FDCTECH,
INC. – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. BUSINESS DESCRIPTION AND NATURE OF OPERATIONS
The
Company was incorporated on January 21, 2016, as Forex Development Corporation, under the State of Delaware laws. On February
27, 2018, the Company changed its name to FDCTech, Inc. The name change reflects the Company’s commitment to expanding its
products and services in the FX, and cryptocurrency markets for OTC brokers. The Company provides innovative and cost-efficient
financial technology (‘fintech’) and business solution to OTC Online Brokerages and cryptocurrency businesses (“customers”).
The
Company’s products are designed to provide a complete solution for all operating aspects of the customer’s business,
including but not limited to trading terminal, back office, customer relationship management, and risk management systems. The
Company provides business and management consulting, including management consulting and customer’s B2B sales and marketing
divisions. The Company provides turnkey business solutions to entrepreneurs and other non-broker entities seeking to enter FX,
cryptocurrency, and other OTC markets. The Company takes on customized software development projects specific to meet the needs
of its customers. The Company also acts as a general technical support provider for customers and other fintech companies.
The
Company’s business solutions allow its customers to increase trading revenues and cut operating costs. Our proprietary solutions
enable customers to anticipate market challenges using our in-house processes, state-of-the-art technologies, risk management
tools, customized software development, and turnkey prime-of-prime business solution.
We
are a development company in the financial technology sector with limited operations. The Company has prepared consolidated financial
statements on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments
in the ordinary business course.
At
present, the Company does not have any patents or trademarks on its proprietary technology solutions.
At
present, the Company has three sources of revenue.
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Consulting
Services – The Company’s turnkey business solutions - Start-Your-Own-Brokerage (“SYOB”), Start-Your-Own-Prime
Brokerage (“SYOPB”), Start-Your-Own-Crypto Exchange (“SYOC”), FX/OTC liquidity solutions, and lead
generations.
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Technology
Solutions – The Company licenses its proprietary and, in some cases, acts as a reseller of third-party technologies
to customers. Our proprietary technology includes but is not limited to Condor Risk Management Back Office (“Condor
Risk Management”), Condor FX Pro Trading Terminal, Condor Pricing Engine, Crypto Web Trader Platform, and other cryptocurrency-related
solutions.
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Customized
Software Development – The Company develops software for Customers with unique requirements outlined in the Software
Development Agreement (“Agreement”).
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In
the retail foreign exchange trading space, where individuals speculate on the exchange rate between different currencies, our
customers are forex brokerages, prime of prime brokers, prime brokers, and banks. The Company generates revenues by licensing
its trading technology infrastructure, including but not limited to the trading platform (desktop, web, mobile), back office,
and CRM and banking integration technology.
Our
customers are companies in the cryptocurrency and blockchain space. The Company is acting as an adviser/strategic consultant and
reseller of its proprietary technologies. The Company expects to generate additional revenue from its crypto-related solutions.
Such solutions include revenues from the development of a custom crypto exchange platform for customers, the sale of the non-exclusive
source code of the crypto exchange platform to third parties, white-label fees of crypto exchange platforms, and the sale of aggregated
cryptocurrency data price feed from various crypto exchanges to OTC brokers. The Company initially plans to develop the technology
architecture of the crypto exchange platform for its customers. The initial capital required to produce such technologies comes
from our customers as the Company takes on design-build software development projects for customers. The Company develops these
projects to meet the design criteria and performance requirements as specified by the customer.
Subsidiaries
of the Company
In
April 2016, the Company established its wholly-owned subsidiary – FRH Prime Ltd. (“FRH Prime”), a company incorporated
under section 14 of Bermuda’s Companies Act 1981. In January 2017, FRH Prime established its wholly-owned subsidiary –
FXClients Limited (“FXClients”), under the United Kingdom Companies Act 2006 as a private company. The Company established
FRH Prime and FXClients to conduct financial technology service activities. For the fiscal year ended December 31, 2020, and 2019,
FRH Prime has generated volume rebates of $1,861 and $1,281, respectively, from Condor Risk Management Back Office. The Company
has included rebates in revenue in the consolidated income statements. There have been no significant operating activities in
FXClients.
Note
2 - Summary of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
The
accompanying consolidated financial statements include the accounts of FDCTech, Inc. and its wholly-owned subsidiary. We have
eliminated all intercompany balances and transactions. The Company has prepared the consolidated financial statements consistent
with the Company’s accounting policies in its financial statements. The Company has measured and presented the Company’s
consolidated financial statements in US Dollars, which is the currency of the primary economic environment in which the Company
operates (also known as its functional currency).
Consolidated
Financial Statement Preparation and Use of Estimates
The
Company prepared the consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America (“GAAP”). The preparation of the consolidated financial statements in conformity with GAAP requires
management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and
the related disclosures at the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses
during the periods presented. Estimates include revenue recognition, the allowance for doubtful accounts, website and internal-use
software development costs, recoverability of intangible assets with finite lives, and other long-lived assets. Actual results
could materially differ from these estimates.
Cash
and Cash Equivalents
Cash
and cash equivalents include cash on hand, deposits held with banks, and other short-term highly liquid investments with original
maturities of three months or less. The Company maintains its cash balances at a single financial institution. The balances do
not exceed Federal Deposit Insurance Corporation (FDIC) limits as of December 31, 2020. On December 31, 2020, and December 31,
2019, the Company had $22,467 and $27,884 cash and cash equivalent held at the financial institution.
Note
2 – Summary of Significant Accounting Policies (continued)
Accounts
Receivable
Accounts
Receivable primarily represents the amount due from eight (8) customers. In some cases, the customer receivables are due immediately
on demand; however, in most cases, the Company offers net 30 terms or n/30, where the payment is due in full 30 days after the
invoice’s date. The Company has based the allowance for doubtful accounts on its assessment of the collectability of customer
accounts. The Company regularly reviews the allowance by considering historical experience, credit quality, the accounts receivable
balances’ age, and economic conditions that may affect a customer’s ability to pay and expected default frequency
rates. Trade receivables are written off at the point when they are considered uncollectible.
At
December 31, 2020, and December 31, 2019, the Management determined that allowance for doubtful accounts was $95,961 and $78,087,
respectively. The fiscal year’s bad debt expense ended December 31, 2020, and 2019 was $17,875 and $20,000, respectively.
Sales,
Marketing and Advertising
The
Company recognizes sales, marketing, and advertising expenses when incurred.
