Notes to Financial Statements
December 31, 2016 and 2015
(1)
|
ORGANIZATION AND BUSINESS
|
Consolidated Gems, Inc. ("Consolidated Gems” or the “Company"), is a Delaware corporation originally incorporated in Florida as We Sell for U Corp. The principal stockholder of Consolidated Gems is Power Developments Pty Ltd., an Australian corporation (“Power”), an entity majority owned by the Company’s president, which owned 82.85% of Consolidated Gems as of December 31, 2016.
In order to take advantage of management’s substantial experience in the location and development of mineral exploration properties, the Company plans to look for opportunities in the resources industry.
The Company had decided to expand its focus to include precious gems in order to generate value for shareholders and was assessing several gem opportunities. In March 2015, following a review of the results of exploration on the gem tenement, the Company decided to relinquish the exploration licence.
On March 8, 2016, the Company announced it had entered into a Term Sheet with Noam Levavi and Eran Galil (the “Vendors”) for the acquisition of all of the issued shares of Byondata (“Byondata”), a company incorporated under the laws of Israel. The Company had a 90 day period to conduct due diligence and negotiate a formal share sale agreement. Headquartered in Herzliya, Israel, Byondata has developed unique platform as a service to create content-rich, immersive Virtual Reality (VR) experiences. Following initial due diligence and by mutual agreement, the proposed acquisition was terminated.
The following is a summary of the significant accounting policies followed in connection with the preparation of the financial statements.
(a)
|
Basis of presentation and use of estimates
|
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (US 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 financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
The functional and reporting currency is the Australian dollar.
Foreign Currency Translation
Effective April 1, 2013, the Company’s functional and reporting currency is the Australian dollar. Revenue and expenses incurred in a currency other than Australian dollars are translated at the date incurred or invoiced. Assets and liabilities are re-valued at the period end exchange rate where appropriate. Gains or losses from foreign currency transactions are included in the results of operations.
Prior to April 1, 2013, the Company’s functional currency was the US dollar. However, as a result of Australian based activities in the second quarter of 2013 relating to potential gem projects, the Company’s revenue and expenses are now primarily denominated in Australian dollars (A$). ASC 830 Foreign Currency Translation, states that the functional currency of an entity is the currency of the primary economic environment in which the entity operates. Accordingly the Company determined that from April 1, 2013 the functional currency of the Company is the Australian dollar. Assets, liabilities and equity were translated at the rate of exchange at April 1, 2013. Revenue and expenses were translated at rates at date of transaction. Translation gains and losses, if material, are included as part of accumulated other comprehensive income. The resulting translation at April 1, 2013 was not material.
The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. For the periods presented there were no cash equivalents.
ASC Topic 740 prescribes how a company should recognise, measure, present and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. Additionally for tax positions to qualify for deferred tax benefit recognition under ASC 740, the position must have at least “more than likely not” chance of being sustained upon challenge by the respective taxing authorities, and whether or not it meets that criteria is a matter of significant judgement. The Company believes that it does not have any uncertain tax positions that would require the recording or disclosure of a potential tax liability.
The Company follows the asset and liability approach which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. For the periods presented, there was no taxable income. There are no deferred income taxes resulting from temporary differences in reporting certain income and expense items for income tax and financial accounting purposes. The Company, at this time, is not aware of any net operating losses which are expected to be realized.
The Company is not an Australian resident corporation under Australian law. If the Company became an Australian resident corporation, it would be subject to Australian income tax on its non-exempt worldwide assessable income (which includes capital gains), less allowable deductions, at the rate of 30%. Foreign tax credits are allowed where tax has been paid on foreign source income provided the tax credit does not exceed 30% of the foreign source income.
Under the U.S./Australia tax treaty, a U.S. resident corporation such as us is subject to Australian income tax on net profits attributable to the carrying on of a business in Australia through a “permanent establishment” in Australia. A “permanent establishment” is a fixed place of business through which the business of an enterprise is carried on. The treaty limits the Australian tax on interest and royalties paid by an Australian business to a U.S. resident to 10% of the gross interest or royalty income unless it relates to a permanent establishment. Although we consider that the Company does not have a permanent establishment in Australia, it may be deemed to have such an establishment due to the location of its administrative offices in Melbourne. In addition we may receive interest or dividends from time to time.
(e)
|
Goods and Services Tax (“GST”)
|
Revenues, expenses and assets generated in Australia are subject to Australian GST which requires the supplier to add a 10% GST to predominately all expenses and the cost of assets and for the Company to include a 10% GST to the selling price of a product. Revenues, expenses and assets are recognized net of the amount of GST except where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognized as part of the cost of acquisition of the assets or as part of the expense item as applicable, and receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the cash flow statement on a gross basis and the GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority
The Company calculates loss per share in accordance with FASB ASC Topic 260, “Earnings per Share”.
