Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 1 – Business and Going Concern
Business
ROI Land Investments Ltd. was incorporated
in Nevada on December 13, 2007 under the name Conex MD, Inc.
ROI Land Investments Ltd. and Subsidiaries
specializes in land development opportunities in North America and internationally. The Company's business model consists of acquiring
attractive land, optimizing zoning restrictions, obtaining the necessary permits, outsourcing developments of the infrastructure
and profiting from the sale of the subdivided land units to established residential and commercial building developers. Our business
model also consists of providing financing opportunities to qualified joint venture partners.
On November 15, 2013, the Company formed ROI
DEV Canada Inc. (“ROI DEV”), a Canada Chartered corporation, as a wholly-owned subsidiary. ROI DEV was formed to acquire
and manage land acquisitions in North America.
On November 3, 2015, the Company formed 9497846
Canada Inc. (“9497846 Canada”), a Canada corporation, as a wholly-owned subsidiary. 9497846 Canada was formed to provide
management services to the Company’s operating companies. This subsidiary is currently inactive.
On January 24, 2016, the Company formed ROI
Land Investments FZ (“ROI FZ”), a UAE corporation as a wholly-owned subsidiary. ROI FZ was formed to acquire and manage
land acquisitions and developments in Dubai. This subsidiary is currently inactive.
On March 23, 2016, the Company formed ROI Securitization
SA, a Luxembourg corporation as a wholly-owned subsidiary. ROI Securitization SA was formed to sell debt securities in Europe to
fund the Company’s land and real estate projects.
Going Concern
The Company has incurred net losses of $19,209,484
and $11,716,661 for the year ended December 31, 2016 and 2015, respectively, and has incurred cumulative losses since inception
of $36,226,353 and $17,016,869 as of December 31, 2016 and 2015, respectively. The Company has a deficit in working capital of
$18,463,156 and $10,813,988 as of December 31, 2016 and 2015, respectively, and used cash in operations of $10,469,799 and $14,474,680
for the years ended December 31, 2016 and 2015, respectively. These conditions indicate the existence of a material uncertainty
that may cast a significant doubt about the ability of the Company to continue as a going concern.
The accompanying consolidated financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”),
which contemplate continuation of the Company as a going concern and the ability to realize its assets and discharge its liabilities
in the normal course of business. The ability of the Company to continue its operations is dependent on the execution of management’s
plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations
are sufficient to fund working capital requirements.
There can be no assurance that the Company
will be successful in generating additional cash from the equity/debt markets or other sources to be used for operations. The consolidated
financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities
that might be necessary if the going concern assumption was not appropriate. Based on the Company’s current resources, the
Company will not be able to continue to operate without additional immediate funding. Should the Company not be successful in obtaining
the necessary financing to fund its operations, the Company would need to curtail certain or all operational activities and/or
contemplate the sale of its assets, as necessary.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 2 – Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying consolidated financial statements
have been prepared in accordance with U.S. GAAP and the rules and regulations of the Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The consolidated financial statements include
the accounts of ROI Land Investments Ltd. and its wholly-owned Subsidiaries, ROI DEV Canada Inc., 9497846 Canada Inc., ROI Land
Investments FZ and ROI Securitization SA. All significant inter-company balances and transactions have been eliminated upon consolidation.
Reclassifications
Certain items on the consolidated statement
of operations and comprehensive loss for the year ended December 31, 2015 have been reclassified to conform to the current period
presentation. These reclassifications have no impact on the previously reported net loss.
Use of Estimates
The preparation of consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of expenses during the reporting period.
Management bases its estimates on historical
experience and on various assumptions 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.
The most significant estimates, among other things, are used in accounting for allowances for deferred income taxes, contingencies,
as well as the recording and presentation of its common stock and related stock option issuances. Estimates and assumptions are
periodically reviewed and the effects of any material revisions are reflected in the consolidated financial statements in the period
that they are determined to be necessary. Actual results could differ from those estimates and assumptions.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with maturity of three months or less when purchased to be cash equivalents. As of December 31, 2016 and 2015, the Company had
no cash equivalents.
Concentration of Credit Risk
The Company maintains cash in bank accounts,
which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and periodically
evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.
Other Assets
Other assets as of December 31, 2016 and 2015
consisted of website setup costs and publicity campaign costs and are recorded at cost and construction in progress for leasehold
improvements in Dubai which was fully impaired as of December 31, 2016 (Refer to Note 5). Amortization expense of $12,615 and $12,696
for the years ended December 31, 2016 and 2015, respectively, on these other assets is computed by the straight-line method (after
taking into account their respective estimated residual values) over the assets estimated useful lives as follows:
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Publicity campaign
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3 years
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ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 2 – Summary of Significant Accounting
Policies (continued)
Deposits on Land
Deposits and other acquisition and investment
pursuit costs related to deals in progress as of the reporting date are included in the consolidated balance sheets as deposits
on land. These costs will be capitalized as part of the original investment upon closing of the purchase of the related investment
or, to the extent that such costs have not been recovered, expensed at the time the decision is made not to proceed with the investment.
Fair Value of Financial Instruments
The following provides an analysis of financial
instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to
which fair value is observable:
Level 1 - fair value measurements are those
derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - fair value measurements are those
derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - fair value measurements are those
derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to management as of December 31, 2016 and 2015. The respective
carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of
these instruments. The Company applied the Financial Accounting Standards Board’s (“FASB”) Accounting Standards
Codification (“ASC”) ASC 820 “Fair Value Measurement” for all non-financial assets and liabilities measured
at fair value on a non-recurring basis.
Convertible Instruments
U.S. GAAP requires companies to bifurcate conversion
options from their host instruments and account for them as free standing derivative financial instruments according to certain
criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument
are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that
embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument
with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule
is when the host instrument is deemed to be conventional, as that term is described under applicable U.S. GAAP. The Company has
no bifurcated derivative instruments as of December 31, 2016 and 2015.
When the Company has determined that the embedded
conversion options should not be bifurcated from their host instruments, the Company records, when necessary, discounts to convertible
notes for the intrinsic value of the conversion options embedded in the debt instruments based upon the differences between the
fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded
in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.
The Company has not recorded any beneficial conversion feature as of December 31, 2016 and 2015 as the embedded conversion options
in its notes payable do not meet the firm commitment criterion as described under applicable U.S. GAAP.
Equity
Common stock and preferred stock represent
the par value of the total number of shares issued by the Company. If shares are issued when options and warrants are exercised,
the common stock account also comprises the compensation costs previously recorded as additional paid-in-capital. If shares are
issued within the conversion option on convertible instruments is exercise, the common stock account also comprises the equity
component of convertible instruments.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 2 – Summary of Significant Accounting
Policies (continued)
Additional paid-in-capital includes charges
related to the fair value of share options and warrants until such equity instruments are exercised, in which case the amounts
are transferred to common stock. If convertible instruments are not exercised at the expiry of the convertible instruments, the
equity component of the convertible instrument is transferred to additional paid-in-capital.
Accumulated other comprehensive loss comprises
foreign currency translation difference arising form the translation of financial statements of the Company’s foreign subsidiaries
in U.S. dollar. Deficit includes all current and prior losses.
Impairment or Disposal of Long-Lived
Assets
The Company accounts for the impairment or
disposal of long-lived assets according to ASC 360 “Property, Plant and Equipment”. ASC 360 clarifies the accounting
for the impairment of long-lived assets and for long-lived assets to be disposed of, including the disposal of business segments
and major lines of business. Long-lived assets are reviewed when facts and circumstances indicate that the carrying value of the
asset may not be recoverable. When necessary, impaired assets are written down to estimated fair value based on the best information
available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows.
Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates. The Company has recorded no impairment during the years ended December 31, 2016 and 2015 except
for an amount related to Dubai leasehold improvements (Refer to Note 5).
Stock Based Compensation
The Company accounts for Stock-Based Compensation
under ASC 718 “Compensation – Stock Compensation”, which addresses the accounting for transactions in which an
entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains
employee services in share- based payment transactions. ASC 718-10 requires measurement of the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award. Incremental compensation costs
arising from subsequent modifications of awards after the grant date must be recognized. The Company treats stock-based transactions
with its non-employee directors as if they were employees.
The Company accounts for stock-based compensation
awards to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. Under ASC 505-50, the Company determines
the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably measurable. Any stock options or warrants issued
to non- employees are recorded in expense and additional paid-in capital in shareholders' equity (deficit) over the applicable
service periods using variable accounting through the vesting dates based on the fair value of the options or warrants at the end
of each period.
The Company issues common stock to consultants
for various services. The costs for these transactions are measured at the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable. The value of such common stock is measured at the
earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached
or (ii) the date at which the counterparty's performance is complete. The Company recognizes a consulting expense and a corresponding
increase to additional paid-in-capital related to common stock issued for services.
Income Taxes
Income taxes are accounted for under the liability
method of accounting for income taxes. Under the liability method, future tax liabilities and assets are recognized for the estimated
future tax consequences attributable to differences between the amounts reported in the consolidated financial statements as carrying
amounts of assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted
or substantially enacted income tax rates expected to apply when the asset is realized or the liability settled. The effect of
a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change
occurs. Future income tax assets are recognized to the extent that they are considered more likely than not to be realized.
The Company adopted the provisions of ASC Topic
740 “Income Taxes”, which prescribes a recognition threshold and measurement process for financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 2 – Summary of Significant Accounting
Policies (continued)
Management has evaluated and concluded that
there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as
of December 31, 2016 and 2015. The Company does not expect any significant changes in its unrecognized tax benefits within twelve
months of the reporting date.
The Company’s policy is to classify assessments,
if any, for tax related interest as interest expense and penalties as general and administrative expenses in the consolidated statements
of operations. The Company has not filed any federal tax returns since inception and may be subject to failure-to-file penalties.
The Company estimates that the amount of penalties, if any, will not have a material effect on its financial position, results
of operations or cash flows. No provisions have been made in the consolidated financial statements for such penalties, if any.
The Company intends to prepare and file overdue
United States federal tax returns through 2016, which are anticipated to be completed and filed by the end of first quarter of
fiscal 2018. The Company also files annual tax returns in Canada for ROI DEV and in Luxembourg for ROI SEC. ROI DEV has filed its
tax returns through 2016 and ROI SEC intends to complete and to file its 2016 tax return by the end of first quarter of fiscal
2018.
Revenue Recognition
The development time of our properties is generally
more than one year from when development of the property begins, although some properties may take less than one year to complete.
Revenues and cost of revenues from these property sales are recorded at the time each property parcel is delivered and title and
possession are transferred to the buyer.
Income from the sales of mortgage notes receivable
are reported on an accrual basis using the effective interest rate method.
Interest income on notes and mortgage notes
receivable are recognized when earned per the terms of the applicable note agreements.
Mortgage Notes Receivable
Mortgage notes receivable will be considered
impaired when, based on current information and events, it is probable that the Company will not be able to collect principal and
interest amounts due according to the contractual terms. Management will assess the credit quality of the portfolio and adequacy
of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment of management will be required
in this analysis. We will consider the estimated net recoverable value of the estimated net recoverable value as well as other
factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality
and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because
this determination may be based on projections of future economic events, which are inherently subjective, the amount ultimately
realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the
estimated fair value of the underlying collateral is less than the net carrying value of the debt investment, a loan loss reserve
will be recorded with a corresponding charge to provision for loan losses. The loan loss reserve for each debt investment will
be maintained at a level that is determined to be adequate by management to absorb probable losses.