The
Company incurred $24,526 and $23,223 in sales, marketing, and advertising costs (“sales and marketing”) for the fiscal
year ended December 31, 2020, and 2019 respectively. The sales and marketing cost mainly included travel costs for tradeshows,
customer meet and greet, online marketing on industry websites, press releases, and public relations activities. The sales, marketing,
and advertising expenses represented 11.39% and 5.59% of the fiscal year’s sales ended December 31, 2020, and 2019 respectively.
Revenue
Recognition
On
January 1, 2019, the Company adopted ASU 2014-09 Revenue from Contracts with Customers. The majority of the Company’s revenues
come from two contracts – IT support and maintenance (‘IT Agreement’) and software development (‘Second
Amendment’) that fall within the scope of ASC 606.
The
Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the Company expects to receive in exchange for those goods or services as per the contract with the customer. As a result,
the Company accounts for revenue contracts with customers by applying the requirements of Accounting Standards Codification Topic
606, Revenue from Contracts with Customers (Topic 606), which includes the following steps:
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Identify
the contract or contracts, and subsequent amendments with the customer.
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Identify
all the performance obligations in the contract and subsequent amendments.
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Determine
the transaction price for completing performance obligations.
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Allocate
the transaction price to the performance obligations in the contract.
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Recognize
the revenue when, or as, the Company satisfies a performance obligation.
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Note
2 - Summary of Significant Accounting Policies (continued)
The
Company adopted ASC 606 using the modified retrospective method applied to all contracts not completed as of January 1, 2019.
The Company presents results for reporting periods beginning after January 1, 2019, under ASC 606 while prior period amounts are
reported following legacy GAAP. In addition to the above guidelines, the Company also considers implementation guidance on warranties,
customer options, licensing, and other topics. The Company takes into account revenue collectability, methods for measuring progress
toward complete satisfaction of a performance obligation, warranties, customer options for additional goods or services, nonrefundable
upfront fees, licensing, customer acceptance, and other relevant categories.
The
Company accounts for a contract when the Company and the customer (‘parties’) have approved the contract and are committed
to performing their respective obligations. Each party can identify their rights, obligations, and payment terms; the contract
has commercial substance. The Company will probably collect all of the consideration. Revenue is recognized when performance obligations
are satisfied by transferring control of the promised service to a customer. The Company fixes the transaction price for goods
and services at contract inception. The Company’s standard payment terms are generally net 30 days and in some cases due
upon receipt of the invoice.
The
change in scope or price or both is considered as contract modifications by the Company. The parties describe contract modification
as a change order, a variation, or an amendment. A contract modification exists when the parties to the contract approve a modification
that either creates new or changes existing enforceable rights and obligations of the parties. The Company assumes a contract
modification when approved in writing, by oral agreement, or implied by the customer’s customary business practice. If the
parties to the contract have not approved a contract modification, the Company continues to apply the existing contract’s
guidance until the contract modification is approved. The Company recognizes contract modification in various forms –partial
termination, an extension of the contract term with a corresponding price increase, adding new goods or services to the contract,
with or without a corresponding price change, and reducing the contract price without a change in goods/services promised.
At
contract inception, the Company assesses the solutions or services, or bundles of solutions and services, obligated in the contract
with a customer to identify each performance obligation within the contract, and then evaluate whether the performance obligations
are capable of being distinct and distinct within the context of the contract. Solutions and services that are not both capable
of being distinct and distinct within the contract context are combined and treated as a single performance obligation in determining
the allocation and recognition of revenue. For multi-element transactions, the Company allocates the transaction price to each
performance obligation on a relative stand-alone selling price basis. The Company determines the stand-alone selling price for
each item at the inception of the transaction involving these multiple elements.
Note
2 - Summary of Significant Accounting Policies (continued)
Since
January 21, 2016 (‘Inception’), the Company has derived its revenues mainly from three sources – consulting
services, technology solutions, and customized software development. The Company recognizes revenue when it has satisfied a performance
obligation by transferring control over a product or delivering a service to a customer. We measure revenue based upon the consideration
outlined in an arrangement or contract with a customer.
The
Company’s typical performance obligations include the following:
Performance
Obligation
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Types
of Deliverables
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When
Performance Obligation is Typically Satisfied
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Consulting
Services
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Consulting
related to Start-Your-Own-Brokerage (“SYOB”), Start-Your-Own-Prime Brokerage (“SYOPB”), Start-Your-Own-Crypto
Exchange (“SYOC”), FX/OTC liquidity solutions and lead generations.
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The
Company recognizes the consulting revenues when the customer receives services over the length of the contract. If the customer
pays the Company in advance for these services, the Company records such payment as deferred revenue until the Company completes
the services.
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Technology
Services
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Licensing
of Condor Risk Management Back Office for MT4 (“Condor Risk Management”), Condor FX Pro Trading Terminal, Condor
Pricing Engine, Crypto Trading Platform (“Crypto Web Trader Platform”), and other cryptocurrency-related solutions.
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The
Company recognizes ratably over the contractual period that the services are delivered, beginning on the date in which such
service is made available to the customer. Licensing agreements are typically one year in length with an option to cancel
by giving notice; customers have the right to terminate their agreements if the Company materially breaches its obligations
under the agreement. Licensing agreements do not provide customers the right to take possession of the software at any time.
The Company charges the customers a set-up fee for installing the platform, and implementation activities are insignificant
and not subject to a separate fee.
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Software
Development
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Design
and build development software projects for customers, where the Company develops the project to meet the design criteria
and performance requirements as specified in the contract.
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The
Company recognizes the software development revenues when the Customer obtains control of the deliverables as stated in the
Statement-of-Work contract.
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To
determine the transaction price, the Company assumes that the goods or services promised in the existing contract will be transferred
to the customer. The Company assumes that the contract will not be canceled, renewed, or modified; therefore, the transaction
price includes only those amounts to which the Company has rights under the present contract. For example, if the Company enters
into a contract with a customer with an original term of one year and expects the customer to renew for a second year, the Company
would determine the transaction price based on the original one-year term. When determining the transaction price, the Company
first identifies the fixed consideration, including non-refundable upfront payment amounts.
For
purposes of allocating the transaction price, the Company allocates an amount that best represents consideration that the entity
expects to receive for transferring each promised good or service to the customer. The Company allocates the transaction price
to each performance obligation identified in the contract on a relative standalone selling price basis to meet the allocation
objective. In determining the standalone selling price, the Company uses the best evidence of the stand-alone selling price that
the Company charges to similar customers in similar circumstances. In some cases, the Company uses the adjusted market assessment
approach to determine the standalone selling price. It evaluates the market in which it sells the goods or services and estimates
the price that customers in that market would pay for those goods or services when sold separately.
