer leaves or is otherwise unable to perform
their duties, or should any consultant cease their activities for
any reason before qualified replacements could be found, there
could be material adverse effects on our business and prospects. We
have not entered into employment or non-competition agreements with
any individuals, and do not maintain key-man life insurance. Our
future success will depend on our ability to attract and retain
qualified personnel. Unless and until additional employees are
hired, our attempt to manage our business and projects and meet our
obligations with a limited staff could have material adverse
consequences, including, without limitation, a possible failure to
meet a contractual or SEC deadline or other business-related
obligation.
We may not
be able to manage future growth effectively, which could adversely
affect our operations and financial
performance.
The ability to manage
and operate our business as we execute our business plan will
require effective planning. If we should experience significant
rapid growth in the future, it could strain management and internal
resources that would adversely affect financial performance. We
anticipate that future growth could place a serious strain on
personnel, management systems, infrastructure and other resources.
Our ability to manage future growth effectively will require
attracting, training, motivating, retaining and managing new
employees and continuing to update and improve operational,
financial and management controls and procedures. If we do not
manage growth effectively, our operations could be adversely
affected resulting in slower growth and a failure to achieve or
sustain profitability.
We have had
a history of losses and may incur future losses, which may prevent
us from attaining profitability.
We have a history of operating losses since inception and, as of
December 31, 2019 and June 30, 2020. We had an accumulated deficit
of $11,630,660 and $14,822,302 respectively. We may incur future
operating losses and these losses could be substantial and impact
our ability to attain profitability. In the immediate future, we do
not expect to significantly increase expenditures for product
development, general and administrative expenses, and sales and
marketing expenses without additional funding. However, if we
cannot generate sufficient future revenues, we will not achieve or
sustain profitability or positive operating cash flows. Even if we
achieve profitability and positive operating cash flows, we may not
be able to sustain or increase profitability or positive operating
cash flows on a quarterly or annual basis.
We
anticipate needing additional financing to accomplish our business
plan.
At August 21, 2020, we
had cash on hand of $110,000.00. Management estimates that we will
require approximately an additional $495,000 during the next 12
months to fully implement our current business plan. We anticipate
that at least a portion of these funds will be realized from the
Line of Credit. However, there is no assurance that we will be able
to secure all necessary financing, or that any additional financing
available will be available on terms acceptable to us, or at all.
Shares issued under the Line of Credit and any additional offerings
of common stock will dilute the holdings of our then-current
stockholders. If we borrow funds, we would likely be obligated to
make periodic interest or other debt service payments and be
subject to additional restrictive covenants. If alternative sources
of financing are required, but are insufficient or unavailable, we
will be required to modify our growth and operating plans in
accordance with the extent of available funding. Presently, we do
not intend to obtain any debt financing from a lending institution.
If necessary, our board of directors or other stockholders may
agree to loan funds to the Company, although there are no formal
agreements to do so. Failure to secure additional capital, if
needed, could force us to curtail our growth strategy, reduce or
delay capital expenditures and downsize operations, which would
have a material negative effect on our financial condition.
Our
agreement with Crown Bridge Partners may limit the amount we may
draw pursuant to an individual put notice under the Equity
Line.
Under the Equity Line
with Crown Bridge Partners, we have the ability to put shares of
common stock for purchase up to the maximum aggregate amount of
$2,500,000. However, the Equity Purchase Agreement contains certain
limitations on the amount we can draw pursuant to any single put
notice. Because of the pricing formula in the agreement, we may be
limited in the maximum amount of a put notice during a pricing
period when our shares are trading at a lower price with low
volume. Thus, there is no assurance that we will be able to draw
sufficient funds during a certain pricing period that would satisfy
current cash needs. In this event, we may have to rely on the
availability of alternative funding. If such funding is not readily
available, we would likely encounter financial difficulties that
could threaten our ongoing business endeavors and financial
conditions.
We could
become involved in claims or litigations that may result in adverse
outcomes.
From time-to-time we
may be involved in a variety of claims or litigations. Such
proceeding may initially be viewed as immaterial, but could prove
to be material. Litigations are expensive and inherently
unpredictable and excessive verdicts do occur. Given the inherent
uncertainties in litigation, even when we can reasonably estimate
the amount of possible loss or range of loss and reasonably
estimable loss contingencies, the actual outcome may change in the
future due to new developments or changes in approach. In addition,
such claims or litigations could involve significant expense and
diversion of management’s attention and resources from other
matters.
Being a
public company involves increased administrative costs, including
compliance with SEC reporting requirements, which could result in
lower net income and make it more difficult for us to attract and
retain key personnel.
As a public company
subject to the reporting requirements of the Exchange Act, we incur
significant legal, accounting and other expenses. The
Sarbanes-Oxley Act of 2002, as well as new rules subsequently
implemented by the SEC, require changes in corporate governance
practices of public companies. We believe these new rules and
regulations increase legal and financial compliance costs and make
some activities more time consuming. For example, in connection
with being a public company, we may have to create new board
committees, implement additional internal controls and disclose
controls and procedures, adopt an insider trading policy and incur
costs relating to preparing and distributing periodic public
reports. These rules and regulations could also make it more
difficult to attract and retain qualified executive officers and
members of our board of directors, particularly to serve on our
audit committee.
Management must invest
significant time and energy to stay current with public company
responsibilities, which limits the time they can apply to other
tasks associated with operations. It is possible that the
additional burden and expense of operating as a public company
could hinder our ability to achieve and maintain profitability,
which would cause our business to fail and investors to lose all
their money invested in our stock.
We estimate that being
a public company will cost us more than $100,000
annually. This is in addition to all other costs of doing
business. It is important that we maintain adequate cash flow,
not only to operate our business, but also to pay the cost of
remaining public. If we fail to pay public company costs as
incurred, we could become delinquent in our reporting obligations
and our shares may no longer remain qualified for quotation on a
public market. Further, investors may lose confidence in the
reliability of our financial statements causing our stock price to
decline.
Provisions in our
charter documents and under Nevada law could make an acquisition of
our Company more difficult, limit attempts by our stockholders to
replace or remove our current board of directors and limit the
market price of our common stock.
Provisions in our
amended and restated Articles of Incorporation and may have the
effect of delaying or preventing a change of control or changes in
our management. Our amended and restated Articles of Incorporation
include provisions that:
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permit our board of
directors to establish the number of directors and fill any
vacancies and newly created directorships;
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require super-majority
voting to amend some provisions in our amended and restated
Articles of Incorporation and amended and restated bylaws;
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authorize the issuance
of “blank check” preferred stock that our board of directors could
use to implement a stockholder rights plan or issue preferred
shares with super voting rights that will effectively reduce or
eliminate the rights of shareholders of our common stock to amend
our Articles of Incorporation or remove a director;
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provide that only the
Chairperson of our board of directors, our Chief Executive Officer,
or a majority of our board of directors will be authorized to call
a special meeting of stockholders.
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In addition, Section
78.411 et seq. of the Nevada Revised Statutes provides that a
Nevada corporation which has not opted out of coverage by this
section in the prescribed manner may not engage in any combination
with an interested stockholder for a period of two years following
the date that the stockholder became an interested stockholder
unless prior to that time the board of directors of the corporation
approved either the combination or the transaction which resulted
in the stockholder becoming an interested stockholder. The
Company has not opted out of this provision, which reduces the
options of the Company being acquired without the consent of the
board of directors.
Risks Relating to Our
Industry
If we are not
successful in the continued development, timely manufacture, and
introduction of new products or product categories, demand for our
products could decrease to the extent that lost sales and profits
from declining segments or product categories are not entirely
offset.
We expect that a
significant portion of our future revenue will continue to be
derived from sales of newly introduced products. This is
particularly important to replace sales and profits lost in
declining segments or product categories. The market for our
products is characterized by rapidly changing technology, evolving
industry standards and changes in customer needs. If we fail to
introduce new products, or to modify or improve our existing
products, in response to changes in technology, industry standards
or customer needs, our products could rapidly become less
competitive or obsolete. We must continue to make significant
investments in research and development in order to continue to
develop new products, enhance existing products and achieve market
acceptance for such products. However, there can be no assurance
that development stage products will be successfully completed or,
if developed, will achieve significant customer acceptance.
If we are unable to
successfully develop and introduce competitive new products, and
enhance our existing products, our future results of operations
would be adversely affected. Our pursuit of necessary technology
may require substantial time and expense. We may need to license
new technologies to respond to technological change. These licenses
may not be available to us on terms that we can accept or may
materially change the gross profits that we are able to obtain on
our products. We may not succeed in adapting our products to new
technologies as they emerge. Development and manufacturing
schedules for technology products are difficult to predict, and
there can be no assurance that we will achieve timely initial
customer shipments of new products. The timely availability of
these products in volume and their acceptance by customers are
important to our future success. Any future challenges related to
new products, whether due to product development delays,
manufacturing delays, lack of market acceptance, delays in
regulatory approval, or otherwise, could have a material adverse
effect on our results of operations.
If we are
unable to compete effectively with existing or new competitors, our
resulting loss of competitive position could result in price
reductions, fewer customer orders, reduced margins and loss of
market share.
The markets for our
products are highly competitive, and we expect competition to
increase in the future. Some of our competitors have significantly
greater financial, technical and marketing resources than we do.
These competitors may be able to respond more rapidly to new or
emerging technologies or changes in customer requirements. They may
also be able to devote greater resources to the development,
promotion and sale of their products or secure better product
positioning with retailers. Increased competition could result in
price reductions, fewer customer orders, reduced margins and loss
of market share. Our failure to compete successfully against
current or future competitors could seriously harm our business,
financial condition and results of operations.
The consumer
automotive segment, which represents almost all of our revenue, may
decline in 2020. The demand for personal navigation devices (PNDs)
has been and continues to be reduced by replacement technologies
becoming available on mobile devices and factory-installed systems
in new autos, as well as by market saturation.
We have experienced a
significant decline in 2020 revenues as the result of the COVID-19
impact on the consumer automotive market and breach of contract of
a Distributor. This market is highly competitive, as competing new
technologies emerge. GPS/navigation technologies have been
incorporated into competing devices such as mobile handsets,
tablets, and new automobiles through factory-installed systems.
Many companies are now offering tracking software for these mobile
devices.
We have a
number of competitors in our market segment, and some of them are
well capitalized and they continue to develop competitive
products.
There are a number of
companies offering automobile tracking products that may compete
with our products. While we continuously strive to improve our
product line and offer new and improved technology, some of our
competitors are more well capitalized than we are, and can produce
competing produces on a larger scale and for a more competitive
price.
Risks Relating
to this Offering and Ownership of Our Common Stock
Our common
stock is traded on the OTCQB under the symbol “IGEN”, but there is
no assurance that an active market for the shares will be
maintained.
Although our shares are
currently quoted and traded on the OTCQB, we cannot assure our
stockholders that a continuous and active trading market will be
sustained. In the even an active trading market is not maintained,
it would be difficult, if not impossible, for stockholders to
liquidate their shares. Also, the trading price for our shares may
be highly volatile and subject to significant fluctuations due to
variations in quarterly operating results and other business and
economic factors. These price fluctuations may adversely affect the
liquidity of our shares, as well as the price that holders may
realize for their shares upon any future sale.
Stockholders of IGEN common stock should be aware that
the public market may be volatile and subject to severe swings in
price.
We believe that the
trading market for our shares on the OTCQB is volatile and subject
to numerous factors, many beyond our control. Some factors that may
influence the price of our shares are:
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Our ability to find
viable companies in which to invest;
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Our ability to
successfully manage companies in which we invest;
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Our ability to
successfully raise capital;
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Our ability to
successfully expand and leverage the distribution channels of our
portfolio companies;
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Our ability to develop
new distribution partnerships and channels;
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Expected tax rates and
foreign exchange rates
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The continuing
uncertain economic conditions;
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Price and product
competition;
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Changing product
mixes;
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The loss of any
significant customers;
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Higher than expected
product, service or operating costs;
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Inability to leverage
intellectual property rights; and
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Delayed product or
service introductions.
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Additionally, the stock market may experience
extreme price and volume fluctuations, which, without a direct
relationship to our operating performance, may affect the market
price of our shares. In the past, following periods of extreme
volatility in the market price of a company’s securities, a
securities class action litigation has often been instituted. A
securities class action suit against us could result in substantial
costs and divert our management’s time and attention, which would
otherwise be used to benefit our business.
Issuing a
large number of shares of common stock could significantly dilute
our existing stockholders and negatively impact the market price of
our shares.
The Equity Purchase
Agreement (Equity Line) with Crown Bridge Partners (the Selling
Stockholder) provides that Crown Bridge Partners is committed to
purchase, on an unconditional basis, shares of our common stock
(“Put Shares”) at an aggregate price of
up to $2,500,000 over the three year term of the agreement. Upon
delivery of a put notice, the purchase price of the Put Shares
shall equal 80% of the lesser of the (i) “market price,” defined as
the lowest traded price for any trading day during the 13 trading
days immediately preceding the respective Put Date, or (ii) the
“valuation price,” defined as the lowest traded price during the
five trading days following the clearing date associated with the
applicable put notice.
Each put notice shall
be (i) in a minimum amount not less than $10,000, and (ii) a
maximum amount up to the lesser of (a) $175,000, or (b) 200% of the
Average Daily Trading Value (defined as the average trading volume
of our common stock in the thirteen (13) trading days immediately
preceding delivery of the respective put notice (the
“pricing period”), multiplied by the
lowest traded price of the of our shares during the pricing
period). The Company may not deliver a new put notice until ten
trading days after the clearing of the prior put notice. As a
result, if we sell shares of common stock under the Equity Line, we
will be issuing common stock at a discount below market prices,
which could cause the market price of our common stock to decline
and, if such issuances are significant in number, the amount of the
decline in our market price could also be significant.
In general, we are
unlikely to sell shares of common stock under the Equity Line at a
time when the additional dilution to stockholders would be
substantial, unless we are unable to obtain capital to meet our
financial obligations from other sources on better terms at such
time. However, if we do, the dilution that could result from such
issuances could have a material adverse impact on existing
stockholders and could cause the price of our common stock to fall
rapidly based on the amount of such dilution.
The Selling
Stockholder may sell a large number of shares, resulting in a
substantial decrease to the value of shares held by existing
stockholders.
Pursuant to the Equity
Purchase Agreement, we are prohibited from delivering a put notice
to the Selling Stockholder to the extent that the issuance of
shares causes the Selling Stockholder to beneficially own more than
4.99% of our then-outstanding shares of common stock. However,
these restrictions do not prevent the Selling Stockholder from
selling shares of common stock received in connection with the
Equity Line and then receiving additional shares of common stock in
connection with a subsequent issuance. In this way, the Selling
Stockholder could sell more than 4.99% of the outstanding shares of
common stock in a relatively short time frame while never holding
more than 4.99% at any one time. As a result, our existing
stockholders and new investors could experience substantial
diminution in the value of their shares. Additionally, we do not
have the right to control the timing and amount of any sales by the
Selling Stockholder of shares issued under the Equity Line.
Trading in
our shares could be restricted because of state securities “Blue
Sky” laws that prohibit trading absent compliance with individual
state laws.
Trading and transfer of
our common stock may be restricted under certain securities laws
promulgated by various states and foreign jurisdictions, commonly
referred to as Blue Sky laws. Individual state Blue Sky laws could
make it difficult or impossible to sell our common stock in those
states. Many states require that an issuer’s securities be
registered in their state, or appropriately exempted from
registration, before the securities can trade in that
state. We have no immediate plans to register our securities
in any state. Absent compliance with such laws, our common stock
may not be traded in such jurisdictions. Whether stockholders
may trade their shares in a particular state is subject to various
rules and regulations of that state.
We do not
expect to pay dividends in the foreseeable future, which could make
our stock less attractive to potential investors.
We have not declared
any dividends since inception of the Company. Any future payment of
cash dividends will be at the discretion of the board of directors
after considering many factors, including operating results,
financial condition and capital requirements. We plan to retain any
future earnings and other cash resources for operation and business
development and do not intend to declare or pay any cash dividends
in the foreseeable future. Corporations that pay dividends may be
viewed as a better investment than corporations that do not.
Trading in
our common stock is subject to certain “penny stock” regulation,
which could have a negative effect on the price of our shares in
the marketplace.
Trading the Company’s
common stock is subject to certain provisions, commonly referred to
as “penny stock” rules, promulgated under the Exchange Act. A penny
stock is generally defined as any non-exchange listed equity
security that has a market price less than $5.00 per share, subject
to certain exceptions. These rules require additional disclosure by
broker-dealers in connection with any trades involving a penny
stock. The rules also impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than
established customers and accredited investors, generally
institutions. These sales practice requirements include a
broker-dealer to:
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Make a special written
suitability determination for a purchaser of penny stocks;
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receive the purchaser’s
prior written consent to execute the trade; and
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deliver to a
prospective purchaser of a penny stock, prior to the first
transaction, a risk disclosure document relating to the penny stock
market.
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Consequently, penny
stock rules may restrict the ability of broker-dealers to trade
and/or maintain a market in our common stock, which could affect
the ability of stockholders to sell their shares. These
requirements may be considered cumbersome by broker-dealers and
could impact their willingness to trade or make a market in our
common stock, which could severely limit the market price and
liquidity of our shares. Also, many prospective investors may not
want to get involved with these additional administrative
requirements, which could have a material adverse effect on the
price and trading of our shares.
Future
sales or the potential sale of a substantial number of shares of
our common stock could cause our market value to
decline.
As of the date of this
Prospectus, we have 1,105,477,145 shares of common stock
outstanding. Of these outstanding shares, approximately 69,355,435
shares are considered restricted securities and may be sold only
pursuant to a registration statement, or the availability of an
appropriate exemption from registration, such as Rule 144.
Additionally, up to 160,256,410 commitment and Put Shares that are
the subject of this Prospectus, can be purchased by the Selling
Stockholder under the Equity Line, which shares would be freely
tradable without restriction upon issuance and be immediately sold
into the market. Sales of a substantial number of these restricted
shares and Put Shares in the public markets, or the perception that
these sales may occur, could cause the market price of our common
stock to decline and materially impair our ability to raise capital
through the sale of additional equity securities.
In the
event we issue additional common stock in the future, current
stockholders could suffer immediate and significant dilution, which
could have a negative effect on the value of their
shares.
We are authorized to
issue 1,490,000,000 shares of common stock, of which 384,522,855
shares are unissued. Also, an additional 160,256,410 commitment and
Put Shares may be issued pursuant the Equity Line to which this
Prospectus relates. Our board of directors has broad discretion for
future issuances of common stock, which may be issued for cash,
property, services rendered or to be rendered, or for several other
reasons. We could also issue shares to make it more difficult, or
to discourage an attempt to obtain control of the Company by means
of a merger, tender offer, proxy contest, or otherwise. For
example, if in the due exercise of its fiduciary obligations the
board determines that a takeover proposal was not in the Company’s
best interests, unissued shares could be issued by the board
without stockholder approval. This might prevent, or render more
difficult or costly, completion of an expected takeover
transaction.
Other that the Put
Shares issuable pursuant to the Equity Line, we do not presently
contemplate additional issuances of significant amounts of common
stock in the immediate future, except to raise addition capital. We
presently do not have an agreement or understanding to sell
additional shares. Our board of directors has authority, without
action or vote of our stockholders, to issue all or part of the
authorized but unissued shares. Any future issuance of shares will
dilute the percentage ownership of existing stockholders and likely
dilute the book value of the common stock, which could cause the
price of our shares to decline and investors in our shares to lose
all or a portion of their investment.
USE
OF PROCEEDS
We will not receive any
proceeds from the resale of shares offered by the Selling
Stockholder hereby. Proceeds from sales of offered shares will be
paid to Selling Stockholder. We have agreed to bear expenses
relating to the registration of the Put Shares for the Selling
Stockholder that are the subject of this Prospectus. The Selling
Stockholder will be obligated to pay all underwriting discounts,
selling commissions and expenses incurred by it for brokerage,
accounting, tax or legal services or any other expenses incurred by
the Selling Stockholder in connection with the sale of shares.
We will receive
proceeds from the sale of shares to Crown Bridge Partners pursuant
to our exercise of the put right granted to us by the Equity Line.
Any such proceeds will be used for general corporate purposes,
which may include (i) acquisition of projects, (ii) refinancing or
repayment of indebtedness, (iii) capital expenditures and working
capital, and (iv) investing in equipment and property
development.
CAPITALIZATION
The following table
sets forth our actual capitalization at June 30, 2020 and December
31, 2019. This table should be read in conjunction with the
financial statements and the notes thereto included elsewhere in
this Prospectus.
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June
30,
2020
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December
31,
2019
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(unaudited)
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Redeemable convertible preferred stock –
Series A
Authorized – 9,000,000 shares with $0.001 par
value, 159,800 shares and 160,600 shares issued and outstanding as
of June 30, 2020 and December 31, 2019, respectively, net of
discount of $142,425 and $121,934, respectively, aggregate
liquidation preference of $88,375 and $153,862 as of June 30, 2020
and December 31, 2019, respectively
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$ |
67,305 |
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$ |
31,927 |
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Series B preferred stock: Authorized –
1,000,000 shares with $0.001 par value issued and outstanding –
1,000,000 and 0 shares, as of June 30, 2020 and December 31, 2019,
respectively, aggregate liquidation preference of $1,000 as of June
30, 2020
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$ |
1,000 |
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$ |
- |
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Common stock: Authorized* – 1,490,000,000
shares with $0.001 par value issued and outstanding – 1,009,665,261
and 74,242,196 shares, as of June 30, 2020 and December 31, 2019,
respectively
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1,009,665 |
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72,242 |
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Additional paid-in capital
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$ |
12,516,383 |
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$ |
10,697,216 |
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Accumulated deficit
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$ |
(14,822,302 |
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$ |
(11,630,660 |
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Total Liabilities and Stockholders’
Deficit
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$ |
517,391 |
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$ |
531,991 |
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DILUTION
We are not immediately
selling any of the shares of our common stock in this Offering. All
shares sold in this Offering will be issued to the selling
stockholder pursuant to the terms of the Equity Purchase Agreement.
If all of the shares in this Prospectus are issued, we will have an
additional 160,256,410 shares of common stock issued and
outstanding in addition to a total of 1,105,477,145 shares
outstanding as of September 3, 2020. The Company anticipates
receiving proceeds from our initial sale of shares to Crown Bridge
Partners pursuant to the Equity Line. The Company may sell shares
to Crown Bridge Partners at a price equal to 80% of the lesser of
the (i) market price when the purchase price is calculated per the
Agreement, or (ii) the valuation price which is the lowest traded
price of the shares during the five trading day valuation period.
Each put notice shall be (i) in a minimum amount not less than
$10,000, and (ii) a maximum amount up to the lesser of (a)
$175,000, or (b) 200% of the Average Daily Trading Value. To the
extent that the shares are sold at a discount of 20% to the fair
market value, the use of the Equity Line could result in the
dilution of the value of the outstanding common shares or in the
depression of the stock price.
