1.
General:
Validian Corporation (the “Corporation”) was incorporated in the State of Nevada on April 12, 1989 as CCC Funding Corp. The Corporation underwent several name changes before being renamed to Validian Corporation on January 28, 2003.
Since August 3, 1999, the efforts of the Corporation have been devoted to the development of a high speed, highly secure method of transacting business using the internet, and to the sale and marketing of the Corporation’s products.
2.
Summary of significant accounting policies:
(a)
Future operations:
The consolidated financial statements have been prepared assuming that the Corporation will continue as a going concern. The Corporation has had limited revenues to date, has negative working capital of $4,904,673, has accumulated a deficit of $55,273,224 as at December 31, 2018, and has incurred a loss of $513,396 and negative cash flow from operations of $173,068 for the year then ended. Furthermore, the Corporation failed to settle certain of its promissory notes and 10% senior convertible notes when they matured on various dates during the years 2007 through 2018, resulting in a condition of default for all of the 10% senior convertible notes and the promissory notes; a significant portion of these notes remain in default as at December 31, 2018. In addition, the Corporation expects to continue to incur operating losses for the foreseeable future and has no lines of credit or other financing facilities in place.
If the Corporation obtains further financing and generates revenue, it expects to incur operating expenditures of approximately $1,472,000 for the year ending December 31, 2019. In the event the Corporation cannot raise the funds necessary to finance its research and development and sales and marketing activities, it may have to cease operations.
All of the factors above raise substantial doubt about the Corporation’s ability to continue as a going concern. Management’s plans to address these issues include raising capital through the private placement of equity, the exercise of previously-issued equity instruments and through the issuance of additional promissory notes and convertible notes.
The Corporation’s ability to continue as a going concern is subject to management’s ability to successfully implement these plans. Failure to do so could have a material adverse effect on the Corporation’s position and or results of operations and could also result in the Corporation’s ceasing operations. The consolidated financial statements do not include adjustments that would be required if the assets are not realized and the liabilities settled in the normal course of operations.
Even if successful in obtaining financing in the near term, the Corporation cannot be certain that cash generated from its future operations will be sufficient to satisfy its liquidity requirements in the longer term, and it may need to continue to raise capital by issuing additional equity or by obtaining credit facilities. The Corporation’s future capital requirements will depend on many factors, including, but not limited to, the market acceptance of its products and the level of its promotional activities and advertising required to generate product sales. No assurance can be given that any such additional funding will be available or that, if available, it can be obtained on terms favorable to the Corporation.
(b)
Principles of consolidation:
These consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America and include the accounts of Validian Corporation and its wholly-owned subsidiaries, Sochrys Technologies Inc. and Evolusys S.A. All intercompany balances and transactions have been eliminated.
(c)
Cash and cash equivalents:
Cash and cash equivalents include liquid investments with original maturity dates of three months or less.
34
2.
Summary of significant accounting policies (continued):
(d)
Property and equipment:
Property and equipment is stated at cost less accumulated depreciation and includes computer hardware and software. These assets are being depreciated on a straight-line basis over their estimated useful lives, as follows: computer hardware: 2 years; computer software: 1 year.
(e)
Leases:
Leases are classified as either capital or operating in nature. Capital leases are those which substantially transfer the benefits and risk of ownership to the Corporation. Assets acquired under capital leases are depreciated as described in note 1(d). Obligations recorded under capital leases are reduced by the principal portion of lease payments. The imputed interest portion of lease payments is charged to expense.
(f)
Prepaid expenses:
Prepaid consulting fees related to services to be rendered within twelve months from the balance sheet date are included in prepaid expenses. These costs are charged to expenses as the services are rendered. If for any reason circumstances arise which would indicate that the services will not be performed in the future, any remaining balance included in prepaid expenses will be charged to expense immediately.
(g)
Income taxes:
Deferred income taxes are determined using the asset and liability method, whereby deferred income tax is recognized based on temporary differences using enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Temporary differences between the carrying values of assets or liabilities used for tax purposes and those used for financial reporting purposes arise in one period and reverse in one or more subsequent periods. In assessing the realizability of deferred tax assets, management considers known and anticipated factors impacting whether some portion or all of the deferred tax assets will not be realized. To the extent that the realization of deferred tax assets is not considered to be more likely than not, a valuation allowance is provided.
(h)
Revenue recognition:
Revenue from sale of product licenses is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable.
Revenue from product support contracts is recognized ratably over the life of the contract. Revenue from services is recognized at the time such services are rendered.
For contracts with multiple elements such as product licenses, product support and services, the Corporation follows the residual method. Under this method, the total fair value of the undelivered elements of the contract, as indicated by vendor specific objective evidence, is deferred and subsequently recognized when all criteria for recognizing revenue have been met. The difference between the total contract fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements. Vendor specific objective evidence for support and consulting services is obtained from contracts where these elements have been sold separately. Where the Corporation cannot determine the fair value of all of the undelivered elements, revenue is deferred until such time as it can be determined, or until all of the elements are delivered.
Revenues that have been prepaid but for which all elements have not been delivered, are reflected as deferred revenue on the consolidated balance sheet.
35
2.
Summary of significant accounting policies (continued):
(i)
Research and development:
Costs related to research, design and development of software products are charged to research and development expenses as incurred unless they meet the generally accepted criteria for deferral and amortization. Software development costs incurred prior to the establishment of technological feasibility do not meet these criteria and are expensed as incurred. To date the Corporation has not capitalized any software development costs.
(j)
Advertising expense:
Advertising costs are expensed upon the start of the scheduled advertising.
(k)
Foreign currency translation:
The functional currency for the financial statements of the Corporation is the United States dollar. Exchange gains or losses are realized due to differences in the exchange rate at the transaction date versus the rate in effect at the settlement or balance sheet date. Exchange gains and losses are recorded in the statement of operations.
(l) Stock-based compensation:
The Corporation accounts for stock-based compensation in accordance with the provisions of ASC Topic 718 “Compensation – stock compensation” (ASC Topic 718). ASC Topic 718 requires all share-based payments, including stock options granted by the Corporation to its employees, to be recognized as expenses, based on the fair value of the share-based payments at the date of grant. For purposes of estimating the grant date fair value of stock-based compensation, the Corporation uses the Black Scholes option-pricing model and has elected to treat awards with graded vesting as a single award. The fair value of awards granted is recognized as compensation expense on a straight-line basis over the requisite service period, which in the Corporation’s circumstances is the stated vesting period of the award.
In adopting ASC Topic 718, the Corporation applied the modified-prospective transition method. Under this method, the Corporation has recognized compensation costs for all share-based payments granted, modified, or settled after January 1, 2006, as well as for any awards that were granted prior to January 1, 2006 for which the requisite service had not been provided as of that date (unvested awards).