Income recognition will be suspended for a
debt investment at the earlier of the date at which payments become past due or when, in the opinion of management, a full recovery
of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired debt investment is in
doubt, all payments will be applied to principal under the cost recovery method. When the ultimate collectability of the principal
of an impaired debt investment is not in doubt, contractual interest will be recorded as interest income when received, under the
cash basis method, until an accrual is resumed when the debt investment becomes contractually current and performance is demonstrated
to be resumed. A debt investment will be written off when it is no longer realizable or is legally discharged.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 2 – Summary of Significant Accounting
Policies (continued)
Foreign Currency Translation and Transactions
The consolidated financial statements are presented
in U.S. Dollars. The U.S. Dollar is the functional currency of the Company and ROI FZ, the Canadian Dollar is the functional currency
of ROI DEV and 9497846 Canada Inc., while the Euro is the functional currency of ROI SEC. Foreign currency transactions are translated
into the Company’s functional currency, using the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in
foreign currency at year-end exchange rates are recognized in profit or loss.
Non-monetary items are not retranslated at
year-end and are measured at historical cost using the exchange rates at the transaction date, except for non-monetary items measured
at fair value which are translated using the exchange rates at the date when fair value was determined.
Foreign Operations
On consolidation, assets and liabilities of
foreign operations are translated based on the exchange rates as of the consolidated balance sheet date, while revenue and expense
accounts are translated at the average exchange rates prevailing during the year. Equity accounts are translated at historical
exchange rates. The resulting translation gain and loss adjustments are accumulated as a component of stockholders’ equity
and other comprehensive income.
Comprehensive Income (Loss)
The Company reports comprehensive income (loss)
and its components in its consolidated financial statements. Comprehensive income (loss) consists of net loss and foreign currency
translation adjustments affecting stockholders’ equity that, under U.S. GAAP, are excluded from net loss.
As of December 31, 2016, the exchange rate
between U.S. Dollars and Canadian Dollar was U.S. $1.00 = CAD 1.3467, and the average exchange rate for the year then ended was
U.S. $1.00 = CAD 1.3245. As of December 31, 2015, the exchange rate between U.S. Dollars and Canadian Dollar was U.S. $1.00 = CAD
1.3872, and the average exchange rate for the year then ended was U.S. $1.00 = CAD 1.3389.
As of December 31, 2016, the exchange rate
between U.S. Dollars and Euro was U.S. $1.00 = EUR 0.9492, and the average exchange rate for the year then ended was U.S. $1.00
= EUR 0.9035.
Basic and Diluted Loss Per Share
The Company computes income (loss) per share
in accordance with ASC 260, "Earnings per Share", which requires presentation of both basic and diluted earnings per
share (“EPS”) on the face of the consolidated statement of operations. Basic EPS is computed by dividing income (loss)
available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect
to all dilutive potential shares of common stock outstanding during the period using the treasury stock method and convertible
preferred stock using the if-converted method. In computing diluted EPS, 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 EPS excludes all dilutive
potential shares if their effect is anti-dilutive.
As of December 31, 2016 and 2015, there were
$4,745,479 and $4,860,479 of convertible notes payable which are convertible at a 10% discount to the market price of our common
stock and convertible into approximately 52,728,000 shares and 4,084,000 shares, respectively. At December 31, 2016, there were
10,118,259 stock options outstanding. However, these potentially dilutive shares are considered to be anti-dilutive and are therefore
not included in the calculation of loss per share.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 3 – Recently Issued Accounting
Pronouncements
In May 2017, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, Compensation – Stock
Compensation (Topic 718): “Scope of Modification Accounting” (“ASU 2017-09”). ASU 2017-09 amends the
scope of modification accounting for share-based payment arrangements. The guidance requires modification accounting only if the
fair value, vesting conditions, or the classification of the award (as equity or liability) changes as a result of a change in
terms or conditions. ASU 2017-09 is effective for financial statements issued for fiscal years beginning after December 15, 2017.
The Company is currently evaluating the potential impact of the adoption of ASU 2017-09 on the Company's consolidated financial
statements.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): “Clarifying the Definition of a Business”, that clarifies the definition of a business
for entities that must determine whether a business has been acquired or sold. The amendment is intended to assist entities with
evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The new standard
is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted under certain circumstances.
The Company is currently evaluating the impact that the adoption of the new guidance will have on its consolidated financial condition,
results of operations and cash flows.
In November 2016, the FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230): “Restricted Cash”, that requires that the statement of cash flows explain
the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement
of cash flows. The amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years and should be applied using a retrospective transition method to each period presented. Early adoption is permitted,
including adoption in an interim period. ASU 2016-18 will be effective for the Company on January 1, 2018. The Company is currently
evaluating the impact that the adoption of the new guidance will have on its consolidated financial condition, results of operations
and cash flows.
In October 2016, the FASB issued ASU 2016-17,
Consolidation (Topic 810): “Interests Held through Related Parties that are under Common Control”, that amends the
evaluation of whether a reporting entity is the primary beneficiary of a Variable Interest Entity (“VIE”) by changing
how a reporting entity that is a single decision maker of a VIE treats indirect interests in the entity held through related parties
that are under common control with the reporting entity. The new standard is effective for annual and interim periods beginning
after December 15, 2016, with early adoption permitted, including adoption in an interim period. The adoption of this standard
is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): “Intra-Entity Transfers of Assets Other Than Inventory”, that requires an entity to recognize
the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This amendment
eliminates the exception for an intra-entity transfer of an asset other than inventory. The new standard is effective for annual
and interim periods beginning after December 15, 2017, with early adoption permitted in the first interim period and the amendments
should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of
the beginning of the period of adoption. The Company is currently evaluating the impact that the adoption of the new guidance will
have on its consolidated financial condition, results of operations and cash flows.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): “Classification of Certain Cash Receipts and Cash Payments”, that amends the classification
of certain cash receipts and cash payments, to reduce the diversity in how certain cash receipts and cash payments are presented
and classified in the statement of cash flows. The new standard is effective for annual periods beginning after December 15, 2017,
and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. The Company
is currently evaluating the impact that the adoption of the new guidance will have on its consolidated financial condition, results
of operations and cash flows.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, that requires
a financial asset measured at amortized cost to be presented at the net amount expected to be collected and requires that credit
losses from available-for-sale debt securities be presented as an allowance for credit losses. This new guidance will be effective
for annual and interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods
beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of the new guidance will have
on its consolidated financial condition, results of operations and cash flows.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 3 – Recently Issued Accounting
Pronouncements (Continued)
In March
2016, the FASB issued ASU 2016-09, “Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting”. The purpose of ASU 2016-09 is to simplify the accounting for share-based payment transactions, including
the income tax consequences, classification of awards as either equity or liabilities, and classification of such activity on the
statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods
within that year. Prospective, retrospective, or modified retrospective application may be used dependent on the specific requirements
of the amendments within ASU 2016-09. We will adopt ASU 2016-09 on a prospective basis during the first interim period of 2017. Upon
adoption of ASU 2016-09, we will revise our future diluted earnings per share calculations to exclude the estimated tax benefits
and deficiencies in the application of the treasury stock method, which will impact the number of dilutive shares included in the
diluted earnings per share calculation. Excess tax benefits or deficiencies related to share based awards will be recognized
as discrete items in the income statement during the period in which they occur. We will continue to estimate forfeitures for our
share based awards after adoption of ASU 2016-09.
In January 2016, the FASB issued ASU 2016-01,
“Financial Instruments – Overall (Subtopic 825-10)”, which updates certain aspects of recognition, measurement,
presentation and disclosure of financial instruments. The new guidance is effective for public companies for fiscal years beginning
after December 15, 2017, including interim periods within those fiscal years. The adoption of this standard is not expected to
have a material impact on the Company’s consolidated financial position and results of operations.
In November 2015, he FASB issued ASU No. 2015-17,
Income Taxes (Topic 740): “Balance Sheet Classification of Deferred Taxes”, which changes how deferred taxes are classified
on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred tax liabilities
and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred
tax assets and liabilities as noncurrent. The amendments apply to all organizations that present a classified balance sheet. For
public companies, the amendments are effective for financial statements issued for annual periods beginning after December 15,
2016, and interim periods within those annual periods. The adoption of this standard is expected to have no impact on the Company’s
consolidated financial position and results of operations.
In August 2015, the FASB issued ASU
2015-14, Revenue from Contracts with Customers (Topic 606): “Deferral of Effective Date”, which defers the effective
date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including
interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after
December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 may be applied using either a
full retrospective approach, under which all years included in the financial statements will be presented under the revised guidance,
or a modified retrospective approach, under which financial statements will be prepared under the revised guidance for the year
of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the
opening balance of retained earnings at the effective date for contracts that still require performance by the entity, and disclose
all line items in the year of adoption as if they were prepared under the old revenue guidance. We are currently evaluating the
impact that this adoption will have on our consolidated financial statements. At this time, we have not determined the transition
method that will be used.
In April 2015, the FASB issued ASU 2015-03,
“Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. This standard
amends the existing guidance to require that debt issuance costs be presented in the balance sheet as a deduction from the carrying
amount of the related debt liability instead of as a deferred charge. ASU 2015-03 is effective on a retrospective basis for annual
and interim reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company adopted ASU 2015-03
in 2015 and it did not have a material effect on its consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation Analysis”, which provides guidance in evaluating entities
for inclusion in consolidations. ASU 2015-02 is effective for fiscal years beginning after December 15, 2016. The adoption of ASU
2015-02 is not expected to have a material effect on its consolidated financial statements.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 3 – Recently Issued Accounting
Pronouncements (Continued)
In August 2014, the FASB issued ASU 2014-15,
“Disclosure of Uncertainties about and Entities Ability to Continue as a Going Concern”. Under the new standard, management
must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s
ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation
initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully
implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management
evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability
to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is
probable that the plans will be effectively implemented within one year after the date that the financial statements are issued,
and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial
doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements
are issued. The amendments are effective for annual periods ending after December 31, 2016, and interim periods within annual periods
beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial
statements have not previously been issued. The Company has adopted ASU 2014-15 from its fiscal year ended December 31, 2015 and
the adoption did not have a material effect on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09 that
establishes the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016-08 that further
clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10 that
clarifies guidance on identifying performance obligations and to improve the operability and understandability of licensing implementation
guidance. In May 2016, the FASB issued ASU 2016-11 that rescinds SEC guidance pursuant to announcements at the March 3, 2016 Emerging
Issues Task Force Meeting. In May 2016, the FASB issued ASU 2016-12 that provides narrow-scope improvements and practical expedients
to
Revenue from Contracts with Customers
. In December 2016, the FASB issued ASU 2016-20 that includes technical corrections
and improvements to ASU 2014-09. The new guidance will be effective for annual and interim periods beginning after December 15,
2017. Early application will be permitted, but not before annual reporting periods beginning after December 15, 2016. The Company
has evaluated the impact of the adoption of this guidance and as a result of this evaluation does not expect it will have a material
impact on its financial condition, results of operations and cash flows.