MARKET FOR OUR COMMON
STOCK
Our common stock is
presently quoted on the OTCQB under the trading symbol “FERL”,
although there has not been a continuous, active trading market for
the shares. The most recent reported trade by the OTCQB was on
September 1, 2020 at a price of $0.0194 per share.
Set forth in the table
below are the quarterly high and low prices of our common stock as
obtained from the OTCQB for the past two fiscal years ended
December 31, 2019 and 2018 and the second quarter of 2020.
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High
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|
Low
|
|
|
Fiscal year ending December 31,
2020
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
0.0175 |
|
|
$ |
0.0007 |
|
|
Second Quarter
|
|
|
0.0094 |
|
|
|
0.0005 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended December 31,
2019
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
0.049 |
|
|
|
0.021 |
|
|
Second Quarter
|
|
$ |
0.0499 |
|
|
|
0.0215 |
|
|
Third Quarter
|
|
$ |
0.085 |
|
|
|
0.03 |
|
|
Fourth Quarter
|
|
$ |
0.0875 |
|
|
|
0.0111 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended December 31,
2018
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
0.014 |
|
|
|
0.05 |
|
|
Second Quarter
|
|
$ |
0.082 |
|
|
|
0.035 |
|
|
Third Quarter
|
|
$ |
0.08 |
|
|
|
0.0351 |
|
|
Fourth Quarter
|
|
$ |
0.085 |
|
|
|
0.04 |
|
As of July 27, 2020,
there were approximately 145 stockholders of record of our common
stock, which does not consider those stockholders whose
certificates are held in the name of broker-dealers or other
nominee accounts.
The ability of
individual stockholders to trade their shares in a particular state
may be subject to various rules and regulations of that state. Many
states require that an issuer’s securities be registered in their
state or appropriately exempted from registration before the
securities are permitted to trade in that state. Presently, we have
no plans to register our securities in any state.
Penny Stock
Rule
It is unlikely that our
securities will be listed on any national or regional exchange or
The NASDAQ Stock Market in the foreseeable future. Therefore,
our shares will be subject to the provisions of Section 15(g) and
Rule 15g-9 of the Exchange Act, commonly referred to as the
“penny stock” rule. Section 15(g) sets forth certain
requirements for broker-dealer transactions in penny stocks and
Rule 15g-9(d)(1) incorporates the definition of penny stock as
that used in Rule 3a51-1 of the Exchange Act.
The SEC generally
defines a penny stock to be any equity security that has a market
price less than $5.00 per share, subject to certain exceptions.
Rule 3a51-1 provides that any equity security is a penny stock
unless that security is:
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|
●
|
Registered and traded
on a national securities exchange meeting specified criteria set by
the SEC;
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|
|
●
|
authorized for
quotation on the NASDAQ Stock Market;
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|
|
●
|
issued by a registered
investment company;
|
|
|
●
|
excluded from the
definition based on price (at least $5.00 per share) or the
issuer’s net tangible assets; or
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|
|
●
|
exempted from the
definition by the SEC.
|
Broker-dealers who sell
penny stocks to persons other than established customers and
accredited investors, are subject to additional sales practice
requirements. An accredited investor is generally defined as a
person with assets more than $1,000,000, excluding their principal
residence, or annual income exceeding $200,000, or $300,000
together with their spouse.
For transactions
covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and
receive the purchaser’s written consent to the transaction prior to
the purchase. Additionally, the rules require the delivery by the
broker-dealer to the client, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A
broker-dealer also must disclose the commissions payable to both
the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly
statements must be sent to clients disclosing recent price
information for the penny stocks held in the account and
information on the limited market in penny stocks.
These requirements may
be considered cumbersome by broker-dealers and impact the
willingness of a broker-dealer to trade and/or make a market in our
shares, which could affect the value at which our shares trade.
Classification of the shares as penny stocks may affect the ability
of stockholders to sell their shares and increases the risk of an
investment in our shares.
Rule 144
A total of 69,355,435
shares of our common stock presently outstanding and not being
registered for resale under this Prospectus, are deemed to be
“restricted securities” as defined by Rule 144 promulgated by the
Securities Act. Rule 144 is the common means for a stockholder to
resell restricted securities and for affiliates, to sell their
securities, either restricted or non-restricted control shares. In
general, under Rule 144 as currently in effect, a person (or
persons whose shares are required to be aggregated), including a
person who may be deemed an “affiliate” of a company filing reports
under the Exchange Act, who has beneficially owned restricted
securities for at least six months may sell, within any three-month
period, a number of shares that does not exceed the greater of:
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●
|
1% of the
then-outstanding shares of common stock; or
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|
|
●
|
the average weekly
trading volume of the common stock listed on a national securities
exchange during the four calendar weeks preceding the date on which
notice of such sale was filed under Rule 144.
|
Sales under Rule 144
are also subject to certain requirements as to the manner of sale,
filing appropriate notice, and availability of current public
information about the issuer. A stockholder of a reporting company
who is not deemed to have been an affiliate at any time during the
90 days preceding a sale by such person, and who has held their
shares for more than six months, may make unlimited resales under
Rule 144, provided only that the issuer has available
current public information about itself. A person who has not been
an affiliate during the 90 days preceding a sale, and who has
beneficially owned the restricted shares for at least one year, is
entitled to sell such shares under Rule 144 without regard to any
of the restrictions described above.
After a one-year
holding period, a non-affiliate may make unlimited sales with no
other requirements or limitations.
We cannot estimate the
number of shares of common stock that our existing stockholders
will elect to sell under Rule 144. Also, we cannot predict the
effect any future sales under Rule 144 may have on the market price
of our common stock, but such sales may have a substantial
depressing effect on such market price.
DIVIDEND POLICY
We have never declared
cash dividends on our common stock, nor do we anticipate paying any
dividends on our common stock in the foreseeable future.
DETERMINATION OF
OFFERING PRICES
The actual offering
price of the Selling Stockholder of shares covered by this
Prospectus, will be determined by prevailing market prices at the
time of sale, by private transactions negotiated by the Selling
Stockholder, or otherwise described in the section title “Plan of
Distribution.” The quoted or offering price of our shares of our
common stock does not necessarily bear any relationship to our book
value, assets, past operating results, financial condition or any
other established criteria of value.
SELLING
STOCKHOLDER
This Prospectus relates
to the possible resale from time-to-time by the Selling
Stockholder, Crown Bridge Partners, LLC, of any or all the common
stock that has been or may be issued by us to the Selling
Stockholder under the Equity Line. We are registering the common
stock pursuant to the provisions of the Equity Purchase Agreement
and Registration Rights Agreement in order to permit the Selling
Stockholder to offer the shares for resale from time-to-time. See
the discussion below under the heading “Equity Purchase
Agreement with Crown Bridge Partners, LLC”.
The table below
presents information regarding the Selling Stockholder and the
common stock that it may offer from time-to-time pursuant to this
Prospectus. This table is prepared based on information supplied to
us by the Selling Stockholder, and reflects information as of
August 18, 2020. The number of shares in the column “Maximum Shares
to be Offered by this Prospectus” represents all of the common
stock that the Selling Stockholder may offer under this Prospectus.
The Selling Stockholder may sell some, all or none of its shares
offered by this Prospectus. We do not know how long the Selling
Stockholder will hold the shares before selling them, and we
currently have no agreements, arrangements, or understandings with
the Selling Stockholder regarding the sale of any of the
shares.
Beneficial ownership is determined in
accordance with Rule 13d-3(d) promulgated by the SEC under the
Exchange Act, and includes common stock with respect to which the
Selling Stockholder has voting and investment power. With respect
to the Equity Line with the Selling Stockholder, because the
purchase price of the common stock issuable under the Equity
Purchase Agreement is determined on each settlement date, the
number of shares that may actually be sold by us under the Equity
Purchase Agreement may be fewer than the number of shares being
offered by this Prospectus. The fourth column assumes the sale of
all shares offered by the Selling Stockholder pursuant to this
Prospectus.
|
Name of Selling
Stockholder
|
|
Shares
of
Common
Stock
Owned
Prior
to
Offering
|
|
|
Maximum
Shares
to
be
Offered
by
this
Prospectus
|
|
|
Number
of
Shares
Owned
After
Offering
|
|
|
|
|
Number
|
|
Percent
|
|
|
|
|
|
Number(1)
|
|
|
Percent
|
|
|
Crown Bridge Partners,
LLC(2)
|
|
16,799,275
|
(3)
|
|
1.60 |
% |
|
|
160,256,410 |
|
|
|
16,799,275
|
|
|
|
1.60
|
% |
|
(1)
|
Assumes the sale of all
shares being offered pursuant to this Prospectus.
|
|
(2)
|
The Selling
Stockholder’s principal business is that of a private investment
firm. We have been advised that the Selling Stockholder is not an
independent broker-dealer, and that neither the Selling Stockholder
nor any of its affiliates, is an affiliate or an associated person
of any independent broker-dealer. We have been further advised that
Seth Ahdoot of the Selling Stockholder, has sole voting and
dispositive powers with respect to the common stock being
Registered for sale by the Selling Stockholder.
|
|
(3)
|
None of the shares
beneficially owned by Selling Stockholder prior the Company
entering into the Equity Line are being registered as a part of the
Offering. In accordance with Rule 13d-3(d) under the Exchange
Act, we have excluded from the number of shares beneficially owned
prior to the Offering, all of the shares that the Selling
Stockholder may be required to purchase under the Equity Purchase
Agreement. This is because the issuance of such shares is solely at
our discretion and is subject to certain conditions, the
satisfaction of all of which are outside of the Selling
Stockholder’s control, including, but not limited to, the
Registration Statement of which this Prospectus is a part, becoming
and remaining effective. Furthermore, the maximum dollar value of
each put of common stock to the Selling Stockholder under the
Equity Purchase Agreement is subject to certain agreed upon
threshold limitations set forth therein. Also, under the terms of
the Equity Purchase Agreement, we may not issue shares of our
common stock to the Selling Stockholder to the extent that the
Selling Stockholder or any of its affiliates would, at any time,
beneficially own more than 4.99% of our outstanding common
stock.
|
Equity Purchase Agreement with Crown
Bridge Partners, LLC
On July 27, 2020, we
executed an Equity Purchase Agreement with Crown Bridge Partners,
LLC, the Selling Stockholder, which was finalized and effected on
July 27, 2020 (the “Equity Line”). Under
the Equity Line, we have the right, but not the obligation, to sell
to Crown Bridge Partners, and Crown Bridge Partners is committed to
purchase, on an unconditional basis, shares of our common stock
(the “Put Shares”) at an aggregate price
of up to $2,500,000 (the “Maximum Commitment
Amount”) for a period of up to three (3) years. The
term of the Equity Purchase Agreement commenced on July 27, 2020
and will end on the earlier of (i) the date on which the Selling
Stockholder has purchased Put Shares pursuant to the Equity
Purchase Agreement equal to the Maximum Commitment Amount, (ii)
July 27, 2023, or (iii) written notice of termination by the
company.
The Equity Line
provides the Company with a $2,500,000 line of credit to be used by
us for general corporate purposes. Under the Equity Purchase
Agreement, we have the right, from time-to-time at our discretion,
to deliver to Crown Bridge Partners a “put notice” stating the
specified number of Put Shares and purchase price we intend to sell
to Crown Bridge Partners, that it is obligated to purchase. The
Company’s right to deliver a put notice commences on the date a
registration statement registering the Put Shares becomes
effective. Upon delivery of a put notice, the Company must deliver
the Put Shares requested as Deposit Withdrawal at Custodian (DWAC)
shares to the Selling Stockholder within two trading days. In
connection with the transactions contemplated by the Equity
Purchase Agreement, the Company is required to register the Put
Shares with the SEC.
The amount of proceeds
the Company receives pursuant to each put notice is determined by
multiplying the number of Put Shares requested, by the applicable
purchase price. The purchase price for each put notice shall be
equal to 80% of the lesser of the (i) “market price,” defined as
the lowest traded price per share for any trading day during the 13
trading days immediately preceding delivery of the put notice, or
(ii) the valuation price, which is the lowest traded price of the
shares during the five trading days following the clearing date
associated with the applicable put notice. Within four trading days
following the end of the valuation periods, the Crown Bridge
Partners will deliver the total proceeds to the company via wire
transfer.
Each put notice shall
be (i) in a minimum amount not less than $10,000, and (ii) a
maximum amount up to the lesser of (a) $175,000, or (b) 200% of the
Average Daily Trading Value. Average Daily Trading Value is defined
as the average trading volume of our common stock in the thirteen
(13) trading days immediately preceding delivery of the respective
put notice (the “pricing period”),
multiplied by the lowest traded price of the of our shares during
the pricing period. We may not deliver a new put notice until ten
trading days after the clearing of the prior put notice. Because of
these limitations, it is possible that over the term of the Equity
line, the Company may not have the ability to fully draw the entire
$2,500,000 credit line.
In order to deliver a
put notice, certain conditions set forth in the Equity Purchase
Agreement must be met. In addition, the Company is prohibited from
delivering a put notice (i) if the purchase of the Put Shares by
the Selling Stockholder pursuant to such put notice would, when
aggregated with all other shares previously purchased under the
Equity Line, exceed the Maximum Commitment Amount; or (ii) if the
purchase of the Put Shares pursuant to the put notice would, when
aggregated with all other Company common stock then owned by the
Selling Stockholder, result in the Selling Stockholder beneficially
owning more than 4.99% of the then issued and outstanding shares of
the Company’s common stock.
Based upon the trading
price of our common stock as of July 27, 2020, we would have issued
an aggregate of 160,256,410 shares of common stock (including
8,000,000 initial commitment shares) as additional commitment
shares and under the Equity Line if the entire $2,500,000 amount of
potential shares issuable to Crown Bridge Partners had been drawn.
Such shares would represent approximately 10.5% of our outstanding
common stock as of July 27, 2020, resulting in significant
ownership dilution to our existing common stock stockholders.
As a term of the Equity
Purchase Agreement, we entered into a Registration Rights Agreement
with Crown Bridge Partners, whereby we agreed to register for
resale by the Selling Stockholder the shares of common stock
purchased pursuant to the Equity Purchase Agreement. Accordingly,
we filed a registration statement with the SEC on Form S-1 within
45 days of the date of the Registration Rights Agreement. The
registration statement, of which this Prospectus is a part, covers
the resale of shares to be issued under the Registration Rights
Agreement. We also agreed to use our reasonable best efforts to
keep the registration statement effective until the earlier of (i)
the date the Selling Stockholder may sell all of the Put shares
without restriction pursuant to Rule 144, and (ii) the date on
which the Selling Stockholder shall have sold all of the Put Shares
covered by the registration statement. As payment for the initial
commitment fee in connection with the Equity Purchase Agreement, we
issued to Crown Bridge Partners, 8,000,000 restricted shares of our
common stock.
PLAN OF
DISTRIBUTION
Commencing the date of
this Prospectus, Crown Bridge Partners, the Selling Stockholder
identified herein, may offer and sell up to an aggregate of
160,256,410 shares of our common stock (including 8,000,000 initial
commitment shares). The Selling Stockholder, including any of its
pledgees, assignees and successors-in-interest may, from
time-to-time, offer and sell any or all of their shares covered
hereby, that were acquired under the Equity Line. Sales may occur
on the OTCQB or any other stock exchange, market or trading
facility on which the securities are traded, or in private
transactions. These sales may be at the prevailing market price or
related to the then current market price, fixed prices or
negotiated prices.
The Selling Stockholder
may use any one or more of the following methods when selling
securities:
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|
●
|
ordinary brokerage
transactions and transactions in which the broker-dealer solicits
purchasers;
|
|
|
●
|
block trades in which
the broker-dealer will attempt to sell the securities as agent, but
may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
|
●
|
purchases by a
broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
|
●
|
an exchange
distribution in accordance with the rules of the applicable
exchange;
|
|
|
●
|
privately negotiated
transactions;
|
|
|
●
|
transactions through
broker-dealers that agree with the Selling Stockholder to sell a
specified number of such securities at a stipulated price per
security;
|
|
|
●
|
through writings or
settlements of options or other hedging transactions, whether
through an options exchange or otherwise;
|
|
|
●
|
combinations of any
such methods of sale; or
|
Broker-dealers engaged
by the Selling Stockholder may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or
discounts from the Selling Stockholder (or, if any broker-dealer
acts as agent for the purchaser of securities, from the purchaser)
in amounts to be negotiated, but, except as set forth in a
supplement to this Prospectus, in the case of an agency transaction
not in excess of a customary brokerage commission in compliance
with FINRA Rule 2121; which also applies in the case of a principal
transaction a markup or markdown.
The Selling Stockholder
and any broker-dealers or agents that are involved in selling the
securities are deemed to be “underwriters” within the meaning of
the Securities Act in connection with such sales. In such event,
any commissions received by such broker-dealers or agents and any
profit on the resale of the securities purchased by them, may be
deemed to be underwriting commissions or discounts under the
Securities Act. The Selling Stockholder has informed the Company
that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to
distribute the securities.
The Company is required
to pay certain fees and expenses incurred by the Company incident
to the registration of the securities. The Company has agreed to
indemnify the Selling Stockholder against certain losses, claims,
damages and liabilities, including liabilities under the Securities
Act.
Because the Selling
Stockholder may be deemed to be an underwriter within the meaning
of the Securities Act, it will be subject to the prospectus
delivery requirements of the Securities Act including Rule 172
thereunder. The Selling Stockholder has advised us that there is no
underwriter or coordinating broker acting in connection with the
proposed sale of the resale securities by the Selling
Stockholder.
We have agreed to keep
this Prospectus effective until the earlier of (i) the date on
which the securities may be resold by the Selling Stockholder
without registration and without regard to any volume or
manner-of-sale limitations by reason of Rule 144, without the
requirement for the Company to be in compliance with the current
public information under Rule 144 under the Securities Act or any
other rule of similar effect or (ii) the sale of all of the
securities pursuant to this Prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale
securities will be sold only through registered or licensed brokers
or dealers if required under applicable state securities laws. In
addition, in certain states, the resale securities covered hereby
may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
Applicable rules and
regulations under the Exchange Act, any person engaged in the
distribution of the resale securities may not simultaneously engage
in market making activities with respect to the common stock for
the applicable restricted period, as defined in Regulation M, prior
to the commencement of the distribution. In addition, the Selling
Stockholder will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including
Regulation M, which may limit the timing of purchases and sales of
securities of the common stock by the Selling Stockholder or any
other person. We will make copies of this Prospectus available to
the Selling Stockholder and have informed it of the need to deliver
a copy of this Prospectus to each purchaser at or prior to the time
of the sale (including by compliance with Rule 172 under the
Securities Act.
To the best of our knowledge, the Selling
Stockholder is not a broker-dealer or an affiliate of a
broker-dealer.
SHARES ELIGIBLE FOR
FUTURE SALE
We cannot predict the
effect, if any, that market sales of our common stock, or the
availability of shares of our common stock for sale, will have on
the prevailing market price of our shares from time-to-time. Future
sales of our common stock in the public market, or the availability
of such shares for sale in the public market, could adversely
affect market prices prevailing from time-to-time. The availability
for sale of a substantial number of shares of our common stock
acquired through the exercise of outstanding convertible
instruments could materially adversely affect the market price of
our shares. In addition, sales of our common stock in the public
market after the applicable restrictions lapse, as described below,
or the perception that those sales may occur, could cause the
prevailing market price to decrease or to be lower than it might be
in the absence of those sales or perceptions.
Sale of Restricted
Shares
As of September 3,
2020, there were 1,105,477,145 shares of our common stock
outstanding. The 160,256,410 shares of common
stock being offered by this Prospectus will be freely tradable,
other than by “affiliates,” as defined in Rule 144(a) under the
Securities Act, without restriction or registration under the
Securities Act. In addition, 69,355,435 outstanding shares that
were issued by us in private transactions are, or will be, eligible
in the future for public sale if registered under the Securities
Act or sold in accordance with Rule 144 under the Securities Act.
These remaining shares are “restricted securities” within the
meaning of Rule 144 under the Securities Act.
Rule 144
In general, under Rule
144, as currently in effect, a person (or persons whose shares are
required to be aggregated), including a person who may be deemed an
“affiliate” of a company, who has beneficially owned restricted
securities for at least six months may sell, within any three-month
period, a number of shares that does not exceed the greater of: (1)
1% of the then-outstanding shares of common stock, or (2) if and
when the common stock is listed on a national securities exchange,
the average weekly trading volume of the common stock during the
four calendar weeks preceding the date on which notice of such sale
was filed under Rule 144. Sales under Rule 144 are also subject to
certain requirements as to the manner of sale, notice, and
availability of current public information about our Company. A
person who is not deemed to have been an affiliate of us at any
time during the 90 days preceding a sale by such person, and who
has beneficially owned the restricted shares for at least one year,
is entitled to sell such shares under Rule 144 without regard to
any of the restrictions described above.
We cannot estimate the number of shares of
our common stock that our existing stockholders will elect to sell
under Rule 144.
LEGAL
PROCEEDINGS
From time-to-time, we
may be involved in various claims, lawsuits, and disputes with
third parties incidental to the normal operations of the business.
As of the date of this Prospectus, the Company has filed a lawsuit
against a distributor for breach of contract resulting in losses to
the Company estimated to be in excess of $1,000,000. Management
believes the currently scheduled trial date in October 2020 will be
delayed into early 2021 as a result of the backlog of cases due to
COVID-19.
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
OPERATIONS
Business Overview
During 2019, the Company continued to focus
on initiatives to control costs, grow revenue, expand its customer
base, and develop new channels through its wholly-owned subsidiary
Nimbo Tracking LLC and direct to customer brands Medallion GPS PRO
and CU TRAK, all three brands are marketed through the Sprint IOT
Factory platform.
Notable highlights of
the year ended December 31, 2019 include the following Company
achievements:
The
Company achieved $723,819 in revenues at 41% gross profit margin
and $295,788 gross profit.
The
Company made significant progress in cost controls for a net loss
of $806,002 compared to $1,162,593 in the previous year.
The
Company appointed new distributors REMCOOP and Wireless Business
Consultants (WBC) to augment Sprint SMB and Enterprise Sales
Channels.
The
Company received Sprint IoT Factory orders to manage Ride-Share
leased vehicles in the Tri-State Area of New York.
The
Company launched CU Trak, a white-labelled product for Sprint
targeted for Credit Unions at the Inclusive Annual Conference
bringing together over 300 Credit Unions from the continental US,
along with securing the first CU Trak orders from Puerto Rico based
Credit Unions and the Organization of Americas.
The
Company took ownership of DTC patent for measuring and scoring
Driver Performance and Behavior.