The
Company recognizes revenue when or as it transfers the promised goods or services in the contract. The Company considers the “transfers”
the promised goods or services when the customer obtains control of the goods or services. The Company considers a customer “obtains
control” of an asset when it can direct the use of, and obtain all the remaining benefits from, an asset substantially.
The Company recognizes deferred revenue related to services it will deliver within one year as a current liability. The Company
presents deferred revenue related to services that the Company will deliver more than one year into the future as a non-current
liability.
For
the period ending December 31, 2019, the Company’s two primary revenue streams accounted for under ASC 606 follows:
The
Company entered into a definitive asset purchase agreement on July 19, 2017, to sell the code, installation, and future development
for a value of two hundred and fifty thousand ($250,000) dollars. The first part was the sale of source code and installation.
The second part consisted of the future development of the Platform, which is not essential to the functionality of the Platform,
as third parties or customer(s) themselves can perform these services. By December 31, 2017, the Company has received the two
installments totaling one hundred and sixty thousand ($160,000) dollars for the source code and successful installation of the
Platform. The Company has recognized the revenue of $160,000 for the fiscal year ended December 31, 2017. On December 31, 2019,
the Company wrote-off a software development revenue equaling $18,675 for the fiscal year ended December 31, 2017, for accounts
receivable, which were over ninety days. However, in August 2018, the Company signed the second amendment to the asset purchase
agreement. The purchaser issued to the Company seventeen thousand, seven hundred and fifty dollars ($17,750) as a full and final
settlement of all past delivered services. The Company received the funds in September 2018. On September 4, 2018, the Company
signed the Second Amendment Agreement (‘Second Amendment’) to continue the asset purchase agreement. The Company signed
the First Amendment Agreement signed on July 19, 2017, and August 1, 2017, between the Company and the Purchaser. Under the Second
Amendment, the Company received $80,000 as the second part was selling source code in four equal installments of $20,000 each.
The Company received payments by May 5, 2019.
According
to the Second Amendment, the Company identifies two primary ongoing performance obligations in the contract for the following
development services of the Platform:
a)
Customized developments, and
b)
Software updates.
The
Company receives $75 per hour for the first 100 hours/month of approved development services and $45 per hour for all services
over 100 hours per month. The Company invoices the Customer for all development services rendered, and any cash received for the
development services is non-refundable.
On
February 5, 2018 (‘Effective Date’), the Company signed an IT support and maintenance agreement (‘IT Agreement’)
with an FX/OTC broker (‘FX Broker’) regulated by the Malta Financial Services Authority. The Company earns the recurring
monthly payment from the FX Broker for delivering IT support and maintenance services (‘Services’) to FX Broker’s
legacy technology infrastructure. The term of this Agreement commenced on the Effective Date and shall continue until terminated
by either party either for cause, bankruptcy, and other default clauses. The Company completes and satisfies its performance obligation
upon accomplishment of all support and maintenance activities every month. The Company invoices the FX Broker at the beginning
of the month for services performed, delivered, and accepted for the prior month. At the time of the invoice, the Company renders
all Services, and any cash received for Services is non-refundable.
According
to the contract’s terms and conditions, the Company invoices the customer at the beginning of the month for the month’s
services. The invoice amount is due upon receipt. The Company recognizes the revenue at the end of each month, equal to the invoice
amount.
Note
2 - Summary of Significant Accounting Policies (continued)
Concentrations
of Credit Risk
Cash
Cash
and cash equivalents include cash on hand, deposits held with banks, and other short-term highly liquid investments with original
maturities of three months or less. The Company maintains its cash balances at a single financial institution. The balances do
not exceed Federal Deposit Insurance Corporation (FDIC) limits as of December 31, 2020. On December 31, 2020, and December 31,
2019, the Company had $22,467 and $27,884 cash and cash equivalent held at the financial institution.
Revenues
For
the fiscal year ended December 31, 2020, and 2019, the Company had eight (8) and ten (10) active customers, respectively. Revenues
generated from the top three (3) customers represented approximately 83.30% and 93.73% of total revenue for the fiscal year ended
December 31, 2020, and 2019 respectively.
Accounts
Receivable
At
December 31, 2020, and December 31, 2019, the company’s top four (4) customers comprise roughly 72.44% and 84.43% of total
A/R, respectively. The loss of any of the top four (4) customers would significantly impact the Company’s operations.
Research
and Development (R and D) Cost
The
Company acknowledges that future benefits from research and development (R and D) are uncertain, and it cannot capitalize the
R and D expenditures. The GAAP accounting standards require us to expense all research and development expenditures as incurred.
For the fiscal year ended December 31, 2020 and 2019, the Company incurred no R and D cost. We have included the R and D costs
in the General and Administrative expenses in the consolidated income statements.
Legal
Proceedings
The
Company discloses a loss contingency if there is at least a reasonable possibility that a material loss has been incurred. The
Company records its best estimate of loss related to pending legal proceedings when the loss is considered probable, and the amount
can be reasonably estimated. The Company can reasonably estimate a range of loss with no best estimate in the range; the Company
records the minimum estimated liability. As additional information becomes available, the Company assesses the potential liability
related to pending legal proceedings, revises its estimates, and updates its disclosures accordingly. The Company’s legal
costs associated with defending itself are recorded to expense as incurred. The Company is currently not involved in any litigation.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets for impairment in accordance with FASB ASC 360, Property, Plant, and Equipment. Under the standard,
long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts
may not be recoverable. An impairment charge is recognized for the amount if and when the asset’s carrying value exceeds
the fair value. On December 31, 2020, and December 31, 2019, there are no impairment charges.
Provision
for Income Taxes
The
provision for income taxes is determined using the asset and liability method. Under this method, deferred tax assets and liabilities
are calculated based upon the temporary differences between the consolidated financial statement and income tax bases of assets
and liabilities using the enacted tax rates applicable each year.
The
Company utilizes a two-step approach to recognizing and measuring uncertain tax positions (“tax contingencies”). The
first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is
more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes.
The second step is to measure the tax benefit as the largest amount, which is more than 50% likely to be realized upon ultimate
settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, requiring periodic
adjustments, which may not accurately forecast actual outcomes. The Company includes interest and penalties related to tax contingencies
in the provision of income taxes in the operations’ consolidated statements. The Company’s management does not expect
the total amount of unrecognized tax benefits to change in the next twelve (12) months significantly.