Note 4 – Notes Receivable
On June 17, 2014, ROI DEV entered into a Framework
Agreement with Coast to Coast Holdings, Inc. (“CTC”), a Canadian Construction corporation. Under the terms of the agreement,
ROI DEV will provide funding to CTC in the form of notes payable and mortgage notes payable for property development projects,
and provide financial and real estate advisory services, for a period of up to ten years. ROI DEV has the right to make the loan
or not and each individual loan will be evidenced by its own promissory note with terms agreed upon by the parties. The Framework
Agreement was terminated as of December 31, 2014.
Mortgage notes receivable and notes receivable
due from CTC consisted of the following as of December 31, 2016 and 2015:
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
Notes
|
|
Note
Face Value
|
|
|
Reserve for
Loan Loss
|
|
|
Note,
net
|
|
|
Note
Face Value
|
|
|
Reserve for Loan Loss
|
|
|
Note,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3320 Kenney St., BC
|
|
$
|
443,354
|
|
|
$
|
(443,354
|
)
|
|
$
|
–
|
|
|
$
|
443,354
|
|
|
$
|
–
|
|
|
$
|
443,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1015-1050 Nalabila Blvd, BC
|
|
$
|
1,012,237
|
|
|
$
|
(1,012,237
|
)
|
|
$
|
–
|
|
|
$
|
1,012,237
|
|
|
$
|
(1,012,237
|
)
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3320 Kenney St., BC
|
|
|
630,788
|
|
|
|
(630,788
|
)
|
|
|
–
|
|
|
|
630,788
|
|
|
|
(630,788
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,643,025
|
|
|
$
|
(1,643,025
|
)
|
|
$
|
–
|
|
|
$
|
1,643,025
|
|
|
$
|
(1,643,025
|
)
|
|
$
|
–
|
|
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 4 – Notes Receivable (Continued)
Mortgage Notes Receivable
On December 31, 2015, the Company had a mortgage
note receivable outstanding with CTC for $154,994 (CAD 215,000). The note bears interest at 8% per annum and was due on the earlier
of (i) December 30, 2015 or (ii) the date upon which the subject property is sold by CTC. The mortgage note is in default at December
31, 2015; however, it is collateralized by a mortgage on the property. As of December 31, 2016 and 2015, $-0- and $18,759 of interest
receivable was accrued on the loan. During the year ended December 31, 2016, CTC defaulted on the mortgage note and therefore
the note receivable was impaired. Management believes that the recoverability of this amount is less than probable. The Company
initiated the process to activate the mortgage and seize the underlying land. While the Company believes that it will successfully
hold ownership of the subject property, there is no probable assurance regarding the timing of such outcome. Therefore, the subject
property has not been recorded as real estate under development and sale in the accompanying consolidated balance sheet as of December
31, 2016.
During the year ended December 31, 2015, the
Company assumed a second mortgage note due to a related party by CTC and CTC agreed to reimburse the Company for the full amount
of the mortgage and accrued interest due thereon. The loan bears interest at 6% per annum and is due April 13, 2016. The amount
of the mortgage loan due from CTC at December 31, 2015 was $288,360 (CAD 400,000) and $16,718 of interest receivable was accrued
on the loan. During the year ended December 31, 2016, CTC defaulted on the mortgage note and therefore the note receivable was
impaired. Management believes that the recoverability of this amount is less than probable. The Company initiated the process to
activate the mortgage and seize the underlying land. While the Company believes that it will successfully hold ownership of the
subject property, there is no probable assurance regarding the timing of such outcome. Therefore, the subject property has not
been recorded as real estate under development and sale in the accompanying consolidated balance sheet as of December 31, 2016.
Unsecured Notes Receivable
On December 31, 2015, the Company had an unsecured
note receivable outstanding with CTC for $630,788 (CAD 875,000). The note bears interest at 8%, was due December 30, 2015 but was
in default as of December 31, 2015. The funding from the note was used for the development and construction on the property for
which the Company has two mortgage notes receivable. As CTC has not responded to requests for payment on the notes and has not
provided any evidence of the use of funds, the Company has fully reserved against this note for loan loss, as well as $52,986 (CAD
73,500) of accrued interest, as of December 31, 2015. The Company is vigorously pursuing the collection of the note but has not
been successful as of December 31, 2016.
During the year ended December 31, 2015, the
Company paid CTC $1,012,237 (CAD 1,404,130) in the form of unsecured notes for the development of one of its properties. The notes
bear interest at 8% per annum and were due December 30, 2015. The notes are in default at December 31, 2015. As CTC has not responded
to requests for payment on the notes and has not provided any evidence of the use of funds, the Company has fully reserved against
these notes for loan loss, as well as $56,162 (CAD 67,314) of accrued interest, as of December 31, 2015. The Company is vigorously
pursuing the collection of the note but has not been successful as of December 31, 2016.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 5 – Real Estate Held For Development And Sale
Real estate held for development and sale consist
of the following projects as of December 31, 2016 and 2015:
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
Property / Project
|
|
USD
|
|
|
CAD
|
|
|
USD
|
|
|
CAD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beauport, BC
|
|
$
|
4,724,686
|
|
|
$
|
6,362,780
|
|
|
$
|
4,567,218
|
|
|
$
|
6,335,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
840 Graham Avenue, Terrace, BC
|
|
|
256,286
|
|
|
|
345,142
|
|
|
|
233,275
|
|
|
|
323,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3304 Kenney Street, Terrace, BC
|
|
|
754,596
|
|
|
|
1,016,223
|
|
|
|
727,711
|
|
|
|
1,009,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4922 Park Avenue, Terrace, BC
|
|
|
591,993
|
|
|
|
797,243
|
|
|
|
570,808
|
|
|
|
791,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1015-1050 Nalabila Blvd, Kitimat, BC
|
|
|
1,673,366
|
|
|
|
2,253,540
|
|
|
|
1,529,141
|
|
|
|
2,121,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evans, Colorado
|
|
|
7,747,820
|
|
|
|
–
|
|
|
|
7,169,847
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,748,747
|
|
|
|
|
|
|
$
|
14,798,000
|
|
|
|
|
|
Beauport, QC
On March 24, 2014, the Company’s wholly-owned
Subsidiaries, ROI DEV, executed a Definitive Agreement for the purchase of land from 9284-0784 Québec Inc. The land consists
of 1,971,000 square feet in suburban Quebec and is known as the “Beauport Project”. Per the terms of the Agreement,
the total cost of the purchase was $5,085,210 (CAD 5,913,723), of which $257,970 (CAD 300,000) was tendered upon execution as a
firm initial deposit, with the remaining balance of $4,827,240 (CAD 5,613,723) was to be paid on or before June 1, 2014. As the
balances were not paid by June 1, 2014, the Company and 9284-0784 Quebec Inc. agreed to extend the due date and the Company paid
additional deposits totaling $730,915 (CAD 850,000) and fees to extend the payment date of the transaction of $201,827 (CAD 234,709),
which have been capitalized as part of the cost of the project. The Company’s President, Sebastien Cliche, owns 16.67% of
9284-0784 Quebec Inc.
On October 14, 2014, ROI DEV closed on the
purchase of the land. The total cost of the purchase was $5,287,037 (CAD 6,148,432). From October 14, 2014 through December 31,
2014, the Company has incurred an additional $144,411 (CAD 167,940) of project development costs and has been capitalized as a
part of the project resulting in a balance in the project of $5,431,448 (CAD 6,316,372) at December 31, 2014. During the year ended
December 31, 2015, $13,745 (CAD 19,066) was incurred and capitalized to the project resulting in a balance in the project of $4,567,218
(CAD 6,335,438) at December 31, 2015. During the year ended December 31, 2016, the Company incurred and capitalized to the
project $20,643 (CAD 27,342) resulting in a balance in the project of $4,724,686 (CAD 6,362,780) at December 31, 2016.
840 Graham Avenue, Terrace, BC
On June 14, 2014, ROI DEV agreed to fund CTC
a total of $266,569 (CAD 310,000) for a property development project known as 840 Graham Street, Terrace, BC under the Framework
Agreement between the parties. On December 31, 2014, the Company and CTC entered into a Purchase and Sale Agreement whereby the
Company has received the title interest in the property acquired by CTC and had relieved CTC from any further obligation of the
mortgage note receivable and the Framework Agreement was terminated. During the year ended December 31, 2016 and 2015, $16,273
(CAD 21,553) and $9,796 (CAD 13,589), respectively, were incurred and capitalized to the project resulting in balances in the project
of $256,286 (CAD 345,142) at December 31, 2016 and $233,275 (CAD 323,589) at December 31, 2015.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 5 – Real Estate Held For Development
And Sale (Continued)
3340 Kenney Street, Terrace, BC
On August 15, 2014, ROI DEV agreed to fund
CTC a total of $842,541 (CAD 979,812) for a property development project known as 3304 Kenney Street, Terrace, BC under the Framework
Agreement between the parties. On December 31, 2014, the Company and CTC entered into a Purchase and Sale Agreement whereby the
Company has received the title interest in the property acquired by CTC and had relieved CTC from any further obligation of the
mortgage note receivable and the Framework Agreement was terminated. During the year ended December 31, 2016 and 2015, $5,115 (CAD
6,775) and $21,365 (CAD 29,636), respectively, were incurred and capitalized to the project resulting in balances in the project
of $754,596 (CAD 1,016,223) at December 31, 2016 and $727,711 (CAD 1,009,448) at December 31, 2015.
4922 Park Avenue, Terrace, BC
On September 15, 2014, ROI DEV agreed to fund
CTC a total of $665,266 (CAD 773,655) for a property development project known as 4922 Park Avenue, Terrace, BC under the Framework
Agreement between the parties. On December 31, 2014, the Company and CTC entered into a Purchase and Sale Agreement whereby the
Company has received the title interest in the property acquired by CTC and had relieved CTC from any further obligation of the
mortgage note receivable and the Framework Agreement was terminated. During the years ended December 31, 2016 and 2015, $4,110
(CAD 5,444) and $13,080 (CAD 18,144) was incurred and capitalized to the project resulting in balances in the project of $591,993
(CAD 797,243) at December 31, 2016 and $570,808 (CAD 791,799) at December 31, 2015.
1015-1050 Nalabila Blvd, Kitimat, BC
During the year ended December 31, 2015, ROI
DEV agreed to fund CTC a total of $596,274 (CAD 693,423) on a property development project known as 1015- 1050 Nalabila Blvd, Kitimat,
BC under the Framework Agreement between the parties. On December 31, 2014, the Company and CTC entered into a Purchase and Sale
Agreement whereby the Company has received the title interest in the property acquired by CTC and had relieved CTC from any further
obligation of the note receivable and the Framework Agreement was terminated. Additionally, the Company has agreed to assume the
additional purchase liability for the property of $1,160,865 (CAD 1,350,000), for a total project cost of $1,757,139 (CAD 2,043,423)
at December 31, 2014. The purchase liability was paid on April 22, 2015. During the year ended December 31, 2016 and 2015, $99,951
(CAD 132,385) and $56,037 (CAD 77,732), respectively, were incurred and capitalized to the project resulting in balances in the
project of $1,673,366 (CAD 2,253,540) at December 31, 2016 and $1,529,141 (CAD 2,121,155) at December 31, 2015.
On May 13, 2015, the Company and LNG Canada
Development Inc. (“LNG Canada”) have entered into an agreement for the Company to develop apartment and townhouse units
in Kitimat, British Columbia, for which LNG was contracted to lease these units. The agreement required the Company to construct
housing for LNG Canada’s workforce in multiple phases for a five-year period. In the first phase of the housing project,
the Company was expected to complete the construction of 35 apartments and 9 townhouses in Kitimat, BC, by December 31, 2016. As
the Company failed to meet its construction timeline due to financing constraints, the agreement was cancelled by mutual agreement
on December 15, 2016.