(m) Impairment or disposal of long-lived assets:
The Corporation accounts for long-lived assets in accordance with ASC Topic 360-10 “Impairment or disposal of long-lived assets”. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
(n) Use of estimates:
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. Significant management estimates include assumptions used in estimating the fair value of convertible notes issued with common stock.
(o) Accounting for uncertainty in income taxes:
The Corporation does not recognize adjustments in the liability for unrecognized income tax benefits. As of December 31, 2018, the Corporation had approximately $12,050,000 of unrecognized tax benefits, all of which would affect the Corporation’s effective tax rate if recognized.
36
3.
Property and equipment:
|
|
|
|
2018
|
|
|
|
Accumulated
|
Net book
|
|
|
Cost
|
depreciation
|
value
|
|
|
|
|
|
|
Computer hardware and software
|
$ 34,590
|
$ 34,590
|
$ --
|
|
|
$ 34,590
|
$ 34,590
|
$ --
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
Accumulated
|
Net book
|
|
|
Cost
|
depreciation
|
value
|
|
|
|
|
|
|
Computer hardware and software
|
$ 34,590
|
$ 34,590
|
$ --
|
|
|
$ 34,590
|
$ 34,590
|
$ --
|
4.
Promissory notes payable:
The following table sets forth the financial statement presentation of the promissory note proceeds on issuance, and the changes in the financial statement presentation of the balance allocated to the notes as at and for the years ended December 31, 2018 and 2017:
|
|
2018
|
2017
|
|
Balance at beginning of year
|
$ 65,750
|
$ 112,784
|
|
|
|
|
|
Note proceeds on issuance
|
197,500
|
35,000
|
|
Allocated to common stock and additional paid-in capital for the
relative fair value of stock issued to holders of the notes:
|
|
|
|
Allocated to common stock par value
|
--
|
(75)
|
|
Allocated to additional paid-in capital
|
--
|
(1,506)
|
|
|
--
|
(1,581)
|
|
|
|
|
|
Proceeds allocated to promissory notes on issuance
|
--
|
33,419
|
|
|
|
|
|
Accretion recorded as a charge to interest and financing costs
|
--
|
7,547
|
|
|
|
|
|
Principal repaid
|
(4,500)
|
(88,000)
|
|
Balance end of period
|
258,750
|
65,750
|
|
|
|
|
|
Payable to a related party (note 10)
|
--
|
(4,500)
|
|
|
|
|
|
Balance at end of year
|
$ 258,750
|
61,250
|
During the year ended December 31, 2018, the Company issued $197,500 of its promissory notes. The notes are payable on demand, and bear interest at the rate of 12% per annum.
During the year ended December 31, 2018, the Company also repaid $4,500 of the promissory notes, and $345 in accrued interest charges thereon.
37
The notes outstanding at December 31, 2018 bear interest at the rate of 12% per annum.
During the year ended December 31, 2017, the Company issued $35,000 of its promissory notes. The notes are payable on demand, and bear interest at the rate of 12% per annum. The Company issued shares of its common stock to the investors at issuance; $ , representing the relative fair value of the shares, was charged to common stock and additional paid in capital.
4.
Promissory notes payable (continued):
During the year ended December 31, 2017, the Company also repaid $88,000 of the promissory notes, and $3,526 in accrued interest charges thereon.
The notes outstanding at December 31, 2017 bear interest at the rate of 12% per annum.
The promissory notes are unsecured.
Included in interest and financing costs for the year ended December 31, 2018 is $21,871 (2017: $6,827) of interest paid and payable to the holders of the promissory notes; $0 (2017: $3,679), of accretion charges; and $0 (2017: $3,868) of finance fees. Interest on the promissory notes paid in cash during the year ended December 31, 2018 was $345 (2017: $3,526).
5.
10% Senior convertible notes:
The following table sets forth the financial statement presentation of the 10% senior convertible note proceeds on issuance, and the changes in the financial statement presentation of the balance allocated to the notes as at and for the years ended December 31, 2018 and 2017:
|
|
2018
|
2017
|
|
Balance at beginning of year
|
$1,168,974
|
$ 962,739
|
|
|
|
|
|
Note principal on issuance and subsequent modification
|
--
|
211,235
|
|
Allocated to common stock and additional paid-in capital for
market value of stock issued to holders of the notes:
|
|
|
|
Allocated to common stock
|
--
|
(10,499)
|
|
Allocated to additional paid-in capital
|
--
|
(57,236)
|
|
|
--
|
(67,735)
|
|
Proceeds allocated to 10% senior convertible notes on issuance
|
--
|
143,500
|
|
|
|
|
|
Accretion recorded as a charge to interest and financing costs
|
--
|
67,735
|
|
Principal repayments in cash
|
(20,000)
|
(5,000)
|
|
Balance at end of year
|
1,148,974
|
1,168,974
|
During the year ended December 31, 2018, the Company did not issue senior convertible notes, and repaid $20,000 in principal.
Under the terms of the notes outstanding during the year ended December 31, 2018, the holders are permitted, at any time, to convert all or a portion of the outstanding principal plus accrued interest thereon into common stock of the company, at a rate of one common share for each $0.03 of debt converted. The Corporation has the option of pre-paying all or any portion of the balance outstanding on the notes at any time, without penalty or bonus, with the permission of the holders. Interest on the notes is accrued until the notes are either repaid by the Corporation or converted by the holders. At the Corporation’s option, interest may be paid either in cash or in common shares of the Corporation. If interest is paid in common shares, the number of shares required for settlement will be calculated at the rate of conversion in effect for the conversion of the note principal. The notes matured on December 31, 2018.
Notwithstanding the stated maturity dates, all of the notes issued during the year ended December 31, 2018 are payable on demand, pursuant to the default provisions of the notes, as described below.
38
5.
10% Senior convertible notes (continued):
Under the terms of the notes issued during the year ended December 31, 2017, the holders are permitted, at any time, to convert all or a portion of the outstanding principal plus accrued interest thereon into common stock of the company, at a rate of one common share for each $0.03 of debt converted. The Corporation has the option of pre-paying all or any portion of the balance outstanding on the notes at any time, without penalty or bonus, with the permission of the holders. Interest on the notes is accrued until the notes are either repaid by the Corporation or converted by the holders. At the Corporation’s option, interest may be paid either in cash or in common shares of the Corporation. If interest is paid in common shares, the number of shares required for settlement will be calculated at the rate of conversion in effect for the conversion of the note principal. The notes matured on December 31, 2017.