COVID-19
On January 30, 2020,
the World Health Organization (“WHO”) announced a global health
emergency in response to a new strain of a coronavirus (the
“COVID-19 outbreak”). In March 2020, the WHO classified the
COVID-19 outbreak as a pandemic based on the rapid increase in
exposure globally. The full impact of the COVID-19 outbreak
continues to evolve as of the date of this report. Management is
actively monitoring the global situation and its effects on the
Company’s industry, financial condition, liquidity, and operations.
Given the daily evolution of the COVID-19 outbreak and the global
responses to curb its spread, the Company expects material negative
effects of the COVID-19 outbreak on its results of operations,
financial condition, or liquidity for fiscal year 2020.
Results of Operations
For the six months
ended June 30, 2020 compared to the six months ended June 30,
2019.
Revenues
and Net Loss For the Six Months Ended June 30,
2020
Revenues
The Company had
revenues of $215,619 for the six months ended June 30, 2020, a 51%
decrease over the similar period in 2019. Sales decrease was
attributed to COVID-19 and its impact on Franchise and Pre-owned
automotive dealerships along with the breach of terms of a
distributor responsible for one of the Company’s house accounts. As
stated in the CEO Outlook for 2020, the Company expects resolution
on breach of terms with its house account along with additional
revenue contribution from its new partnerships with County
Executives and MCULSC in second half of 2020.
The six-month gross
profit of $123,075 represents a 57% gross margin compared to
$192,757 and 43% gross margin over the similar period in 2019.
During the six months ended June 30, 2020, the Company had a
one-time correction to the amounts owed its main supplier of GPS
units, resulting in a reduction of cost of sales of approximately
$20,000. As revenues have decreased over the prior year, more of
the Company’s sales are with one particular distributor whose
pricing with the Company is lower than our average selling price,
resulting in lower margins for the six-month period ended June 30,
2020 compared to the same period during 2019.
The Company continues
to review hardware, inventory, and order fulfillment strategies as
well as product and service pricing and delivery models to grow
sales and maximize overall margins.
Expenses
Operating expenses for
the six months ended June 30, 2020 totaled $676,818 representing a
17% increase in the operating expenses reported in the same period
in 2019. This increase is due to the value of the Series B
preferred stock that was issued during the six months ended June
30, 2020 and valued at $277,543. Included in other income
(expenses) for the six months ended June 30, 2020 and 2019 is
$(1,347,701) and $177,877, respectively of change in fair value of
derivative liabilities. During the six months ended June 30, 2020,
the Company recorded a loss on the settlement of debt totaling
$273,518 for the conversions of debt. During the six months ended
June 30, 2020, the Company recorded $197,443 of interest expense
related to its convertible debt and embedded conversion feature.
The Company anticipates increases in development-associated labor
and material costs as it completes the launch of its next
generation platform. The Company will also expand its sales
channels to support the Sprint IoT Factory initiatives.
Net Loss
The Company had a net
loss of $2,482,469 for the six months ended June 30, 2020, an
increase of $2,154,346 over the same period in 2019, for the
reasons noted above.
The Company continues
to invest in personnel, channels, and product development in order
to drive revenue growth and increase gross profits sufficient to
enable the Company to achieve profitability.
Cash Flows
and Cash Position
The Company saw no
change in its ending cash balance ($0) over the six months ended
June 30, 2020. Net cash of $355,449 used in operating activities
was offset by net financing cash of $355,449 raised via private
placements and from the issuance of convertible debt and a PPP
loan. Cash at the end of the period was $0.
Revenues
and Net Loss for the Year Ended December 31, 2019
Revenues
For the year ended
December 31, 2019, the Company had revenues of $723,819, a 40%
decrease over the revenues reported for same period in 2018.
Service-only revenues
decreased by 38% to $698,693 and other sales decreased by 67% at
$25,126.
Costs of goods sold for
2019 were $428,031, a 36% decrease over 2018. These costs are
primarily mobile hardware and cellular carrier costs.
The resulting gross
profit was $295,788, representing a decrease of 44% year on
year.
Though the Company
decreased revenues, decreased gross profit, and decreased gross
margins year on year, we continue to review hardware vendor,
inventory, and order fulfillment strategies as well as product and
service pricing models to continually improve overall margins.
Expenses
Expenses for the year
ended December 31, 2019, totaled $1,101,790, a decrease of
$591,016, or 35%, from total expenses reported for 2018.
Net Loss
For the year ended
December 31, 2019, the Company had a net loss of $479,073 (or
($0.01) per basic and diluted share) compared with a net loss of
$1,175,320 (or ($0.02) per basic and diluted share) in 2018.
The Company continues
to invest in personnel, channels, and product development in order
to drive revenue growth and increase gross profits sufficient to
enable the Company to achieve profitability.
Cash
Flows
For the year
ended December 31, 2019, the Company saw a net decrease in cash of
$56,823. Cash used in operating activities was $657,573, a decrease
of 44% from the $1,174,991 net cash used in 2018. This was offset
by net financings of $600,750 raised via private placements. Cash
at the end of the year was $0.
Capital Resources and
Liquidity
At June 30, 2020
compared to fiscal year ended December 31, 2019.
Current
Assets and Liabilities, Working Capital, Net Debt
As of June 30,
2020, the Company’s current assets were $11,883, a decrease of 55%
over the six-month period. Contributing to the net decrease to
current assets was the reduction in sales during the period as a
result of COVID-19 impacting Franchise and Pre-Owned Automotive
Dealerships and the breach of terms of a distributor responsible
for one of the Company’s house accounts. The Company expects to
recover this loss business or receive monetary proceeds from
settlement in 2020. The Company will focus its sales efforts on
higher-margin opportunities across the T-Mobile/Sprint IoT Platform
for all Company brands along with a focus on County Executive and
Credit Union opportunities through recently announced
partnerships.
Current liabilities
increased $393,916, or 30%, over the three months, primarily due to
the derivative liabilities that were established during 2019 and
the six months ended June 30, 2020, and the amortization of debt
issuance costs.
The Company finished
the six-month period ended June 30, 2020, with a working capital
deficiency of $1,686,400, a deterioration of $408,516 over the six
months. Of the total working capital deficiency, $142,621 is
short-term deferred revenue liabilities, net that will convert to
revenues and cost of sales. During the six months ended June 30,
2020, the Company raised a total of $405,449 in cash proceeds from
(1) the sale of shares of the Company’s common stock and series A
preferred stock, (2) from the proceeds of a PPP loan and (3) a
convertible note. The Company intends to improve its working
capital position through ongoing equity and debt financing and
continued focus on growth in its cash flow.
Total
Assets and Liabilities, Total Stockholders’
Deficit
The Company’s total
assets as of June 30, 2020 were $517,391, a decrease of $14,600
over the six months. This decrease was commensurate with the
respective changes in current assets previously discussed.
Total liabilities
increased $386,074 or 28% over the six months. This increase was
composed primarily of the $515,447 increase in derivative
liabilities, PPP loan, and convertible debt, net, and a decrease of
$129,373 of accounts payable and deferred revenues, net, during the
six months.
The above resulted in
total stockholders’ deficit of $1,295,254, an increase of $436,052
from December 31, 2019. This change is a result of the net loss and
deemed dividends for the six months ended June 30, 2020, offset by
the $276,250 of cash proceeds from the sale of shares of the
Company’s common stock and series A preferred stock during the six
months.
As of the date of these
financial statements, the Company requires additional capital to
maintain adequate working capital and projected net revenues. The
Company’s business plan is predicated on raising further capital
for the purpose of further investment and acquisition of targeted
technologies and companies, to fund growth in these technologies
and companies, and to expand sales and distribution channels for
companies it currently owns or is invested. It is anticipated the
Company will continue to raise additional capital to fund growth
and achieve profitability.
In December 2019, a
novel strain of coronavirus diseases (“COVID-19”) was first
reported in Wuhan, China. Less than four months later, on March 11,
2020, the World Health Organization declared COVID-19 a global
pandemic. The extent of COVID-19’s ongoing effect on the Company’s
operational and financial performance will depend on future
developments, including the duration, spread and intensity of the
pandemic, all of which are uncertain and difficult to predict
considered the rapidly evolving landscape. The Company is currently
analyzing the potential impacts to its business. At this time, it
is not possible to determine the magnitude of the overall ongoing
impact of COVID-19 on the Company. However, COVID-19 has had a
material adverse effect on the Company’s business, financial
condition, liquidity, results of operations, and cash flows thus
far in 2020.
Availability of Additional
Funds
Our capital
requirements going forward will consist of financing operations
until we are able to reach a level of revenues and gross margins
adequate to equal or exceed ongoing operating expenses. Except for
the Equity Line, we do not have any credit agreement or source of
liquidity immediately available to us.
Historically, our
operations have primarily been funded through proceeds from
existing stockholders in exchange for equity and debt. As of August
20, 2020, we had a cash balance of $110,000. There are no
commitments in place, other than the Equity Line, for new financing
as of the date of this Prospectus and there can be no assurance
that we will be able to obtain funds on commercially acceptable
terms, if at all. We expect to have ongoing needs for working
capital in order to fund operations and develop new products and
services. To that end, we may be required to raise additional funds
through other equity or debt financing. However, there can be no
assurance that we will be successful in securing additional
capital. If we are unsuccessful, we may need to (a) initiate cost
reductions; (b) forego business development opportunities; (c) seek
extensions of time to fund liabilities; or (d) seek protection from
creditors.
Although the Equity
Line provides that the Selling Stockholder must purchase the shares
of common stock put to them, there are limits as to the amount of
any put notice. The maximum amount of a single put notice is the
lesser of (a) $175,000, or (b) 200% of the Average Daily Trading
Value. Because Average Daily Trading Value is the average trading
volume of our common stock in the thirteen (13) trading days
immediately preceding delivery of the respective put notice,
multiplied by the lowest traded price of the of our shares during
the pricing period, the amount could be limited by a low stock
price and low trading volume. A new put notice cannot be made until
ten trading days after the clearing of the prior put notice. Thus,
there may be periods when we are unable to rely on the Equity Line
for adequate funds to satisfy immediately current obligations.
If we are unable to
generate adequate cash from operations and if we are unable to find
adequate sources of funding, it may be necessary for us to sell all
or a portion of our assets, enter into a business combination, or
reduce or eliminate operations. These possibilities, to the extent
available, may be on terms that result in significant dilution to
our stockholders or that result in our stockholders losing all of
their investment in our Company.
If we are able to raise
additional capital, we do not know what the terms of any such
capital raising would be. In addition, any future sale of our
equity securities would dilute the ownership and control of your
shares and could be at prices substantially below prices at which
our shares currently trade. Our inability to raise capital could
require us to significantly curtail or terminate our operations. We
may seek to increase our cash reserves through the sale of
additional equity or debt securities. The sale of convertible debt
securities or additional equity securities could result in
additional and potentially substantial dilution to our
stockholders. The incurrence of indebtedness would result in
increased debt service obligations and could result in operating
and financing covenants that would restrict our operations and
liquidity. In addition, our ability to obtain additional capital on
acceptable terms is subject to a variety of uncertainties.
Our audited
consolidated financial statements included elsewhere in this
Prospectus have been prepared in conformity with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”), which contemplate our continuation as a going
concern and the realization of assets and the satisfaction of
liabilities in the normal course of business. The carrying amounts
of assets and liabilities presented in the consolidated financial
statements do not necessarily purport to represent realizable or
settlement values. The consolidated financial statements do not
include any adjustment that might result from the outcome of this
uncertainty.
Recent Accounting
Pronouncements
In August 2020, the
FASB issued ASU 2020-06, ”Debt – Debt with Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging –
Contracts in Entity’s Own Equity (Subtopic 815 –
40)” (“ASU 2020-06”).
ASU 2020-06 simplifies the accounting for certain
financial instruments with characteristics of liabilities and
equity, including convertible instruments and contracts on an
entity’s own equity. The ASU is part of the FASB’s simplification
initiative, which aims to reduce unnecessary complexity in U.S.
GAAP. The ASU’s amendments are effective for fiscal years beginning
after December 15, 2023, and interim periods within those fiscal
years. The Company is currently evaluating the impact
ASU 2020-06 will have on its financial statements.
The Company does not
believe that there are any other new accounting pronouncements that
have been issued that might have a material impact on its
consolidated financial position or results of operations.
Off-balance Sheet
Arrangements
We have no off-balance
sheet arrangements.
Critical Accounting Policies and
Significant Judgment and Estimates
Our management’s
discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”). The preparation
of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amount of assets,
liabilities, and expenses and the disclosure of contingent assets
and liabilities as of the date of the consolidated financial
statements. On an ongoing basis, we evaluate our estimates and
judgments. We base our estimates on historical experience, known
trends and events, and various other factors that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ materially from these estimates under
different assumptions or conditions.
Accounts
Receivable
Accounts receivable are
recognized and carried at the original invoice amount less an
allowance for expected uncollectible amounts. Inherent in the
assessment of the allowance for doubtful accounts are certain
judgments and estimates including, among others, the customer’s
willingness or ability to pay, the Company’s compliance with
customer invoicing requirements, the effect of general economic
conditions and the ongoing relationship with the customer. Accounts
with outstanding balances longer than the payment terms are
considered past due. We do not charge interest on past due
balances. The Company writes off trade receivables when all
reasonable collection efforts have been exhausted. Bad debt expense
is reflected as a component of general and administrative expenses
in the consolidated statements of operations.
Inventory
Inventory consists of
vehicle tracking and recovery devices and is comprised entirely of
finished goods that can be resold. Inventory is stated at the lower
of cost or net realizable value. Cost is determined on a first-in,
first-out (FIFO) basis. Net realizable value is the estimated
selling price in the ordinary course of business, less estimated
costs of completion and selling costs.
Goodwill
Goodwill represents the
excess of the acquisition price over the fair value of identifiable
net assets acquired. Goodwill is allocated at the date of the
business combination. Goodwill is not amortized, but is tested for
impairment annually on December 31 of each year or more frequently
if events or changes in circumstances indicate the asset may be
impaired. These events and circumstances may include a significant
change in legal factors or in the business climate, a significant
decline in the Company’s share price, an adverse action of
assessment by a regulator, unanticipated competition, a loss of key
personnel, significant disposal activity and the testing of
recoverability for a significant asset group.
Goodwill impairment is
measured as the amount by which a reporting unit’s carrying value
exceeds its fair value.
Fair Value
Measurements
In accordance with
Financial Accounting Standard Board (“FASB”) Accounting Standards
Codification (“ASC”) 820, “Fair Value Measurements and
Disclosures,” the Company is to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring
fair value. ASC 820 establishes a fair value hierarchy based on the
level of independent, objective evidence surrounding the inputs
used to measure fair value. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. ASC 820
prioritizes the inputs into three levels that may be used to
measure fair value:
Level 1
Level 1 applies to
assets or liabilities for which there are quoted prices in active
markets for identical assets or liabilities.
Level 2
Level 2 applies to
assets or liabilities for which there are inputs other than quoted
prices that are observable for the asset or liability such as
quoted prices for similar assets or liabilities in active markets;
quoted prices for identical assets or liabilities in markets with
insufficient volume or infrequent transactions (less active
markets); or model-derived valuations in which significant inputs
are observable or can be derived principally from, or corroborated
by, observable market data.
Level 3
Level 3 applies to
assets or liabilities for which there are unobservable inputs to
the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.
The fair values of cash
and cash equivalents, accounts and other receivables, restricted
cash, and accounts payable and accrued liabilities, approximate
their carrying values due to the immediate or short-term maturity
of these financial instruments. Foreign currency transactions are
primarily undertaken in Canadian dollars. The fair value of cash is
determined based on “Level 1” inputs and the fair value of
derivative liabilities is determined based on “Level 3” inputs. The
recorded values of notes payable, approximate their current fair
values because of their nature and respective maturity dates or
durations. The financial risk is the risk to the Company’s
operations that arise from fluctuations in foreign exchange rates
and the degree of volatility to these rates. Currently, the Company
does not use derivative instruments to reduce its exposure to
foreign currency risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consists of
cash. The Company places its cash and cash equivalents in what it
believes to be credit-worthy financial institutions.
Revenue
Recognition and Deferred Revenue
We recognize revenue in
accordance with ASC 606, “Revenue from Contracts with Customers”,
using the five-step model, including (1) identify the contract with
the customer, (2) identify the performance obligations in the
contract, (3) determine the transaction price, (4) allocate the
transaction price to the performance obligations in the contract,
and (5) recognize revenue in accordance with U.S. GAAP. Title and
risk of loss generally pass to our customers upon delivery, as we
have insurance for lost shipments. In limited circumstances where
either title or risk of loss pass upon destination or acceptance or
when collection is not reasonably assured, we defer revenue
recognition until such events occur. We derive revenues from two
primary sources: products and services. Product revenue includes
the shipment of product according to the agreement with our
customers and only represents a small percentage of our revenues,
less than 5%. Services include vehicle tracking services and
customer support (technical support), installations and consulting.
A contract may include both product and services. For these
contracts, the Company accounts for individual performance
obligations separately if they are distinct. Performance
obligations include, but are not limited to, pass-thru harnesses
and vehicle tracking services. Almost all of our revenues are
derived from customers located in United States of America in the
auto industry. The transaction price is allocated to the separate
performance obligations on a relative standalone selling price
basis. Standalone selling prices are typically estimated based on
observable transactions when these services are not sold on a
standalone basis. At contract inception, an assessment of the goods
and services promised in the contracts with customers is performed
and a performance obligation is identified for each distinct
promise to transfer to the customer a good or service (or bundle of
goods or services). To identify the performance obligations, the
Company considers all of the goods or services promised in the
contract regardless of whether they are explicitly stated or are
implied by customary business practices. Revenue is recognized when
our performance obligation has been met. The Company considers
control to have transferred upon delivery because the Company has a
present right to payment at that time, the Company has transferred
use of the asset, and the customer is able to direct the use of,
and obtain substantially all of the remaining benefits from, the
asset. For arrangements under which the Company provides vehicle
tracking services, the Company satisfies its performance
obligations as those services are performed whereby the customer
simultaneously receives and consumes the benefits of such services
under the agreement. Revenues are recognized net of any taxes
collected from customers, which are subsequently remitted to
governmental authorities.
The Company provides
product warranties with varying lengths of time and terms. The
product warranties are considered to be assurance-type in nature
and do not cover anything beyond ensuring that the product is
functioning as intended. Based on the guidance in ASC 606,
assurance-type warranties do not represent separate performance
obligations. The Company has historically experienced a low rate of
product returns under the warranty program.
Management assesses the
business environment, customers’ financial condition, historical
collection experience, accounts receivable aging, and customer
disputes to determine whether collectability is reasonably assured.
If collectability is not reasonably assured at the time of sale,
the Company does not recognize revenue until collection occurs.
Revenue relating to the
sale of service fees on its vehicle tracking and recovery services
is recognized over the life of the contact. The service renewal
fees are offered in terms ranging from 12 to 36 months and are
generally payable upon delivery of the vehicle tracking devices or
in full upon renewal.
Deferred revenues are
recorded net of contract assets and when cash payments are received
from customers in advance of the Company’s performance.
Any revenue that has
been deferred and is expected to be recognized beyond one year is
classified as deferred revenue, net of current portion.
Deferred revenues are
recorded net of contract assets. Contract assets represent the
costs of the underlying hardware to enable the Company to perform
on its contracts with customers.
Restatements
During 2019, we
discovered that an accounting error had been made related to the
Company not properly recording contract assets as required under
the relevant accounting guidance for revenue recognition. It was
determined that the error is immaterial to the 2018 financial
statements; however, correcting the error in 2019 would materially
misstate the current year financial statements. As such, we
computed the appropriate amounts related to 2018 and recorded such
in the consolidated financial statements (see Note 17 to the
accompanying consolidated financial statements).
Financing
Costs and Debt Discount
Financing costs and
debt discounts are recorded net of notes payable and convertible
debentures in the consolidated balance sheets. Amortization of
financing costs and the debt discounts is calculated using the
effective interest method over the term of the debt and is recorded
as interest expense in the consolidated statement of
operations.
Capital
Resources and Liquidity
Current
Assets and Liabilities, Working Capital
As of December 31,
2019, the Company had total current assets of $26,483, an 82%
decrease from the end of 2018. This decrease was mostly due to a
$113,167 decrease in cash, inventory, and prepaid expenses, because
of the timing of payments to Nimbo from its customers.
The Company’s current
liabilities as of December 31, 2019, were $1,304,367, a 15%
increase over those reported at the end of the 2018. However,
$207,566 (or 16%) of the Company’s current liabilities were
deferred revenues, net to be recognized in future periods. The
increase in current liabilities was mostly due to a $169,676
increase in the accounts payable and accrued expenses as of
December 31, 2019.
IGEN ended 2019 with
negative working capital of $1,277,884. Adequate working capital
remains a core requirement for growth and profitability and to
facilitate further acquisitions, and the Company continues to work
at improving its working capital position through ongoing equity
and debt financing and actively managing the Company’s growth to
achieve sustainable positive cash flow.
In 2019, the Company
raised an additional $600,750 in financings and converted $86,537
of preferred stock and convertible debentures into shares of common
stock. These transactions are further disclosed in notes to the
consolidated financial statements.
Total
Assets and Liabilities, Net Assets
As of December 31,
2019, the Company’s total assets were $531,991, a 18% decrease over
the prior year, due primarily to the decrease in current assets
previously discussed. The majority of the Company’s assets remain
$505,508 in goodwill associated with the acquisition of Nimbo in
2014.
As of December 31,
2019, the Company’s total liabilities were $1,359,266, which
reflects $54,899 in long-term deferred revenue, net in addition to
the $1,304,367 in current liabilities previously discussed. This
long-term deferred revenue is the portion of service contracts
signed in previous years for which service, and the associated
revenue recognition, occurs beyond 2020. Total liabilities
increased by 12% over the previous year, however 19%, or $262,465
of the Company’s year-end total liabilities was deferred revenue,
net, compared with $394,432 of deferred revenue, net reported at
the end of 2018.
The above resulted in
net assets as of December 31, 2019 being ($859,202) and an
accumulated deficit of $11,630,660.
The Company is
continuing its efforts to increase its asset base, raise funds and
improve cashflow to improve its working capital position. As of the
date these financial statements were issued, the Company believes
it has adequate working capital and projected net revenues and cash
flows to maintain existing operations for approximately six months
without requiring additional funding. The Company’s business plan
is predicated on raising further capital for the purpose of further
investment and acquisition of targeted technologies and companies,
to fund growth in these technologies and companies, and to expand
sales and distribution channels for companies it currently owns or
is invested. It is anticipated the Company will continue to raise
additional capital through private placements or other means in the
both the near and medium term.
The reader is
cautioned that the Company’s belief in the adequacy of its working
capital, the continuation and growth of future revenue, the ability
of the Company to operate any stated period without additional
funding, and the ability to successfully raise capital are forward
looking statements for which actual results may vary, to the extent
that the Company may need capital earlier than anticipated and/or
may not be able to raise additional capital.