Evans, Colorado
On June 9, 2015, the Company closed on the
purchase of 220 acres of land in Evans, Colorado for a purchase price of $6,700,000. During the period from June 9, 2015 to December
31, 2015, the Company incurred $17,876 of closing costs and $451,971 of development costs on the property, resulting in a balance
of $7,169,847 at December 31, 2015. On September 3, 2015, the Company entered into an agreement to acquire an additional approximately
16 acres of land in Evans, Colorado for $2,250,000, subject to due diligence and final acceptance within 21 days from the date
of the agreement by the Company and to be closed within 75 days from the date of the agreement. The seller and the Company entered
into an extension of the agreement until November 30, 2015 and the Company paid to the seller a deposit of $233,869. At November
30, 2015, the Company’s management decided to not pursue the land acquisition and wrote off $233,869 as abandoned project
costs. During the year ended December 31, 2016, the Company incurred project development costs, including interests, of $577,973
resulting in balances in the project of $7,747,820 at December 31, 2016.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 5 – Real Estate Held For Development
And Sale (Continued)
Sobha Hartland, Dubai
On July 9, 2015, the Company, through its subsidiary
ROI FZ, entered into a memorandum of understanding with PNC Investments LLC, a UAE corporation, for the potential purchase of 433,000
square feet of land in the Sobha Hartland district of Dubai, United Arab Emirates. The total acquisition price is $29,488,000 (AED
108,281,250). During the year ended December 31, 2015, the Company paid a total of $2,801,205 (AED 10,286,305) in non-refundable
deposits to PNC Investments LLC and incurred evaluation and design costs of $346,827 (AED 1,273,583) for a total balance of $3,148,032
at December 31, 2015.
On February 7, 2016, the Company entered into
a Development Sale and Purchase Agreement with PNC. During the year ended December 31, 2016, the Company made an additional payment
of $1,900,000 (AED 6,980,144) in non-refundable deposits to PNC leaving a balance of $24,786,795 (AED 91,014,801).
On
May 15, 2016, the Company received a termination letter from PNC terminating the agreement dated February 7, 2016 for non-payment
of the amounts due under the agreement. As a result, the Company forfeited the $4,701,205 (AED 17,271,099) of deposits. A total
of $5,048,032 (AED 18,545,258), including $346,827 (AED 1,273,583) of closing and development costs, has been charged to operating
expenses for the year ended December 31, 2016 as abandoned project costs. However, the Company is still in negotiations with PNC
to acquire a reduced size and price of the land it had agreed to under the agreement dated February 7, 2016 and apply the deposits
to this restructured arrangement. Negotiations are under way, but the likelihood that the Company will be successful in reaching
a satisfactory agreement is dependent on its ability to pay at least a portion of the new acquisition price. As a result, there
can be no assurance that the acquisition will occur as contemplated or at all. During the year ended December 31, 2016, the Company
also incurred $273,048 of other costs related to the project and wrote-off leasehold improvements related to a lease in Dubai for
an amount of $299,475.
Other
On May 21, 2015, the Company entered into an
agreement to acquire approximately 250 acres of land in Montgomery, Texas for $8,300,000, subject to due diligence and final acceptance
within 120 days from the date of the agreement by the Company. A deposit of $84,000 was paid on May 21, 2015 and the Company incurred
additional costs of $33,314 during the year ended December 31, 2015. As of December 31, 2015, the Company’s management decided
to not pursue the land acquisition and wrote off $117,314 abandoned land acquisition costs.
Note 6 – Investment in Cost-Method
Investee
On August 1, 2014, the Company acquired a 2%
interest in Society Louisette Memories SARL for $60,750 (EUR 50,000). Society Louisette Memories SARL owns a land development project
in Louisette (Paca), France. The land consists of 226,000 square feet to be sub-divided into 30 residential properties. The Company
is a co-investor with Rome Finance Group and Capital Evolution Group SAS. The balance of the investment at December 31, 2016 and
2015 is $56,080 (EUR 50,000), respectively.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 7 – Notes and Loans Payable
Convertible Notes Payable
Convertible notes payable consists of the following as of December
31, 2016 and 2015:
|
|
|
December 31, 2016
|
|
|
Beauport Notes Series
|
|
Principal
Amount
|
|
|
Debt
Discount,
net
|
|
|
Issuance
Costs
Discount,
net
|
|
|
Profit
Participation
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible
|
|
$
|
1,200,000
|
|
|
$
|
(25,827
|
)
|
|
$
|
(42,561
|
)
|
|
$
|
(55,237
|
)
|
|
$
|
1,076,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Convertible
|
|
|
2,421,479
|
|
|
|
–
|
|
|
|
(93,073
|
)
|
|
|
–
|
|
|
|
2,328,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C Convertible
|
|
|
874,000
|
|
|
|
(54,849
|
)
|
|
|
(31,010
|
)
|
|
|
–
|
|
|
|
788,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D Convertible
|
|
|
250,000
|
|
|
|
–
|
|
|
|
(12,969
|
)
|
|
|
(16,001
|
)
|
|
|
221,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,745,479
|
|
|
$
|
(80,676
|
)
|
|
$
|
(179,613
|
)
|
|
$
|
(71,238
|
)
|
|
|
4,413,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
(1,420,123
|
)
|
|
Profit participation liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,718
|
|
|
Less current portion, net of profit participation liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,297,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of discounts, non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,116,547
|
|
|
|
|
December 31, 2015
|
|
|
Beauport Notes Series
|
|
Principal
Amount
|
|
|
Debt
Discount,
net
|
|
|
Issuance
Costs
Discount,
net
|
|
|
Profit
Participation
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible
|
|
$
|
1,200,000
|
|
|
$
|
(58,875
|
)
|
|
$
|
(98,757
|
)
|
|
$
|
(90,010
|
)
|
|
$
|
952,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Convertible
|
|
|
2,421,479
|
|
|
|
–
|
|
|
|
(206,457
|
)
|
|
|
–
|
|
|
|
2,215,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C Convertible
|
|
|
874,000
|
|
|
|
(125,041
|
)
|
|
|
(71,934
|
)
|
|
|
–
|
|
|
|
677,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D Convertible
|
|
|
365,000
|
|
|
|
–
|
|
|
|
(30,057
|
)
|
|
|
(27,379
|
)
|
|
|
307,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,860,479
|
|
|
$
|
(183,916
|
)
|
|
$
|
(407,205
|
)
|
|
$
|
(117,389
|
)
|
|
|
4,151,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,457,068
|
)
|
|
Profit participation liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197,146
|
|
|
Less current portion, net of profit participation liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,259,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of discounts, noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,892,047
|
|
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 7 – Notes and Loans Payable (Continued)
All series of the notes contain provisions
that allow for a) pro rata prepayments of the notes by the Company in the event of sales of parcels of the Beauport Property, b)
a call option by the Company to prepay the note at any time prior to the six month anniversary of the closing date of the note
which includes a 15% premium in the form of the Company’s common stock, and c) an option of the noteholder to convert the
note into shares of the Company’s common stock at a 10% discount to the average market price of the Company’s common
stock during the thirty days’ trading period preceding the date of conversion. The Company has not recorded any beneficial
conversion feature as of December 31, 2015 as the embedded conversion options in its notes payable do not meet the firm commitment
criterion as described under applicable U.S. GAAP. The Company has the option to extend the maturity date of the notes up to a
period of 18 months.
For the Series A and Series D notes only, the
noteholders have an option to call for immediate redemption in full or in part by the Company at a price which the Company shall
reasonably determine as being the “fair market value” of the applicable note. As these notes can be immediately redeemable
at the option of the noteholder, they have been classified as current liabilities in the accompanying consolidated balance sheets.
The convertible notes are collateralized by
the Beauport property acquired by ROI DEV and contain certain financial and other covenants. On April 27, 2015, the Company received
written consent of waiver of the default from the required noteholders (greater than 50% of the noteholders in principal amount
pari passu) and the applicable covenant was removed to ensure it will not be triggered in the future. As such, the amount representing
the long- term portion of the notes payable, net of discounts, of $3,116,547 and $2,892,047, has been classified as noncurrent
liabilities as of December 31, 2016 and 2015, respectively. On August 22, 2017, the Company sent a written notice to all of its
convertible note holders to notify them that the Company shall execute its option to extend the maturity date of the convertible
notes by an additional 18 months.
The Beauport Series A and Series D notes contain
a premium payment to the noteholders on each sale of the Beauport project in an amount equal to fifty percent (50%) of the noteholder’s
pro rata share of the total net profit on each parcel of the Beauport project sold. The potential profit in the Beauport project
was estimated to be approximately $1.2 million, based on management’s best estimates at inception of the notes and as of
December 31, 2015, of which, $197,146 was the pro rata share of the Beauport Series A and D noteholders and was recorded as a profit
participation liability, embedded within the notes. As of December 31, 2016, management revised the estimated profit for the project
to be approximately $0.9 million and the balance profit participation liability was adjusted to $122,718.
Beauport Series A Convertible Notes
On October 14, 2014, the Company issued $1,200,000
of its Series A convertible notes payable to three investors for cash. The notes bear interest at 10% per annum and are due October
14, 2017. A total of 282,500 shares of the Company’s Series A common stock were issued in conjunction with the notes to the
noteholders at a fair value of $98,875 ($0.35 per share). The $98,875 was recorded as a discount to the notes and $33,048 and $32,958
of the discount has been accreted as interest expense for the years ended December 31, 2016 and 2015, respectively, resulting in
an unamortized discount of $25,827 at December 31, 2016 which will be amortized over the next 10.5 months.
The notes contain a premium payment to the
noteholder on each sale of the Beauport project in an amount equal to fifty percent (50%) of the noteholder’s pro rata share
of the total net profit on each parcel of the Beauport project sold. The potential profit in the Beauport project at inception
of the notes and as of December 31, 2015 was estimated to be approximately $1.2 million based on management’s estimates and
third party valuations at those dates, of which, $151,165 was the pro rata share of the Series A noteholders and was recorded as
a discount to the notes. As of December 31, 2016, the pro rate share of estimated profit for the Series A noteholders was adjusted
to $94,710 to reflect the changes in estimated profit made by management. $34,773 and $50,388 of the discount has been accreted
as interest expense for the years ended December 31, 2016 and 2015, respectively, resulting in an unamortized discount of $55,237
at December 31, 2016 which will be amortized over the next 10.5 months.
The effective interest rate for the Series
A convertible notes was 20.6% and 21.6% for the years ended December 31, 2016 and 2015, respectively.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 7 – Notes and Loans Payable (Continued)
Beauport Series B Convertible Notes
On October 14, 2014, the Company issued $2,900,497
of its Series B convertible notes payable to thirty-three investors for cash. The notes bear interest at 8% per annum and are due
October 14, 2017. During the year ended December 31, 2015, the Company redeemed notes totaling $479,018 note from two noteholders,
under a pre-existing agreement with the noteholder, for EUR 360,000 ($395,569), resulting in a gain from the extinguishment of
the debt of $83,449.
The effective interest rate for the Series
B convertible notes was 12.8% and 13.8% for the years ended December 31, 2016 and 2015, respectively.