Holders of the notes issued during the year were granted 10,499,001 common shares of the Company upon issuance and subsequent modification of the notes; $67,735, representing the relative fair value of the common shares at the issuance date, was allocated to the common shares par value and additional paid in capital.
Notwithstanding the stated maturity dates, all of the notes issued during the year ended December 31, 2017 are payable on demand, pursuant to the default provisions of the notes, as described below.
The Corporation failed to settle certain of its 10% senior convertible notes plus accrued interest thereon when they matured on various dates between October 1, 2008 and December 31, 2018. At December 31, 2018, a significant portion of these notes remained in default for non-payment. As a result of these non-payment defaults, all of the 10% senior convertible notes are in default at December 31, 2018, in accordance with the default provisions of the notes, and consequently are payable on demand. Interest is accrued at the coupon rate on all notes outstanding past the maturity date.
The following table summarizes information regarding the 10% senior convertible notes outstanding at December 31, 2018:
|
Note
|
Conversion
|
|
Principal
|
Rate
|
|
$ 642,467
|
$ 0.030
|
|
6,506
|
0.038
|
|
500,000
|
0.100
|
|
$ 1,148,974
|
|
The maximum number of shares issuable on conversion of all 10% senior convertible notes outstanding at December 31, 2018 was 26,586,767. Interest is payable in stock or in cash, at the discretion of the Corporation, therefore the potential conversion of the interest portion has not been included in our calculated issuance requirement.
All of the 10% senior convertible notes outstanding at December 31, 2018 were unsecured.
Included in interest and financing costs for the year ended December 31, 2018 is $116,200 (2017: $105,655) in coupon rate interest accrued on the 10% senior convertible notes; and $nil (2017: $67,735) in accretion related to the relative fair value of the equity components of the 10% senior convertible notes at issuance.
At December 31, 2018, the fair value of the stock issuable to fully convert the 10% senior convertible note principal, was $438,682, which is $710,292 lower than the principal amount of the notes.
6.
Convertible promissory notes:
During the year ended December 31, 2018, the Corporation did not issue convertible promissory notes.
During the year ended December 31, 2018, holders of the convertible promissory notes exercised the conversion feature of the notes, and converted $219,563 of note principal, and $29,222 of accrued interest on the notes, into 87,766,717 common shares of the Corporation.
During the year ended December 31, 2017, the Corporation issued $351,000 of its convertible promissory notes for cash.
39
6.
Convertible promissory notes (continued):
$30,000 of the notes issued during the year ended December 31, 2017 bear interest at the rate of 8%, mature on October 31, 2018, and may be prepaid during the period from issuance to April 29, 2018, in full, at various rates ranging from 120% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at April 29, 2018, or thereafter, into common stock of the Company. The rate of conversion for these notes is calculated as the average of the three lowest trading prices during the twenty trading days immediately preceding such conversion, discounted by 45%.
$60,000 of the notes issued during the year ended December 31, 2017 bear interest at the rate of 8%, mature on July 17, 2018, and may be prepaid during the period from issuance to January 13, 2018, in full, at various rates ranging from 120% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at January 13, 2018, or thereafter, into common stock of the Company. The rate of conversion for these notes is calculated as the average of the three lowest trading prices during the twenty trading days immediately preceding such conversion, discounted by 45%.
$105,000 of the notes issued during the year ended December 31, 2017 bear interest at the rate of 8%, mature on June 12, 2018, and may be prepaid during the period from issuance to December 8, 2017, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at December 8, 2017, or thereafter, into common stock of the Company. The rate of conversion for these notes is calculated as the lowest trading price during the ten trading days immediately preceding such conversion, including the date of conversion, discounted by 45%.
$78,000 of the notes issued during the year ended December 31, 2017 bear interest at the rate of 8%, mature on November 10 2017, and could be prepaid during the period from issuance to August 2, 2017, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which was unpaid at August 2, 2017, or thereafter, into common stock of the Company. The rate of conversion for these notes was calculated as the average of the lowest three trading prices during the ten trading days immediately preceding such conversion, discounted by 42%.
$35,000 of the notes issued during the year ended December 31, 2017 bear interest at the rate of 8%, mature on February 12, 2018, and can be prepaid during the period from issuance to August 11, 2017, in full, at various rates ranging from 120% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder has the option to convert any balance of principal and interest which is unpaid at August 11, 2017, or thereafter, into common stock of the Company. The rate of conversion for these notes is calculated as the average of the lowest three trading prices during the twenty trading days immediately preceding such conversion, discounted by 45%.
$43,000 of the notes issued during the year ended December 31, 2017 bear interest at the rate of 12%, mature on November 30, 2017, and could be prepaid during the period from issuance to August 16, 2017, in full, at various rates ranging from 125% to 145% of the principal balance plus accrued interest to the date of prepayment. The holder had the option to convert any balance of principal and interest which was unpaid at August 16, 2017, or thereafter, into common stock of the Company. The rate of conversion for these notes was calculated as the average of the lowest three trading prices during the ten trading days immediately preceding such conversion, discounted by 42%.
$295,196, representing the relative fair value of the beneficial conversion feature of the notes at date of issuance, was allocated to additional paid in capital; the notes are being accreted to their face value over the term of the notes, through periodic charges to interest expense using the effective interest rate method.
$16,000 in finance fees were incurred in relation to the convertible promissory notes issued during 2017 and are being charged to interest and financing costs over the term of the notes, using the effective interest rate method.
$18,000 in original issue discounts were incurred in relation to the convertible promissory notes issued during 2017 and are being charged to interest and financing costs over the term of the notes, using the effective interest rate method.
40
6.
Convertible promissory notes (continued):
During the year ended December 31, 2017, holders of the convertible promissory notes exercised the conversion feature of the notes, and converted $659,687 of note principal, and $28,744 of accrued interest on the notes, into 147,654,844 common shares of the Corporation.
Also, during the year ended December 31, 2017, the Corporation exercised the prepayment option and issued aggregate cash payments of $114,864 in settlement of $71,000 in principal amount, plus accrued interest and prepayment bonus thereon of $43,864.
The discount to market conversion feature of the convertible promissory notes causes a theoretical possibility that the Corporation may be required to settle the notes by issuing more shares than are authorized. Management has calculated that the maximum number of shares required to convert the principal plus accrued interest on the convertible notes at December 31, 2017 was 77,411,942, which represents approximately 77.8% of the authorized, unissued shares at that date, and has also estimated that the fair value of the notes at December 31, 2017 approximates face value, therefore no adjustment for fair value restatement has been made.
At December 31, 2018, the fair value of the stock issuable to fully convert the convertible promissory note principal was $nil.
7.