BUSINESS
Executive
Summary
IGEN Networks Corp.
(“IGEN”, the “Company”, “we”, “our”) was incorporated in the State
of Nevada on November 14, 2006, under the name of Nurse Solutions
Inc. On September 19, 2008, the Company changed its name to Sync2
Entertainment Corporation and traded under the symbol SYTO. On
September 15, 2008, the Company became a reporting issuer in
British Columbia, Canada. On May 26, 2009, the Company changed its
name to IGEN Networks Corp. On March 25, 2015, the Company was
listed on the Canadian Securities Exchange (CSE) under the trading
symbol IGN and the Company became a reporting Venture Issuer in
British Columbia and Ontario, Canada.
The Company’s principal
business is the development and marketing of software services for
the automotive and fleet management industry. The Company works
with Sprint and its distribution partners to provide direct and
secure access to information on vehicle assets and driver
performance. The software services are based on the AWS Cloud
Infrastructure delivered to customers over the wireless network and
accessed from consumer mobile or desktop devices. The software
services are marketed through automotive dealers, financial
institutions, and government channels as IGEN commercial and
consumer brands: Nimbo Tracking, CU Trak, and Medallion GPS
PRO.
As of December 31,
2019:
|
i)
|
IGEN had a 100% equity
position in Nimbo Tracking LLC, a privately held US company based
in Murrieta, CA
|
|
ii)
|
IGEN appointed Wireless
Business Consultants (WBC) Sprint’s Master Agent for nationwide
distribution
|
|
iii)
|
IGEN appointed REMCOOP
for distribution and marketing for the Territory of Puerto Rico
|
|
iv)
|
IGEN took ownership of
Digital Telematics Signature (DTC) patent for greater accuracy in
measuring driver performance
|
|
v)
|
IGEN launched Medallion
GPS PRO for Light-Commercial Fleets
|
|
vi)
|
IGEN had a software
license and hardware supply agreements with Positioning Universal
Inc.
|
The Company’s head
office is located at 28375 Rostrata Ave., Lake Elsinore, CA 92532.
Direct line is 855-912-5378.
The Company currently
owns the DTC patent for normalization of driver behavior data for
consistent and accurate measurement of driver performance
regardless of asset-type or data source. The Company has secured
trademarks and distribution licenses through increased ownership of
privately held technology companies.
The Company is not
aware of any government approval or regulations, other than those
governing the normal course of business, which will affect its own
business. However, the Company is invested in and foresees future
investment in, or possible joint ventures with, companies for which
local, regional or national regulatory approvals, particularly
those pertaining to wireless networks or GPS-based applications,
may apply.
The Company is not
aware of any significant costs or effects of compliance with
environmental laws.
The Company’s executive
management activities are undertaken by Directors of the Company on
a contract basis.
The Company also relies
on subcontractors for product development, finance, legal, and
other related professional services. On a consolidated basis,
including the Company’s wholly-owned subsidiaries, the Company has
10 or less full time employees.
Description of Products and Services
The Company’s principal
business is the development and marketing of software services for
the automotive and fleet management industry. The Company works
with T-Mobile and its distribution partners to provide direct and
secure access to information on vehicle assets and driver
performance. The software services are based on the AWS Cloud
Infrastructure delivered to customers over the wireless network and
accessed from consumer mobile or desktop devices. The software
services are marketed through automotive dealers, financial
institutions, and government channels as IGEN commercial and
consumer brands: Nimbo Tracking, CU Trak, and Medallion GPS
PRO.
The Company’s most
recent NextGen Platform is built on the Amazon’s Web Service (AWS)
infrastructure and based on coding methodology that leverages
Facebook and Google design techniques to present a seamless user
interface regardless of access methods including smartphones,
tablets, desktops, and third party application environments. The
AWS infrastructure offers reliability, security, and scalability to
support millions of users or assets and an Application Programming
Interface (API) friendly environment that adapts to a broad range
of data sources to support the changing needs of the consumer and
their families. The NextGen Platform is optimized to serve a broad
range of consumer markets including online purchases and
renewals.
The Digital Telematics
Signature (DTC) is IGEN’s patented proprietary algorithm for
measuring driver behavior for both commercial and consumer markets
regardless of the data sources. Whether driving in high-density
traffic or at high speeds over the expressway, the data is
normalized across a relatively large sample to create a consistent
and accurate driver score based on actuarial metrics. With
programmable weighting of driving events such as speed,
sudden-braking, harsh-turns, traffic flow, and vehicle profiling, a
“DTC” or weighted score is created over an extended
period-of-time.
Marketing and Sales
The Company’s product
and services are sold primarily through Master Distributors and
Sales Agents, which include T-Mobile’s Master Agent and SMB sales
channels, Michigan Credit Union League Service Corporation, and
County Executive of Americas. Marketing initiatives are jointly
developed with each channel partner based on the anticipated needs
and drivers for each market. The Company is working with T-Mobile’s
Ecommerce initiatives in offering product and services direct to
businesses.
Our Business Strategy
The Company’s strategies is to achieve market
leadership of its target markets through product and service
innovation, cost efficiency, and quality customer service.
Employees
Company operates with less than 10 full time
staff and works with third-party contractors for product and
infrastructure development, legal, finance, and hardware
sourcing.
Competition
Competition varies
across the consumer automotive and light-fleet industry. Spireon a
privately held company offers similar services to automotive
dealerships but holds no patents in managing driver behavior. There
are many fleet service providers offering a range of services but
with much higher cost structures, especially when offering
solutions to smaller and lighter commercial fleets. The Company’s
Medallion GPS PRO solution was development for a specific segment
of the commercial fleet industry which presently has far fewer
competitors.
Research and Development
The Company’s research
and development is managed internally but executed through
third-party developers. The IoT industry is a complex eco-system of
technologies requiring a broad range of technical skills in both
hardware and software development. Contracting subject matter
experts on a project basis has proven to be cost efficient and
effective.
Intellectual Property
As a general practice,
we will rely upon patent, copyright, trademark and trade secret
laws to protect and maintain our proprietary rights for our
products. There are no inherent factors or circumstances associated
with this industry, or any of the products or services that we
expect to be providing that would give rise to any patent,
trademark or license infringements or violations. We have not
entered into any franchise agreements or other contracts that have
given, or could give rise to obligations or concessions. Our web
domain and IP address as well as Company information will be
protected by our domain host.
Strategic Relationships
The Company places
great value in strategic relationships as the IoT Industry evolves
across many industries as part of the development of 5G wireless
technologies. The Company has development strategic relationships
with its primary wireless carrier T-Mobile, its hardware supplier
Positioning Universal Inc., the Michigan Credit Union League
Service Corporation, and County Executives of America.
PLAN OF OPERATION
Facilities
As of August 18, 2020,
the Company’s principal corporate offices are located at 28375
Rostrata Ave, Lake Elsinore, CA 92532, USA and our telephone number
is (855-912-5378). Monthly lease expense is approximately $1,000
per month. Prior to June 1, 2020, rent expense for the years ended
December 31, 2019 and 2018 was approximately $39,000 and $35,000,
respectively. As of December 31, 2019, we are obligated to make
minimum lease payments under our operating lease of approximately
$10,000 in 2020. As our lease is considered short-term under the
accounting guidance of ASC 842 as of December 31, 2019, we have not
included the related disclosures required under ASC 842. Our lease
was a month-to-month lease throughout most of 2019, but in March
2020, the lease was renewed for three months.
MANAGEMENT
Directors and Executive
Officers
The following table
sets forth the name, age and position of our present directors and
executive officers.
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
Robert Nealon
|
|
63
|
|
Director, Chairman of the Board
|
|
|
|
|
|
|
|
Neil G. Chan
|
|
57
|
|
Director, Chief Executive Officer
|
|
|
|
|
|
|
|
Mark Wells
|
|
57
|
|
Director
|
|
|
|
|
|
|
|
Abel I. Sierra
|
|
47
|
|
Executive office, VP & GM
|
|
|
|
|
|
|
|
Robert Friedman
|
|
|
|
Director
|
We presently anticipate
considering new, qualified persons to become directors in the
future, although no new appointments or arrangements have been made
as of the date hereof.
All directors serve for
a one-year term until their successors are elected or they are
re-elected at the annual stockholders’ meeting. Officers hold their
positions at the pleasure of the board of directors, absent any
employment agreement, of which none currently exists or is
contemplated.
There is no
arrangement, agreement or understanding between any of the
directors or officers and any other person pursuant to which any
director or officer was or is to be selected as a director or
officer. Also, there is no arrangement, agreement or understanding
between management and non-management stockholders under which
non-management stockholders may directly or indirectly participate
in or influence the management of our affairs.
The business experience
of each person listed above during the past five years is as
follows:
Robert Nealon,
Chairman of the Board & Director
Mr. Nealon is the
Principal Attorney in Nealon & Associates, P.C., and a
Washington, D.C. based law and government relations firm. He has
been practicing law for twenty-seven years and has achieved an AV
rating from Martindale-Hubbell, the leading rating bureau for the
legal profession. Mr. Nealon has a B.A. from University of
Rochester (1977) and M.B.A. from Rochester Institute of Technology
(1978). He received his Juris Doctorate, magna cum laude, from the
University of Bridgeport in 1982 and his Masters of Law in Taxation
(LL.M.) degree from Georgetown University in 1984. He is a member
of the bar associations of New York State and Virginia, the
American Bar Association and the Federal Bar Association. Mr.
Nealon served as Adjunct Instructor of Corporate Law, George
Washington University from 1985 until 2005. Mr. Nealon has been
lead counsel on hundreds of commercial trials, including
multi-million dollar derivative action lawsuits, security fraud and
government contract fraud. He has been counsel to hundreds of
corporations, including insurance affinity marketing, manufacturing
and multiple financial institutions. Mr. Nealon has been active
over the years in national politics and government relations.
Mr. Nealon was
appointed to the Virginia Small Business Advisory Board by former
Virginia Governor Warner and was reappointed to this state board by
Governor Kaine through 2010 as its Chairman. Mr. Nealon is also a
current appointee to the George Mason University Advisory Board for
the Institute for Conflict Analysis and Resolution in Arlington. He
is also a member of the National Press Club and the Democratic
National Club.
Neil G. Chan,
Chief Executive Officer & Director
Mr. Chan is a career
technologist who has pioneered disruptive technologies in more than
45 countries over the last 30 years. From start-up to $400M in
annual revenues, Mr. Chan has led and created the best-in-class
sales, marketing, and service organizations during the development
of wireless data infrastructure, mobile solutions,
Software-as-a-Service for commercial fleets, and
Hybrid-Fiber-Cable(HFC) broadband infrastructure and solutions. Mr.
Chan led the first technology transfer initiative between Canada
and Mainland China on behalf of Spar Aerospace and Gandalf
Technologies Inc., along with training, product marketing and sales
responsibilities for growing Gandalf’s export markets. During early
development of mobile data solutions, Mr. Chan was recruited to
Motorola Inc., to lead the product marketing and development of the
industry’s first mobile data solutions for public safety, taxi,
utility, and field service markets. As Motorola’s Managing
Director, Mr. Chan lead the expansion of HFC broadband voice and
data networks throughout the Asia Pacific region growing to $400M
in annual revenues during the first three years of business
formation. Along with founding members of the cable modem industry,
Mr. Chan joined Airvana Inc., to lead business development for the
early adoption of broadband wireless networks, leading to the
industry’s first deployment of CDMA-based wireless broadband
networks in North America. Most recently, Mr. Chan led worldwide
sales and marketing of fleet management services for WebTech
Wireless Inc., contributing five years of record growth and
industry leadership across government and transportation markets.
Mr. Chan has served on the Executive Review Board of Royal Roads
University and continues to mentor and support early stage
technology companies.
Mark Wells,
Director
Mr. Wells is presently
the President and CEO of Positioning Universal. During his 25 years
of experience in the wireless industry, he has pioneered the
development and marketing of wireless products, semiconductor
technology, and leading-edge wireless services. Mr. Wells
co-founded DriveOK, which merged with Procon and eventually became
Spireon where he led the company during its growth period in
becoming the industry leader of GPS vehicle tracking technologies.
Prior to Procon, Mr. Wells was the co-founder and CEO of Zucotto
Wireless, where he raised $60M in venture capital to develop
wireless semiconductor technologies and secured customers that
included Panasonic, Nokia, and Alcatel. Mr. Wells has also held
marketing roles with Nokia Mobile Phones where he managed a $10B
revenue value of mobile phone products, and later served as Vice
President & General Manager at DSP Communications which was
eventually sold to Intel for $1.6B. Most recently, Mr. Wells has
co-founded and mentored several dozen early-stage technology
companies and served as a consultant to Fortune 500 companies.
Robert
Friedman, Director
Robert Friedman has
been actively engaged in the real estate business since 1970. In
1996, he started York Resources, LLC., where he actively
participates in the acquisition, financing and development of their
real estate holdings, in addition to practicing transactional real
estate law for private clients. At present, Robert and his brother
Bernard own 34 properties, most of which are located in Manhattan
and which consist of about 120,000 square feet of retail and office
space, 300+ parking spaces, rental apartment units and luxury
single-family homes. Recently, the Friedman’s developed, built and
presently own a 28-story Pod Hotel located at 42nd Street and Ninth
Avenue consisting of 665 hotel rooms, 45 residential apartment and
retail spaces. Robert Friedman and his brother are currently
developing a national family amusement theme park anchored by the
world’s largest rollercoaster to be located in Orlando, Florida.
Prior to joining the family business, Robert Friedman was a Senior
Partner and transactional real estate attorney in New York City for
over 20 years.
Abel Sierra,
Company Officer VP & GM
Mr. Sierra has served
as President of the Antelope Valley Hispanic Chamber of Commerce
(AVHCC) - the first President elected to a second term in the
organization’s 20-year history. AVHCC’s mission is to provide
Hispanic entrepreneurship, community growth, and development, by
supporting economic programs designed to strengthen and expand the
potential of all business. Prior and concurrent to Mr. Sierra’s
role with AVHCC was his position as Agency Vice President of HBW
Insurance and Financial Services. Mr. Sierra served as an
Independent Associate with Legal Shield, Regional Vice President
for Primerica Financial Services, marketing Representative for
21 st Century/AIG direct, community
Representative for Palmdale School District and Palmdale Head
Start. Mr. Sierra also served 14 years as a Counter Intelligence
Specialist with the United States Marine Corps.
Committees of the Board of
Directors
The Company does not
have an audit committee. The functions of an audit committee are
done by the board of directors as a whole, as specified in section
3(a)(58)(B) of the Exchange Act. As such, the Company has no audit
committee financial expert serving on an audit committee.
Code of Ethics
The Company has not yet
adopted a complete code of ethics policy as defined in Item 406 of
Regulation S-K, however the company has adopted a disclosure policy
that applies to all directors, officers and employees of the
Company, as part of a program to establish a comprehensive code of
ethics. The Company’s disclosure policy is available on its
website www.igennetworks.net
Relationships and Related Party
Transactions
Transactions with
related persons, promoters and certain control persons
During the years ended
December 31, 2019 and 2018, the Company incurred approximately
$143,000 and $185,000, respectively, in management and consulting
fees with an officer and an entity controlled by him. As of
December 31, 2019 and 2018, the Company owed approximately $190,000
and $136,000, respectively, to directors and officers and a company
controlled by a director, which is included in accounts payable and
accrued liabilities. The amounts owed are unsecured, non-interest
bearing, and due on demand.
During the years ended
December 31, 2019 and 2018, the Company incurred approximately
$120,000 and $493,000, respectively, in purchases of hardware from
a vendor controlled by a director of the Company. As of December
31, 2019 and 2018, the amounts owed to this related-party vendor
were approximately $45,000 and $102,000, respectively.
During the six months
ended June 30, 2020 and 2019, the Company incurred approximately
$73,000 and $59,000, respectively, in management and consulting
fees with an officer and an entity controlled by him. As of June
30, 2020 and December 31, 2019, the Company owed approximately
$103,000 and $190,000, respectively, to directors and officers and
a company controlled by a director, which is included in accounts
payable and accrued liabilities. The amounts owed are unsecured,
non-interest bearing, and due on demand.
During the six months
ended June 30, 2020 and 2019, the Company incurred approximately
$11,000 and $53,000, respectively, in purchases of hardware from a
vendor controlled by a director of the Company. As of June 30, 2020
and December 31, 2019, the amounts owed to this related-party
vendor were approximately $25,000 and $45,000 respectively.
During the six months
ended June 30, 2020, the Company issued 26,828,800 shares of common
stock for the conversion of $67,072 of accrued expenses owed to the
CEO and VP of Operations.
Director
Independence
In the USA, the
Company’s common stock is listed on the OTC Link OTCQB inter-dealer
quotation system, and in Canada on the CSE, neither of which have
director independence requirements.
Executive Compensation
|
Name and
principal position
|
|
Year
|
|
Salary
($)(1)
|
|
|
Stock
awards
($)
|
|
|
Option
awards
($)(2)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neil G. Chan – CEO
& Director
|
|
2018
|
|
|
138,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
138,000 |
|
|
|
|
2019
|
|
|
138,000 |
|
|
|
0 |
|
|
|
30,000 |
|
|
|
168,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abel I. Sierra – VP
& GM
|
|
2018
|
|
|
121,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
121,000 |
|
|
|
|
2019
|
|
|
121,000 |
|
|
|
0 |
|
|
|
15,000 |
|
|
|
136,000 |
|
_____________
|
(1)
|
Salary for services as
an executive officer. No compensation for services as a
director
|
|
(2)
|
Valuation of Stock and
Option awards are based on the issuance details listed in Note 12
to the Company’s consolidated financial statements for the year
ended December 31, 2019.
|
Outstanding
Equity Awards at Fiscal Year-end –
|
Name
|
|
Number of
securities underlying
unexercised
options
|
|
|
Number of
securities underlying
unexercised
options
|
|
|
Option
exercise
price
|
|
|
Option
expiration
date
|
|
|
|
|
(#)
|
|
|
(#)
|
|
|
($)
|
|
|
|
|
|
|
|
exercisable
|
|
|
un-exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neil Chan, CEO
|
|
|
1,000,000 |
|
|
|
0 |
|
|
$ |
0.19 |
|
|
21-Sep-20
|
|
|
|
|
|
500,000 |
|
|
|
0 |
|
|
$ |
0.13 |
|
|
11-May22
|
|
|
|
|
|
500,000 |
|
|
|
250,000 |
|
|
$ |
0.04 |
|
|
15-May-24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abel Sierra,
VP&GM
|
|
|
150,000 |
|
|
|
0 |
|
|
$ |
0.16 |
|
|
1-Nov-20
|
|
|
|
|
|
150,000 |
|
|
|
0 |
|
|
$ |
0.13 |
|
|
11-May22
|
|
|
|
|
|
250,000 |
|
|
|
125,000 |
|
|
$ |
0.04 |
|
|
15-May-24
|
|
The Company currently
has 375,000 unearned or unvested stock awards, or equity incentive
plan awards of either options or stock.
Director
Compensation 1
|
Name and
principal position
|
|
Year
|
|
Salary
($)
|
|
|
Stock
awards
($)
|
|
|
Option
awards
($)
|
|
|
Total
($)
|
|
|
Robert Nealon
|
|
2019
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
Jackie Kimzey
|
|
2019
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
Mark Wells
|
|
2019
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
1 Provides information on Directors not serving as
executive officers only. Compensation for directors also servicing
as executive officers is listed in the summary compensation table
at the beginning of this Item.
Discussion of
Executive and Director Compensation
Compensation of
Directors
Directors received no
compensation in 2019. Directors with the exception of the CEO were
paid in stock equivalent to $25,000 retainer in 2018. In 2013,
Robert Nealon, Director and Chairman of the Board, was awarded
150,000 stock options, all of which vested in 2013 and none of
which were exercised. In 2015, Mr. Nealon was awarded 250,000 stock
options, all of which vested in 2015 and none of which were
exercised. Mr. Nealon has 250,000 options expiring on September 21,
2020.
Compensation of
Executives
The CEO, Neil Chan who
is also a director of the Company earned a salary of $138,000 in
2019, same as 2018. In 2013, the CEO, was granted 825,000 stock
options, all of which vested in 2013, and 769,444 of which were
exercised, leaving 55,556 vested and unexercised as of December 31,
2014. In 2015, Mr. Chan was granted a further 1,000,000 stock
options all of which vested in 2015 and 55,556 options were
exercised in January 2016. In 2017, Mr. Chan was granted another
500,000 stock options. In 2019, Mr. Chan was granted another
1,000,000 stock options, resulting in a total of 2,500,000 options
as of December 31, 2019.
Mr. Abel Sierra, VP and
General Manager, is paid $121,000 per annum excluding sales
commissions. Mr. Sierra was granted 500,000 stock options during
2019. Mr. Sierra has a total of 800,000 stock options unexercised
as of December 31, 2019.
There are currently no
long-term incentive plans or pension plans for directors or
officers of the Company.
The Company does
provide indemnity insurance coverage for directors and officers of
the Company. Presently assessing alternative coverage.
Compensation
Committee Interlocks and Insider Participation
The Company has no
compensation committee. The board of directors as a whole acts in
the capacity of a compensation committee. All executive officers of
the Company are also directors of the Company and as such were and
are able to vote on matters of compensation. Though the Company is
not legally obligated to establish a compensation committee, we may
do so when deemed advisable by the board.
Compensation
Committee Report
As a smaller reporting
company, the Company is not required to report the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K,
and as such there was no review or recommendation as to its
inclusion in this report.
STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets
forth information regarding the ownership of our common stock, as
of December 31, 2019 unless otherwise indicated in the footnotes to
the table, by (i) all persons known by us to beneficially own more
than 5% of our common stock, (ii) each of our current directors and
director nominees, (iii) our principal executive officer and our
other executive officers who were serving as such at the end of
Fiscal 2019 (each, a “named executive officer”), and (iv) all of
our directors, director nominees and executive officers as a group.
We know of no agreements among our stockholders that relate to
voting or investment power over our common stock or any arrangement
the operation of which may at a subsequent date result in a change
of control of us.
Beneficial ownership is
determined in accordance with applicable SEC rules and generally
reflects sole or shared voting or investment power over securities.