Beauport Series C Convertible Notes
On October 14, 2014, the Company issued $874,000
of its Series C convertible notes payable to an investor for cash. The note bears interest at 10% per annum and is due October
14, 2017. A total of 600,000 shares of the Company’s Series A common stock were issued in conjunction with the note to the
noteholder at a fair value of $210,000 ($0.35 per share). The $210,000 was recorded as a discount to the note and $70,192 and $70,000
of the discount has been accreted as interest expense for the years ended December 31, 2016 and 2015, respectively, resulting in
an unamortized discount of $54,849 at December 31, 2016 which will be amortized over the next 10.5 months.
The effective interest rate for the Series
C convertible notes was 22.9% and 22.6% for the years ended December 31, 2016 and 2015, respectively.
Beauport Series D Convertible Notes
On October 14, 2014, the Company issued $365,000
of its Series D convertible notes payable to five investors for cash. The notes bear interest at 10% per annum and are due October
14, 2017. During the year ended December 31, 2016, the Company redeemed $115,000 of its notes payable issued to two investors.
The notes contain a premium payment to the
noteholder on each sale of the Beauport project in an amount equal to fifty percent (50%) of the noteholder’s pro rata share
of the total net profit on each parcel of the Beauport project sold. The potential profit in the Beauport project at inception
of the notes and as of December 31, 2015 was estimated to be approximately $1.2 million based on management’s estimates and
third-party valuations at those dates, of which, $45,981 was the pro rata share of the Series D noteholders. As of December 31,
2016, the pro rate share of estimated profit for the Series D noteholders was adjusted to $28,008 to reflect the changes in estimated
profit made by management. $11,378 and $15,326 of the discount has been accreted as interest expense for the years ended December
31, 2016 and 2015, respectively, resulting in an unamortized discount of $16,001 at December 31, 2016 which will be amortized over
the next 10.5 months.
The effective interest rate for the Series
D convertible notes was 19.5% and 18.9% for the years ended December 31, 2016 and 2015, respectively.
Interest on Beauport Convertible Notes
Payable
As a condition of the convertible note agreements,
the Company has placed the first year’s interest in escrow with an agent who made monthly interest payments to the noteholders
on the Company’s behalf. A total of $410,135 was funded to the escrow agent during the year ended December 31, 2014 and additional
amounts of $427,631 and $173,827 were funded during the years ended December 31, 2016 and 2015, respectively. The escrow agent
paid a total of $323,825 and $446,091 to noteholders during the years ended December 31, 2016 and 2015, respectively, resulting
in a balance of cash in escrow of $155,938 and $52,132 at December 31, 2016 and 2015, respectively. During the years ended
December 31, 2016 and 2015, $433,220 and $449,535, respectively, of interest was accrued and expensed on the notes and $323,825
and $446,091, respectively, was paid by the escrow agent, resulting in remaining accruals of $130,221 and $20,826 at December 31,
2016 and 2015, respectively.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 7 – Notes and Loans Payable (Continued)
Debt Issuance Costs on Beauport Convertible
Notes Payable
During the year ended December 31, 2014, the
Company paid cash of $570,543, issued 258,111 shares of its Series A common stock at a fair value of $90,339 ($0.35 per share)
based on the price of shares sold to investors, and had recorded 246,683 shares of Series A common stock to be issued as a liability
at a fair value of $86,338 ($0.35 per share), for a total of $747,220 of debt issuance costs recorded as a debt discount to the
convertible notes. $227,624 and $287,471 has been amortized as interest expense during the years ended December 31, 2016 and 2015,
respectively, resulting in a balance of debt issuance costs discount of $179,613 at December 31, 2016, which will be amortized
over the next 10.5 months.
Mortgage Notes Payable
On October 9, 2015, the Company entered into
a mortgage loan agreement for $937,170 (CAD 1,300,000). At closing, the Company returned $72,090 (CAD 100,000) to the lender as
a reduction of the principal resulting in a balance of $865,080 (CAD 1,200,000) at December 31, 2015. The loan bears interest at
20% per annum and was due December 9, 2015. The loan is collateralized by first rank mortgages on the Company’s Kenney Street
and Park Avenue properties and second rank mortgages on its Kitimat and Beauport properties and is guaranteed by the Company’s
President. On December 29, 2015, the Company and the lender entered into an extension agreement on the loan of three months until
March 13, 2016 for a fee of $21,870 (CAD 30,000) and on March 15, 2016 the Company and lender entered into a second extension agreement
of an additional three months until June 13, 2016 for a fee of $7,930 (CAD 11,000) and the Company continued to make extensions
on the loan in 2016 for a total fee of $179,168 (CAD 237,309). The Company incurred $348,901 (CAD 462,120) of interest expense
including fees and penalties and paid $342,172 (CAD 453,208) of interest and $223,756 (CAD 296,366) of principal during the year
ended December 31, 2016, whereas the Company incurred and paid $31,785 (CAD 43,333) during the same period in 2015. The Company
is current on its payment of interest and penalty fees, however, it remains to be in default on its principal repayment. The Company
is currently in discussions with the lender to enter into a loan amendment agreement to further extend the maturity date.
During the year ended December 31, 2016, the
Company received a total of $1,500,000 from Alternative Strategy Partners Pte. Ltd., a Singapore limited company (“ASP”),
in connection with the Company’s Dubai Sobha Hartland Acquisition and Development Project (“Sobha Dubai Project”).
Pursuant to an agreement between the parties dated February 24, 2016, the Company agreed to issue to ASP certain notes (“ASP
notes”) which shall have a two year maturity, bear interest at 8% per annum payable quarterly and have a mortgage on the
First Plot of the Sobha Dubai Project, subordinated to loans from banks or other institutional lenders, if such a lien is determined
to be valid and enforceable under Dubai law, otherwise, the notes shall be secured by a lien, similarly subordinated, upon all
of the stock of the ROI Land Investments Ltd., the beneficial owner of the Sobha Dubai Project. The ASP notes also contain an option
either to convert all or part of its notes to the Company’s Series A common stock at $1.00 per share or to redeem all or
part of its investment. Additionally, the ASP notes allowed ASP to receive certain profit participation of up to 50% of the net
profits upon sale of the First Plot. On May 15, 2016, the Company received a termination letter from PNC terminating the agreement
dated February 7, 2016 for non-payment of the amounts due under the agreement. As a result, the Company forfeited the deposits
paid to PNC and defaulted on the ASP notes. The Company is currently in discussions with ASP to amend the terms of the notes. $104,219
of interest expense has been accrued on the notes as of December 31, 2016.
During the year ended December 31, 2016, the
Company, through its wholly-owned subsidiary ROI SEC, issued a total of $1,580,400 (EUR 1,500,000) of its notes payable to two
investors for cash. The notes bear interest at 7% per annum payable quarterly and have a maturity date of June 30, 2020. Pursuant
to a loan facility agreement between ROI SEC and ROI DEV dated May 19, 2016, the notes hold security interests in the Company’s
properties in British Columbia (Kenney Street, Park Avenue and Kitimat), Beauport and Colorado. $23,560 (EUR 22,361) of interest
expense has been accrued on the notes as of December 31, 2016. The Company also issued 350,000 shares of Series B preferred stock
at a fair value of $94,500 ($0.27 per share) recorded as a debt discount to the notes. $4,042 has been amortized as interest expense
during the year ended December 31, 2016, resulting in a balance of debt issuance costs discount of $90,458 at December 31, 2016,
which will be amortized over the next 39 months.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 7 – Notes and Loans Payable (Continued)
Loans Payable
As of December 31, 2014, the Company agreed
to assume CTC’s land loan on the Kitimat property in the amount of $1,160,865 (CAD 1,350,000). The loan was fully paid on
April 22, 2015. On June 8, 2015, in connection with the acquisition of the Evans, Colorado property (see Note 5 – Real Estate
Held for Development and Sale), the Company issued a promissory note in the amount of $3,350,000 to the seller. The note was due
June 5, 2016, collateralized by the property bearing interest at 6% per annum. On May 3, 2016, the Company paid $100,000 as an
extension fee to extend the maturity date of the note by ninety days through September 5, 2016 at 8% interest per annum. The Company
subsequently defaulted on the note but cured its default by paying a $167,500 fee to the seller and 18% interest starting from
October 15, 2016. On March 31, 2017, the Company entered into an agreement with the seller to restructure the note by making a
partial repayment of $1,300,000 against the principal and an additional $237,536 as prepayment of interest through maturity at
March 30, 2018. The terms of the note were modified so that the remaining principal of $2,378,667 shall bear 10% annual interest
with a first lien on the property. For the years ended December 31, 2016 and 2015, interest expense of $360,171 and $115,017, respectively,
was accrued and interest payments of $239,833 and $100,525, respectively, were made resulting in accrued interest balances of $134,829
and $14,492, respectively.
During the year ended December 31, 2015, the
Company borrowed a total of $415,000 from Valescore Ltd., a Swiss company. The loans are unsecured, bear interest at 8% per annum
and are due at various dates beginning January 1, 2016. On April 2, 2016, the due dates of all of the notes were extended to December
30, 2016 by the lender and, on September 29, 2017, the due dates were further extended to December 31, 2017. $36,341 and $5,150
of interest expense has been accrued on the loans as of December 31, 2016 and 2015, respectively.
On November 29, 2016, the Company borrowed
a $500,000 short-term bridge loan from an investor. The loan is secured by the Evans, Colorado property, bears fixed interest of
$30,000 at maturity and is due on January 13, 2017. The lender is also entitled to 100,000 shares of Series B preferred shares
of Series B preferred stock, however, no value was allocated to these shares as their fair values at inception was estimated to
be equal to nominal value. The Company has not issued these shares as of December 31, 2016. The Company subsequently entered into
default, however on March 31, 2017, the Company and the lender entered into a convertible note agreement whereby the Company shall
issue a convertible note of $1,000,000 for $500,000 in cash and $500,000 in exchange for the outstanding short-term bridge loan.
The convertible note, also secured by a second lien on the Evans, Colorado property, bears 4% interest payable and matures on March
31, 2018 unless certain project development milestones are met or the parties mutually agree to a new maturity date. The convertible
note shall be automatically convertible into 6% equity interest of the special purpose entity for the Evans Colorado project upon
the Company reaching certain project development milestones. $21,333 of interest expense has been accrued on the loan as of December
31, 2016.
Performance-Linked Notes Payable
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
Note Series
|
|
Principal
Amount
|
|
|
Issuance Costs Discount, net
|
|
|
Net
Amount
|
|
|
Principal
Amount
|
|
|
Issuance Costs Discount, net
|
|
|
Net
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kitimat Series A
|
|
$
|
2,292,830
|
|
|
$
|
(96,278
|
)
|
|
$
|
2,196,552
|
|
|
$
|
2,442,830
|
|
|
$
|
(167,904
|
)
|
|
$
|
2,274,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kitimat Series B
|
|
|
473,117
|
|
|
|
–
|
|
|
|
473,117
|
|
|
|
473,117
|
|
|
|
–
|
|
|
|
473,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terrace Series A
|
|
|
746,121
|
|
|
|
(23,332
|
)
|
|
|
722,789
|
|
|
|
722,178
|
|
|
|
(38,529
|
)
|
|
|
683,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,512,068
|
|
|
$
|
(119,610
|
)
|
|
|
3,392,458
|
|
|
$
|
3,638,125
|
|
|
$
|
(206,433
|
)
|
|
|
3,431,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, net of discounts, non-current
|
|
|
|
|
|
|
|
|
|
$
|
3,392,458
|
|
|
|
|
|
|
|
|
|
|
$
|
3,431,692
|
|
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 7 – Notes and Loans Payable (Continued)
The Kitimat and Terrace series of the notes
contain provisions that allow for a) pro rata prepayments of the notes by the Company in the event of sales of parcels of the respective
project and b) a call option by the Company to prepay the note at any time prior to the six-month anniversary of the closing date
of the note. The Company also has the option to extend the maturity date of the notes up to a period of 18 months.