Stockholders’ deficiency:
(a)
Common stock transactions:
During the year ended December 31, 2018, holders of the convertible promissory notes exercised the conversion feature of the notes and converted an aggregate of $219,563 of note principal, plus $29,222 of accrued interest thereon, into 87,766,717 shares of the Company’s common stock.
(note 6).
In connection with the issuance of the Company’s 10% senior convertible notes during year ended December 31, 2017, the Company issued 10,499,001 shares of its common stock, with a relative fair value of $67,735, to the holders of the notes. (note 5).
During the year ended December 31, 2017, holders of the convertible promissory notes exercised the conversion feature of the notes and converted an aggregate of $659,687 of note principal, plus $28,744 of accrued interest thereon, into 147,654,844 shares of the Company’s common stock.
(note 6).
In connection with the issuance of the Company’s promissory notes during the year ended December 31, 2017, the Company issued 75,000 shares of its common stock, with a relative fair value of $1,581, to the holders of the notes. (note 4).
(b)
Preferred stock transactions:
Series A Convertible Preferred Stock, par value $0.001 per share, stated value $1,000 per share. Convertible at any time by the shareholder into common stock of the Corporation, at $0.10 per common share. 10,000 shares authorized.
Series B Convertible Preferred Stock, par value $0.001 per share, stated value $1,000 per share. Convertible at any time by the shareholder into common stock of the Corporation, at the rate of $0.03 per common share. 5,000 shares authorized.
Series C Convertible Preferred Stock, par value $0.001 per share, stated value $1,000 per share. Convertible at any time by the shareholder into common stock of the Corporation, at the rate of $0.03 per common share. 5,000 shares authorized.
During the year ended December 31, 2017, the Corporation issued 78 of its Series C Convertible Preferred Stock in settlement of $78,000 of accounts payable and accrued liabilities.
During the year ended December 31, 2017, the Corporation issued 180 of its Series C Convertible Preferred Stock in settlement of $40,200 of consulting fees rendered.
41
7.
Stockholders’ deficiency (continued):
(c)
Transactions involving stock options:
The Corporation has two incentive equity plans, under which a maximum of 10,000,000 options to purchase 10,000,000 common shares may be granted to officers, employees and consultants of the Corporation. The granting of options, and the terms associated with them, occurs at the discretion of the board of directors, who administers the plan. The fair value of unvested options is determined at the date of grant and are included in expense over the vesting period. As of December 31, 2018, a total of 7,500,000 options were granted under these plans, all with an exercise price of $0.04. The options expire on dates between May 12, 2020 and November 20, 2020 and are fully vested. 2,500,000 options remained available for grant under these plans as of December 31, 2018.
There were no transactions involving stock options during the years ended December 31, 2018 and December 31, 2017.
(d)
Summary of stock-based compensation:
The following table presents the total of stock-based compensation included in the expenses of the Corporation for the years ended December 31, 2018 and 2017:
|
|
2018
|
2017
|
|
Selling, general and administrative
|
$ 22,910
|
$ 71,771
|
|
Total stock-based compensation included in expenses
|
$ 22,910
|
$ 71,771
|
8.
Interest and financing costs:
Interest and financing costs include accrued interest, accretion and amortization of deferred financing costs and original issue discount relating to the convertible promissory notes; accrued interest, accretion and amortization of deferred financing costs on the promissory notes; and accrued interest and accretion on the 10% senior convertible notes.
9.
Loss per share:
As the Corporation incurred a net loss during the years ended December 31, 2018 and 2017, the loss and diluted loss per common share are based on the weighted-average common shares outstanding during the year. The following outstanding instruments could have a dilutive effect in the future:
|
|
2018
|
2017
|
|
Stock issuable on conversion of the 10% senior convertible notes
|
26,586,767
|
27,253,434
|
|
Stock issuable on conversion of the convertible promissory notes and accrued interest thereon
|
--
|
77,411,942
|
|
Common shares issuable on conversion of the Series A convertible preferred stock
|
22,300,000
|
22,300,000
|
|
Common shares issuable on conversion of the Series B convertible preferred stock
|
130,000,000
|
130,000,000
|
|
Common shares issuable on conversion of the Series C convertible preferred stock
|
113,633,333
|
113,633,333
|
|
Stock issuable on exercise of the stock options
|
7,500,000
|
7,500,000
|
|
|
300,020,100
|
378,098,709
|
10.
Related party transactions:
$nil (2017: $4,052) of accounts payable related to credit card expenses paid on behalf of the corporate shareholder.
$4,001 (2017: $4,187) in accrued interest charges relating to the 10% senior convertible notes and 12% promissory notes previously issued to a director and a company controlled by a director is included in accrued liabilities at December 31, 2018.
42
11.
Guarantees and Commitments:
a)
Guarantees
The Corporation has entered into agreements which contain features which meet the definition of a guarantee under ASC Topic 460 “Guarantees” (Topic 460). Topic 460 defines a guarantee to be a contract that contingently requires the Corporation to make payments (either in cash, financial instruments, other assets, common stock of the Corporation or through the provision of services) to a third party based on changes in an underlying economic characteristic (such as interest rates or market value) that is related to an asset, liability or an equity security of the other party.
The Corporation has the following guarantees which are subject to the disclosure and measurement requirements of Topic 460:
The Corporation includes standard intellectual property indemnification clauses in its software license and service agreements. Pursuant to these clauses, the Corporation holds harmless and agrees to defend the indemnified party, generally the Corporation’s business partners and customers, in connection with certain patent, copyright or trade secret infringement claims by third parties with respect to the Corporation’s products. The term of the indemnification clauses is generally perpetual from the date of execution of the software license and service agreement. In the event an infringement claim against the Corporation or an indemnified party is successful, the Corporation, at its sole option, agrees that it will do one of the following: (i) procure for the indemnified party the right to continue use of the software; (ii) provide a modification to the software so that its use becomes non-infringing; (iii) replace the software with software which is substantially similar in functionality and performance; or (iv) refund the residual value of the software license fees paid by the indemnified party for the infringing software. The Corporation believes the estimated fair value of these intellectual property indemnification clauses is minimal.
Historically, the Corporation has not made any significant payments related to the above-noted indemnities and accordingly, no liability related to the contingent features of these guarantees has been accrued in the financial statements.
12. Fair value measurements:
The carrying value of cash and cash equivalents, value added taxes recoverable, accounts payable and accrued liabilities approximates fair value due to the short term to maturity of these instruments. The carrying value of the promissory notes, 10% senior convertible notes and convertible promissory notes, approximates fair value due to the issuance subsequent to December 31, 2018 of new debt instruments having similar terms and conditions.
13.