Under these rules, a person is deemed to be the beneficial owner of
securities that the person has the right to acquire as of or within
60 days after December 31, 2019, upon the exercise of outstanding
stock options or warrants, the conversion of outstanding
convertible notes, or the exercise or conversion of any other
derivative securities affording the person the right to acquire
shares of our common stock. As a result, each person’s percentage
ownership set forth in the table below is determined by assuming
that all outstanding stock options, warrants or other derivative
securities held by such person that are exercisable or convertible
as of or within 60 days after December 31, 2019 have been exercised
or converted. Except in cases where community property laws apply
or as indicated in the footnotes to the table, we believe that each
person identified in the table below possesses sole voting and
investment power over all shares of common stock shown as
beneficially owned by such person. All ownership percentages in the
table are based on 688,173,645 shares of our common stock
outstanding as of May 26, 2020.
|
|
|
Shares
Beneficially
|
|
|
|
|
Owned
|
|
|
Name and
Address of Beneficial Owner:
|
|
Number
|
|
|
Percent
|
|
|
5%
Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and
Executive Officers:
|
|
|
|
|
|
|
|
Robert Friedman
|
|
|
32,395,833 |
|
|
|
4.7 |
% |
|
Neil Chan(2)
|
|
|
16,466,255 |
|
|
|
2.4 |
% |
|
Abel Sierra(3)
|
|
|
800,000 |
|
|
|
|
*
|
|
Robert Nealon(4)
|
|
|
2,666,667 |
|
|
|
|
*
|
|
Mark Wells
|
|
|
710,785 |
|
|
|
|
*
|
|
All executive officers
and directors as a group (5 persons)
|
|
|
53,039,540 |
|
|
|
7.7 |
% |
_________
|
*
|
Represents beneficial
ownership of less than 1%.
|
|
(1)
|
not used
|
|
(2)
|
Represents 2,500,000 shares of common stock
issuable upon the exercise of stock options that are or will be
vested and exercisable within 60 days after December 31, 2019, and
13,966,255 outstanding shares of common stock.
|
|
(3)
|
Represents 650,000 shares of common stock
issuable upon the exercise of stock options that are or will be
vested and exercisable within 60 days after December 31, 2019, and
150,000 outstanding shares of common stock.
|
|
(4)
|
Represents 400,000
shares of common stock issuable upon the exercise of stock options
that are or will be vested and exercisable within 60 days after
December 31, 2019, and 2,266,667 outstanding shares of common
stock.
|
|
(5)
|
not used
|
DESCRIPTION
OF SECURITIES TO BE REGISTERED
This description of
our securities is a summary only of certain provisions contained in
our Articles of Incorporation and is qualified in its entirety by
reference to the complete terms contained therein.
General
The following
description of the capital stock of the Company and certain
provisions of the Company’s Articles of Incorporation and Bylaws is
a summary and is qualified in its entirety by the provisions of the
Articles of Incorporation and Bylaws.
The Company’s Articles
of Incorporation authorize the issuance of 1,490,000,000 shares of
common stock, with a par value of $0.001. The stockholders: (a)
have equal ratable rights to dividends from funds legally available
therefore, when, as, and if declared by the Board of Directors of
the Company; (b) are entitled to share ratably in all of the assets
of the Company available for distribution upon winding up of the
affairs of the Company; (c) do not have preemptive subscription or
conversion rights and there are no redemption or sinking funds
applicable thereto; and (d) are entitled to one non-cumulative vote
per share on all matters on which shareholders may vote at all
meetings of shareholders. These securities do not have any of the
following rights: (a) cumulative or special voting rights; (b)
preemptive rights to purchase in new issues of shares; (c)
preference as to dividends or interest; (d) preference upon
liquidation; or (e) any other special rights or preferences. In
addition, the Shares are not convertible into any other security.
There are no restrictions on dividends under any loan, other
financing arrangements or otherwise. As of the date of September 3,
2020, the Company had 1,105,477,145 shares of common stock
outstanding.
Non-Cumulative Voting.
IGEN Networks’
stockholders do not have cumulative voting rights, which means that
the stockholders which hold more than 50% of such outstanding
shares, voting for the election of directors, can elect all of the
directors to be elected, if they so choose. In such event, the
stockholders of the remaining shares will not be able to elect any
of the Company’s directors.
Common Stock
The holders of Common
Stock have equal ratable rights to dividends from funds legally
available therefore, when, as and if declared by the Board of
Directors and are entitled to share ratably in all of the assets of
the Company available for distribution to the holders of shares of
Common Stock upon the liquidation, dissolution or winding up of the
affairs of the Company. Except as described herein, no pre-emptive,
subscription, or conversion rights pertain to the Common Stock and
no redemption or sinking fund provisions exist for the benefit
thereof.
Transfer Agent
We have designated as
our transfer agent VStock Transfer, LLC, 18 Lafayette Place,
Woodmere, NY 11598, (212) 828-8436.
DISCLOSURE OF COMMISSION
POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our bylaws provide that
directors, officers and persons acting at our request as an officer
or director, will be indemnified by us to the fullest extent
authorized by the general corporate laws of Nevada. This
indemnification applies to all expenses and liabilities reasonably
incurred in connection with services for us or on our behalf
if:
|
|
●
|
Such person acted in
good faith with a view to our best interests; and
|
|
|
|
|
|
|
●
|
in the case of a
monetary penalty in connection with a criminal or administrative
action or proceeding, such person had reasonable grounds to believe
that his or her conduct was lawful.
|
Insofar as
indemnification for liabilities arising under the Securities Act
might be permitted to directors, officers or persons controlling
our Company under the provisions described above, we have been
informed that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable.
LEGAL
MATTERS
James B. Parsons,
Parsons/Burnett/Bjordahl/Hume, LLP, 10016 Edmonds Way, Suite C-325,
Edmonds, WA 98020, (425) 451-8036, has acted as our special
counsel.
EXPERTS
Our financial
statements for the fiscal years ended December 31,2019 and 2018
appearing in this Prospectus, have been audited by Hall &
Company (“Hall”), Irvine, CA. Their
reports are given upon their authority as experts in accounting and
auditing.
INTEREST OF
NAMED EXPERTS AND COUNSEL
No expert or counsel
named in this Prospectus was hired on a contingent basis, will
receive a direct or indirect interest in IGEN or has acted or will
act as a promoter, underwriter, voting trustee, director, officer,
or employee of our Company.
WHERE YOU CAN FIND MORE
INFORMATION
This Prospectus is part
of a registration statement that we filed with the SEC in
accordance with its rules and regulations. This Prospectus does not
contain all the information in the registration statement. For
further information regarding both our Company and the securities
in this Offering, we refer you to the registration statement,
including all exhibits and schedules. You may inspect our
registration statement, without charge, at the public reference
facilities of the SEC’s Washington, D.C. office, 100 F Street, NE,
Washington, D.C. 20549 and on its Internet site at
http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for
further information about the public reference room.
You also may request a
copy of the registration statement and these filings by contacting
us electronically at www.fearlessent.com.
We are subject to the
informational requirements of the Securities Exchange Act of 1934
and required to file annual, quarterly and current reports and
other information with the SEC. These reports and other information
may also be inspected and copied at the SEC’s public reference
facilities or its web site.
IGEN
NETWORKS CORP.
Condensed Consolidated
Interim Financial Statements
For the Three and Six
Months Ended June 30, 2020
(Unaudited – Expressed
in U.S. Dollars)
IGEN NETWORKS
CORP.
Condensed Consolidated
Interim Balance Sheets
(Expressed in U.S.
dollars)
|
|
|
June
30,
2020
|
|
|
December
31,
2019
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
Cash
|
|
$ |
- |
|
|
$ |
- |
|
|
Accounts and other
receivables, net
|
|
|
3,508 |
|
|
|
18,136 |
|
|
Inventory
|
|
|
8,375 |
|
|
|
4,334 |
|
|
Prepaid expenses and
deposits
|
|
|
- |
|
|
|
4,013 |
|
|
Total Current Assets
|
|
|
11,883 |
|
|
|
26,483 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
505,508 |
|
|
|
505,508 |
|
|
Total Assets
|
|
$ |
517,391 |
|
|
$ |
531,991 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$ |
926,772 |
|
|
$ |
983,358 |
|
|
Current portion of
deferred revenue, net of contract assets
|
|
|
142,621 |
|
|
|
207,566 |
|
|
PPP note payable
|
|
|
60,049 |
|
|
|
- |
|
|
Convertible debentures,
net of discount of $58,623 and $343,398, respectively
|
|
|
29,148 |
|
|
|
21,121 |
|
|
Derivative
liabilities
|
|
|
539,693 |
|
|
|
92,322 |
|
|
Total Current Liabilities
|
|
|
1,698,283 |
|
|
|
1,304,367 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue, net
of current portion and contract assets
|
|
|
47,057 |
|
|
|
54,899 |
|
|
Total Liabilities
|
|
|
1,745,340 |
|
|
|
1,359,266 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitment and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible
preferred stock – Series A:
|
|
|
|
|
|
|
|
|
|
Authorized – 9,000,000 shares with $0.001 par value, 159,800 shares
and 160,600 shares issued and outstanding as of June 30, 2020 and
December 31, 2019, respectively, net of discount of $142,425 and
$121,934, respectively, aggregate liquidation preference of $88,375
and $153,862 as of June 30, 2020 and December 31, 2019,
respectively
|
|
|
67,305 |
|
|
|
31,927 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
|
Series B preferred
stock: Authorized – 1,000,000 shares with $0.001 par value issued
and outstanding – 1,000,000 and 0 shares, as of June 30, 2020 and
December 31, 2019, respectively, aggregate liquidation preference
of $1,000 as of June 30, 2020
|
|
|
1,000 |
|
|
|
- |
|
|
Common stock:
Authorized – 1,490,000,000 shares with $0.001 par value issued and
outstanding – 1,009,665,261 and 74,242,196 shares, as of June 30,
2020 and December 31, 2019, respectively
|
|
|
1,009,665 |
|
|
|
74,242 |
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in
capital
|
|
|
12,516,383 |
|
|
|
10,697,216 |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit
|
|
|
(14,822,302 |
) |
|
|
(11,630,660 |
) |
|
Total Stockholders’
Deficit
|
|
|
(1,295,254 |
) |
|
|
(859,202 |
) |
|
Total Liabilities and
Stockholders’ Deficit
|
|
$ |
517,391 |
|
|
$ |
531,991 |
|
The accompanying notes
are an integral part of these condensed consolidated interim
financial statements.
IGEN NETWORKS
CORP.
Condensed
Consolidated Interim Statements of Operations
(Unaudited - Expressed
in U.S. dollars)
|
|
|
Three Months
Ended June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, services
|
|
$ |
97,058 |
|
|
$ |
198,481 |
|
|
$ |
207,183 |
|
|
$ |
443,878 |
|
|
Sales, other
|
|
|
6,762 |
|
|
|
- |
|
|
|
8,436 |
|
|
|
- |
|
|
Total Revenues
|
|
|
103,820 |
|
|
|
198,481 |
|
|
|
215,619 |
|
|
|
443,878 |
|
|
Cost of goods sold
|
|
|
24,595 |
|
|
|
114,098 |
|
|
|
92,544 |
|
|
|
251,121 |
|
|
Gross Profit
|
|
|
79,225 |
|
|
|
84,383 |
|
|
|
123,075 |
|
|
|
192,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
136,953 |
|
|
|
138,774 |
|
|
|
212,200 |
|
|
|
308,642 |
|
|
Management and consulting fees
|
|
|
61,784 |
|
|
|
34,414 |
|
|
|
114,836 |
|
|
|
79,898 |
|
|
Payroll and related
|
|
|
34,366 |
|
|
|
100,180 |
|
|
|
72,239 |
|
|
|
189,709 |
|
|
Stock-based director expense
|
|
|
- |
|
|
|
- |
|
|
|
277,543 |
|
|
|
- |
|
|
Total Expenses
|
|
|
233,103 |
|
|
|
273,368 |
|
|
|
676,818 |
|
|
|
578,249 |
|
|
Loss Before Other
Income (Expense)
|
|
|
(153,878 |
) |
|
|
(188,985 |
) |
|
|
(553,743 |
) |
|
|
(385,492 |
) |
|
Other Income
(Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of discounts on convertible debentures
|
|
|
(33,336 |
) |
|
|
- |
|
|
|
(110,064 |
) |
|
|
- |
|
|
Change in fair value of derivative liabilities
|
|
|
(1,048,462 |
) |
|
|
177,877 |
|
|
|
(1,347,701 |
) |
|
|
177,877 |
|
|
Loss on extinguishment of debt
|
|
|
(195,908 |
) |
|
|
- |
|
|
|
(273,518 |
) |
|
|
- |
|
|
Interest expense
|
|
|
(191,712 |
) |
|
|
(120,508 |
) |
|
|
(197,443 |
) |
|
|
(120,508 |
) |
|
Total Other Expense,
net
|
|
|
(1,469,418 |
) |
|
|
57,369 |
|
|
|
(1,928,726 |
) |
|
|
57,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(1,623,296 |
) |
|
|
(131,616 |
) |
|
|
(2,482,469 |
) |
|
|
(328,123 |
) |
|
Increase in value of
warrants
|
|
|
(370,726 |
) |
|
|
- |
|
|
|
(370,726 |
) |
|
|
- |
|
|
Accrued and deemed
dividends on redeemable convertible preferred stock
|
|
|
(245,676 |
) |
|
|
(169,709 |
) |
|
|
(338,447 |
) |
|
|
(169,709 |
) |
|
Net loss attributable
to common stockholders
|
|
$ |
(2,239,698 |
) |
|
$ |
(301,325 |
) |
|
$ |
(3,191,642 |
) |
|
$ |
(497,832 |
) |
|
Basic and Diluted Loss
per Common Share
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
Weighted Average Number
of Common Shares Outstanding
|
|
|
711,546,667 |
|
|
$ |
68,214,970 |
|
|
$ |
406,173,893 |
|
|
$ |
67,680,440 |
|
The accompanying notes
are an integral part of these condensed consolidated interim
financial statements.
IGEN NETWORKS
CORP.
Condensed
Consolidated Statements of Redeemable Convertible Preferred Stock
and Stockholders’ Deficit
(Unaudited - Expressed
in U.S. dollars)
|
|
|
Redeemable
Series A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Convertible
Preferred
Stock
|
|
|
Series
B
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid
In
|
|
|
Accumulated
|
|
|
Stockholders'
Equity
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
Balance, December 31, 2019
|
|
|
160,600 |
|
|
$ |
31,927 |
|
|
|
- |
|
|
$ |
- |
|
|
|
74,242,196 |
|
|
$ |
74,242 |
|
|
$ |
10,697,216 |
|
|
$ |
(11,630,660 |
) |
|
$ |
(859,202 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Series A preferred stock for cash,
net of costs and discounts
|
|
|
47,300 |
|
|
|
1,608 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
- |
|
|
|
- |
|
|
|
276,543 |
|
|
|
- |
|
|
|
277,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series A preferred shares to
common stock
|
|
|
(107,700 |
) |
|
|
(21,411 |
) |
|
|
- |
|
|
|
- |
|
|
|
81,700,258 |
|
|
|
81,700 |
|
|
|
103,693 |
|
|
|
(91,029 |
) |
|
|
94,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividends on Series A preferred
stock
|
|
|
- |
|
|
|
1,742 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,742 |
) |
|
|
(1,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock issued for cash
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,750,000 |
|
|
|
26,750 |
|
|
|
124,500 |
|
|
|
- |
|
|
|
151,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock issued for exercise of
convertible note, including fees
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
95,216,504 |
|
|
|
95,217 |
|
|
|
175,753 |
|
|
|
- |
|
|
|
270,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,906 |
|
|
|
- |
|
|
|
14,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(859,173 |
) |
|
|
(859,173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
|
100,200 |
|
|
|
13,866 |
|
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
277,908,958 |
|
|
|
277,909 |
|
|
|
11,392,611 |
|
|
|
(12,582,604 |
) |
|
|
(911,084 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Series A preferred stock for cash,
net of costs and discounts
|
|
|
100,100 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(156,472 |
) |
|
|
(156,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series A preferred shares to
common stock
|
|
|
(40,500 |
) |
|
|
(10,115 |
) |
|
|
- |
|
|
|
- |
|
|
|
117,506,731 |
|
|
|
117,507 |
|
|
|
37,230 |
|
|
|
(25,650 |
) |
|
|
129,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividends on Series A preferred
stock
|
|
|
- |
|
|
|
63,554 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(63,554 |
) |
|
|
(63,554 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock issued for exercise of
convertible note, including fees
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
524,841,289 |
|
|
|
524,841 |
|
|
|
738,152 |
|
|
|
- |
|
|
|
1,262,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless exercise of warrant
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
62,579,483 |
|
|
|
62,579 |
|
|
|
(62,579 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for conversion of
payables
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,828,800 |
|
|
|
26,829 |
|
|
|
40,243 |
|
|
|
- |
|
|
|
67,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in value of warrants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
370,726 |
|
|
|
(370,726 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,623,296 |
) |
|
|
(1,623,296 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020
|
|
|
159,800 |
|
|
$ |
67,305 |
|
|
|
1,000,000 |
|
|
$ |
1,000 |
|
|
|
1,009,665,261 |
|
|
$ |
1,009,665 |
|
|
$ |
12,516,383 |
|
|
$ |
(14,822,302 |
) |
|
$ |
(1,295,254 |
) |
|
|
|
Redeemable
Series A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Convertible
Preferred
Stock
|
|
|
Series
B
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid
In
|
|
|
Accumulated
|
|
|
Stockholders'
Equity
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
Balance, December 31, 2018
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
66,714,970 |
|
|
$ |
66,715 |
|
|
$ |
10,426,245 |
|
|
$ |
(11,049,499 |
) |
|
$ |
(556,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock issued for cash
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,500,000 |
|
|
|
1,500 |
|
|
|
58,500 |
|
|
|
- |
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(196,507 |
) |
|
|
(196,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
68,214,970 |
|
|
|
68,215 |
|
|
|
10,484,745 |
|
|
|
(11,246,006 |
) |
|
|
(693,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Series A preferred stock issued for
cash, net of costs and discounts
|
|
|
144,300 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividends on Series A preferred
stock
|
|
|
|
|
|
|
1,642 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,642 |
) |
|
|
(1,642 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividends on Series A preferred
stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(168,067 |
) |
|
|
(168,067 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
|
|
- |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(131,616 |
) |
|
|
(131,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
|
|
144,300 |
|
|
$ |
1,642 |
|
|
|
- |
|
|
$ |
- |
|
|
|
68,214,970 |
|
|
$ |
68,215 |
|
|
$ |
10,499,745 |
|
|
$ |
(11,547,331 |
) |
|
$ |
(979,371 |
) |
The accompanying notes
are an integral part of these condensed consolidated interim
financial statements.
IGEN NETWORKS
CORP.
Condensed
Consolidated Interim Statements of Cash Flows
(Unaudited - Expressed
in U.S. dollars)
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Cash Flows from
Operating Activities
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,482,469 |
) |
|
$ |
(328,123 |
) |
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Accretion of discounts on convertible debentures
|
|
|
110,064 |
|
|
|
120,000 |
|
|
Change in fair value of derivative liabilities
|
|
|
1,347,701 |
|
|
|
(177,877 |
) |
|
Depreciation
|
|
|
- |
|
|
|
- |
|
|
Loss on extinguishment of debt
|
|
|
273,518 |
|
|
|
- |
|
|
Shares issued for services
|
|
|
- |
|
|
|
- |
|
|
Stock-based compensation
|
|
|
292,449 |
|
|
|
34,500 |
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts and other
receivables
|
|
|
14,628 |
|
|
|
(2,695 |
) |
|
Inventory
|
|
|
(4,041 |
) |
|
|
33,460 |
|
|
Prepaid expenses and
deposits
|
|
|
- |
|
|
|
4,484 |
|
|
Accounts payable and
accrued liabilities
|
|
|
165,488 |
|
|
|
162,825 |
|
|
Deferred revenue
|
|
|
(72,787 |
) |
|
|
(115,246 |
) |
|
Net Cash Used in
Operating Activities
|
|
|
(355,449 |
) |
|
|
(268,672 |
) |
|
Cash Flows from
Financing Activities
|
|
|
|
|
|
|
|
|
|
Repayment of notes
payable and convertible debentures
|
|
|
(50,000 |
) |
|
|
- |
|
|
Proceeds from issuance
of common stock
|
|
|
151,250 |
|
|
|
60,000 |
|
|
Proceeds from notes
payable and convertible debentures, net
|
|
|
129,199 |
|
|
|
40,000 |
|
|
Proceeds from issuance
of preferred stock, net
|
|
|
125,000 |
|
|
|
125,000 |
|
|
Net Cash Provided by
Financing Activities
|
|
|
355,449 |
|
|
|
225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Change in Cash
|
|
|
- |
|
|
|
(43,672 |
) |
|
Cash, Beginning of
Period
|
|
|
- |
|
|
|
56,823 |
|
|
Cash, End of
Period
|
|
$ |
- |
|
|
$ |
13,151 |
|
|
Non-cash Investing and
Financing Activities:
|
|
|
|
|
|
|
|
|
|
Conversion of notes
payable and accrued interest:
|
|
|
|
|
|
|
|
|
|
Fair value of common shares issued
|
|
$ |
1,533,960 |
|
|
$ |
- |
|
|
Derecognition of notes payable and accrued interest
|
|
$ |
(321,776 |
) |
|
$ |
- |
|
|
Derecognition of unamortized discount
|
|
$ |
199,710 |
|
|
$ |
- |
|
|
Derecognition of derivative liabilities
|
|
$ |
(1,330,331 |
) |
|
$ |
- |
|
|
Conversion of preferred
stock
|
|
|
|
|
|
|
|
|
|
Fair value of common shares issued
|
|
$ |
340,132 |
|
|
$ |
- |
|
|
Derecognition of preferred stock
|
|
$ |
(208,839 |
) |
|
$ |
- |
|
|
Derecognition of unamortized discount
|
|
$ |
177,313 |
|
|
$ |
- |
|
|
Derecognition of derivative liabilities
|
|
$ |
(182,687 |
) |
|
$ |
- |
|
|
Deemed dividend
|
|
$ |
(314,437 |
) |
|
$ |
- |
|
|
Discount related to
issuance of preferred stock
|
|
$ |
131,962 |
|
|
$ |
125,000 |
|
|
Deemed dividends on
preferred stock (excluding conversions)
|
|
$ |
(65,286 |
) |
|
$ |
(169,709 |
) |
|
Cashless exercise of
warrants
|
|
$ |
62,579 |
|
|
$ |
- |
|
|
Original issue discount
on convertible debt
|
|
$ |
- |
|
|
$ |
8,500 |
|
|
Increase in value of
warrants
|
|
$ |
370,726 |
|
|
$ |
- |
|
|
Conversion of accrued
liabilities with issuance of common stock
|
|
$ |
67,073 |
|
|
$ |
- |
|
|
Reclassification of
security deposit to accounts payable
|
|
$ |
4,013 |
|
|
$ |
- |
|
The accompanying notes
are an integral part of these condensed consolidated interim
financial statements.
IGEN NETWORKS
CORP.
Notes to the
Condensed Consolidated Interim Financial Statements
June 30, 2020
(Unaudited - Expressed
in U.S. dollars)
1.