Note
2 - Summary of Significant Accounting Policies (continued)
Software
Development Costs
By
ASC 985-20, Software development costs, including costs to develop software sold, leased, or otherwise marketed, that are incurred
after the establishment of technological feasibility, are capitalized if significant. Capitalized software development costs are
amortized using the straight-line amortization method over the application software’s estimated useful life. By the end
of February 2016, the Company completed the activities (planning, designing, coding, and testing) necessary to establish that
it can produce and meet the Condor FX Back Office Version’s design specifications, Condor FX Pro Trading Terminal Version,
and Condor Pricing Engine. The Company established the technological feasibility of the Crypto Web Trader Platform in 2018. The
Company estimates the useful life of the software to be three (3) years.
Amortization
expense was $251,959 and $117,554 for the fiscal year ended December 31, 2020, and 2019 respectively, and the Company classifies
such cost as the Cost of Sales.
The
Company capitalizes significant costs incurred during the application development stage for internal-use software.
Convertible
Debentures
The
cash conversion guidance in ASC 470-20, Debt with Conversion and Other Options, is considered when evaluating the accounting for
convertible debt instruments (this includes certain convertible preferred stock that is classified as a liability) to determine
whether the conversion feature should be recognized as a separate component of equity. The cash conversion guidance applies to
all convertible debt instruments that upon conversion, may be settled entirely or partially in cash or other assets where the
conversion option is not bifurcated and separately accounted for pursuant to ASC 815.
If
the conversion features of conventional convertible debt provide a conversion rate below market value, this feature is characterized
as a beneficial conversion feature (“BCF”). The Company records BCF as a debt discount pursuant to ASC Topic 470-20,
Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to
the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
As
of December 31, 2020, the conversion features of conventional FRH Group convertible notes dated February 22, 2016, May 16, 2016,
November 17, 2016, and April 24, 2017 (See Note 8) provide for a rate of conversion where the conversion price is below the market
value. As a result, the conversion feature on all FRH Group convertible notes has a beneficial conversion feature (“BCF”)
to the extent of the price difference.
As
the Company and FRH Group extended the maturity date of the four (4) tranches of convertible notes to June 30, 2021, Management
performed an analysis to determine the fair value of the BCF on these tranches. The Company noted that the value of the BCF for
each note was insignificant; thus, it did not record debt discount as of December 31, 2020.
For
FRH Group convertible note dated April 24, 2017, the stock’s value at issuance date was above the floor conversion price;
this feature is characterized as a beneficial conversion feature (“BCF”). The Company records a BCF as a debt discount
pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” As a result, the convertible debt is recorded
net of the discount related to the BCF. As of December 31, 2017, the Company has amortized the discount of $97,996 to interest
expense at the issuance date because the debt is convertible at the date of issuance.
The
$97,996 amount equaled to the intrinsic value, and the Company allocated it to additional paid-in capital in 2017.
Basic
and Diluted Loss per Share
The
Company follows ASC 260, Earnings Per Share, to account for earnings per share. Basic earnings per share (“EPS”) calculations
are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted
earnings per share calculations are determined by dividing net loss by the weighted average number of common shares and dilutive
common share equivalents outstanding. As of December 31, 2020, and December 31, 2019, the Company had 68,876,332 and 68,626,332
basic and dilutive shares issued and outstanding, respectively. The Company had 20,000,000 million potentially dilutive shares
related to four (4) outstanding FRH Group convertible notes, which were excluded from the diluted net loss per share as the effects
would have been anti-dilutive. During the period ended December 31, 2020, and 2019, common stock equivalents were anti-dilutive
due to a net loss for the period. Hence they are not considered in the computation.
Note
2 - Summary of Significant Accounting Policies (continued)
Reclassifications
Certain
prior period amounts were reclassified to conform to the current year’s presentation. None of these classifications impacted
reported operating loss or net loss for any of the periods presented.
Recent
Accounting Pronouncements
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition
requirements in Topic 605, Revenue Recognition, including most industry-specific requirements. ASU 2014-09 establishes a five-step
revenue recognition process in which an entity will recognize revenue when it transfers promised goods or services to customers
in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows
from customers’ contracts. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one (1) year. The Company adopted ASC 606 using
the modified retrospective method applied to all contracts not completed as of January 1, 2019. The Company presents results for
reporting periods beginning after January 1, 2019, under ASC 606 while prior period amounts are reported following legacy GAAP.
Refer to Note 2 Revenue from Major Contracts with Customers for further discussion on the Company’s accounting policies
for revenue sources within the scope of ASC 606.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 840), to increase transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
The amendments to this standard are effective for fiscal years beginning after December 15, 2019. Early adoption of the amendments
in this standard is permitted for all entities, and the Company must recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. The Company adopted this policy as of January 1, 2020, and there is
no material affect on its financial reporting.
Other
recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the United States Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or
future consolidated financial statements.
NOTE
3. MANAGEMENT’S PLANS
The
Company has prepared consolidated financial statements on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the ordinary business course. At December 31, 2020, and 2019, the accumulated
deficit was $1,493,984 and $1,035,494, respectively. At December 31, 2020, and 2019, the working capital deficit was $1,504,678
and $1,299,179, respectively.
During
the fiscal year ended December 31, 2020, and 2019, the Company incurred a net loss of $458,490 and $255,690, respectively.
Since
its inception, the Company has sustained recurring losses, and negative cash flows from operations. As of December 31, 2020, the
Company had $22,467 cash on hand. The Management believes that future cash flows may not be sufficient for the Company to meet
its debt obligations as they become due in the ordinary course of business for twelve (12) months following December 31, 2020.
For the fiscal year ended December 31, 2020 and 2019, the Company has earned decreased revenues year-over-year and continues to
reduce its operating expenses. However, the Company continues to experience negative cash flows from operations and the ongoing
requirement for substantial additional capital investment to develop its financial technologies. The Management expects that it
will need to raise substantial additional capital to accomplish its growth plan over the next twelve (12) months. The Management
expects to seek to obtain additional funding through private equity or public markets. However, there can be no assurance about
the availability or terms upon which such financing and capital might be available.
The
Company’s ability to continue as a going concern may depend on the Management’s plans discussed below. The consolidated
financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts
and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
To
the extent the Company’s operations are not sufficient to fund the Company’s capital requirements, the Management
may attempt to enter into a revolving loan agreement with financial institutions or attempt to raise capital through the sale
of additional capital stock or issuance of debt.
The
Management intends to continue its efforts to enhance its revenue from its diversified portfolio of technological solutions, become
cash flow positive, and raise funds through private placement offering and debt financing. See Note 8 for Notes Payable. In the
future, as the Company increases its customer base across the globe, the Company intends to acquire long-lived assets that will
provide a future economic benefit beyond fiscal 2020.