Income taxes:
Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities as reported for financial reporting purposes and such amounts as measured by tax laws. The tax effects of temporary differences that gave rise to significant portions of the deferred tax asset and deferred tax liability are as follows:
|
|
2018
|
2017
|
|
Deferred tax asset:
|
|
|
|
Net operating loss carryforwards
|
$ 11,000,000
|
$ 10,900,000
|
|
Capital loss carryforwards
|
1,050,000
|
1,050,000
|
|
Total gross deferred tax asset
|
12,050,000
|
11,950,000
|
|
|
|
|
|
Valuation allowance
|
(12,050,000)
|
(11,950,000)
|
|
|
|
|
|
Net deferred taxes
|
$ --
|
$ --
|
43
13
Income taxes (continued):
Income tax expense attributable to loss before income taxes was $nil (2017 - $nil) and differed from the amounts computed by applying the U.S. federal income tax rate of 21% (2017 - 34%) to the net loss as a result of the following:
|
|
2018
|
2017
|
|
Expected tax rate
|
21%
|
34%
|
|
Expected tax recovery applied to net loss before income taxes
|
$ (101,000)
|
$ (714,000)
|
|
|
|
|
|
Increase (decrease) in taxes resulting from:
|
|
|
|
Change in valuation allowance
|
64,000
|
403,000
|
|
Compensation expense
|
5,000
|
24,000
|
|
Interest and financing costs
|
36,000
|
243,000
|
|
Other
|
(4,000)
|
44,000
|
|
|
$ --
|
$ --
|
The Corporation has net operating losses of $32,506,000 which are available to reduce U.S. taxable income and which expire as follows:
|
2019
|
$ 391,000
|
|
2020
|
675,000
|
|
2021
|
521,000
|
|
2022
|
897,000
|
|
2023
|
1,671,000
|
|
2024
|
4,205,000
|
|
2025
|
3,381,000
|
|
2026
|
3,088,000
|
|
2027
|
2,623,000
|
|
2028
|
2,401,000
|
|
2029
|
1,299,000
|
|
2030
|
1,258,000
|
|
2031
|
1,298,000
|
|
2032
|
1,229,000
|
|
2033
|
1,475,000
|
|
2034
|
1,404,000
|
|
2035
|
1,704,000
|
|
2036
|
1,496,000
|
|
2037
|
1,184,000
|
|
2038
|
306,000
|
|
|
$ 32,506,000
|
The losses noted above are estimates, as the related tax returns have not been filed by the Corporation.
14.
Change
in non-cash operating working capital:
|
|
2018
|
2017
|
|
|
|
|
|
Value added taxes recoverable
|
$ 4,167
|
$ 28,025
|
|
Prepaid expenses
|
3,063
|
--
|
|
Accounts payable
|
(9,007)
|
395,529
|
|
Accrued liabilities
|
(23,373)
|
155,510
|
|
Total
|
$ (25,150)
|
$ 579,064
|
44
15.
Supplementary cash flow information:
The Corporation paid no income taxes during the year ended December 31, 2018, nor during the year ended December 31, 2017. Interest paid in cash during the years ended December 31, 2018 and December 31, 2017 were $2,194 and $47,390, respectively.
Non-cash financing activities are excluded from the consolidated statement of cash flows. The following is a summary of such activities:
|
|
2018
|
2017
|
|
Issuance of the Corporation’s common stock in settlement of convertible promissory notes, and accrued interest thereon
|
$ 248,784
|
$ 688,431
|
|
Issuance of the Corporation’s Series C convertible preferred shares in settlement of accounts payable, accrued liabilities and consulting fees
|
--
|
118,200
|
|
Issuance of the Corporation’s 10% senior convertible notes in settlement of accounts payable and accrued liabilities
|
--
|
60,000
|
|
Issuance of the Corporation’s promissory notes in settlement of accounts payable and accrued liabilities
|
--
|
4,000
|
|
Total
|
$ 248,784
|
$ 870,631
|
16.
Subsequent events:
On February 6, 2019, the Company issued $18,000 U.S. of its promissory notes for cash. The notes are payable on demand, and bear interest at the rate of 12% per annum.
On February 12, 2019, the Company issued $19,500 U.S. of its promissory notes for cash. The notes are payable on demand, and bear interest at the rate of 12% per annum.
On February 12, 2019, the Company issued $1,450 U.S. of its promissory notes for cash. The notes are payable on demand, and bear interest at the rate of 12% per annum.
On February 13, 2019, the Company issued $17,459 CDN of its promissory notes for cash. The notes are payable on demand, and bear interest at the rate of 12% per annum.
On March 11, 2019, the Company issued $1,395 U.S. of its promissory notes for cash. The notes are payable on demand, and bear interest at the rate of 12% per annum.
On March 18, 2019, the Company issued $245,000 U.S of its promissory notes for cash. The notes are payable on demand, and bear interest at the rate of 12% per annum.
On March 19, 2019, the Company issued $12,000 U.S. of its promissory notes for cash. The notes are payable on demand, and bear interest at the rate of 12% per annum.
Except for the foregoing, we have evaluated subsequent events through the date the financial statements were issued. All material events have been disclosed.
45
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
There have been no disagreements with accountants with respect to accounting and/or financial statements.
Item 9A(T). Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective, as a result of the material weaknesses noted below, to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting is not supported by written policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to further periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
Under the supervision and with the participation of management, including its principal executive officer and principal financial officer, our management assessed the design and operating effectiveness of internal control over financial reporting as of December 31, 2018 based on the framework in Internal Control —
46
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on its evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was not effective as of December 31, 2018, as a result of the material weaknesses noted below. The effectiveness of our internal control over financial reporting as of December 31, 2018 has not been audited by AMC Auditing, LLC CPA's, an independent registered public accounting firm, as stated in their report which is included herein.
In connection with the audit of our consolidated financial statements for the year ended December 31, 2018, our management identified the existence of certain significant internal control deficiencies that they considered to be material weaknesses. In particular, we identified the following weaknesses in our internal control system at December 31, 2018: (1) a lack of segregation of duties; (2) the lack of timely preparation of certain back up schedules; (3) finance staff’s lack of sufficient technical accounting knowledge; (4) a lack of independent Board oversight; and (5) signing authority with respect to corporate bank accounts. The independent registered public accounting firm indicated that they considered these deficiencies to be reportable conditions as that term is defined under the standards established by the American Institute of Certified Public Accountants. Notwithstanding the material weakness identified by our independent registered public accountants, we believe that the financial statements and other financial information included in this report, fairly present in all material respects, the financial condition, results of operation and cash flows of the Corporation as of, and for, the periods represented in this report.
