Notes to the Consolidated Financial Statements
Year ended December 31, 2015
(Expressed in U.S. dollars)
1.
Nature and continuance of operations
IGEN Networks Corp, (“IGEN”, or the “Company”) was incorporated in the State of Nevada on November 14, 2006. IGEN has three lines of businesses: investing in and managing for growth private high-tech companies that offer products and services in the domains of wireless broadband; negotiating distribution agreements with relevant organizations and selling their products and services through the distribution channels of IGEN; and commencing May 5, 2014, the Company was also in the business of providing vehicle tracking and recovery solutions to the automotive and power sport industries after the acquisition of Nimbo, LLC (Note 2).
These consolidated financial statements have been prepared on a going concern basis, which imply the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, on the ability of the company to grow its revenue base, on its ability to successfully grow the companies in which it is invested, and on the ability of the Company to obtain necessary equity financing to both support the latter objectives and to invest in and grow new companies. The Company has recurring losses since inception and had accumulated losses of $7,675,552 as at December 31, 2015. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Although there are no assurances that management’s plans will be realized, management believes that the Company will be able to continue operations into the future. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Effective May 5, 2014 (the “Acquisition Date”), the Company took control of Nimbo, LLC (“Nimbo”), a corporation incorporated in Texas U.S.A., by acquiring 100% of the voting equity interest (the “Acquisition”) of Nimbo. Nimbo is in the business of providing vehicle tracking and recovery solutions to the automotive and power sport industries. The Company intends on applying human resources and capital to help growing Nimbo LLC. The Company issued 2,500,000 common shares as consideration of the Acquisition. The fair value of these common shares was $475,000, which was determined on the basis of the closing price of Igen’s common share on the Acquisition Date.
In accordance with the FASB ASC 805, the Acquisition has been accounted for as a purchase of a business and the Company is identified as the acquirer. The fair value of the purchase consideration of $475,000 was allocated to the assets acquired and liabilities assumed based on the estimated fair values on the date of acquisition as described below:
Assets acquired
|
|
|
|
Cash
|
|
$
|
42,672
|
|
Accounts receivable (net of $9,258 provision for uncollectable)
|
|
|
117,727
|
|
Inventory
|
|
|
21,312
|
|
Prepaid
|
|
|
4,170
|
|
Equipment
|
|
|
45,035
|
|
Goodwill
|
|
|
505,508
|
|
Total
|
|
|
736,424
|
|
Less liabilities assumed:
|
|
|
|
|
Accounts payable, accrued liabilities, and deferred revenue
|
|
|
261,424
|
|
Fair value of assets acquired, net of liabilities assumed
|
|
$
|
475,000
|
|
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
For the Year ended December 31, 2015
(Expressed in U.S. dollars)
2.
Business Acquisition (continued)
The following table provides information of the revenue and net loss of Nimbo
|
|
Revenue
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
The actual result of Nimbo for the year ended:
|
|
|
|
|
|
|
May 5 to
December 31, 2014
|
|
|
681,351
|
|
|
|
(116,161
|
)
|
December 31, 2015
|
|
|
1,035,820
|
|
|
|
(312,077
|
)
|
3.
Summary of Significant Accounting Policies
a)
|
Basic of presentation and consolidation
|
These consolidated financial statements and related notes include the records of IGEN Networks Corp., its wholly owned subsidiary, IGEN Business Solutions Inc (incorporated in Canada) and Nimbo
,
LLC (incorporated in USA).
As discussed in Note 2, as of the completion of the Acquisition on May 5, 2014, the Company has started to consolidate the results of operation and cash flow of Nimbo to the Company’s consolidated financial statement. As a result, the comparative figures in the consolidated statements of operations and consolidated statements of cash flow for the year ended December 31, 2014 (collectively the “2014 Comparative Figures”) include the accounts of Nimbo only from the period from May 5 to December 31, 2014.