NOTE
4. CAPITALIZED SOFTWARE COSTS
During
the fiscal year ended December 31, 2020, and 2019, the estimated remaining weighted-average useful life of the Company’s
capitalized software was three (3) years. The Company recognizes amortization expense for capitalized software on a straight-line
basis.
At
December 31, 2020, and December 31, 2019, the gross capitalized software asset was $1,024,158 and $829,500, respectively. At the
end of December 31, 2020, and December 31, 2019, the accumulated software depreciation and amortization expenses were $391,834
and $139,875, respectively. As a result, the unamortized balance of capitalized software at December 31, 2020, and December 31,
2019, was $632,324 and $689,625, respectively.
The
Company has estimated aggregate amortization expense for each of the five (5) succeeding fiscal years based on the estimated software
asset’s lifespan of three (3) years.
Estimated
Amortization Expense:
Fiscal year ended December 31, 2021
|
|
$
|
274,462
|
|
Fiscal year ended December 31, 2022
|
|
$
|
159,051
|
|
Fiscal year ended December 31, 2023
|
|
$
|
22,503
|
|
Fiscal year ended December 31, 2024
|
|
$
|
0
|
|
Fiscal year ended December 31, 2025
|
|
$
|
0
|
|
NOTE
5. RELATED PARTY TRANSACTIONS
In
April 2016, the Company established its wholly-owned subsidiary – FRH Prime Ltd. (“FRH Prime”), a company incorporated
under section 14 of Bermuda’s Companies Act 1981. In January 2017, FRH Prime established its wholly-owned subsidiary –
FXClients Limited (“FXClients”), under the United Kingdom Companies Act 2006 as a private company. The Company established
FRH Prime and FXClients to conduct financial technology service activities. For the fiscal year ended December 31, 2020, and 2019,
FRH Prime has generated volume rebates of $1,861 and $1,281, respectively, from Condor Risk Management Back Office. There have
been no significant operating activities in FXClients.
Between
February 22, 2016, and April 24, 2017, the Company borrowed $1,000,000 from FRH Group, a founder and principal shareholder of
the Company. The Company executed Convertible Promissory Notes, due between April 24, 2019 and June 30, 2019. The Notes are convertible
into common stock initially at $0.10 per share but maybe discounted under certain circumstances, but in no event will the conversion
price be less than $0.05 per share. The Notes carry an interest rate of 6% per annum, which is due and payable at the maturity
date. The parties have extended the maturity date of the Notes to June 30, 2021.
Between
March 15 and 21, 2017, subject to the terms and conditions of the Stock Purchase Agreement, the Company issued 1,000,000 shares
to Susan Eaglstein and 400,000 shares to Brent Eaglstein for a cash amount of $70,000. Ms. Eaglstein and Mr. Eaglstein are the
Mother and Brother, respectively, of Mitchell Eaglstein, the Company’s CEO and Director.
NOTE
6. LINE OF CREDIT
From
June 24, 2016, the Company obtained an unsecured revolving line of credit of $40,000 from Bank of America to fund various purchases
and travel expenses. The line of credit has an average interest rate at the close of business on December 31, 2019, for purchases,
and cash is drawn at 12% and 25%, respectively. As of December 31, 2020, the Company complies with the credit line’s terms
and conditions. At December 31, 2020, and December 31, 2019, the outstanding balance was $39,071 and $31,514, respectively.
NOTE
7. NOTES PAYABLE – RELATED PARTY
Convertible
Notes Payable
Between
February 22, 2016, and April 24, 2017, the Company borrowed $1,000,000 from FRH Group, a founder and principal shareholder of
the Company. The Company executed Convertible Promissory Notes, due between April 24, 2019 and June 30, 2019. The Notes are convertible
into common stock initially at $0.10 per share but maybe discounted under certain circumstances, but in no event will the conversion
price be less than $0.05 per share. The Notes carry an interest rate of 6% per annum, which is due and payable at the maturity
date. The parties have extended the maturity date of the Notes to June 30, 2021.
At
December 31, 2020, the current portion of convertible notes payable and accrued interest was $1,000,000 and $256,908, respectively.
There was no non-current portion of convertible notes payable and accrued interest.
At
December 31, 2019, the current portion of convertible notes payable and accrued interest was $1,000,000 and $196,908, respectively.
There was no non-current portion of convertible notes payable and accrued interest.
At
December 31, 2020, there was no non-current portion of the Notes payable and accrued interest.
The
Company will pay the Notes’ outstanding principal amount, together with interest at 6% per annum, in cash on the Maturity
Date to this Note’s registered holder. In the event the Company does not make, when due, any payment, when due, of principal
or interest required to be made, the Company will pay, on-demand, interest on the amount of any overdue payment of principal or
interest for the period following the due date of such payment, at a rate of ten percent (10%) per annum.
On
February 22, 2016, the Company issued and promised to pay a convertible note to FRH Group for the principal sum of One Hundred
Thousand and 00/100 Dollars ($100,000) on February 28, 2018 (the “Original Maturity Date”). The initial conversion
rate will be $0.10 per share or 1,000,000 shares if FRH Group converts the entire Note, subject to adjustments in certain events
as set forth below. For example, the Company’s common stock’s fair market value is less than $0.10 per share. In that
case, the conversion price shall be discounted by 30%, but in no event will the conversion price be less than $0.05 per share
with a maximum of 2,000,000 shares if FRH Group converts the entire Note subject to adjustments in certain events. No fractional
Share or scrip representing a fractional Share will be issued upon conversion of the Notes.
On
May 16, 2016, the Company issued and promised to pay a convertible note to FRH Group for the principal sum of Four Hundred Thousand
and 00/100 Dollars ($400,000) on May 31, 2018 (the “Original Maturity Date”). The initial conversion rate will be
$0.10 per share or 4,000,000 shares if FRH Group converts the entire Note, subject to adjustments in certain events as set forth
below. For example, the Company’s common stock’s fair market value is less than $0.10 per share. In that case, the
conversion price shall be discounted by 30%, but in no event will the conversion price be less than $0.05 per share with a maximum
of 8,000,000 shares if FRH Group converts the entire Note, subject to adjustments in certain events. No fractional Share or scrip
representing a fractional Share will be issued upon conversion of the Notes.
On
November 17, 2016, the Company issued and promised to pay a convertible note to FRH Group for the principal sum of Two Hundred
and Fifty Thousand and 00/100 Dollars ($250,000) on November 30, 2018 (the “Original Maturity Date”). The initial
conversion rate would be $0.10 per share or 2,500,000 shares if the entire Note were converted, subject to adjustments in certain
events as set forth below. For example, the Company’s common stock’s fair market value is less than $0.10 per share.