Organization and Description of Business
IGEN Networks Corp.
(“IGEN”, the “Company”, “we”, “our”) was incorporated in the State
of Nevada on November 14, 2006, under the name of Nurse Solutions
Inc. On September 19, 2008, the Company changed its name to Sync2
Entertainment Corporation and traded under the symbol SYTO. On
September 15, 2008, the Company became a reporting issuer in
British Columbia, Canada. On May 26, 2009, the Company changed its
name to IGEN Networks Corp. On March 25, 2015, the Company was
listed on the Canadian Securities Exchange (CSE) under the trading
symbol IGN and the Company became a reporting Venture Issuer in
British Columbia and Ontario, Canada.
The Company’s principal
business is the development and marketing of software services for
the automotive industry. The Company works with wireless carriers,
hardware suppliers and software developers to provide direct and
secure access to information on the vehicle and the driver’s
behavior. The software services are delivered from the AWS Cloud to
the consumer and their families over the wireless networks and
accessed from any mobile or desktop device. The software services
are marketed to automotive dealers, financial institutions, and
direct-to-consumer through various commercial and consumer
brands.
Going
Concern
The accompanying
condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company has experienced recurring losses from operations, has
negative operating cash flows since inception, has a working
capital deficit of $1,686,400 and an accumulated deficit of
$14,822,302 as of June 30, 2020, and is dependent on its ability to
raise capital from stockholders or other sources to sustain
operations. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. Ultimately, the
Company plans to achieve profitable operations through the increase
in revenue base and successfully grow its operations organically or
through acquisitions. The condensed consolidated financial
statements do not include any adjustments that might result from
the outcome of these uncertainties.
2.
Summary of Significant Accounting Policies
Basis of
Presentation and Consolidation
These consolidated
financial statements and related notes include the records of the
Company and the Company’s wholly-owned subsidiary, Nimbo Tracking
LLC which is formed in the USA.
The condensed
consolidated balance sheet as of December 31, 2019, which has been
derived from audited consolidated financial statements, and these
unaudited condensed consolidated financial statements have been
prepared by management in accordance with accounting principles
generally accepted in the United States (“U.S. GAAP”), and include
all assets, liabilities, revenues and expenses of the Company and
its wholly-owned subsidiary. All material intercompany transactions
and balances have been eliminated. These interim unaudited
condensed consolidated financial statements and notes thereto
should be read in conjunction with Management’s Discussion and
Analysis of Financial Condition and Results of Operations and the
audited consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended
December 31, 2019. Certain information required by U.S. GAAP has
been condensed or omitted in accordance with the rules and
regulations of the U.S. Securities and Exchange Commission (“SEC”).
The results for the three and six month periods ended June 30, 2020
are not necessarily indicative of the results to be expected for
the entire fiscal year ending December 31, 2020, or for any future
period.
Use of
Estimates
The preparation of
these condensed consolidated financial statements in conformity
with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported
amounts of revenues and expenses during the reporting period. The
Company regularly evaluates estimates and assumptions related to
allowance for doubtful accounts, valuation of inventory, the useful
life and recoverability of equipment, impairment of goodwill,
valuation of notes payable and convertible debentures, fair value
of stock-based compensation and derivative liabilities, and
deferred income tax asset valuation allowances. The Company bases
its estimates and assumptions on current facts, historical
experience and various other factors that it believes to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and
liabilities and the accrual of costs and expenses that are not
readily apparent from other sources. The actual results experienced
by the Company may differ materially and adversely from the
Company’s estimates. To the extent there are material differences
between the estimates and the actual results, future results of
operations will be affected.
Cash and
Cash Equivalents
The Company considers
all highly liquid instruments purchased with an original maturity
of three months or less at the time of acquisition to be cash
equivalents.
Accounts
Receivable
Accounts receivable are
recognized and carried at the original invoice amount less an
allowance for expected uncollectible amounts. Inherent in the
assessment of the allowance for doubtful accounts are certain
judgments and estimates including, among others, the customer’s
willingness or ability to pay, the Company’s compliance with
customer invoicing requirements, the effect of general economic
conditions and the ongoing relationship with the customer. Accounts
with outstanding balances longer than the payment terms are
considered past due. We do not charge interest on past due
balances. The Company writes off trade receivables when all
reasonable collection efforts have been exhausted. Bad debt expense
is reflected as a component of general and administrative expenses
in the consolidated statements of operations. As of June 30, 2020
and December 31, 2019, the allowance for doubtful accounts was
approximately $36,000 and $21,000, respectively.
Inventory
Inventory consists of
vehicle tracking and recovery devices and is comprised entirely of
finished goods that can be resold. Inventory is stated at the lower
of cost or net realizable value. Cost is determined on a first-in,
first-out (FIFO) basis. Net realizable value is the estimated
selling price in the ordinary course of business, less estimated
costs of completion and selling costs. There was no provision for
inventory impairment recorded as of June 30, 2020 and December 31,
2019.
Equipment
Office equipment,
computer equipment, and software are recorded at cost. Depreciation
is provided annually at rates and methods over their estimated
useful lives. Management reviews the estimates of useful lives of
the assets every year and adjusts them on prospective basis, if
needed. All equipment was fully depreciated as of December 31,
2019. For purposes of computing depreciation, the method of
depreciating equipment is as follows:
|
Computer equipment
|
3 years
straight-line
|
|
Office equipment
|
5 years
straight-line
|
|
Software
|
3 years
straight-line
|
Goodwill
Goodwill represents the
excess of the acquisition price over the fair value of identifiable
net assets acquired. Goodwill is allocated at the date of the
business combination. Goodwill is not amortized, but is tested for
impairment annually on December 31 of each year or more frequently
if events or changes in circumstances indicate the asset may be
impaired. These events and circumstances may include a significant
change in legal factors or in the business climate, a significant
decline in the Company’s share price, an adverse action of
assessment by a regulator, unanticipated competition, a loss of key
personnel, significant disposal activity and the testing of
recoverability for a significant asset group.
Goodwill impairment is
measured as the amount by which a reporting unit’s carrying value
exceeds its fair value.
The Company has only
one reporting unit. Therefore, all of the Company’s goodwill
relates to that reporting unit, and at June 30, 2020 and December
31, 2019, the carrying value for that reporting unit is
negative.
Impairment
of Long-lived Assets
The Company reviews
long-lived assets, such as equipment, for impairment whenever
events or changes in the circumstances indicate that the carrying
value may not be recoverable. If the total of the estimated
undiscounted future cash flows is less than the carrying value of
the asset, an impairment loss is recognized for the excess of the
carrying value over the fair value of the asset during the year the
impairment occurs.
Financial
Instruments
In accordance with
Financial Accounting Standard Board (“FASB”) Accounting Standards
Codification (“ASC”) 820, “Fair Value Measurements and
Disclosures,” the Company is to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring
fair value. ASC 820 establishes a fair value hierarchy based on the
level of independent, objective evidence surrounding the inputs
used to measure fair value. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. ASC 820
prioritizes the inputs into three levels that may be used to
measure fair value:
Level
1
Level 1 applies to
assets or liabilities for which there are quoted prices in active
markets for identical assets or liabilities.
Level
2
Level 2 applies to
assets or liabilities for which there are inputs other than quoted
prices that are observable for the asset or liability such as
quoted prices for similar assets or liabilities in active markets;
quoted prices for identical assets or liabilities in markets with
insufficient volume or infrequent transactions (less active
markets); or model-derived valuations in which significant inputs
are observable or can be derived principally from, or corroborated
by, observable market data.
Level
3
Level 3 applies to
assets or liabilities for which there are unobservable inputs to
the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.
See Note 4 for fair
value measurement information related to the Company’s derivative
liabilities.
The fair values of cash
and cash equivalents, accounts and other receivables, restricted
cash, and accounts payable and accrued liabilities, approximate
their carrying values due to the immediate or short-term maturity
of these financial instruments. Foreign currency transactions are
primarily undertaken in Canadian dollars. The fair value of cash
and cash equivalents is determined based on “Level 1” inputs and
the fair value of derivative liabilities is determined based on
“Level 3” inputs. The recorded values of notes payable, approximate
their current fair values because of their nature and respective
maturity dates or durations. The financial risk is the risk to the
Company’s operations that arise from fluctuations in foreign
exchange rates and the degree of volatility to these rates.
Currently, the Company does not use derivative instruments to
reduce its exposure to foreign currency risk. Financial instruments
that potentially subject the Company to concentrations of credit
risk consists of cash. The Company places its cash and cash
equivalents in what it believes to be credit-worthy financial
institutions.
Revenue
Recognition and Deferred Revenue
We recognize revenue in
accordance with ASC 606, “Revenue from Contracts with Customers”,
using the five-step model, including (1) identify the contract with
the customer, (2) identify the performance obligations in the
contract, (3) determine the transaction price, (4) allocate the
transaction price to the performance obligations in the contract,
and (5) recognize revenue in accordance with U.S. GAAP. Title and
risk of loss generally pass to our customers upon delivery, as we
have insurance for lost shipments. In limited circumstances where
either title or risk of loss pass upon destination or acceptance or
when collection is not reasonably assured, we defer revenue
recognition until such events occur. We derive revenues from two
primary sources: products and services. Product revenue includes
the shipment of product according to the agreement with our
customers and only represents a small percentage of our revenues,
less than 5%. Services include vehicle tracking services and
customer support (technical support), installations and consulting.
A contract may include both product and services. For these
contracts, the Company accounts for individual performance
obligations separately if they are distinct. Performance
obligations include, but are not limited to, pass-thru harnesses
and vehicle tracking services. Almost all of our revenues are
derived from customers located in United States of America in the
auto industry. The transaction price is allocated to the separate
performance obligations on a relative standalone selling price
basis. Standalone selling prices are typically estimated based on
observable transactions when these services are not sold on a
standalone basis. At contract inception, an assessment of the goods
and services promised in the contracts with customers is performed
and a performance obligation is identified for each distinct
promise to transfer to the customer a good or service (or bundle of
goods or services). To identify the performance obligations, the
Company considers all of the goods or services promised in the
contract regardless of whether they are explicitly stated or are
implied by customary business practices. Revenue is recognized when
our performance obligation has been met. The Company considers
control to have transferred upon delivery because the Company has a
present right to payment at that time, the Company has transferred
use of the asset, and the customer is able to direct the use of,
and obtain substantially all of the remaining benefits from, the
asset. For arrangements under which the Company provides vehicle
tracking services, the Company satisfies its performance
obligations as those services are performed whereby the customer
simultaneously receives and consumes the benefits of such services
under the agreement. Revenues are recognized net of any taxes
collected from customers, which are subsequently remitted to
governmental authorities.
The Company provides
product warranties with varying lengths of time and terms. The
product warranties are considered to be assurance-type in nature
and do not cover anything beyond ensuring that the product is
functioning as intended. Based on the guidance in ASC 606,
assurance-type warranties do not represent separate performance
obligations. The Company has historically experienced a low rate of
product returns under the warranty program.
Management assesses the
business environment, customers’ financial condition, historical
collection experience, accounts receivable aging, and customer
disputes to determine whether collectability is reasonably assured.
If collectability is not reasonably assured at the time of sale,
the Company does not recognize revenue until collection occurs.
Revenue relating to the
sale of service fees on its vehicle tracking and recovery services
is recognized over the life of the contact. The service renewal
fees are offered in terms ranging from 12 to 36 months and are
generally payable upon delivery of the vehicle tracking devices or
in full upon renewal.
Deferred revenues are
recorded net of contract assets and when cash payments are received
from customers in advance of the Company’s performance. Deferred
revenues totaled $261,447 and $405,553 as of June 30, 2020 and
December 31, 2019, respectively. During the six months ended June
30, 2020, the Company recorded additions to deferred revenues of
$60,194 and recognized total revenues of $204,300 through the
amortization of deferred revenues. During the six months ended June
30, 2020, the Company recognized revenues of $187,766 related to
deferred revenues outstanding as of December 31, 2019 as the
services were performed.
Any revenue that has
been deferred and is expected to be recognized beyond one year is
classified as deferred revenue, net of current portion.
Deferred revenues are
recorded net of contract assets. Contract assets represent the
costs of the underlying hardware to enable the Company to perform
on its contracts with customers. As of June 30, 2020 and December
31, 2019, the contract asset balance totaled $71,769 and $143,088,
respectively, which have been recorded as reductions in deferred
revenues in the accompanying condensed consolidated balance
sheets.
Financing
Costs and Debt Discount
Financing costs and
debt discounts are recorded net of notes payable and convertible
debentures in the consolidated balance sheets. Amortization of
financing costs and the debt discounts is calculated using the
effective interest method over the term of the debt and is recorded
as interest expense in the consolidated statement of
operations.
Income
Taxes
Deferred income taxes
are provided on the asset and liability method whereby deferred
income tax assets are recognized for deductible temporary
differences and operating loss and tax credit carry-forwards and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred income tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that
some portion or all of the deferred income tax assets will not be
realized. Deferred income tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.
Stock-based
Compensation
The Company accounts
for stock-based payments in accordance with stock-based payment
accounting guidance which requires all stock-based payments to be
recognized based upon their fair values. The fair value of
stock-based awards is estimated at the grant date using the
Black-Scholes Option Pricing Model and the portion that is
ultimately expected to vest is recognized as compensation cost over
the requisite service period. The determination of fair value using
the Black-Scholes Option Pricing Model is affected by the Company’s
stock price as well as assumptions regarding a number of complex
and subjective variables, including expected stock price
volatility, risk-free interest rate, expected dividends and
projected employee stock option exercise behaviors. The Company
accounts for forfeitures of unvested awards as they occur.
Derivative
Financial Instruments
The Company classifies
as equity any contracts that require physical settlement or
net-share settlement or provide us a choice of net cash settlement
or settlement in our own shares (physical settlement or net-share
settlement) provided that such contracts are indexed to our own
stock as defined in ASC Topic 815-40 "Contracts in Entity's Own
Equity." The Company classifies as assets or liabilities any
contracts that require net-cash settlement including a requirement
to net cash settle the contract if an event occurs and if that
event is outside our control or give the counterparty a choice of
net-cash settlement or settlement in shares. The Company assesses
classification of its free-standing derivatives at each reporting
date to determine whether a change in classification between assets
and liabilities is required.
Loss Per
Share
Basic earnings (loss)
per share are computed by dividing net income (loss) available to
common shareholders (numerator) by the weighted average number of
shares outstanding (denominator) during the period. Diluted
earnings per share give effect to all dilutive potential common
shares outstanding during the period including stock options and
warrants, using the treasury stock method, and convertible
debentures, using the if-converted method. In computing diluted
earnings (loss) per share, the average stock price for the period
is used in determining the number of shares assumed to be purchased
from the exercise of stock options or warrants. Diluted earnings
(loss) per share exclude all potentially issuable shares if their
effect is anti-dilutive. Because the effect of conversion of the
Company’s dilutive securities is anti-dilutive, diluted loss per
share is the same as basic loss per share for the periods
presented. As of June 30, 2020 and 2019, the Company has
400,697,063 and 8,089,673 potentially dilutive shares outstanding,
respectively.
Recent
Accounting Pronouncements
In August 2020, the
FASB issued ASU 2020-06, “Debt – Debt with Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging –
Contracts in Entity’s Own Equity (Subtopic 815 –
40)” (“ASU 2020-06”).
ASU 2020-06 simplifies the accounting for certain
financial instruments with characteristics of liabilities and
equity, including convertible instruments and contracts on an
entity’s own equity. The ASU is part of the FASB’s simplification
initiative, which aims to reduce unnecessary complexity in U.S.
GAAP. The ASU’s amendments are effective for fiscal years beginning
after December 15, 2023, and interim periods within those fiscal
years. The Company is currently evaluating the impact
ASU 2020-06 will have on its financial statements.
3.
Convertible Debentures and Notes Payable
On May 17, 2019, the
Company entered into a Convertible Promissory Note (“Promissory
Note”) with Crown Bridge Partners, LLC (the “Holder”) for a total
principal amount of up to $150,000 with cash proceeds of up to
$124,500, resulting in an original issue discount of up to $25,500.
The Promissory Note bears interest at 7% per annum (with the
understanding that the first 12 months of interest of each tranche
will be guaranteed). The maturity date is 18 months from the
effective date of each payment.
The Conversion Price,
as defined in the agreement, is the lesser of (i) the lowest
Trading Price (as defined below) during the previous 25 trading day
period ending on the latest complete trading day prior to the date
of this Promissory Note or (ii) the Variable Conversion Price (as
defined below). The Variable Conversion Price means the lowest one
Trading Price (as defined below) for the common stock during the 25
Trading Day period ending on the last complete Trading Day prior to
the Conversion Date. Trading Price means, for any security as of
any date, the lesser of the (i) lowest traded price and (ii) lowest
closing bid price. Based on the Company’s examination of the
conversion feature and the relative accounting guidance, the
Company has determined that the conversion feature should be
treated as a derivative liability for accounting purposes.
Additionally, if at any
time while the Promissory Note is outstanding, the Conversion Price
is equal to or lower than $0.025, then an additional $10,000 will
be automatically added to the principal balance of each tranche
funded under the Note. During the quarter ended June 30, 2019,
$10,000 was added to the principal balance for the first
tranche.
In connection with the
Promissory Note, the Company also entered into a Securities
Purchase Agreement with the Holder which states that the Company
will also issue to the Holder a warrant to purchase an amount of
shares of its common stock equal to 50% of the face value of each
respective tranche divided by $0.10 (for illustrative purposes, the
first tranche face value is equal to $50,000, which resulted in the
issuance of a warrant to purchase 250,000 shares of the Company’s
common stock).
Per the terms of the
Common Stock Purchase Warrant agreement, on May 17, 2019, the
Company issued a warrant to purchase 250,000 shares of common stock
with an Exercise Price of $0.10 subject to adjustment (standard
anti-dilution features). The agreement contains a down-round
provision that automatically resets the exercise price of the
warrant to a new exercise price that is equal to the per share
price of common stock subsequently issued (including conversions of
debt and preferred stock). Upon the lowing of the exercise
price, the number of warrants will be increased such that the total
proceeds upon exercise is the same amount (see Note 7). If
the Market Price of one shares of common stock is greater than the
Exercise Price, the Holder may elect to receive Warrant Shares
pursuant to cashless exercise, in lieu of cash exercise, per a
defined formula in the agreement.
During the quarter
ended June 30, 2019, the Company received $40,000 in net cash
proceeds, after paying $1,500 of direct funding costs. The related
principal amount due for the first tranche (“First Tranche”) was
$50,000. For the first tranche, using the Binomial Lattice Model,
the Company computed the estimated fair value of the embedded
conversion feature to be $100,000 and recorded a related derivative
liability. Related to the derivative liability, the bonus interest,
and the direct financing costs, the Company recorded a full debt
discount of $60,000 for the Promissory Note, which will be
amortized to interest expense over the term of the Promissory Note
using the effective interest method and an additional $50,000
directly to interest expense.
On December 9, 2019,
the Holder converted a portion of the Promissory Note into shares
of common stock. The Holder received 300,000 shares of common stock
for the conversion of principal, accrued interest, and fees
totaling $7,165.
During the quarter
ended September 30, 2019, the Company received an aggregate of
$213,250 in net cash proceeds, after paying $6,750 of direct
funding costs, from three note holders under the same terms as the
Promissory Note. The related principal amount due for the
convertible debt instruments entered into during the quarter ended
September 30, 2019 was $255,000. Using the Binomial Lattice Model,
the Company computed the estimated fair value of the embedded
conversion features to be approximately $354,000 and recorded the
related derivative liabilities. Related to the derivative
liabilities, the bonus interest, and the direct financing costs,
the Company recorded full debt discounts totaling approximately
$255,000 for the notes which will be amortized to interest expense
over the term of the notes using the effective interest method and
an additional approximately $106,000 directly to interest expense.
As the Conversion Price fell below $0.025 per share, during the
quarter ended September 30, 2019, $10,000 was added to the
principal balance on one of the notes (per the terms of that
note).
Related to the notes
issued during the quarter ended September 30, 2019, the Company
issued warrants to purchase a total of 525,000 shares of common
stock with an Exercise Price of $0.10 subject to adjustment
(standard anti-dilution features). If the Market Price of one
shares of common stock is greater than the Exercise Price, the
Holder may elect to receive Warrant Shares pursuant to cashless
exercise, in lieu of cash exercise, per a defined formula in the
agreement.
On October 1, 2019, the
Company received $37,500 in net cash proceeds from a note holder
under the same terms as the Promissory Note. The related principal
amount due for the convertible debt instrument was $44,000. In
connection with the note, the Company issued 100,000 shares of
common stock, which were valued at the market price on the date of
issuance of $0.05 per share. Using the Binomial Lattice Model, the
Company computed the estimated fair value of the embedded
conversion feature to be approximately $29,000 and recorded a
related derivative liability. Related to the derivative liability,
the shares issued, the bonus interest, and the direct financing
costs, the Company recorded a debt discount totaling $41,000 for
the note, which will be amortized to interest expense over the term
of the note using the effective interest method.
On June 19, 2020, the
Company received $19,250 in net cash proceeds from a note holder
under the same terms as the Promissory Note. The related principal
amount due for the convertible debt instrument was $25,000. Using
the Binomial Lattice Model, the Company computed the estimated fair
value of the embedded conversion feature to be approximately
$142,000 and recorded a related derivative liability for that
amount and a charge to interest expense of approximately $122,000.
Related to the derivative liability, the shares issued, the bonus
interest, and the direct financing costs, the Company recorded a
debt discount totaling $25,000 for the note, which will be
amortized to interest expense over the term of the note using the
effective interest method.
During the six months
ended June 30, 2020, the holders of the convertible notes converted
a total of $321,776 of principal, interest and fees for a total of
620,057,793 shares of common stock. Related to these conversions
during the quarter ended March 31, 2020, the Company recorded a
reduction of the associated derivative liability for the conversion
features of $1,138,404 and a reduction of the debt discount of
$199,710 as components of the loss on settlement of debt. During
the six months ended June 30, 2020, the Company recorded $110,064
of interest expense related to the amortization of the debt
discounts.
During the three months
ended March 31, 2020 the Company borrowed $50,000 from a
shareholder under the terms of a note payable bearing interest of
8% per annum. The note was repaid with interest (totaling $922)
during the three months ended March 31, 2020.
On May 4, 2020, the
Company entered into a PPP Loan with a principal amount of $59,949
through a financial institution under the PPP administered by the
SBA and established as part of the CARES Act. The PPP Loan bears
interest at 1.0% per annum and matures on May 4, 2022 with the
first six months of interest and principal payments deferred. The
amount borrowed under the PPP Loan is guaranteed by the SBA and is
eligible for forgiveness in an amount equal to the sum of the
eligible costs, including payroll, benefits, rent and utilities,
incurred by the Company during the 24-week period beginning on the
date the Company received the proceeds. The PPP Loan contains
customary events of default, and the occurrence of an event of
default may result in a claim for the immediate repayment of all
amounts outstanding under the PPP Loan.