Kitimat Series A Notes
On May 8, 2015, the Company issued $2,442,830
of its Kitimat Series A notes payable to twenty-nine investors for cash. The notes bear interest at 8% per annum, are due May 8,
2018, and are collateralized by a secured interest in the Kitimat property. The Series A notes contain an option by the Company
to prepay the notes on a pro rata basis in the event of sales of the Kitimat project in an amount equal to twenty-five percent
(25%) of the net profits realized on such sales.
The effective interest rate for the Series
A notes was 11.3% and 10.9% for the years ended December 31, 2016 and 2015, respectively.
Kitimat Series B Notes
On May 8, 2015, the Company issued $473,117
of its Kitimat Series B notes payable to two investors for cash. The notes bear interest at 8% per annum, are due May 8, 2018,
and are collateralized by a secured interest in the Kitimat property. The Series B notes contain an option by the Company to prepay
the notes on a pro rata basis in the event of sales of the Kitimat project in an amount equal to fifty percent (50%) of the net
profits realized on such sales.
The effective interest rate for the Series
B notes was 8.1% and 8.0% for the year ended December 31, 2016 and 2015, respectively.
Terrace Series A Notes
On July 17, 2015, the Company issued $824,416
(CAD 1,001,774) of its Terrace Series A notes payable to six investors for cash. The notes bear interest at 8% per annum, are due
July 17, 2018, and are collateralized by a secured interest in the Terrace property. The Series A notes contain an option by the
Company to prepay the notes on a pro rata basis in the event of sales of the Terrace project in an amount equal to twenty-five
percent (25%) of the net profits realized on such sales.
The effective interest rate for the Series
B notes was 10.2% and 9.3% for the years ended December 31, 2016 and 2015, respectively.
Interest on Performance-linked Notes
Payable
As a condition of the note agreements, the
Company shall place the first year’s interest in escrow with an agent who will make monthly interest payments to the noteholders
on the Company’s behalf. During the years ended December 31, 2016 and 2015, $287,648 and $180,372, respectively, of interest
was accrued and expensed on the notes and $227,240 and $194,382, respectively, was paid by the escrow agent, resulting in a remaining
accrual of $40,224 at December 31, 2016 and $(14,010) at December 31, 2015.
Debt Issuance Costs on Performance-linked
Notes Payable
During the year ended December 31, 2015, the
Company paid cash of $169,737 and has recorded 117,921 shares of Series A common stock to be issued as a liability at a fair value
of $90,009 ($0.76 per share), based on the price of shares sold to investors, for a total of $259,746 of debt issuance costs recorded
as a debt discount to the notes. $86,823 and $53,313 has been amortized as interest expense during the year ended December 31,
2016 and 2015, respectively, resulting in a balance of debt issuance costs discount of $119,610 at December 31, 2016 which will
be amortized over the next 16 months.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 7 – Notes and Loans Payable (Continued)
Deposits on Notes Payable
To fund the development of the Company’s
projects, the Company is seeking subscriptions for new series of notes payable, to be described as “BC Series 2”, “Colorado”,
and “Dubai”. The terms and provisions of the notes are yet to be determined at year-end and, as such, the deposits
have been classified as current liabilities in the accompanying consolidated balance sheets. As of December 31, 2016 and 2015,
the Company received deposits of $5,588,227 and $3,741,821, respectively, net of issuance costs of $801,825 and $284,673, respectively,
for subscriptions for the future notes.
Debt Maturities
Future debt maturities are as follows:
|
December 31,
|
|
|
|
|
2017
|
|
$
|
15,029,703
|
|
|
2018
|
|
|
6,807,547
|
|
|
2019
|
|
|
–
|
|
|
2020
|
|
|
1,513,441
|
|
|
2021 and thereafter
|
|
|
–
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,350,691
|
|
Note 8 – Related Party Transactions
The Company leases a corporate apartment for
Sebastien Cliche the Company’s President, a month-to-month basis. Monthly rental is $1,906 and total rent paid for the year
ended December 31, 2016 was $5,719. This lease was cancelled on March 31, 2016. The Company also had $65,744 of accrued expenses
due to Sebastien Cliche as of December 31, 2016.
During the year ended December 31, 2016 and
2015, the Company incurred business related expenses for Philippe Germain, the Company’s former Co-President, totaling $2,080
and $8,100, respectively. During the years ended December 31, 2016 and 2015, the Company leased a corporate apartment for Philippe
Germain on a month-to-month basis. Monthly rental was $675 and total rent paid for the years ended December 31, 2016 and 2015 was
$2,080 and $6,075, respectively. This lease was cancelled on March 31, 2016. The Company also had $148,634 of accrued compensation
due to Philippe Germain as of December 31, 2016.
During the year ended December 31, 2016, the
Company entered into two loan agreements with Philippe Germain totaling $103,488. The loans are unsecured, due in ninety days and
bear interest at 8% per annum. $35,760 of the loan was repaid resulting in a principal balance of $67,705 and no accrued interest
as of December 31, 2016. The funds were used for the Company’s general working capital purpose.
The Company leases a corporate apartment for
Louise Gagner on a month-to-month basis. Ms. Gagner is the mother of Philippe Germain. Monthly rental is $1,000 and total rent
paid for the year ended December 31, 2016 and 2015 was $3,000 and $12,000, respectively. This lease was cancelled as of March 31,
2016.
During the year ended December 31, 2015, the
Company entered into multiple loan agreements with LMM Group Ltd. (“LMM”), a Swiss company, and received a total of
$248,168. The loans are unsecured, bear interest at 8% per annum and are due at various dates beginning January 1, 2016. On December
10, 2015, $150,000 of the notes was assigned from LMM to 8010609 Canada Inc. The balance of the loans from LMM as of December 31,
2016 and 2015 is $62,488 and $98,168, respectively, and the balance of accrued interest is $11,445 and $5,978, respectively. Philippe
Germain is the sole shareholder of LMM.
On October 29, 2015, 8010609 Canada Inc. loaned
the Company $36,475 which was repaid on November 20, 2015. Additionally, on December 10, 2015, the $150,000 note held by LMM was
assigned to 8010609 Canada Inc. On the same date, the Company repaid $50,000 of the note. The notes are unsecured, bear interest
at 8% per annum and are due on December 30, 2017. The balance of the loans from 8010609 Canada Inc. as of December 31, 2016 and
2015 is $100,000 and $100,000, respectively, and interest was accrued on the loans for $8,667 and $667, respectively. The Company
also incurred $50,000 of consulting fees to 8010609 Canada Inc. during the year ended December 31, 2016 of which $12,121 remained
outstanding as of December 31, 2016. Philippe Germain is also the sole shareholder of 8010609 Canada Inc.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 8 – Related Party Transactions
(Continued)
On October 13, 2015, the Company assumed a
second mortgage note due to 9202 4462 Quebec Inc. of $288,360 (CAD 400,000). 9202 4462 Quebec Inc. and the owner of 9202 4462 Quebec
Inc. are shareholders of the Company. The loan is secured by a second rank mortgage on a property owned by CTC, bears interest
at 6% per annum and was due April 13, 2016. As of December 31, 2016 and 2015, the principal balance of the loan was $297,040 and
$288,360, respectively, and accrued interest was $12,020 and $3,745, respectively. As of December 31, 2016, the note is in default
but the Company is currently in negotiation with the note holder for an extension.
During the years ended December 31, 2016 and
2015, the Company incurred $67,212 and $30,000, respectively, to Maxim Cliche, the brother of Sebastien Cliche, for consulting
services. $20,035 was due to Maxim Cliche as of December 31, 2016.
During the year ended December 31, 2016, the
Company entered into two loan agreements with Louis Gagner totaling $87,130. Ms. Gagner is the mother of Philippe Germain.
The loans are unsecured, due in ninety days and bear no interest. The funds were used for the Company’s general working capital
purpose.
The Company has $432,750 of accrued compensation
due to SF International Consulting Limited as of December 31, 2016. SF International Consulting Limited is an entity controlled
by Slim Feriani, the Company’s former Chief Financial Officer.
The Company has $121,615 of accrued compensation
due to Gulf Central Agency Assets Management Ltd. as of December 31, 2016. Slim Feriani is the Chairman of this entity.
The Company has $467,003 of accrued compensation
and expenses due to Martin Scholz, the Company’s Chief Executive Officer, as of December 31, 2016.
On September 10, 2015, the Company entered
into an agreement to acquire 14,400 shares of Capital Evolution Groupe SAS (“CEG”), a French limited liability company,
for $112,187 (EUR 100,000). The Company’s Co-President, Philippe Germain, is a shareholder of CEG. As of December 31, 2015,
$112,187 was paid for the investment and was classified as an acquisition deposit in the accompanying consolidated statements of
financial position. On April 5, 2016, the Company agreed to acquire an additional 144,459 shares of CEG for $1,575,686 (EUR 1,444,590)
from Philippe Germain, subject to completion of due diligence by the Company and official registration of the shares in France.
The shares to be acquired will bring the Company’s interest in CEG to 58% once the transaction was consummated. On April
5, 2016, the total consideration for the shares was adjusted to $551,490 (EUR 505,607) by mutual agreement between the parties.
During the year ended December 2016, the Company and the shareholders of CEG agreed to rescind the share purchase agreement, to
reverse all past investments, expenditures and payables related to CEG and to reimburse the Company for the net balance of $21,038.
The Company recorded a net loss from investment in CEG of $164,952 during the year ended December 31, 2016 and classified the amount
to be reimbursed to the Company as advances to related party in the accompanying consolidated balance sheets. Management believes
that such amount is recoverable as of December 31, 2016 and that no provision is necessary.
During the year ended December 31, 2015, the
Company paid $257,573 and issued 149,004 shares of its Series A common stock valued at $150,484 to Acadian Advisors and Associates
(“Acadian”), a subsidiary of CEG, for equity and debt issuance costs. During the year ended December 31, 2016, the
Company incurred $352,003 to Acadian for debt issuance costs. The Company had outstanding balances due to Acadian of $124,576 and
$148,271 as of December 31, 2016 and 2015, respectively.
During the year ended December 31, 2015, the
Company paid $156,286 and has accrued 58,949 shares of its Series A common stock valued at $45,218 to be issued, to Rome Finance
Investissement (“Rome”) for equity and debt issuance costs. Rome is a subsidiary of CEG. There are no transactions
between the Company and Rome during the year ended December 31, 2016.
On January 19, 2016, the Company entered into
a three-year Consulting Agreement (the “Consulting Agreement”) with SF International Consulting Limited (“SF”),
to obtain the services of Slim Feriani. Pursuant to the terms of the Consulting Agreement, SF or Slim Feriani shall be paid a
$100,000 signing bonus, and $50,000 a month for the duration of the Consulting Agreement. In addition, SF or Slim Feriani shall
receive 23,333 shares of the Company’s Series A common stock and a five-year stock option to purchase 750,000 shares of
the Company’s Series A common stock at the price of $1.50 a share. Such option will vest annually at 250,000 shares a year.