In that case, the conversion price shall be discounted by 30%, but in no event will the conversion price be less than $0.05 per
share with a maximum of 5,000,000 shares if FRH Group converts the entire Note, subject to adjustments in certain events. No fractional
Share or scrip representing a fractional Share will be issued upon conversion of the Notes.
On
April 24, 2017, the Company issued and promised to pay a convertible note to FRH Group for the principal sum of Two Hundred and
Fifty Thousand and 00/100 Dollars ($250,000) on April 24, 2019 (the “Original Maturity Date”). The initial conversion
rate will be $0.10 per share or 2,500,000 shares if FRH Group converts the entire Note, subject to adjustments in certain events
as set forth below. For example, the Company’s common stock’s fair market value is less than $0.10 per share. In that
case, the conversion price shall be discounted by 30%, but in no event will the conversion price be less than $0.05 per share
with a maximum of 5,000,000 shares if the entire Note was converted, subject to adjustments in certain events. No fractional Share
or scrip representing a fractional Share will be issued upon conversion of the Notes.
NOTE
7. Notes Payable – Related Party (continued)
Convertible
Notes Payable (continued)
FRH
Group Note Summary
Date of Note:
|
|
|
2/22/2016
|
|
|
|
5/16/2016
|
|
|
|
11/17/2016
|
|
|
|
4/24/2017
|
|
Original Amount of Note:
|
|
$
|
100,000
|
|
|
$
|
400,000
|
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Outstanding Principal Balance:
|
|
$
|
100,000
|
|
|
$
|
400,000
|
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Maturity Date (1):
|
|
|
6/30/2021
|
|
|
|
6/30/2021
|
|
|
|
6/30/2021
|
|
|
|
06/30/2021
|
|
Interest Rate:
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
Date to which interest has been paid:
|
|
|
Accrued
|
|
|
|
Accrued
|
|
|
|
Accrued
|
|
|
|
Accrued
|
|
Conversion Rate:
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
Floor Conversion Price:
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
(1)
Note Extension – The Convertible Promissory Note with the face value of $100,000 coupon 6%, dated February 22,
2016, was amended to extend the maturity date from June 30, 2021. The Convertible Promissory Note with the face value of $400,000,
coupon 6% issue, dated May 16, 2016, was amended to extend the maturity date from June 30, 2021. The Convertible Promissory Note
with the face value of $250,000, coupon 6% issue, dated November 17, 2016, was amended to extend the maturity date from June 30,
2021. By the execution of the note extension agreement, the Company represents and warrants that as of the date hereof, no Event
of Default exists or is continuing concerning the Promissory Note.
NOTE
8. NOTES PAYABLE – NON-RELATED PARTY
Cares
Act – Paycheck Protection Program (PPP Note)
On
May 01, 2020, the Company received proceeds of Fifty-Thousand Six Hundred and Thirty-Two ($50,632) from the Promissory Note (“PPP
Note”) under the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”). The funding of the PPP Note is conditioned upon approval of the Company’s application by the Small Business
Administration (SBA) and Bank of America (“Bank”), receiving confirmation from the SBA that the Bank may proceed with
the PPP Note. Suppose the SBA does not confirm the PPP Note’s forgiveness or only partly confirms the PPP Note’s forgiveness
or the Company fails to apply for PPP Note forgiveness. In that case, the Company will be obligated to repay to the Bank the total
outstanding balance remaining due under the PPP Note, including principal and interest (the “PPP Note Balance”). In
such case, Bank will establish the terms for repayment of the PPP Note Balance in a separate letter to be provided to the Company,
which letter will set forth the PPP Note Balance, the amount of each monthly payment, the interest rate (not above a fixed rate
of one percent (1.00%) per annum), the term of the PPP Note, and the maturity date of two (2) years from the funding date of the
PPP Note. No principal or interest payments will be due ten (10) months after the covered period.
SBA
Loan
On
May 22, 2020, the Company received proceeds of one hundred and forty-four thousand nine hundred and 00/100 Dollars ($144,900.00).
The installment payments will include the principal and interest of $707 monthly and will begin Twelve (12) months from the promissory
note date. The balance of principal and interest will be payable Thirty (30) years from the promissory Note date. Interest will
accrue at the rate of 3.75% per annum and will accrue only on $144,900 funds advanced from May 22, 2020, the advance date.
Economic
Injury Disaster Loan (EIDL)
The
Economic Injury Disaster Loan program is offered through the Small Business Administration. The CARES Act changed the program
to offer an emergency grant up to $10,000 per business, which is forgivable like the PPP Note. This grant doesn’t have to
be repaid. On May 14, 2020, the Company received $4,000 in EIDL grants. The Company has recorded it as other income since the
EIDL grant is forgivable.
NOTE
9. COMMITMENTS AND CONTINGENCIES
Office
Facility and Other Operating Leases
The
rental expense was $30,893 and $36,157 for the fiscal year ended December 31, 2020, and 2019, respectively. The decrease in rent
expense is due to reduce rent rate for Irvine Office for the fiscal year ended December 31, 2020. Effective October 29, 2019,
the Company rents its servers, computers, and data center from an unrelated third party. The lessor provides furniture and fixtures
and any leasehold improvements at Irvine Office under the rent Agreement, discussed in Note 2. Effective February 2019, the Company
leases office space in Limassol District, Cyprus, from an unrelated party for a year. The office’s rent payment is $1,750
per month, included in the General and administrative expenses. From February 2020, this agreement continues every year upon written
request by the Company. The Company uses the office for sales and marketing in Europe and Asia. Effective April 2019, the Company
leases office space in Chelyabinsk, Russia, from an unrelated party for an eleven (11) month term. The office’s rent payment
is $500 per month, and we have included it in the General and administrative expenses. From March 2020, this agreement continues
on a month-to-month basis until the Company or the lessor chooses to terminate by the agreement’s terms by giving thirty
(30) days’ notice. The Company uses the office for software development and technical support.
Employment
Agreement
The
Company gave all salary compensation to key executives as independent contractors, where Eaglstein, Firoz, and Platt commit one
hundred percent (100%) of their time to the Company. The Company has not formalized performance bonuses and other incentive plans.
Each executive is paid every month at the beginning of the month. From September 2018 to September 30, 2020, the Company is paying
a monthly compensation of $5,000 each per month to its CEO and CFO; respectively, with increases, each succeeding year should
the agreement be approved annually by the Company. Effective October 1, 2020, the Company expenses $12,000 monthly to its CEO
and CFO, respectively.
Accrued
Interest
At
December 31, 2020, and December 31, 2019, the Company’s exposure to cumulative accrued interest at 6% per annum on FRH Group
Note(s) was $256,908 and $196,908, respectively.