Our size has prevented us from being able to employ sufficient resources at this time to enable us to have an adequate level of supervision and segregation of duties within our internal control system. We will continue to monitor and assess the costs and benefits of additional staffing within the Company.
Set forth below is a discussion of the significant internal control deficiencies that have not been remediated.
Lack of segregation of duties.
Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties within our internal control system. Effective July 2008, we have had only two individuals, our accountant and our chief financial officer, involved in the accounting functions of the Corporation, including the processing of accounting entries and generating interim and year-end financial reports. Additionally, our chief financial officer is also our chief executive officer and sole officer and director. We are therefore inadequately staffed at this time to ensure a sufficient level of segregation of duties. As a result, this significant internal control deficiency had not been remediated as of the end of the period covered by this report, nor do we know if we will be able to remediate this weakness in the foreseeable future. However, we will continue to monitor and assess the costs and benefits of additional staffing.
Lack of timely preparation of back up schedules.
Throughout 2018 and 2017, we were able to complete most of our back up schedules prior to the arrival of our independent registered public accountants’ audit staff, however, during this time we consistently experienced a lack of complete preparedness. As such, we believe that this material weakness had not been remediated as of the end of the period covered by this report. Inasmuch as this deficiency is related to our lack of adequate staffing, which is a condition which our size prohibits us from remediating, we do not know if we will be able to remediate this weakness in the foreseeable future. We will continue to review our procedures, and to make changes wherever practicable which will assist in remediating this deficiency.
47
Finance staff’s lack of sufficient technical accounting knowledge.
Due to the limited number of personnel, our finance staff does not have sufficient technical accounting knowledge to address all complex and non-routine accounting transactions that may arise. These transactions are sometimes extremely technical in nature and require an in-depth understanding of generally accepted accounting principles. As a result of this pervasive deficiency, these types of transactions may not be recorded correctly, potentially resulting in material misstatements of the financial statements of the Company. To address this risk, the Company has a control whereby it consults with its auditors and external advisors, as needed, in conjunction with the recording and reporting of complex and non-routine accounting transactions. Management has concluded that this control was operating effectively during the year, as the Company consulted with external advisors on certain complex and non-routine transactions resulting in no material misstatements being identified during the year-end audit. Although management has determined that this control was operating effectively during the year ended December 31, 2018, the finance staff’s lack of sufficient technical accounting knowledge nonetheless remains a continued weakness in our internal control system. Any changes in the staff complement will be dependent upon the growth of our operations and the number of our staff to allow further technical accounting knowledge to address all complex and non-routine accounting transactions. Management will continue to review existing consultation controls and, if appropriate, implement changes to its current internal control processes whereby more effective consultation will be performed.
Lack of independent Board oversight.
Our Board of Directors consists of only one individual who is also the Company’s sole signing officer. We have experienced difficulties in identifying suitable candidates to serve as independent Board members because of
our size, the perceived additional liability to the public by prospective candidates and the excessive additional costs associated with the selection of a candidate including director fees and director liability insurance. As such, our Board lacks the controls, depth of knowledge and perspective that such independence would provide.
Item 9B. Other Information.
None.
48
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons: Compliance with Section 16(a) of the Exchange Act.
The following table sets forth certain information concerning our director and executive officer as of December 31, 2018:
|
Name
|
Age
|
Position
|
|
Bruce I. Benn
|
65
|
Director, President, Chief Executive Officer,
|
|
|
|
Chief Financial Officer,
|
|
|
|
Executive Vice President, Secretary and Treasurer
|
Effective May 6, 2005, the Board of Directors of the Company appointed Bruce I. Benn to the positions of President and Chief Executive Officer of the Company. Effective July 11, 2008, the Board of Directors of the Company appointed Bruce I. Benn also to the positions of Chief Financial Officer and Treasurer of the Company. Mr. Benn has served as a Director, Executive Vice President and Secretary of the Company since February 2004. From 1999 until February 2004, he provided services to the Company through Capital House Corporation. Mr. Benn plays a major role in making key management and strategic decisions and oversees all aspects of corporate finance for the Company. He has been principally responsible for arranging in excess of $20 million of capital investment for the Company from 1999 to date. Since 1989, Mr. Benn has been the President, Director and co-founder of Capital House Corporation, a boutique investment bank that has provided and/or arranged early and mid-stage venture capital and hands-on managerial assistance to a portfolio of leading technology software companies. Mr. Benn was also a founder, Director and Officer of DevX Energy, Inc. from 1995 until October 2000. From 1980 to 1993, he was with Corporation House Ltd., where he was a Vice President and a Director from 1985 to 1993. He is an attorney and holds a Masters of Law degree from the University of London, England, a Baccalaureate of Laws from the University of Ottawa, Canada, and a Bachelor of Arts in Economics from Carleton University in Ottawa, Canada.
Audit Committee Financial Expert
The SEC has adopted rules to implement certain requirements of the Sarbanes-Oxley Act of 2002 pertaining to public company audit committees. One of the rules adopted by the SEC requires a company to disclose whether it has an “audit committee financial expert” serving on its audit committee. We do not have an audit committee financial expert. The Company and its Board of Directors have experienced difficulties in identifying a suitable candidate to serve as its audit committee financial expert because of the size of the Company, the perceived additional liability to the public by prospective candidates and the excessive additional costs associated with the selection of a candidate, including director fees for the audit committee financial expert and director liability insurance.
Code of Ethics Policy
We have adopted a code of ethics that applies to our officers, directors and employees in accordance with applicable federal securities laws. We have filed a copy of our code of ethics as an exhibit to our Annual Report on Form 10-K as filed on April 15, 2011. This document may be reviewed by accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of the code of ethics will be provided without charge upon request to us. We intend to disclose any amendments to or waivers of certain provisions of our code of ethics in a Current Report on Form 8-K
49
Compliance with Section 16(a) of The Securities Exchange Act of 1934
To our knowledge, based solely on a review of such materials as are required by the Securities and Exchange Commission, none of our officers, directors or beneficial holders of more than ten percent of our issued and outstanding shares of common stock failed to timely file with the Securities and Exchange Commission any form or report required to be so filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, during the year ended December 31, 2018.
Item 11. Executive Compensation.
The following table shows all the cash compensation paid or to be paid by us or our subsidiaries, as well as certain other compensation paid or accrued, during the fiscal years indicated, to our chief executive officer and other executive officers who received total annual salary and bonus in excess of $100,000 during the past fiscal year in all capacities in which the person served.