Basic (loss) per share is computed based on the weighted average number of common shares outstanding during the period. Dilutive loss per share has not been presented as there are no common stock equivalents.
(g)
|
Fair value of Financial Instruments
|
The Company’s financial instruments consist of cash, receivables, accounts payable and accrued expenses, and advances from affiliate. The carrying amounts of cash, receivables, accounts payable and accrued expenses approximate their respective fair values because of the short term nature of those instruments. The fair value of the advances from affiliate is not determinable as it is due to an affiliated entity, no market exists for similar instruments and settlement date is uncertain.
Where necessary, comparative figures have been reclassified to be consistent with current year presentation with no effect on operations.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has not yet commenced revenue producing operations and had an accumulated deficit of A$3,152,650 as of December 31, 2016. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company will require additional funding for operations and this additional funding may be raised through debt or equity offerings. The Company has a debt due to AXIS Consultants Pty Ltd (AXIS). AXIS provides management services to the Company and the cost of these services increases the amount of the debt. In addition, the Company has historically relied on loans and advances from corporations affiliated with the President of Consolidated Gems. Based on discussions with these affiliate companies, the Company believes this source of funding will continue to be available. Other than the arrangements noted above, the Company has not confirmed any other arrangements for ongoing funding. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
(4)
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (ASU) 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires all deferred income tax assets and liabilities to be classified as noncurrent on the balance sheet. The new standard is effective for interim and annual reporting periods beginning after December 15, 2016 with early adoption permitted. Additionally, this guidance may be applied either prospectively or retrospectively to all periods presented. The Company does not expect this standard to have a material impact on its financial statements.
Other Recently Issued, but not Yet Effective Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
(5)
|
AFFILIATE TRANSACTIONS
|
In January 2009, the Company entered into an agreement with AXIS Consultants Pty Ltd (“AXIS”) to provide geological, management and administration services to the Company, (the “Service Agreement”). AXIS has some common management and is incorporated in Australia. Mr. Peter Lee is Chief Financial Officer and Company Secretary of AXIS and owes a fiduciary duty to both parties. AXIS’s principal business is to provide geological, management and administration services to companies. We are one of seven companies that AXIS provides services to, namely, Merlin Diamonds Limited, Top End Minerals Limited, Northern Capital Resources Corp, Golden River Resources Corporation, Great Central Resources Corp, Aurum Inc., and Consolidated Gems Inc.
Each of the companies has some common Directors, officers and shareholders. In addition, each of the companies is substantially dependent upon AXIS for its senior management and certain mining and exploration staff. A number of arrangements and transactions have been entered into from time to time between such companies. It has been the intention of the companies and respective Boards of Directors that each of such arrangements or transactions should accommodate the respective interest of the relevant companies in a manner which is fair to all parties and equitable to the shareholders of each. Currently, there are no material arrangements or planned transactions between the Company and any of the other companies other than AXIS.
AXIS is paid by each company for the costs incurred by it in carrying out the administration function for each such company. Pursuant to the Service Agreement, AXIS performs such functions as payroll, maintaining employee records required by law and usual accounting procedures, providing insurance, human resources, company secretarial, land management, certain exploration and mining support including provision of exploration managers and geologists, financial, accounting advice and services. AXIS also provides for the Company various services, including but not limited to the making available of office supplies, office facilities and any other services as may be required from time to time by the Company as and when requested by the Company.
We are required to reimburse AXIS for any direct costs incurred by AXIS for the Company. In addition, we are required to pay a proportion of AXIS’s overhead cost based on AXIS’s management estimate of our utilisation of the facilities and activities of AXIS plus a service fee of not more than 15% of the direct and overhead costs. Amounts invoiced by AXIS are required to be paid by us. We are also not permitted to obtain from sources other than AXIS, and we are not permitted to perform or provide ourselves, the services contemplated by the Service Agreement, unless we first request AXIS to provide the service and AXIS fails to provide the service within one month.
The Service Agreement may be terminated by AXIS or ourselves upon 60 days prior notice. If the Service Agreement is terminated by AXIS, we would be required to independently provide, or to seek an alternative source of providing, the services currently provided by AXIS. There can be no assurance that we could independently provide or find a third party to provide these services on a cost-effective basis or that any transition from receiving services under the Service Agreement will not have a material adverse effect on us. Our inability to provide such services or to find a third party to provide such services may have a material adverse effect on our operations.