Pending
Litigation
Management
is unaware of any actions, suits, investigations, or proceedings (public or private) pending or threatened against or affecting
any of the assets or any affiliate of the Company.
Tax
Compliance Matters
The
Company has estimated payroll tax liabilities based on its officers’ reclassification from independent contractors to employees
from fiscal ended December 31, 2017, to 2020. As of December 31, 2020, the Company has assessed federal and state payroll tax
payments in the aggregate amount of $125,387, and we have included it in the General and administrative expenses.
NOTE
10. STOCKHOLDERS’ DEFICIT
Authorized
Shares
As
of December 31, 2020, and December 31, 2019, the Company’s authorized capital stock consists of 10,000,000 shares of preferred
stock, par value $0.0001 per share, and 100,000,000 shares of common stock, par value $0.0001 per share. As of December 31, 2020,
and December 31, 2019, the Company had 68,876,332 and 68,626,332 respectively common shares issued and outstanding and 4,000,000
preferred shares issued and outstanding. The preferred stock has fifty (50) votes for each share of preferred shares owned. The
preferred shares have no other rights, privileges, and higher claims on the Company’s assets and earnings than common stock.
Preferred
Stock
On
December 12, 2016, the Board agreed to issue 2,600,000, 400,000 and 1,000,000 shares of Preferred Stock to Mitchell Eaglstein,
Imran Firoz and FRH Group respectively as the founders in consideration of services rendered to the Company. As of December 31,
2019, the Company had 4,000,000 preferred shares issued and outstanding.
Common
Stock
On
January 21, 2016, the Company collectively issued 30,000,000 and 5,310,000 common shares at par value to Mitchell Eaglstein and
Imran Firoz, respectively, as the founders in consideration of services rendered to the Company.
On
December 12, 2016, the Company issued 28,600,000 common shares to the remaining two (2) founding members of the Company.
On
March 15, 2017, the Company issued 1,000,000 restricted common shares for platform development valued at $50,000. The Company
issued the securities with a restrictive legend.
On
March 15, 2017, the Company issued 1,500,000 restricted common shares for professional services to three (3) individuals valued
at $75,000. The Company issued the securities with a restrictive legend.
On
March 17, 2017, subject to the terms and conditions of the Stock Purchase Agreement, the Company issued 1,000,000 shares to Susan
Eaglstein for a cash amount of $50,000. The Company issued the securities with a restrictive legend.
On
March 21, 2017, subject to the terms and conditions of the Stock Purchase Agreement, the Company issued 400,000 shares to Bret
Eaglstein for a cash amount of $20,000. The Company issued the securities with a restrictive legend.
Ms.
Eaglstein and Mr. Eaglstein are the Mother and Brother, respectively, of Mitchell Eaglstein, who is the CEO and Director of the
Company.
From
July 1, 2017, to October 03, 2017, the Company has issued 653,332 units for a cash amount of $98,000 under its offering Memorandum,
where the unit consists of one (1) share of common stock and one Class A warrant (See Note 11).
On
October 31, 2017, the Company issued 70,000 restricted common shares to management consultants valued at $10,500. The Company
issued the securities with a restrictive legend.
On
January 15, 2019, the Company issued 60,000 restricted common shares for professional services to eight (8) consultants valued
at $9,000.
From
January 29, 2019 to February 15, 2019, the Company issued 33,000 registered shares under the Securities Act of 1933 for a cash
amount of $4,950. On February 26, 2019, the Company filed the Post-Effective Amendment No. 1 (the “Amendment”) related
to the Registration Statement on Form S-1and its amendments thereto, filed with the U.S. Securities and Exchange Commission on
November 22, 2017 and declared effective on August 7, 2018 (Registration No. 333-221726) (the “Registration Statement”)
of FDCTech, Inc., a Delaware corporation (the “Registrant”), amended the Registration Statement to remove from registration
all shares of common stock that were offered for sale by the Registrant but were not sold prior to the termination of the offering
made pursuant to the Registration Statement. At the termination of the offering made pursuant to the Registration Statement, 2,967,000
shares of common stock which were offered for sale by the Registrant were not sold or issued.
Effective
June 3, 2020, the Company issued 2,745,053 shares to Benchmark Investments, Inc. (“Broker-Dealer” or “Kingswood
Capital Markets”) of common stock at $0.25 per share for a total value of $686,263. The Broker-Dealer is retained to provide
general financial advisory to the Company for the next twelve months. The Company has expensed the prepaid-compensation through
the income statement following a regular straight-line amortization schedule over the contract’s life, which is for twelve
months—the time during which Kingswood Capital Markets presumably will produce benefits for the Company. On August 25, 2020,
the Company and Broker-Dealer terminated all obligations other than maintaining confidentiality, with no fees due by the Company
to the Broker-Dealer. The Broker-Dealer returned the 2,745,053 shares of the Company’s common stock as of December 31,
2020.
On
October 1, 2020, the Company issued 250,000 restricted common shares to a digital marketing consultant valued at $30,000. The
Company issued the securities with a restrictive legend.
NOTE
11. WARRANTS
Effective
June 1, 2017, the Company is raising $600,000 through a Private Placement Memorandum (the “Memorandum”) of up to 4,000,000
Units. Each unit (a “Unit”) consists of one (1) share of Common Stock, par value $.0001 per share (the “Common
Stock), and one (1) redeemable Class A Warrant (the “Class A Warrant(s)”) of the Company. The Company closed the private
placement effective December 15, 2017.
Each
Class A Warrant entitles the holder to purchase one (1) share of Common Stock for $0.30 per share at any time until April 30,
2019 (‘Expiration Date’). The Company issued the securities with a restrictive legend.
NOTE
11. WARRANTS (continued)
Information
About the Warrants Outstanding During Fiscal 2019 Follows
Original Number of Warrants Issued
|
|
|
Exercise Price per Common Share
|
|
|
Exercisable
at December
31, 2017
|
|
|
Became Exercisable
|
|
|
Exercised
|
|
|
Terminated / Canceled / Expired
|
|
|
Exercisable
at December
31, 2019
|
|
|
Expiration Date
|
|
653,332
|
|
|
$
|
0.30
|
|
|
|
653,332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
653,332
|
|
|
|
-
|
|
|
April 2019
|
The
Warrants are redeemable by the Company, upon thirty (30) day notice, at a price of $.05 per Warrant, provided the average of the
closing bid price of the Common Stock, as reported by the National Association of Securities Dealers Automated Quotation (“NASDAQ”)
System (or the average of the last sale price if the Common Stock is then listed on the NASDAQ National Market System or a securities
exchange), shall equal or exceed $1.00 per share (subject to adjustment) for ten (10) consecutive trading days prior to the date
on which the Company gives notice of redemption. The holders of Warrants called for redemption have exercise rights until the
close of business on the date fixed for redemption.