Summary Compensation Table
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
Name and
Principal
Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive
Plan
Compen-
sation ($)
|
Nonqualified
Deferred
Compen-
sation
Earnings ($)
|
All
Other
Compensa-
tion
|
Total
$
|
|
Benn,Bruce
|
2018
|
92,626
|
0
|
0
|
0
|
0
|
0
|
0
|
92,626
|
|
|
2017
|
92,540
|
0
|
0
|
0
|
0
|
0
|
0
|
92,540
|
|
(1)(4)
|
2016
|
90,622
|
0
|
0
|
0
|
0
|
0
|
0
|
90,622
|
|
(1)(4)
|
2015
|
94,026
|
0
|
0
|
0
|
0
|
0
|
0
|
94,026
|
|
|
2015
|
108,805
|
0
|
0
|
0
|
0
|
0
|
0
|
108,805
|
|
|
2013
|
116,544
|
0
|
0
|
0
|
0
|
0
|
0
|
116,544
|
|
|
2012
|
119,818
|
0
|
0
|
0
|
0
|
0
|
0
|
119,818
|
|
|
2011
|
121,276
|
0
|
0
|
0
|
0
|
0
|
0
|
121,276
|
|
|
2010
|
116,494
|
0
|
0
|
0
|
0
|
0
|
0
|
116,494
|
|
|
2009
|
105,579
|
0
|
0
|
0
|
0
|
0
|
0
|
105,579
|
|
|
2008
|
113,292
|
0
|
0
|
27,910
|
0
|
0
|
0
|
141,202
|
|
|
2007
|
112,278
|
0
|
0
|
17,681
|
0
|
0
|
0
|
129,959
|
|
|
2006
|
105,847
|
0
|
0
|
0
|
0
|
0
|
0
|
105,847
|
|
|
|
|
|
|
|
|
|
|
|
|
Benn, Ronald
|
2007
|
98,243
|
|
|
18,339
|
|
|
|
116,582
|
|
(2)(5)
|
2006
|
105,847
|
0
|
0
|
0
|
0
|
0
|
0
|
105,847
|
|
Maisonneuve,
Andre (3)
|
2006
2005
2004
|
105,847
103,848
100,353
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
105,847
103,848
100,353
|
(1) Became Director, President, Chief Executive Officer, Executive Vice President and Secretary in May 2005 and Chief Financial Officer in July, 2008. In addition, Mr. Benn served as Executive Vice President and Secretary from February 2004 to May 2005.
(2) Became Director, Chief Financial Officer and Treasurer in February 2004, until his resignation in July 2008
(3) Became Director, Executive Vice President and Secretary in July, 2001. In addition, Mr. Maisonneuve served as Chairman, President, Chief Executive Officer, and Chief Financial Officer from January, 2002 to February, 2004; as Chairman, President, Chief Executive Officer from January 2002 until May 2005; and as Chairman and Vice- President – Strategic Marketing from May 2005 until his retirement effective December 31, 2006.
(4) Reported salary for August 2006 to December 2016 has been accrued but not paid; $44,004 of the reported salary for 2017 was paid and the balance was accrued but not paid.
(5) Reported salary for August 2006 to July 2008 has been accrued but not paid.
50
Outstanding Equity Awards at Fiscal Year-End
|
|
Option/SSAR Awards
|
Stock Awards
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
Name
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
Number of
Securities
Underlying
Unexercised
Option
Unexercisable
(#)
|
Equity
Incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of Shares
or Units
of
Stock
That Have
not Vested
(#)
|
Market
Value of
Shares or
Units of
Stock
That
have not
vested
($)
|
Equity
Incentive
Plan
Awards:
Number of
unearned
(#)
|
Equity
Incentive Plan
Awards
Market
Payout Value
of Unearned
Shares, Units
or other Rights
that have not
vested
$
|
|
Benn, Bruce
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Benn, Ronald
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Maisonneuve, André
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Long-Term Incentive Plans – Awards in Last Fiscal Year
There were no incentive awards granted to our officer and director during the year ended December 31, 2018.
Directors are not compensated for acting in their capacity as directors. Directors are reimbursed for their accountable expenses incurred in attending meetings and conducting their duties.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information as of March 20, 2019, with respect to any person known by us to own beneficially more than 5% of our common stock; common stock beneficially owned by each of our officers and directors named in Item 10; and the amount of common stock beneficially owned by our officers and directors as a group.
|
|
|
Approximate Percent
|
|
Name & Address of
|
Number of Shares
|
of Common Stock
|
|
Beneficial Owner
|
Beneficially Owned
|
Outstanding (1)
|
|
Alla Pasternack (2)
|
54,250,000
|
7.9 %
|
|
c/o 1464 Wesleys Run
|
|
|
|
Gladwyne, PA 19035
|
|
|
|
|
|
|
|
Bruce Benn
|
39,220,454
|
5.7%
|
|
|
|
|
|
All Executive Officers and Directors
|
|
|
|
As a Group
|
39,220,454
|
5.7%
|
|
|
|
|
|
*Executive Officer and/or a Director.
|
|
|
|
(1) Based upon 688,287,060 shares of common stock issued and outstanding as of March 20, 2019 and includes for each person the shares issuable upon exercise of the options and warrants owned by them.
(2) Based on information contained in Schedule 13G as filed by Ms. Pasternack on February 14, 2018
|
51
The following table sets forth details regarding our common stock authorized for issuance under equity compensation plans as at March 20, 2019:
|
Plan category
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
Weighted average exercise
price of outstanding
options, warrants and
rights
|
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected
in column (a))
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity compensation
plans approved by
security holders
|
7,500,000
|
$0.04
|
2,500,000
|
|
Equity compensation
plans not approved by
security holders
|
--
|
--
|
--
|
|
Total
|
7,500,000
|
--
|
2,500,000
|
We have granted options pursuant to our Amended and Restated Incentive Equity Plan, which was adopted by our board of directors and became effective on May 30, 2003. The plan, as amended and restated, was approved by our stockholders on February 25, 2005. The amended and restated plan is administered by the board of directors, who has the authority to grant stock options and stock appreciation rights to our officers, employees and consultants. A total of 3,912,302 shares of common stock were reserved for issuance under the terms of the Amended and Restated Incentive Equity Plan. In the event of certain mergers, sales of assets, reorganizations, consolidations, recapitalizations, stock dividends or other changes in corporate structure affecting our common stock, the committee administering the plan must make an equitable substitution or adjustment in the aggregate number of shares reserved for issuance under the plan and in the number of shares exercisable under, and the exercise price of, outstanding options under the plan.
Of the 5,117,302 options granted from time to time under this plan, none were exercised, and 3,500,000 are currently outstanding.