4.
Derivative Liabilities
During the six months
ended June 30, 2020 and during the year ended December 31, 2019,
the Company had outstanding convertible debentures with variable
exercise prices based on market rates (see Note 3). During the six
months ended Jun 30, 2020 and during year ended December 31, 2019,
the Company also issued series A preferred stock with variable
exercise prices based on market rates (see Note 6). The Company
records the fair value of the conversion features with variable
exercise prices based on future market rates in accordance with ASC
815. The fair value of the derivative liabilities is revalued on
each balance sheet date with corresponding gains and losses
recorded in the consolidated statements of operations. The Company
uses a multi-nominal lattice model to fair value the derivative
liabilities. The following inputs and assumptions were used to
value the conversion features outstanding during the six months
ended June 30, 2020, assuming no expected dividends:
|
|
|
June
30,
2020
|
|
Expected volatility
|
|
|
271 – 322
|
%
|
|
Risk free interest
rate
|
|
|
0.3 – 1.41
|
%
|
|
Expected life (in
years)
|
|
|
0.5 – 1.5
|
|
The following table
presents the Company’s embedded conversion features of its
convertible debt and preferred stock measured at fair value on a
recurring basis as of June 30, 2020.
|
|
|
Level
3
Carrying
Value as
of
June
30,
2020
|
|
|
Derivative
liabilities:
|
|
|
|
|
Embedded conversion
feature – convertible debt
|
|
$ |
425,352 |
|
|
Embedded conversion
feature – preferred stock
|
|
|
114,341 |
|
|
|
|
$ |
539,693 |
|
The following table
provides a reconciliation of the beginning and ending balances for
the Company’s derivative liabilities measured at fair value using
Level 3 inputs:
|
|
|
For
The
Six
Months
Ended
June
30,
2020
|
|
|
Embedded Conversion
Features – Convertible Debt
|
|
|
|
|
Balances, as of the
beginning of the year
|
|
$ |
87,571 |
|
|
Derivative liabilities
recorded upon issuance of convertible debt
|
|
|
141,667 |
|
|
Derivative liabilities
derecognized upon debt conversion
|
|
|
(1,138,404 |
) |
|
Net changes in fair
value included in net loss
|
|
|
1,334,518 |
|
|
Ending balance
|
|
$ |
425,352 |
|
|
|
|
|
|
|
|
Embedded Conversion
Features – Preferred Stock
|
|
|
|
|
|
Balances, as of the
beginning of the year
|
|
$ |
4,751 |
|
|
Derivative liabilities
recorded upon issuance of preferred stock
|
|
|
288,435 |
|
|
Derivative liabilities
removed upon preferred stock conversion
|
|
|
(191,927 |
) |
|
Net changes in fair
value included in net loss
|
|
|
13,082 |
|
|
Ending balance
|
|
$ |
114,341 |
|
|
|
|
|
|
|
|
Total ending
balance
|
|
$ |
539,693 |
|
5.
Related Party Transactions
|
(a)
|
During the six months
ended June 30, 2020 and 2019, the Company incurred approximately
$73,000 and $59,000, respectively, in management and consulting
fees with an officer and an entity controlled by him. As of June
30, 2020 and December 31, 2019, the Company owed approximately
$103,000 and $190,000, respectively, to directors and officers and
a company controlled by a director, which is included in accounts
payable and accrued liabilities. The amounts owed are unsecured,
non-interest bearing, and due on demand.
|
|
|
|
|
(b)
|
During the six months
ended June 30, 2020 and 2019, the Company incurred approximately
$11,000 and $53,000, respectively, in purchases of hardware from a
vendor controlled by a director of the Company. As of June 30, 2020
and December 31, 2019, the amounts owed to this related-party
vendor were approximately $25,000 and $45,000 respectively.
|
|
(c)
|
During the six months
ended June 30, 2020, the Company issued 26,828,800 shares of common
stock for the conversion of $67,072 of accrued expenses owed to the
CEO and VP of Operations.
|
6.
Redeemable Preferred Stock and
Stockholders’ Deficit
Preferred
Stock
The Company is
authorized to issue 10,000,000 shares of preferred stock with a par
value of $0.001 per share. The Company has designated 9,000,000 of
these shares as Series A Convertible Preferred Stock.
On April 9, 2019 and
separately on June 11, 2019, the Company entered into a Series A
Preferred Stock Purchase Agreement with an investor. On April 9,
2019, the Company issued 86,000 shares for net proceeds of $75,000
(after deducting $3,000 of direct legal costs) and on June 11,
2019, the Company issued 58,300 shares for net proceeds of $50,000
(after $3,000 deduction of direct legal costs).
On September 17, 2019,
the Company entered into a Series A Preferred Stock Purchase
Agreement with an investor. The Company issued 58,300 shares for
net proceeds of $50,000 (after $3,000 deduction of direct legal
costs).
On February 25, 2020,
the Company entered into a Series A Preferred Stock Purchase
Agreement with an investor. The Company issued 47,300 shares for
proceeds of $43,000.
During the quarter
ended June 30, 2020, the Company entered into two Series A
Preferred Stock Purchase Agreements with an investor. The Company
issued 100,100 shares for proceeds of $91,000.
Rights and
Privileges of the Series A Preferred Stock
|
|
•
|
Voting – Series A Preferred Stockholders
have no voting rights
|
|
|
•
|
Dividends – 8% cumulative dividend,
compounded daily, payable solely upon redemption, liquidation, or
conversion. (increases to 22% for an event of default)
|
|
|
•
|
Redemption – Company has the right to
redeem the shares from the issuance date through 270 days following
the issuance date using the table noted in the Certificate of
Designations, Preferences, Rights and Limitations of Series A
Convertible Preferred Stock agreement. After 270 days, except for
the Mandatory Redemption, the Company does not have the right to
redeem the shares.
|
|
|
•
|
Mandatory
Redemption – 18 months after the Issuance Date or upon
the occurrence of an Event of Default, the Company is required to
redeem all of the shares of Series A preferred stock of the Holder.
The Company shall make a cash payment in an amount equal to the
total number of shares of Series A preferred stock held by the
Holder multiplied by the then current Stated Value as adjusted
(including but not limited to the addition of any accrued unpaid
dividends and the Default Adjustment
|
|
|
•
|
Conversion – At any time after 6 months
following the Issuance Date, the Holder may convert all or any part
of the outstanding Series A preferred stock into shares of Common
Stock. The Variable Conversion Price is defined as 75% of the the
Market Price. The Market Price is defined as the average of the 3
lowest Trading Prices for the Common Stock during the 15-day
Trading Period ending on the last complete Trading Day prior to the
Conversion Date.
|
|
|
•
|
Default
Adjustments – Upon the occurrence of any Event of
Default, the Stated Value will be increased between 150% and 200%,
depending on the Event of Default.
|
Based on the terms of
the conversion feature, the Company could be required to issue an
infinite number of shares of common stock. As such, the Company has
determined the conversion feature to be a derivative liability
under relevant accounting guidance. The Company estimated the fair
value of the conversion feature using the Binomial Lattice Model on
the date of issuance, on the date of each conversion notice, and
remeasures the fair value at each reporting period. During 2019, on
the issuance dates of the series A preferred stock, the combined
estimated fair value of the conversion features were determined to
be $207,000. In connection with the fair value of the derivative
liability, the Company recorded a total discount to the series A
preferred stock of $161,000 and also recorded a deemed distribution
of $55,000. During the three months ended March 31, 2020, the
Company issued 47,300 shares of series A preferred stock for
proceeds of $40,000 and $3,000 of legal costs. Related to this
issuance, the Company recorded a derivative liability and discount
to the preferred stock of $41,392, which will be amortized to
deemed dividends over the redemption period.
During 2019, holders
converted 42,000 shares of Series A preferred stock into 2,977,226
shares of common stock at the Variable Conversion Price as defined
above, resulting in a loss on extinguishment of $23,000.
During the six months
ended June 30, 2020, the holder of the series A preferred stock
converted 148,200 shares of series A preferred stock and accrued
dividends into 199,206,989 shares of common stock. Related to these
conversions during the six months ended June 30, 2020, the Company
recorded a reduction of the associated derivative liability for the
conversion features of $191,927 and a reduction of the preferred
stock discount of $177,313 and $116,672 of deemed dividend.
Rights and
Privileges of the Series B Preferred Stock
On February 10, 2020,
the Company designated and subsequently issued 1,000,000 shares of
its newly formed Series B Super Voting preferred stock. Each share
of Series B preferred stock has voting rights equal to 500 shares
of common stock, is not entitled to receive dividends, is not
convertible into shares of common stock. If the holder of the
Series B preferred stock ceases to be a Board Member, the Company
will repurchase any Series B preferred stock from the holder for a
price of $0.001 per share. If the holder of the Series B preferred
stock proposes to transfer any shares of Series B preferred stock,
the Company will have 90 days to repurchase the shares for a price
of $0.001 per share. The grant date fair value of the Series B
preferred stock issued during the three months ended March 31, 2020
was $277,543 and was recorded to stock-based director compensation
expense in the accompanying condensed consolidated statement of
operations.
Common
Stock
2020
During the six months
ended June 30, 2020, the Company sold a total of 26,750,000 shares
of common stock for proceeds of $151,250.
During the six months
ended June 30, 2020, the Company issued a total of 819,264,782
shares of common stock for the conversion of debt, accrued interest
and fees, and the conversion of Series A Preferred Stock and
accrued dividends.
During the six months
ended June 30, 2020, the Company issued 62,579,483 shares of common
stock for the cashless exercise of warrants.
During the six months
ended June 30, 2020, the Company issued 26,828,800 shares of common
stock for the conversion of accrued expenses owed to the CEO and VP
of Operations.
2019
During the six months
ended June 30, 2019, the Company sold a total of 1,500,000 shares
of common stock for proceeds of $60,000.
7.
Share Purchase Warrants
The following table
summarizes the continuity schedule of the Company’s share purchase
warrants:
|
|
|
Number
of
warrants
|
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2019
|
|
|
4,527,614 |
|
|
|
0.18 |
|
|
Issued
|
|
|
- |
|
|
|
- |
|
|
Adjusted for triggered
down-round provisions
|
|
|
315,521,528 |
|
|
|
0.00 |
|
|
Exercised
|
|
|
(63,623,768 |
) |
|
|
0.00 |
|
|
Expired
|
|
|
(500,000 |
) |
|
|
0.12 |
|
|
Balance, June 30,
2020
|
|
|
255,925,374 |
|
|
$ |
0.00 |
|
As of June 30, 2020,
the following share purchase warrants were outstanding:
|
Number of
warrants outstanding
|
|
|
Exercise
price
|
|
|
Expiration
date
|
|
|
|
2,222,222
|
|
|
$
|
0.23
|
|
|
February 23, 2022
|
|
|
|
252,672,760
|
|
|
$
|
0.00
|
|
|
September 23, 2024
|
|
|
|
980,392
|
|
|
$
|
0.15
|
|
|
December 2, 2021
|
|
|
|
50,000
|
|
|
$
|
0.20
|
|
|
January 2, 2022
|
|
|
|
255,925,374
|
|
|
|
|
|
|
|
|
During the six months
ended June 30, 2020, the Company recognized the triggering of the
down-round provisions of certain warrants associated with the
convertible debt instruments issued in 2019. As a result,
reset the exercise price and increased the number of warrant shares
accordingly. As of June 30, 2020, the new exercise price for
the warrants is $0.000245 per share. Per the relevant
accounting guidance, the Company valued the warrants before and
after each triggering event and recorded the total increase in
value as a deemed dividend to the warrant holder with an offset to
additional paid in capital. For the six months ended June 30,
2020, the increase in value of the warrants due to the triggering
events totaled $370,726 and was properly included in the Company’s
earnings per share amounts on the accompanying statement of
operations.
8.Stock
Options
The following table
summarizes the Company’s stock options:
|
|
|
Number
of
options
|
|
|
Weighted
average
exercise
price
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2019
|
|
|
5,690,000 |
|
|
$ |
0.13 |
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Cancelled /
forfeited
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Balance, June 30,
2020
|
|
|
5,690,000 |
|
|
$ |
0.13 |
|
|
$ |
- |
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Range
of
exercise
prices
|
|
|
Number
of
shares
|
|
|
Weighted
average
remaining
contractual
life
(years)
|
|
|
Weighted
average
exercise
price
|
|
|
Number
of
shares
|
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
0.04 |
|
|
|
1,500,000 |
|
|
|
4.1 |
|
|
|
|
|
0.04 |
|
|
|
1,125,000 |
|
|
|
|
|
0.04 |
|
|
$
|
|
|
0.08 |
|
|
|
250,000 |
|
|
|
2.5 |
|
|
|
|
|
0.08 |
|
|
|
250,000 |
|
|
|
|
|
0.08 |
|
|
$
|
|
|
0.13 |
|
|
|
1,425,000 |
|
|
|
2.1 |
|
|
|
|
|
0.13 |
|
|
|
1,425,000 |
|
|
|
|
|
0.13 |
|
|
$
|
|
|
0.16 |
|
|
|
225,000 |
|
|
|
0.9 |
|
|
|
|
|
0.16 |
|
|
|
225,000 |
|
|
|
|
|
0.16 |
|
|
$
|
|
|
0.19 |
|
|
|
2,270,000 |
|
|
|
0.5 |
|
|
|
|
|
0.19 |
|
|
|
2,270,000 |
|
|
|
|
|
0.19 |
|
|
Cdn$
|
|
|
0.25 |
|
|
|
20,000 |
|
|
|
0.5 |
|
|
Cdn$
|
|
|
0.25 |
|
|
|
20,000 |
|
|
Cdn$
|
|
|
0.25 |
|
|
|
|
|
|
|
|
|
5,690,000 |
|
|
|
2.4 |
|
|
$
|
|
|
0.13 |
|
|
|
5,315,000 |
|
|
$
|
|
|
0.14 |
|
During the six months
ended June 30, 2020, the Company did not issue any options to
employees. During the six months ended June 30, 2020 and 2019, the
Company recorded $15,000 and $15,000, respectively, of stock-based
compensation expense related to stock option grants. As of June 30,
2020, the Company had no unrecognized compensation expense.
9.
Segments
The Company has one
reportable segment: vehicle tracking and recovery solutions. The
Company allocates resources to and assesses the performance of each
reportable segment using information about its revenue and
operating income (loss). The Company does not evaluate operating
segments using discrete asset information.
Segmentation by
geographical location is not presented as all revenues are earned
in U.S. Total assets by segment are not presented as that
information is not used to allocate resources or assess performance
at the segment level and is not reviewed by the Chief Operating
Decision Maker of the Company.
10.
Risks & Uncertainties
The Company extends
credit to customers on an unsecured basis in the normal course of
business. The Company’s policy is to perform an analysis of the
recoverability of its receivables at the end of each reporting
period and to establish allowances where appropriate. The Company
analyzes historical bad debts and contract losses, customer
concentrations, and customer credit-worthiness when evaluating the
adequacy of the allowances.
During the six months
ended June 30, 2020 and 2019, the Company had four and two
customers which accounted for 82% and 67%, respectively, of total
invoiced amounts, which are recorded as deferred revenues and
amortized over the related service period to revenues.
As of June 30, 2020 and
December 31, 2019, the Company had five and four customers,
respectively, which accounted for 94% and 99%, respectively, of the
gross accounts receivable balance.
On January 30, 2020,
the World Health Organization (“WHO”) announced a global health
emergency in response to a new strain of a coronavirus (the
“COVID-19 outbreak”). In March 2020, the WHO classified the
COVID-19 outbreak as a pandemic based on the rapid increase in
exposure globally. The full impact of the COVID-19 outbreak
continues to evolve as of the date of this report. Management is
actively monitoring the global situation and its effects on the
Company’s industry, financial condition, liquidity, and operations.
Through June 30, 2020, COVID-19 has had an impact on the economy,
the auto industry, and the Company’s 2020 revenue activity. Looking
forward, it could continue to have a material adverse effect on the
Company’s business, financial condition, liquidity, results of
operations, and cash flows.
11.
Commitments and Contingencies
Indemnities
and Guarantees
We have made certain
indemnities and guarantees, under which we may be required to make
payments to a guaranteed or indemnified party, in relation to
certain transactions. We indemnify our officers and directors to
the maximum extent permitted under the laws of the State of Nevada.
The duration of these indemnities and guarantees varies and, in
certain cases, is indefinite. These indemnities and guarantees do
not provide for any limitation of the maximum potential future
payments we could be obligated to make. Historically, we have not
been obligated to make any payments for these obligations and no
liabilities have been recorded for these indemnities and guarantees
in the accompanying condensed consolidated balance sheets.
Legal
Matters
In the ordinary course
of business, we may face various claims brought by third parties
and may, from time to time, make claims or take legal actions to
assert our rights, including intellectual property disputes,
contractual disputes and other commercial disputes. Any of these
claims could subject us to litigation. Management believes there
are currently no claims that are likely to have a material effect
on our consolidated financial position and results of
operations.
The Company has filed a
lawsuit against a distributor for breach of contract resulting in
losses to the Company estimated to be in excess of
$1,000,000. Management believes the currently scheduled trial
date in October 2020 will be delayed into early 2021 as a result of
the backlog of cases due to COVID-19.
12.
Restatements
During 2019, we
discovered that an accounting error had been made related to the
Company not properly recording contract assets as required under
the relevant accounting guidance for revenue recognition. (As
discussed in Note 1 “Revenue Recognition and Deferred Revenue”,
contract assets are netted with deferred revenues for balance sheet
presentation purposes.) It was determined that the error is
immaterial to the 2018 consolidated financial statements; however,
correcting the error related to 2018 in 2019 would materially
misstate the condensed consolidated financial statements for the
three and six months ended June 30, 2019. As such, we recorded the
appropriate adjustment in 2018 and also computed the appropriate
amounts related to June 30, 2019 and recorded such in the
accompanying condensed consolidated financial statements. See below
for a summary of the corrections made for this error:
|
Account
|
|
Previously
Recorded
Balance
|
|
|
Corrected
Balance
|
|
|
Correction
Made
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
2019:
|
|
|
|
|
|
|
|
|
|
|
Statement of
Operations
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$ |
85,098 |
|
|
$ |
114,098 |
|
|
$ |
29,000 |
|
|
Net loss
|
|
$ |
(102,616 |
) |
|
$ |
(131,616 |
) |
|
$ |
29,000 |
|
|
Loss per share
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$ |
117,121 |
|
|
$ |
251,121 |
|
|
$ |
134,000 |
|
|
Net loss
|
|
$ |
(194,123 |
) |
|
$ |
(328,123 |
) |
|
$ |
134,000 |
|
|
Loss per share
|
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenues,
net
|
|
$ |
(249,246 |
) |
|
$ |
(115,495 |
) |
|
$ |
(134,000 |
) |
13. Subsequent
Events
The Company evaluates
subsequent events and transactions that occur after the balance
sheet date up to the date that the consolidated financial
statements are available to be issued. Any material events that
occur between the balance sheet date and the date that the
consolidated financial statements were available for issuance are
disclosed as subsequent events, while the consolidated financial
statements are adjusted to reflect any conditions that existed at
the balance sheet date. Based upon this review, except as disclosed
within the footnotes or as discussed below, the Company did not
identify any recognized or non-recognized subsequent events that
would have required adjustment or disclosure in the consolidated
financial statements.
In December 2019, a
novel strain of coronavirus diseases (“COVID-19”) was first
reported in Wuhan, China. Less than four months later, on March 11,
2020, the World Health Organization declared COVID-19 a global
pandemic. The extent of COVID-19’s effect on the Company’s
operational and financial performance will depend on future
developments, including the duration, spread and intensity of the
pandemic, all of which are uncertain and difficult to predict
considered the rapidly evolving landscape. The Company is currently
analyzing the potential impacts to its business. Through June 30,
2020, COVID-19 has had an impact on the economy, the auto industry,
and the Company’s 2020 revenue activity. Looking forward, it could
continue to have a material adverse effect on the Company’s
business, financial condition, liquidity, results of operations,
and cash flows.
Subsequent to June 30,
2020, the Company issued a total of 38,964,105 shares of common
stock for the conversion of debt, accrued interest and fees
totaling $51,178, issued 32,459,207 shares of common stock for the
cashless exercise of warrants, and issued 8,000,000 shares of
common stock valued at $56,000 as an initial commitment fee in
connection with the Equity Purchase Agreement signed with an
investor.
IGEN NETWORKS
CORP.
Consolidated Financial
Statements
For the Years Ended
December 31, 2019 and 2018
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and
the board of directors of IGEN Networks Corp.
Opinion on the
Financial Statements
We have audited the
accompanying consolidated balance sheets of IGEN Networks Corp. and
subsidiary (the "Company") as of December 31, 2019 and 2018, the
related consolidated statements of operations and comprehensive
loss, redeemable convertible preferred stock and stockholders’
deficit and cash flows for the years then ended, and the related
notes (collectively referred to as the "financial statements"). In
our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of
December 31, 2019 and 2018, and the results of its operations and
its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.
Going
Concern
The accompanying
financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and
negative cash flows from operations and has a net capital
deficiency that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of
this uncertainty.
Basis for
Opinion
These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board
(United States) ("PCAOB") and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits
in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our
audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express
no opinion.
Our audits included
performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ Hall &
Company
We have served as the
Company’s auditor since 2019.
Irvine, CA
May 28, 2020
IGEN NETWORKS CORP.
Consolidated Balance
Sheets
(Expressed in U.S.
dollars)
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
|
|
$ |
- |
|
|
$ |
56,823 |
|
|
Accounts
and other receivables, net
|
|
|
18,136 |
|
|
|
24,553 |
|
|
Inventory
|
|
|
4,334 |
|
|
|
36,694 |
|
|
Prepaid
expenses and deposits
|
|
|
4,013 |
|
|
|
27,997 |
|
|
Total
Current Assets
|
|
|
26,483 |
|
|
|
146,067 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
505,508 |
|
|
|
505,508 |
|
|
Total
Assets
|
|
$ |
531,991 |
|
|
$ |
651,575 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
983,358 |
|
|
$ |
813,682 |
|
|
Current
portion of deferred revenue, net of contract assets
|
|
|
207,566 |
|
|
|
317,070 |
|
|
Convertible debentures and
accrued interest, net of unamortized discount of $343,398 and $0,
respectively
|
|
|
21,121 |
|
|
|
- |
|
|
Derivative
liabilities
|
|
|
92,322 |
|
|
|
- |
|
|
Total Current
Liabilities
|
|
|
1,304,367 |
|
|
|
1,130,752 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenue, net of contract assets
|
|
|
54,899 |
|
|
|
77,362 |
|
|
Total
Liabilities
|
|
|
1,359,266 |
|
|
|
1,208,411 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
convertible preferred stock – Series A:
|
|
|
|
|
|
|
|
|
|
Authorized
– 1,250,000 shares with $0.001 par value, 160,600 shares and no
shares issued and outstanding as of December 31, 2019 and 2018,
respectively, aggregate liquidation preference of $153,862 as of
December 31, 2019, net of discount of $121,931
|
|
|
31,927 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
Common stock: Authorized -
375,000,000 shares with $0.001 par value issued and outstanding –
74,242,196 and 66,714,970 shares, respectively
|
|
|
74,242 |
|
|
|
66,715 |
|
|
Additional
paid-in capital
|
|
|
10,697,216 |
|
|
|
10,426,245 |
|
|
Accumulated
deficit
|
|
|
(11,630,660 |
) |
|
|
(11,049,499 |
) |
|
Total
Stockholders’ Deficit
|
|
|
(859,202 |
) |
|
|
(556,539 |
) |
|
Total
Liabilities and Stockholders’ Deficit
|
|
$ |
531,991 |
|
|
$ |
651,575 |
|
(The accompanying notes
are an integral part of these consolidated financial
statements)
IGEN NETWORKS CORP.