In addition, SF or Slim Feriani will receive each quarter during the term of the Consulting Agreement a five-year option to purchase
250,000 shares of the Company’s common shares at a price which is 110% of the last subscription price. Each such option
will vest annually in equal amounts of 83,333 shares (83,334 shares on the third anniversary). In August 2016, in connection with
Slim Feriani’s resignation as the Company’s Chief Financial Officer, the Company also canceled its options issued
to SF in accordance with the terms of the Consulting Agreement. $432,750 of accrued compensation was due to SF as of December
31, 2016.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 8 – Related Party Transactions
(Continued)
On January 19, 2016, the Company entered into
a three-year Mutual Engagement Agreement with Gulf Central Agency Assets Management Ltd. (“GCA”), pursuant to which
GCA will provide the Company with advice on a non-exclusive basis on securing financing of ROI’s foreign real estate ventures.
GCA will be paid GBP 25,000 per month, payable quarterly, and a success fee equal to 4% of the principal amount of any investments
which GCA arranges with foreign investors. The Company’s former Chief Financial Officer, Slim Feriani, is the Chairman of
GCA. In August 2016, in connection with Slim Feriani’s resignation as the Company’s Chief Financial Officer, the Company
also canceled its agreement with GCA. The Company incurred $305,339 of consulting fees to GCA during the year ended December 31,
2016 of which $121,615 was outstanding as of December 31, 2016.
Note 9 – Stockholders’ Equity
Authorized Capital
On November 12, 2015, the Company filed an
amendment to its articles of incorporation to increase its authorized capital to 160,000,000 authorized shares of Series A Common
Stock at $0.0001 par value, 40,000,000 authorized shares of Series B Common Stock at $0.0001 par value, and 50,000,000 authorized
shares of Preferred Stock at par value of $0.0001 per share. Series A common stock has equal voting rights, is non-assessable and
has one vote per share while Series B common stock has no voting rights. Voting rights are not cumulative and, therefore, the holders
of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.
Preferred Stock
Series A Preferred Stock
On May
9, 2016, the Company issued 100,000 shares each of Series A Preferred Stock, par value $0.0001 per share, to two directors, in
exchange for their 100,000 shares each of the Company’s Series A common stock. No additional consideration was provided to
the Company for the Series A Preferred Stock. The Series A Preferred Stock is identical to the common stock of the Company, except
that each share of the 200,000 Series A Preferred Stock has 150 votes per share instead of the one vote per share of the Series
A Common Stock.
Series B Preferred Stock
During the year ended December 31, 2016, the
Company issued to 14 accredited investors a total of 2,239,226 shares of a class of preferred stock, par value $0.0001 per share
(the “Series B Preferred Stock”) against receipt from them of 1,889,226 shares of the Company’s common stock
held by them, plus $377,999 in cash. The Series B Preferred Stock is identical to the common stock of ROI, except that each share
of the Series B Preferred Stock has the following features:
(1) The
Series B Preferred Shares shall not be convertible into the Company’s common stock unless and until (i) a class of the Company's
capital stock commences trading upon the U.S. NASDAQ trading system (the "NASDAQ Uplisting"), or (ii) the Company notifies
the holders of the Series B Preferred Shares that their shares may be converted into common stock (whether or not the NASDAQ Uplisting
has then yet occurred); after which time the Series B Preferred Shares shall be convertible as and to the extent set forth below.
(2) When
any shares of Series B Preferred Shares are converted into common stock, they shall be converted at the rate of three (3) shares
of common stock for the "Effective Value" (defined below) of each of the Series B Preferred Shares.
(3) The
Series B Preferred Shares shall accumulate dividends at the rate of 8% per annum, prorated for partial years, such that, at the
time of its conversion, every share of Series B Preferred Shares shall convert at a rate (the "Effective Value") computed
by adding to it the cumulative value of its accumulated dividends. For example, if ten shares of the Series B Preferred Shares
have been held for two years and six months, when they are converted into common stock they each will have an Effective Value of
1.20 shares, and collectively an Effective Value of 12 shares. Since each share of Series B Preferred Shares converts into three
shares of common stock, all ten shares will convert into 36 shares of common stock. Upon conversion, no fractional shares of common
stock shall be issued, but rather fractional common stock shares shall be settled in cash.
(4) If
the purchaser of Series B Preferred Shares is an existing holder of the common stock, then the Company may at its discretion extend
to any such purchaser the option to pay for some or all of the purchase price of the Series B Preferred Shares by means of submitting
to the Company to be held in treasury some of such holder's shares of common stock, at a valuation to be determined by the Company's
Board of Directors in their sole but reasonable discretion.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 9 – Stockholders’ Equity
(Continued)
The cash received from the sale of the Series
B Preferred Stock will be used for working capital purposes and the Company’s common stock received will be held in treasury
and used for future option exercises or upon conversion of the Series B Preferred Stock.
For the year December 31, 2016, the Company
received a total of $573,915 in deposits from investors which shall be exchanged for 1,129,556 shares of Series B preferred stock
to be newly issued. These shares were not yet issued by the Company as of December 31, 2016.
During the year ended December 31, 2016, the
Company issued 350,000 shares of Series B preferred stock to an investor for debt issuance costs. The shares issued were valued
at an average price of $0.55, based on the price of shares sold to investors, for a total of $94,500.
Common Stock
During the year ended December 31, 2016, the
Company received cash, net of cash issuance costs, of
$4,050,238, for 5,280,381
shares of its Series A common stock. During the year ended December 31, 2015, the Company received cash of $7,666,949, net of cash
issuance costs, for 7,393,580 shares of its Series A common stock.
During the year ended December 31, 2016, the
Company issued 43,333 shares of Series A common stock for consulting services from certain individuals and entities. The shares
were valued at an average price of $1.27, for a total of $54,947 and have been charged to operations for the year ended December
31, 2016. During the year ended December 31, 2015, the Company issued 2,186,745 shares of Series A common stock for consulting
services from certain individuals and entities. The fair value of the services provided by consultants is not reliably estimable
as these services are traditionally transacted based on a percentage of transaction volume, making measurement of such services
impractical. The shares were valued at an average price of $0.75, for a total of $1,648,878 and have been charged to operations
for the year ended December 31, 2015. During the year ended December 31, 2015, the Company also issued 1,224,242 shares of Series
A common stock, valued at an average price of $0.35, to consultants for accrued consulting services at December 31, 2014.
During the year ended December 31, 2016, the
Company issued 121,961 shares of Series A common stock in conversion of $150,000 of notes payable. The shares were valued at $1.23,
based on the fair market value of shares on the date of the conversion.
During the year ended December 31, 2016, the
Company paid cash of $203,208 for equity issuance costs. During the year ended December 31, 2015, the Company issued 527,006 shares
of Series A common stock for commissions to multiple parties for equity issuance costs. The shares issued were valued at an average
price of $0.74, for a total of $392,254. In addition, the Company paid cash of $253,351 for issuance costs, for a total of $645,605,
which has been charged to additional paid-in capital as of December 31, 2015.
During the year ended December 31, 2015, the
Company issued 164,605 shares of Series A common stock for commissions to consultants for debt issuance costs. The fair value of
the services provided by consultants is not reliably estimable as these services are traditionally transacted based on a percentage
of transaction volume, making measurement of such services impractical. The shares issued were valued at an average price of $1.23,
for a total of $203,240.
During the year ended December 31, 2016, 2,089,226
shares of Series A common stock were received by the Company to be held in treasury. These shares held in treasury will be used
for future option exercises or for future conversion of the Series B Preferred Stock.
During the year ended December 31, 2015, the
Company cancelled 500,000 shares of Series A common stock previously issued to a consultant for non-performance by the consultant
under the consulting agreement.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 9 – Stockholders’ Equity
(Continued)
Failure-to-File Cease Trade Order in
Canada
On September 7, 2016, the Company’s common
shares were placed on a “failure-to-file cease trade order (FTFCTO)” in Canada by the Autorité des Marchés
Financiers, the market regulatory authority in the province of Quebec, for failure to file its consolidated financial statements
and management’s discussion and analysis for the interim fiscal periods ended June 30, 2016, September 30, 2016, March 31,
2017 and June 30, 2017 and its annual consolidated financial statements, management’s discussion and analysis and annual
information form for the fiscal year ended December 31, 2016 in Canada within the time required by applicable securities laws.
Once these filings have been completed, the Company expects to apply for a revocation of the FTFCTO and resume its status as an
issuer current in its reporting obligations in Canada.
2015 Equity Incentive Plan
On September 8, 2015, the Company’s board
of directors approved and adopted the ROI Land Investments Ltd. 2015 Equity Incentive Plan (the “2015 Plan”). The 2015
Plan was approved by a majority of stockholders of the Company on November 9, 2015. The 2015 Plan provides for the grant of incentive
stock options, non- qualified stock options, stock appreciation rights, restricted awards, performance share awards and performance
compensation awards. The following summarizes activity under the 2015 Plan for the year ended December 31, 2016 and 2015:
|
Shares approved for issuance at plan inception
|
|
|
20,000,000
|
|
|
Options granted in 2015
|
|
|
(695,000
|
)
|
|
Options cancelled in 2015
|
|
|
695,000
|
|
|
Balance as of December 31, 2015
|
|
|
20,000,000
|
|
|
Options granted in 2016
|
|
|
–
|
|
|
Options cancelled in 2016
|
|
|
–
|
|
|
Balance as of December 31, 2016
|
|
|
20,000,000
|
|
During the year ended December 31, 2015, the
Company issued options to purchase a total of 695,000 shares of the Company’s Series A common stock to four employees. The
options were cancelled on November 16, 2015 as the related employment agreements were cancelled. The options vested immediately,
had contractual lives of three years and were valued at an average grant date fair value of $0.14 per option, or $97,300, using
the Black-Scholes Option Pricing Model with the following assumptions:
|
Expected term
|
1.5 years
|
|
Expected volatility
|
17.5%
|
|
Risk-free interest rate
|
0.92% - 1.06%
|
|
Dividend yield
|
0.00
|
The stock price was based on the price of shares
sold to investors and volatility was based on comparable volatility of other companies since the Company had no significant historical
volatility. For the year ended December 31, 2015, $97,300 was recorded as compensation expense. There were no activities during
the year ended December 31, 2016.
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 9 – Stockholders’ Equity
(Continued)
Non Plan Options
During the years ended December 31, 2016 and
2015, the Company issued certain stock options to purchase the Company’s Series A common stock, outside of the 2015 Plan.