During the year ended December 31, 2016, AXIS provided services in accordance with the Services Agreement and incurred direct costs on behalf of the Company of A$89,182 (2015: A$(21,977)), and advanced the Company A$123,900 (2015: A$443), and the Company repaid A$970,850 (2015: A$4,300). At December 31, 2016, the amount owed to AXIS was A$330,408 (2015: A$1,088,175).
Consolidated Gems files its income tax returns on an accrual basis.
The Company files tax returns in the United States. Consolidated Gems has carry-forward losses of approximately US$1,703,000 as of December 31, 2016 which expire in years 2028 through 2034. Due to the uncertainty of the availability and future utilization of those operating loss carry-forwards, management has provided a full valuation against the related tax benefit.
The Company’s tax returns for all years since December 31, 2011 remain open to examination by the respective tax authorities. There are currently no tax examinations in progress.
The Company has evaluated events and transactions after the balance sheet date and, through the date the financial statements were issued and believes that all relevant disclosures have been included herein and there are no other which requires recognition or disclosure in the accompanying financial statements.
On July 24, 2017, the Company entered into a Term Sheet with Lior Barash, Erez Glazer, Lior Wayn, and Lior Dolfin, (collectively, the ‘’Entrepreneurs”) for the acquisition of all of the issued shares of the Cyber Security technology business “Attofensive”, a company incorporated under the laws of Israel.
On November 17, 2017, the parties agreed to amend the Term Sheet and a summary of the terms are as follows:
·
|
Commencing December 1, 2017, the Entrepreneurs shall commence development of a product based on AttoFensive Technology.
|
·
|
The Entrepreneurs shall supply the Company with their personal services in the following roles:
|
i.
|
Barash – Chief Technology Officer
|
ii.
|
Dolphin – Chief Product Officer
|
iii.
|
Glazer – Chief Operating Officer
|
iv.
|
Wayn – Chief Executive Officer
|
·
|
Until the earlier of the July 17, 2018, and closing of a fund raising, the Company shall pay the Entrepreneurs only from funds raised specifically for this purpose a monthly amount of US$30,000. In addition, the Company shall cover operating expenses incurred by the Entrepreneurs (tax, accounting, legal, D&O insurance, travelling expenses, etc.), in an amount of up to US$50,000 on the production of invoices and/or receipts for such expenditure.
|
·
|
Upon the completion of private placements amounting to USD$400,000 for the AttoFensive Technology:
|
i.
|
Erez Glazer will be appointed to the Board of directors of the Company.
|
ii.
|
the Company shall grant to the Entrepreneurs (or their designees) options to acquire 10,000,000 shares of Common Stock in the Company at an exercise price of US$0.001 per share of Common Stock.
|
·
|
Upon the completion of placements amounting to USD$750,000 for the AttoFensive Technology:
|
i.
|
One more of the Entrepreneurs will be appointed to the Board of directors of the Company.
|
ii.
|
the Company shall grant to the Entrepreneurs (or their designees), options to acquire 10,000,000 shares of Common Stock in the Company at an exercise price of US$0.001 per share of Common Stock.
|
·
|
Upon the completion of placements amounting to USD$2,000,000 for the AttoFensive Technology:
|
i.
|
One more of the Entrepreneurs will be appointed to the Board of directors of the Company.
|
ii.
|
the Company shall grant to the Entrepreneurs (or their designees), options to acquire 30,000,000 shares of Common Stock in the Company at an exercise price of US$0.001 per share of Common Stock.
|
·
|
Once the Company's gross revenues per year exceed an aggregate amount of US$100,000, the Company shall issue the Entrepreneurs (or their designees), options to acquire 25,000,000 shares of Common Stock in the Company at an exercise price of US$0.001 per share of Common Stock.
|
·
|
Once the Company's gross revenues per year exceed an aggregate amount of US$1,000,000, the Company shall issue the Entrepreneurs (or their designees), options to acquire 25,000,000 shares of Common Stock in the Company at an exercise price of US$0.001 per share of Common Stock.
|
·
|
Once the Company's gross revenues per year exceed an aggregate amount of US$2,500,000, the Company shall issue the Entrepreneurs (or their designees), options to acquire 25,000,000 shares of Common Stock in the Company at an exercise price of US$0.001 per share of Common Stock.
|
·
|
the Company shall raise US$2,000,000. In the event that the Fund Raising does not close by July 17, 2018, the Entrepreneurs will be released from their obligations to provide services to the Company and the AttoFensive Technology shall, at the Entrepreneurs' sole discretion and for no consideration, revert to the Entrepreneurs. All Fund Raising proceeds will be distributed as per the board of directors.
|
·
|
The Entrepreneurs shall transfer the AttoFensive Technology to the Company (or its nominee) within 14 days of the signing of November 17, 2017.
|