The
exercise price and the number of shares of Common Stock or other securities issuable on exercise of the Warrants are subject to
adjustment in certain circumstances, including stock dividend, recapitalization, reorganization, merger, or consolidation of the
Company. However, no Warrant is subject to adjustment for issuances of Common Stock at a price below the exercise price of that
Warrant.
As
of this report’s date, no Class A Warrants were exercised, and all Class A Warrants have expired.
Note
12. Income Taxes
The
Company calculates income taxes using the asset and liability method of accounting. We compute Deferred income taxes by multiplying
statutory rates applicable to estimated future year differences between the consolidated financial statement and tax basis carrying
amounts of assets and liabilities.
The
income tax provision is summarized as follows:
|
|
2020
|
|
|
2019
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
313,737
|
|
|
|
217,454
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Valuation allowance
|
|
|
(313,737
|
)
|
|
|
(217,454
|
)
|
Total tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
2020
|
|
|
2019
|
|
Net loss carryforward
|
|
|
313,737
|
|
|
|
217,454
|
|
Valuation allowance
|
|
|
(313,737
|
)
|
|
|
(217,454
|
)
|
Total deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
In
2020 and 2019, the Company had pre-tax losses of $458,490 and $255,690, respectively, which are available for carry-forward to
offset future taxable income. The Management has made determinations to provide full valuation allowances for our net deferred
tax assets at the end of 2020 and 2019, including Net Operating Loss (NOL) carryforwards generated during the years. Based on
its evaluation of positive and negative evidence, including our history of operating losses and the uncertainty of generating
future taxable income, we would be able to realize our deferred tax assets.
On
December 22, 2017, the United States President signed into law the Tax Cuts and Jobs Act (the “Act”). The Act amends
the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. The
Act reduces the corporate federal tax rate from a maximum of 35% to a 21% rate for businesses. The rate reduction will be taking
effect on January 1, 2018. Therefore, we have applied the tax rate of 21% to the ending balance of federal deferred tax assets.
As we provided a full valuation allowance against our net deferred tax assets, we have not recorded any tax impact due to the
tax rate change.
Note
12. Income Taxes (continued)
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on generating
future taxable income during the periods when those temporary differences become deductible. The Company believes it is unlikely
it will realize the benefits of NOL carryforward. We have provided a valuation allowance of $313,737 on the deferred tax assets
related to these NOL carryforwards in recognition of this risk. Suppose our assumptions change, and we determine that we will
be able to realize these NOLs. In that case, the tax benefits related to any reversal of the valuation allowance on deferred tax
assets as of December 31, 2020, will be accounted for as follows: the Company will recognize approximately $313,737 as a reduction
of income tax expense and record $313,737 as an increase in equity.
Based
on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not
be fully realizable at December 31, 2019. Accordingly, management has maintained a full valuation allowance against its net deferred
tax assets at December 31, 2020. The net change in the total valuation allowance for the twelve (12) months ended December 31,
2020 was an increase of $96,283. At December 31, 2020 and 2019, we had federal and state net operating loss carry-forwards of
approximately $1,493,984 and $1,035,494, respectively, expiring beginning in 2037 for federal and 2037 for the state.
For
the years ended December 31, 2020 and December 31, 2019, the Company analyzed its ASC 740 position and had not identified any
uncertain tax positions as defined under ASC 740. Should such position be identified in the future, and should the Company owe
interest and penalties because of this, these would be recognized as interest expense and other expense, respectively, in the
consolidated financial statements.
The
Company has identified the United States Federal tax returns as its “major” tax jurisdiction. The Company has submitted
and received acceptance of the United States Federal return for 2020 and 2019. The Company is not subject to tax examination by
authorities in the United States before the year 2016. The State Franchise Tax return for the years 2020 and 2019 has been submitted
and accepted by Delaware State Franchise Tax Board. Currently, the Company does not have any ongoing tax examinations.
As
of December 31, 2020, the Company has assessed federal and state payroll tax payments in the aggregate amount of $125,387, and
we have included it in the General and administrative expenses. The Company does not have any foreign tax expenses and liabilities
as of December 31, 2020 and 2019.
NOTE
13. OFF-BALANCE SHEET ARRANGEMENTS
We
have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk
support, credit risk support, or other benefits.
NOTE
14. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through March 3, 2021, the date these financial statements were available to be issued.
Effective
January 1, 2021, Naim Abdullah resigned as the Director of the Company.
On
January 27, 2021, the Company issued 1,200,000 restricted common shares to a digital marketing consultant valued at $324,000 for
a contract period of eighteen months. The Company issued the securities with a restrictive legend.
On
January 27, 2021, the Company issued 800,000 restricted common shares to a management consultant valued at $216,000 for a contract
period of eighteen months. The Company issued the securities with a restrictive legend.
On
January 27, 2021, the Company issued 300,000 restricted common shares to a technology consultant valued at $81,000 for a contract
period of twelve months. The Company issued the securities with a restrictive legend.
On
February 3, 2021, FDCTech, Inc (the “Company”) executed a Non-Binding Term Sheet (the “Agreement”) to
acquire all of the issued and outstanding shares of Genesis Financial, Inc., a Wyoming corporation (“Genesis”), in
exchange for $35,000,000 worth of the Company’s common stock. The total number of the Company’s shares to be issued
to Genesis will be priced at a 10% premium to the closing price on the day prior to announcing the Company’s intent to acquire
Genesis. Based on its stock’s closing price on February 08, 2021, the Company expects to issue approximately 43,586,500
shares. The maximum number of Company shares to be exchanged will not exceed 70,000,000 shares.
On
February 12, 2021, the Company filed the Certificate of Amendment with the Secretary of State of Deleware to change the number
of authorized shares. As per the Amendment, the Company shall have authority to issue is 260,000,000 shares, consisting of 250,000,000
shares of Common Stock having a par value of $.0001 per share and 10,000,000 shares of Preferred Stock having a par value of $.0001
per share.
Effective
February 22, 2021 (“Settlement Date”), subject to the satisfaction or waiver of the terms and conditions of the Note
Settlement Agreement (“Settlement Agreement), FRH Group, the Noteholder, agreed to accept, and the Company agreed to issue
12,569,080 shares of the Company to settle the Note(s). The Company issued the Note(s) between February 22, 2016, and April 24,
2017, with a principal amount of $1,000,000 and any unpaid and accrued interest of $256,908.