Consolidated Statements
of Operations and Comprehensive Loss
(Expressed in U.S.
dollars)
|
|
|
Years ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Sales,
services
|
|
$ |
698,693 |
|
|
$ |
1,121,601 |
|
|
Sales,
other
|
|
|
25,126 |
|
|
|
77,276 |
|
|
Total
Revenues
|
|
|
723,819 |
|
|
|
1,198,877 |
|
|
Cost of
revenues
|
|
|
428,031 |
|
|
|
668,664 |
|
|
Gross
Profit
|
|
|
295,788 |
|
|
|
530,213 |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
572,297 |
|
|
|
781,473 |
|
|
Payroll
and related
|
|
|
332,102 |
|
|
|
589,222 |
|
|
Management and consulting fees
|
|
|
197,391 |
|
|
|
322,111 |
|
|
Total
Expenses
|
|
|
1,101,790 |
|
|
|
1,692,806 |
|
|
Loss Before
Other Income (Expense)
|
|
|
(806,002 |
) |
|
|
(1,162,593 |
) |
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
Accretion of discounts on convertible debentures
|
|
|
(212,982 |
) |
|
|
(156,894 |
) |
|
Change
in fair value of derivative liabilities
|
|
|
572,954 |
|
|
|
57,255 |
|
|
Gain
(loss) on settlement of redeemable preferred stock
|
|
|
(23,324 |
) |
|
|
105,258 |
|
|
Interest expense
|
|
|
(9,719 |
) |
|
|
(8,346 |
) |
|
Total Other
Income (Expense), net
|
|
|
326,929 |
|
|
|
(2,727 |
) |
|
Net Loss
before Provision for Income Taxes
|
|
|
(479,073 |
) |
|
|
(1,165,320 |
) |
|
Provision
for Income Taxes
|
|
|
- |
|
|
|
(10,000 |
) |
|
Net
Loss
|
|
|
(479,073 |
) |
|
|
(1,175,320 |
) |
|
Other
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
- |
|
|
|
60,910 |
|
|
Comprehensive loss
|
|
$ |
(479,073 |
) |
|
$ |
(1,114,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to common stockholders
|
|
|
(479,073 |
) |
|
|
(1,175,320 |
) |
|
Deemed
dividend on preferred stock
|
|
|
(102,087 |
) |
|
|
- |
|
|
|
|
$ |
(581,160 |
) |
|
$ |
(1,175,320 |
) |
|
Basic and
Diluted Loss per Common Share
|
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
Weighted
Average Number of Common Shares Outstanding
|
|
|
68,619,041 |
|
|
|
54,728,006 |
|
(The accompanying notes
are an integral part of these consolidated financial
statements)
IGEN NETWORKS
CORP.
Consolidated Statements
of Redeemable Convertible Preferred stock and Stockholders’
Deficit
(Expressed in U.S.
dollars)
|
|
|
Redeemable Convertible
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid
in
|
|
|
Accumulated
Other Comprehensive
|
|
|
Accumulated
|
|
|
Total Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2018
|
|
|
- |
|
|
$ |
- |
|
|
|
39,214,517 |
|
|
$ |
39,215 |
|
|
$ |
8,854,491 |
|
|
$ |
(60,910 |
) |
|
$ |
(9,874,179 |
) |
|
$ |
(1,041,383 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,445 |
|
|
|
- |
|
|
|
- |
|
|
|
8,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
- |
|
|
|
- |
|
|
|
21,597,222 |
|
|
|
21,597 |
|
|
|
1,272,997 |
|
|
|
- |
|
|
|
- |
|
|
|
1,294,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for
services
|
|
|
- |
|
|
|
– |
|
|
|
1,524,021 |
|
|
|
1,524 |
|
|
|
75,879 |
|
|
|
- |
|
|
|
- |
|
|
|
77,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debenture
conversion
|
|
|
- |
|
|
|
- |
|
|
|
4,379,210 |
|
|
|
4,379 |
|
|
|
214,433 |
|
|
|
- |
|
|
|
- |
|
|
|
218,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Removal of accumulated other
comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
60,910 |
|
|
|
- |
|
|
|
60,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,175,320 |
) |
|
|
(1,175,320 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
- |
|
|
|
- |
|
|
|
66,714,970 |
|
|
|
66,715 |
|
|
|
10,426,245 |
|
|
|
- |
|
|
|
(11,049,499 |
) |
|
|
(556,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
150,000 |
|
|
|
150 |
|
|
|
51,061 |
|
|
|
- |
|
|
|
- |
|
|
|
51,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
- |
|
|
|
- |
|
|
|
4,000,000 |
|
|
|
4,000 |
|
|
|
131,000 |
|
|
|
- |
|
|
|
- |
|
|
|
135,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in connection
with debenture issuance
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
|
|
100 |
|
|
|
4,900 |
|
|
|
- |
|
|
|
- |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debenture
conversion, including related fees
|
|
|
- |
|
|
|
- |
|
|
|
300,000 |
|
|
|
300 |
|
|
|
6,865 |
|
|
|
- |
|
|
|
- |
|
|
|
7,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock issued
for cash, net of costs and discounts
|
|
|
202,600 |
|
|
|
23,400 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
dividends and accretion of conversion feature on Series A
preferred stock
|
|
|
- |
|
|
|
46,620 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(46,620 |
) |
|
|
(46,620 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividends related to
conversion feature of Series A preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(55,468 |
) |
|
|
(55,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for Series A
preferred stock conversions
|
|
|
(42,000 |
) |
|
|
(38,093 |
) |
|
|
2,977,226 |
|
|
|
2,977 |
|
|
|
77,145 |
|
|
|
- |
|
|
|
- |
|
|
|
80,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(479,073 |
) |
|
|
(479,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
160,600 |
|
|
$ |
31,927 |
|
|
|
74,242,196 |
|
|
$ |
74,242 |
|
|
$ |
10,697,216 |
|
|
$ |
- |
|
|
$ |
(11,630,660 |
) |
|
$ |
(859,202 |
) |
(The accompanying notes
are an integral part of these consolidated financial
statements)
IGEN NETWORKS CORP.
Consolidated Statements
of Cash Flows
(Expressed in U.S.
dollars)
|
|
|
Years ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Cash Flows
from Operating Activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(479,073 |
) |
|
$ |
(1,175,320 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Accretion
of discounts on convertible debentures and preferred stock
|
|
|
212,982 |
|
|
|
156,894 |
|
|
Bad
debts
|
|
|
13,835 |
|
|
|
5,396 |
|
|
Change in
fair value of derivative liabilities
|
|
|
(572,954 |
) |
|
|
(57,041 |
) |
|
Depreciation
|
|
|
- |
|
|
|
3,600 |
|
|
Loss (gain)
on settlement of debt
|
|
|
23,324 |
|
|
|
(105,258 |
) |
|
Shares
issued for services
|
|
|
6,000 |
|
|
|
45,413 |
|
|
Stock-based
compensation
|
|
|
64,712 |
|
|
|
8,446 |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
and other receivables
|
|
|
(7,418 |
) |
|
|
24,172 |
|
|
Inventory
|
|
|
32,360 |
|
|
|
(34,472 |
) |
|
Prepaid
expenses and deposits
|
|
|
4,484 |
|
|
|
71,618 |
|
|
Restricted
cash
|
|
|
- |
|
|
|
25,000 |
|
|
Accounts
payable and accrued liabilities
|
|
|
176,142 |
|
|
|
(69,638 |
) |
|
Deferred
revenue, net
|
|
|
(131,967 |
) |
|
|
(73,801 |
) |
|
Net Cash
Used in Operating Activities
|
|
|
(657,573 |
) |
|
|
(1,174,991 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows
from Investing Activities
|
|
|
|
|
|
|
|
|
|
Purchase of
equipment
|
|
|
- |
|
|
|
(747 |
) |
|
Net cash
used in Investing Activities
|
|
|
- |
|
|
|
(747 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows
from Financing Activities
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of preferred stock, net of offering costs
|
|
|
175,000 |
|
|
|
- |
|
|
Repayment
of notes payable
|
|
|
- |
|
|
|
(151,580 |
) |
|
Proceeds
from convertible debentures, net of offering costs
|
|
|
290,750 |
|
|
|
- |
|
|
Proceeds
from issuance of common stock
|
|
|
135,000 |
|
|
|
1,294,593 |
|
|
Net Cash
Provided by Financing Activities
|
|
|
600,750 |
|
|
|
1,143,013 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
Foreign Exchange Rate Changes on Cash
|
|
|
- |
|
|
|
35,910 |
|
|
|
|
|
|
|
|
|
|
|
|
Change in
Cash
|
|
|
(56,823 |
) |
|
|
3,185 |
|
|
Cash,
Beginning of Year
|
|
|
56,823 |
|
|
|
53,638 |
|
|
Cash, End
of Year
|
|
$ |
- |
|
|
$ |
56,823 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
- |
|
|
$ |
- |
|
|
Income
taxes paid
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
Deemed
dividend for preferred stock
|
|
$ |
102,088 |
|
|
$ |
- |
|
|
Original
issue discount on convertible debt
|
|
$ |
68,250 |
|
|
$ |
- |
|
|
Conversion
of preferred stock and convertible debt
|
|
$ |
92,287 |
|
|
$ |
- |
|
|
Discounts
on convertible debt and preferred stock
|
|
$ |
690,398 |
|
|
$ |
- |
|
|
Shares
issued for services
|
|
$ |
- |
|
|
$ |
77,402 |
|
|
Shares
issued for debenture conversion and accrued interest
|
|
$ |
- |
|
|
$ |
218,812 |
|
|
Issuance of
embedded conversion derivative liabilities
|
|
$ |
- |
|
|
$ |
6,698 |
|
(The accompanying notes
are an integral part of these consolidated financial
statements)
IGEN NETWORKS CORP.
Notes to the
Consolidated Financial Statements
Years Ended December
31, 2019 and 2018
(Expressed in U.S.
dollars)
1.
Organization and Description of Business
IGEN Networks Corp.
(“IGEN”, the “Company”, “we”, “our”) was incorporated in the State
of Nevada on November 14, 2006, under the name of Nurse Solutions
Inc. On September 19, 2008, the Company changed its name to Sync2
Entertainment Corporation and traded under the symbol SYTO. On
September 15, 2008, the Company became a reporting issuer in
British Columbia, Canada. On May 26, 2009, the Company changed its
name to IGEN Networks Corp. On March 25, 2015, the Company was
listed on the Canadian Securities Exchange (CSE) under the trading
symbol IGN and the Company became a reporting Venture Issuer in
British Columbia and Ontario, Canada.
The Company’s principal
business is the development and marketing of software services for
the automotive industry. The Company works with wireless carriers,
hardware suppliers and software developers to provide direct and
secure access to information on the vehicle and the driver’s
behavior. The software services are delivered from the AWS Cloud to
the consumer and their families over the wireless networks and
accessed from any mobile or desktop device. The software services
are marketed to automotive dealers, financial institutions, and
direct-to-consumer through various commercial and consumer
brands.
Going
Concern
The
consolidated financial statements as of and for the year ended
December 31, 2019 have been prepared assuming that the Company will
continue as a going concern. The Company has experienced recurring
losses from operations and has negative operating cash flows since
inception, has a working capital deficit of $1,277,884 and an
accumulated deficit of $11,630,660 as of December 31, 2019, and is
dependent on its ability to raise capital from stockholders or
other sources to sustain operations. These factors raise
substantial doubt about the Company’s ability to continue as a
going concern. Ultimately, the Company plans to achieve profitable
operations through the increase in revenue base and successfully
grow its operations organically or through acquisitions. The
consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
2.
Summary of Significant Accounting Policies
Basic of
Presentation and Consolidation
These consolidated
financial statements and related notes include the records of the
Company and the Company’s wholly-owned subsidiary, Nimbo Tracking
LLC, which is based in the USA.
All intercompany
transactions and balances have been eliminated. These consolidated
financial statements are presented in accordance with accounting
principles generally accepted in the United States (“U.S. GAAP”),
are expressed in U.S. dollars, and, in management’s opinion, have
been properly prepared within reasonable limits of materiality and
within the framework of the significant accounting policies
summarized below.
Use of
Estimates
The preparation of
these consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. The Company
regularly evaluates estimates and assumptions related to allowance
for doubtful accounts, valuation of inventory, the useful life and
recoverability of equipment, impairment of goodwill, valuation of
notes payable and convertible debentures, fair value of stock-based
compensation and derivative liabilities, and deferred income tax
asset valuation allowances. The Company bases its estimates and
assumptions on current facts, historical experience and various
other factors that it believes to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and
the accrual of costs and expenses that are not readily apparent
from other sources. The actual results experienced by the Company
may differ materially and adversely from the Company’s estimates.
To the extent there are material differences between the estimates
and the actual results, future results of operations will be
affected.
Cash and
Cash Equivalents
The Company considers
all highly liquid instruments purchased with an original maturity
of three months or less at the time of acquisition to be cash
equivalents.
Accounts
Receivable
Accounts receivable are
recognized and carried at the original invoice amount less an
allowance for expected uncollectible amounts. Inherent in the
assessment of the allowance for doubtful accounts are certain
judgments and estimates including, among others, the customer’s
willingness or ability to pay, the Company’s compliance with
customer invoicing requirements, the effect of general economic
conditions and the ongoing relationship with the customer. Accounts
with outstanding balances longer than the payment terms are
considered past due. We do not charge interest on past due
balances. The Company writes off trade receivables when all
reasonable collection efforts have been exhausted. Bad debt expense
is reflected as a component of general and administrative expenses
in the consolidated statements of operations.
Inventory
Inventory consists of
vehicle tracking and recovery devices and is comprised entirely of
finished goods that can be resold. Inventory is stated at the lower
of cost or net realizable value. Cost is determined on a first-in,
first-out (FIFO) basis. Net realizable value is the estimated
selling price in the ordinary course of business, less estimated
costs of completion and selling costs. There was no provision for
inventory recorded during the years ended December 31, 2019 and
2018.
Equipment
Office equipment,
computer equipment, and software are recorded at cost. Depreciation
is provided annually at rates and methods over their estimated
useful lives. Management reviews the estimates of useful lives of
the assets every year and adjusts them on prospective basis, if
needed. All equipment was fully depreciated as of December 31, 2019
and 2018. For purposes of computing depreciation, the method of
depreciating equipment is as follows:
|
Computer equipment
|
3 years
straight-line
|
|
Office equipment
|
5 years
straight-line
|
|
Software
|
3 years
straight-line
|
Goodwill
Goodwill represents the
excess of the acquisition price over the fair value of identifiable
net assets acquired. Goodwill is allocated at the date of the
business combination. Goodwill is not amortized, but is tested for
impairment annually on December 31 of each year or more frequently
if events or changes in circumstances indicate the asset may be
impaired. These events and circumstances may include a significant
change in legal factors or in the business climate, a significant
decline in the Company’s share price, an adverse action of
assessment by a regulator, unanticipated competition, a loss of key
personnel, significant disposal activity and the testing of
recoverability for a significant asset group.
Goodwill impairment is
measured as the amount by which a reporting unit's carrying value
exceeds its fair value.
The Company has only
one reporting unit. Therefore, all of the Company’s goodwill
relates to that reporting unit, and at December 31, 2019 and 2018,
the carrying value for that reporting unit is negative.
Impairment
of Long-lived Assets
The Company reviews
long-lived assets, such as equipment, for impairment whenever
events or changes in the circumstances indicate that the carrying
value may not be recoverable. If the total of the estimated
undiscounted future cash flows is less than the carrying value of
the asset, an impairment loss is recognized for the excess of the
carrying value over the fair value of the asset during the year the
impairment occurs.
Fair Value
Measurements
In accordance with
Financial Accounting Standard Board (“FASB”) Accounting Standards
Codification (“ASC”) 820, “Fair Value Measurements and
Disclosures,” the Company is to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring
fair value. ASC 820 establishes a fair value hierarchy based on the
level of independent, objective evidence surrounding the inputs
used to measure fair value. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. ASC 820
prioritizes the inputs into three levels that may be used to
measure fair value:
Level
1
Level 1 applies to
assets or liabilities for which there are quoted prices in active
markets for identical assets or liabilities.
Level
2
Level 2 applies to
assets or liabilities for which there are inputs other than quoted
prices that are observable for the asset or liability such as
quoted prices for similar assets or liabilities in active markets;
quoted prices for identical assets or liabilities in markets with
insufficient volume or infrequent transactions (less active
markets); or model-derived valuations in which significant inputs
are observable or can be derived principally from, or corroborated
by, observable market data.
Level
3
Level 3 applies to
assets or liabilities for which there are unobservable inputs to
the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.
See Note 8 for fair
value measurement information related to the Company’s derivative
liabilities.
The fair values of cash
and cash equivalents, accounts and other receivables, restricted
cash, and accounts payable and accrued liabilities, approximate
their carrying values due to the immediate or short-term maturity
of these financial instruments. Foreign currency transactions are
primarily undertaken in Canadian dollars. The fair value of cash is
determined based on “Level 1” inputs and the fair value of
derivative liabilities is determined based on “Level 3” inputs. The
recorded values of notes payable, approximate their current fair
values because of their nature and respective maturity dates or
durations. The financial risk is the risk to the Company’s
operations that arise from fluctuations in foreign exchange rates
and the degree of volatility to these rates. Currently, the Company
does not use derivative instruments to reduce its exposure to
foreign currency risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consists of
cash. The Company places its cash and cash equivalents in what it
believes to be credit-worthy financial institutions.
Revenue
Recognition and Deferred Revenue
We recognize revenue in
accordance with ASC 606, “Revenue from Contracts with Customers”,
using the five-step model, including (1) identify the contract with
the customer, (2) identify the performance obligations in the
contract, (3) determine the transaction price, (4) allocate the
transaction price to the performance obligations in the contract,
and (5) recognize revenue in accordance with U.S. GAAP. Title and
risk of loss generally pass to our customers upon delivery, as we
have insurance for lost shipments. In limited circumstances where
either title or risk of loss pass upon destination or acceptance or
when collection is not reasonably assured, we defer revenue
recognition until such events occur. We derive revenues from two
primary sources: products and services. Product revenue includes
the shipment of product according to the agreement with our
customers and only represents a small percentage of our revenues,
less than 5%. Services include vehicle tracking services and
customer support (technical support), installations and consulting.
A contract may include both product and services. For these
contracts, the Company accounts for individual performance
obligations separately if they are distinct. Performance
obligations include, but are not limited to, pass-thru harnesses
and vehicle tracking services. Almost all of our revenues are
derived from customers located in United States of America in the
auto industry. The transaction price is allocated to the separate
performance obligations on a relative standalone selling price
basis. Standalone selling prices are typically estimated based on
observable transactions when these services are not sold on a
standalone basis. At contract inception, an assessment of the goods
and services promised in the contracts with customers is performed
and a performance obligation is identified for each distinct
promise to transfer to the customer a good or service (or bundle of
goods or services). To identify the performance obligations, the
Company considers all of the goods or services promised in the
contract regardless of whether they are explicitly stated or are
implied by customary business practices. Revenue is recognized when
our performance obligation has been met. The Company considers
control to have transferred upon delivery because the Company has a
present right to payment at that time, the Company has transferred
use of the asset, and the customer is able to direct the use of,
and obtain substantially all of the remaining benefits from, the
asset. For arrangements under which the Company provides vehicle
tracking services, the Company satisfies its performance
obligations as those services are performed whereby the customer
simultaneously receives and consumes the benefits of such services
under the agreement. Revenues are recognized net of any taxes
collected from customers, which are subsequently remitted to
governmental authorities.
The Company provides
product warranties with varying lengths of time and terms. The
product warranties are considered to be assurance-type in nature
and do not cover anything beyond ensuring that the product is
functioning as intended. Based on the guidance in ASC 606,
assurance-type warranties do not represent separate performance
obligations. The Company has historically experienced a low rate of
product returns under the warranty program.
Management assesses the
business environment, customers’ financial condition, historical
collection experience, accounts receivable aging, and customer
disputes to determine whether collectability is reasonably assured.
If collectability is not reasonably assured at the time of sale,
the Company does not recognize revenue until collection occurs.
Revenue relating to the
sale of service fees on its vehicle tracking and recovery services
is recognized over the life of the contact. The service renewal
fees are offered in terms ranging from 12 to 36 months and are
generally payable upon delivery of the vehicle tracking devices or
in full upon renewal.
Deferred
revenues are recorded net of contract assets and when cash payments
are received from customers in advance of the Company’s
performance. Deferred revenues totaled $405,553 and $721,301 as of
December 31, 2019 and 2018, respectively. During the year ended
December 31, 2019, the Company recorded additions to deferred
revenues of $383,984 and recognized total revenues of $699,732
through the amortization of deferred revenues. During the year
ended December 31, 2019, the Company recognized revenues of
$533,950 related to deferred revenues outstanding as of December
31, 2018 as the services were performed. During the year ended
December 31, 2018, the Company recorded total proceeds of
$1,035,713 and recognized total revenues of $1,131,754 through the
amortization of deferred revenues. During the year ended December
31, 2018, the Company recognized revenues of $634,018 related to
deferred revenues outstanding as of December 31, 2017 as the
services were performed.
Any revenue that has
been deferred and is expected to be recognized beyond one year is
classified as deferred revenue, net of current portion.
Deferred revenues are
recorded net of contract assets. Contract assets represent the
costs of the underlying hardware to enable the Company to perform
on its contracts with customers. As of December 31, 2019 and 2018,
the contract asset balance totaled $143,088 and $326,869,
respectively, which have been recorded net of deferred revenues in
the accompanying consolidated balance sheets.
Financing
Costs and Debt Discount
Financing costs and
debt discounts are recorded net of notes payable an