On December 15, 2004, the board of directors adopted the 2004 Incentive Equity Plan, which was approved by our stockholders on February 25, 2005. The 2004 Incentive Equity Plan is administered by the board of directors, who has the authority to grant stock options and stock appreciation rights to our officers, employees and consultants, and to establish the option vesting schedule. The total number of shares of common stock reserved for issuance under the terms of the 2004 Incentive Equity Plan was increased to 6,087,698 as approved by our stockholders at our Annual General Meeting on October 4, 2007. In the event of certain mergers, sales of assets, reorganizations, consolidations, recapitalizations, stock dividends or other changes in corporate structure affecting our common stock, the committee administering the plan must make an equitable substitution or adjustment in the aggregate number of shares reserved for issuance under the plan and in the number of shares exercisable under, and the exercise price of, outstanding options under the plan.
Of the 6,212,698 options originally granted from time to time under this plan, none were exercised, and 4,000,000 are currently outstanding.
52
Item 13. Certain Relationships and Related Transactions.
$4,001 in accrued interest charges relating to the 10% senior convertible notes and 12% promissory notes previously issued to a director and a company controlled by a director is included in accrued liabilities at December 31, 2018.
Item 14. Principal Accountant Fees and Services
The following table sets out fees billed by the Company’s principal accountant for audit and related services for each of the previous two fiscal years:
|
Description of services
|
Fees billed for
2018 fiscal year
|
Fees billed for
2017 fiscal year
|
|
Audit fees
|
$107,918
|
$84,220
|
We do not currently have an audit committee; however, it is our policy to have all audit and audit-related fees pre-approved by the board of directors. All of the above fees were pre-approved by the board of directors.
There were no tax-related, audit-related or other fees incurred during the year.
53
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
(1)
The List of Financial Statements are filed as Item 8 of Part II of this Form 10-K
(2)
List of Financial Statement Schedules None - see Notes to Financial Statements included in Item 8 of Part II of this Form 10-K
(3)
List of Exhibits follows
The exhibits listed in the accompanying Index to Exhibits are filed as part of this Form 10-K
|
Exhibit No.
|
|
Document Description
|
|
3.1
|
|
Restated Articles of Incorporation
(1)
|
|
3.2
|
|
Amendment to Articles of Incorporation
(5)
|
|
3.3
|
|
By-Laws
(2)
|
|
3.4
|
|
Amendment to By-Laws
(1)
|
|
4.1
|
|
Form of Class B Warrants
(2)
|
|
4.2
|
|
Form of Class E Warrants
(1)
|
|
4.3
|
|
Form of Class F Warrants
(1)
|
|
4.4
|
|
Form of Class G Warrants
(1)
|
|
4.5
|
|
Form of Class H Warrants
(1)
|
|
4.6
|
|
Form of Class I Warrants
(3)
|
|
4.7
|
|
Form of Class J Warrants
(6)
|
|
4.8
|
|
Form of 12% Promissory Note
(1)
|
|
4.9
|
|
Form of 4% Convertible Debenture
(1)
|
|
4.10
|
|
Form of 10% senior secured convertible note and security agreement (
6)
|
|
10.1
|
|
Registration Rights Agreement, dated as of March 8, 2004 by and among the Company and each entity named on the signature page thereto
(3)
|
|
10.2
|
|
Securities Purchase Agreement, dated as of March 8, 2004 by and among the Company and each entity named on the signature page thereto
(3)
|
|
10.3
|
|
Securities Purchase Agreement in respect of the 4% Convertible Debenture, dated as of December 30, 2003 by and between Validian Corporation and each individual or entity named on a signature page thereto
(1)
|
|
10.4
|
|
Registration Rights Agreement, dated as of December 30, 2004 by and between the Company and each entity named on the signature page thereto
(1)
|
|
10.5
|
|
Amended and Restated Incentive Equity Plan
(4)
|
|
10.6
|
|
Validian Corporation 2004 Incentive Equity Plan
(4)
|
|
10.7
|
|
Validian Corporation 2004 Amended Incentive Equity Plan
(7)
|
|
10.8
|
|
Commercial Lease dated April 15, 2004 between Validian Corporation and National Capital Commission
(5)
|
|
10.9
|
|
Commercial Renewal Lease dated March 20, 2007
(6)
|
|
10.10
|
|
Employment Agreement with Andre Maisonneuve
* (9)
|
|
10.11
|
|
Employment Agreement with Bruce Benn
* (9)
|
|
10.12
|
|
Employment Agreement with Ronald Benn
* (9)
|
|
14.1
|
|
Code of Ethics
(8)
|
|
21.1
|
|
List of Subsidiaries
(5)
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Section 302
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to Section 906
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to Section 906
|
|
101**
|
|
The following financial information from our Annual Report on Form 10-K for the year ended December 31, 2018 formatted in Extensible Business Reporting Language (XBRL): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) Statement of Changes in Stockholders’ Equity, (iv) the Statements of Cash Flows, and (v) Notes to Financial Statements
|
___________________________________________
*
Denotes management contract
(1)
Previously filed as an exhibit to our Annual Report on Form 10-KSB, SEC File No. 0-28423, filed with the Commission on March 30, 2004 and incorporated herein by reference.
(2)
Previously filed as an Exhibit to our Registration Statement on Form 10-SB, SEC File No. 0-28423, filed with the Commission on December 9, 1999 and incorporated herein by reference.
(3)
Previously filed as an Exhibit to our Current Report on Form 8-K, SEC File No. 0-28423, filed with the Commission on March 8, 2004 and incorporated herein by reference.
(4)
Previously filed as an Exhibit to our Amended Proxy Statement, filed with the Commission on January 12, 2005 and incorporated herein by reference.
(5)
Previously filed as an Exhibit to our Annual Report on Form 10-KSB for the year ended December 31, 2004, filed with the Commission on April 14, 2005 and incorporated herein by reference.
(6)
Previously filed as an Exhibit to our Annual Report on Form 10-KSB for the year ended December 31, 2006, filed with the Commission on May 18, 2007 and incorporated herein by reference.
(7)
Previously filed as an Exhibit to our Current Report on Form 8-K, SEC File No. 0-28423, filed with the Commission on August 24, 2007 and incorporated herein by reference.
(8)
Previously filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.
Statements contained in this Form 10-K as to the contents of any agreement or other document referred to are not complete, and where such agreement or other document is an exhibit to this Report or is included in any forms indicated above, each such statement is deemed to be qualified and amplified in all respects by such provisions.
54
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VALIDIAN CORPORATION
(Registrant)
By: /s/ Bruce Benn
Bruce Benn
President, Chief Executive Officer and director
(principal executive officer)
Dated: April 8, 2019
By: /s/ Bruce Benn
Bruce Benn
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
Dated: April 8, 2019
55