The following summarizes non-Plan option activity for the years ended December 31, 2016 and 2015:
|
|
|
Common Stock Options Outstanding
|
|
|
Weighted
average
|
|
|
|
|
Employees
|
|
|
Non-employees
|
|
|
Total
|
|
|
exercise
price
|
|
|
Outstanding as of December 31, 2014
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
500,000
|
|
|
|
6,457,250
|
|
|
|
6,957,250
|
|
|
$
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
500,000
|
|
|
|
6,457,250
|
|
|
|
6,957,250
|
|
|
$
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
50,000
|
|
|
|
5,633,259
|
|
|
|
5,633,259
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
–
|
|
|
|
(2,522,250
|
)
|
|
|
(2,522,250
|
)
|
|
$
|
1.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
550,000
|
|
|
|
9,568,259
|
|
|
|
10,118,259
|
|
|
$
|
1.54
|
|
The following table summarizes information
with respect to stock options outstanding and exercisable by employees and directors as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
Options outstanding
|
|
|
Options vested and exercisable
|
|
Exercise
price
|
|
|
Number
outstanding
|
|
|
Weighted
average
remaining
contractual
life (years)
|
|
|
Weighted
average
exercise
price
|
|
|
Aggregate
intrinsic
value
|
|
|
Number
vested
|
|
|
Weighted
average
exercise
price
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.35
|
|
|
|
500,000
|
|
|
|
0.75
|
|
|
$
|
0.35
|
|
|
$
|
252,500
|
|
|
|
500,000
|
|
|
$
|
0.35
|
|
|
$
|
252,500
|
|
|
$
|
1.50
|
|
|
|
50,000
|
|
|
|
2.12
|
|
|
$
|
1.50
|
|
|
|
–
|
|
|
|
50,000
|
|
|
$
|
1.50
|
|
|
|
–
|
|
|
|
|
|
|
|
550,000
|
|
|
|
0.87
|
|
|
$
|
0.45
|
|
|
$
|
252,500
|
|
|
|
550,000
|
|
|
$
|
0.45
|
|
|
$
|
252,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.35
|
|
|
|
500,000
|
|
|
|
1.75
|
|
|
$
|
0.35
|
|
|
$
|
575,000
|
|
|
|
350,000
|
|
|
$
|
0.35
|
|
|
$
|
402,500
|
|
During the years ended December 31, 2016 and
2015, the Company issued stock options to its employees to purchase a total of 50,000 shares and 500,000 shares, respectively.
These options have contractual lives of three years and were valued at an average grant date fair value of $0.76 and $0.04 per
option, respectively, using the Black-Scholes Option Pricing Model with the following assumptions:
|
|
|
For the year ended December 31,
|
|
|
|
2016
|
|
2015
|
|
Stock Price
|
|
$1.35
|
|
$0.35
|
|
Expected term
|
|
3.00 years
|
|
2.25 years
|
|
Expected volatility
|
|
92.2%
|
|
17.5%
|
|
Risk-free interest rate
|
|
1.20%
|
|
1.00%
|
|
Dividend yield
|
|
0.00
|
|
0.00
|
ROI Land Investments Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Note 9 – Stockholders’ Equity
(Continued)
For the year ended December 31, 2016, the stock
price was based on the most recent traded stock price as of the grant date and volatility was based on the Company’s historical
volatility. For the year ended December 31, 2015, the stock price was based on the price of shares sold to investors and volatility
was based on comparable volatility of other companies since the Company had no significant historical volatility.
For the years ended December 31, 2016 and 2015,
$39,090 and $17,754, respectively, were recorded as compensation expense and $-0- and $2,246, respectively, related to unrecognized
stock compensation costs. The Company expects to recognize those costs over a weighted average period of 0.4 years as of December
31, 2015.
The following table summarizes information
with respect to stock options outstanding and exercisable by non-employees as of December 31, 2016 and 2015:
During the years ended December 31, 2016 and
2015, the Company issued options to purchase a total of 5,633,259 shares and 6,457,250 shares, respectively, of Series A common
stock to various consultants and investors. The fair value of the services provided by consultants is not reliably estimable as
these services are traditionally transacted based on a percentage of transaction volume, making measurement of such services impractical.
These options have contractual lives of six months to ten years and were valued using the Black-Scholes Option Pricing Model at
an weighted average grant date fair value of $0.46 per option, or $2,613,018, and $0.44 per option, or $2,831,530, for the years
ended December 31, 2016 and 2015, respectively, with the following assumptions:
A total of 2,522,250 options were either expired
or canceled during the year ended December 31, 2016.
For the year ended December 31, 2016, the stock
price was based on the most recent traded stock price as of the grant date and volatility was based on the Company’s historical
volatility. For the year ended December 31, 2015, the stock price was based on the price of shares sold to investors and volatility
was based on comparable volatility of other companies since the Company had no significant historical volatility.
For the years ended December 31, 2016 and 2015,
$2,243,195 and $193,256, respectively, were recorded in consulting fee expense and $1,516,476 and $2,637,624, respectively, were
related to unrecognized stock compensation costs. The Company expects to recognize those costs over a weighted average period of
2.1 years and 2.8 years as of December 31, 2016 and 2015, respectively.
During the year ended December 31, 2015, the
Company issued warrants to purchase a total of 1,325,000 shares of the Company’s Series A common stock at exercise prices
ranging from $0.35 to $0.75 to four individuals for consulting services. $477,250 was charged to consulting fee expense for the
year ended December 31, 2015. On September 30, 2015, all of the warrants were cancelled by mutual agreement between the parties.
Accordingly, no future expense will be recognized.
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes.
The components of the net deferred income tax assets are approximately as follows:
The Company has established a full valuation
allowance on its deferred tax asset because of a lack of sufficient positive evidence to support its realization. The valuation
allowance increased by $6,285,080 and $3,726,200 for the years ended December 31, 2016 and 2015, respectively.
As of December 31, 2016, the Company has net
operating loss carry forwards of approximately $25,552,000 in the United States, which expire commencing 2033. The potential tax
benefit of these losses may be limited due to certain change in ownership provisions under Section 382 of the Internal Revenue
Code (“IRS”) and similar state provisions. The Company also has a net operating loss carry forward in Canada of approximately
$5,869,000 (CAD 7,773,000) which expire commencing 2034 as well as in Luxembourg of $358,000 (EUR 306,000) which expires in 2033.
IRS Section 382 places limitations (the “Section
382 Limitation”) on the amount of taxable income which can be offset by net operating loss carry forwards after a change
in control (generally greater than 50% change in ownership) of a loss corporation. Generally, after a change in control, a loss
corporation cannot deduct operating loss carry forwards in excess of the Section 382 Limitation. Due to these “change in
ownership” provisions, utilization of the net operating loss and tax credit carry forwards may be subject to an annual limitation
regarding their utilization against taxable income in future periods. The Company has not concluded its analysis of Section 382
through December 31, 2016, but believes the provisions will not limit the availability of losses to offset future income.
The Company is subject to income taxes in the
U.S., Canada and Luxembourg. The tax regulations within each jurisdiction are subject to interpretation of related tax laws and
regulations and require significant judgment to apply. No provision was made for income taxes for the years ended December 31,
2016 and 2015 as the Company had cumulative operating losses in each of these jurisdictions.
The Company has entered into certain consulting
agreements which call for introduction fees to be paid to the consultants for capital received by the Company from investors introduced
by the consultants. The fees range from i) 2% in Series A common stock to ii) 13% in cash and 10% in Series A common stock of the
amounts received by the Company.
On March 11, 2015, the Company entered into
an agreement with Artizan Interior design (“Artizan”), a UAE corporation, whereby Artizan will provide project management
and technical coordination services for its project in the Sobha Hartland district of Dubai, United Arab Emirates. The services
of Artizan began October 1, 2015 at a monthly fee of $85,000 for a term of the development stage of the project until the handover
of the project to the developer. On March 2, 2016, the Company entered into a Client Representative Consultancy Agreement with
Artizan, whereby Artizan will provide construction and engineering design services for its project in the Sobha Hartland district
of Dubai, United Arab Emirates. The services of Artizan began in March 2016 for a total fee of $1,200,000 in payments of 50% upon
the commencement of work, 25% upon the approval of the design package from relevant authorities, and 25% upon the completion of
all design services as agreed and approved by the Company. Upon receipt of a termination letter from PNC terminating the agreement
related to the Sobha Hartland, Dubai project, the Company terminated its agreement between Artizan and $127,500 of payables is
due to Aritizan as of December 31, 2016.
On February 7, 2016, the Company entered into
a Development Sale and Purchase Agreement with PNC. During the year ended December 31, 2016, the Company made an additional payment
of $1,900,000 (AED 6,980,144) in non-refundable deposits to PNC leaving a balance of $24,786,795 (AED 91,014,801). On May 15, 2016,
the Company received a termination letter from PNC terminating the agreement dated February 7, 2016 for non-payment of the amounts
due under the agreement. As a result, the Company forfeited the $4,701,205 (AED 17,271,099) of deposits. A total of $5,048,032
(AED 18,545,258), including $346,827 (AED 1,273,583) of closing and development costs, has been charged to operating expenses for
the year ended December 31, 2016 as abandoned project costs. However, the Company is still in negotiations with PNC to acquire
a reduced size and price of the land it had agreed to under the agreement dated February 7, 2016 and apply the deposits to this
restructured arrangement. Negotiations are under way, but the likelihood that the Company will be successful in reaching a satisfactory
agreement is dependent on its ability to pay at least a portion of the new acquisition price. As a result, there can be no assurance
that the acquisition will occur as contemplated or at all.
The Company has two office lease agreements
(Canada and Germany) with total lease payments of $154,672. The Company is contracted to make the following annual payments: not
later than one year totaling $41,153; later than one year but not later than two years totaling $41,286; later than two years but
not later than three years totaling $41,419; later than three years but not later than four years totaling $19,459; later than
four years but not later than five years totaling $11,355; and no amounts later than five years.
Certain conditions may exist as of the date
the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when
one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company,
or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or
unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially
material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature
of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.
On August 6, 2015, Mrs. Gloria Julie Couillard
and Tekno Forme (“Plaintiffs”) filed a complaint naming CTC, its President, ROI DEV, Philippe Germain and Sebastian
Cliche as co-defendants claiming unpaid fees of $207,638. On September 2, 2015, a default judgement was served against CTC. CTC
and its President are applying to set aside the default judgement against them and the Company is opposing the Plaintiff’s
notice of Application. On October 9, 2015, the Plaintiff registered a lien on the Company’s Canadian properties in the amount
of $207,638. On March 17, 2017, the Plaintiff agreed to release its judgment filed against the Company’s Canadian properties
and removed its lien, in its entirety, registered on the these properties.
On September 14, 2015, the Company received
a notification from the American Arbitration Association (“AAA”) of a Request for Mediation, dated September 8, 2015,
filed by Seth Shaw, pursuant to a mediation and arbitration clause contained in a Consulting Agreement allegedly entered into between
the Company and Seth Shaw on May 1, 2014. The Company executed such agreement but believes that Seth Shaw failed to perform under
said agreement. Mr. Shaw believes that the agreement is valid and in effect. The matter under dispute is 500,000 shares of the
Company’s Series A common stock which were to be issued to Mr. Shaw pursuant to such agreement. A certificate for such shares
was issued but never delivered to Mr. Shaw, because the Company cancelled the Agreement for failure to perform. The Company cancelled
the shares and recorded a liability for the then value of the shares of $175,000 which was included in accounts payable and accrued
expenses in the consolidated balance sheet as of December 31, 2015. The Company and Mr. Shaw met in mediation on February 22, 2016
with no resolution achieved. The parties then attended an arbitration evidentiary hearing on January 20, 2017 whereby the arbitrator,
on March 30, 2017, issued a final award ruling that Mr. Shaw was entitled to recover $755,125 from the Company for breach of contract
claim and $103,110 of legal fees. The Company intends to vigorously defend itself in judicial court from these claims by Mr. Shaw
and has recorded a liability of $250,000 in accounts payable and accrued expenses in the consolidated balance sheet as of December
31, 2016, as being the best estimate of the possible outflows to settle this case.