All intercompany transactions and balances have been eliminated. These condensed consolidated interim financial statements are presented in accordance with accounting principles generally accepted in the United States, expressed in US dollars, and, in management’s opinion, have been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized as in the following:
The preparation of these financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to donated expenses, and deferred income tax asset valuations. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Basic earnings (loss) per share are computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted earnings per share give effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted earnings (loss) per share, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted earnings (loss) per share exclude all dilutive potential shares if their effect is anti-dilutive.
Because the effect of conversion of the Company’s dilutive securities is anti-dilutive, diluted loss per share is the same as basic loss per share for the periods presented.
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
For the Year ended December 31, 2015
(Expressed in U.S. dollars)
d) Financial instruments
The Company adopted FASB ASC 820-10-50, “Fair Value Measurements”. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
- Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
- Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instrument.
- Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The fair values of cash, accounts receivable, accounts payable and accrued liabilities approximate their carrying values due to the immediate or short-term maturity of these financial instruments. Foreign currency transactions are primarily undertaken in Canadian dollars. The fair value of cash is determined based on “Level 1” inputs and the fair value of derivative liability with convertible debt is determined based on “Level 2” inputs. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility to these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk. Financial instrument that potentially subject the Company to concentrations of credit risk consists of cash. The Company places its cash in what it believes to be credit-worthy financial institutions.
Office equipment and computer are recorded at cost. Amortization is provided annually at rates and methods over their estimated useful lives as follows, except in the year of acquisition when one half of the rate is used. Management reviews the estimates of useful lives of the assets every year and adjust them on prospective basis, if needed.
Office equipment
|
20% declining balance
|
Computer
|
55% declining balance
|
Software
|
3 years straight line
|
Property, plant and equipment are reviewed for impairment whenever events or changes in the circumstances indicate that the carrying value may not be recoverable. If the total of the estimated undiscounted future cash flows is less than the carrying value of the asset, an impairment loss is recognized for the excess of the carrying value over the fair value of the asset during the year the impairment occurs. Subsequent expenditure relating to an item of office equipment is capitalized when it is probable that future economic benefits from the use of the assets will be increased.
f) Revenue recognition
The Company recognizes revenue when earned, specifically when all the following conditions are met:
- Services are provided or products are delivered to customers.
- There is clear evidence that an arrangement exists.
- Amounts are fixed or can be determined.
- The ability to collect is reasonably assured.
- There is no significant obligation for future performance.
- The amount of future returns can be reasonably estimated.
g)
|
Foreign currency transaction balances
|
The Company’s reporting currency is the U.S. dollar. The consolidated financial statements of the Company are translated to U.S. dollars in accordance with ASC 830, Foreign Currency Translation Matters, using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
Assets and liabilities of the Company’s Canadian subsidiary are translated into U.S. dollars at the year-end exchange rates, and revenue and expenses are translated at the average exchange rates during the period. Exchange differences arising on translation are disclosed as a separate component of stockholders’ equity.
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
For the Year ended December 31, 2015
(Expressed in U.S. dollars)
3.
Summary of Significant Accounting Policies (continued)
The Financial Accounting Standards Board (FASB) has issued FASB ASC 740-10. FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with prior literature FASB Statement No. 109, Accounting for Income Taxes. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more likely than not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by FASB ASC 740-10.
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
i)
|
Stock-based compensation
|
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
Inventories are stated at the lower of cost or market with cost being determined on a first-in, first-Out (FIFO) basis. Inventories as at December 31, 2014 and
December 31
, 2015 were solely finished goods that can be resold. There was no provision for inventory recorded during the year ended December 31, 2014 and December 31, 2015
As at December 31, 2014, and December 31, 2015, the Company had deferred revenues of $54,484 and $56,800 respectively. Annual service renewal fees are recorded as a component of deferred revenue in the balance sheets at the inception of the contract and are recognized as revenue evenly over the contract period, which is generally one year.
l) Changes in accounting policies and recent accounting pronouncements
The Company has not adopted new accounting policies since it most recent year ended December 31, 2014. The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
For the Year ended December 31, 2015
(Expressed in U.S. dollars)
4.
Investment in an associates and Investment
Investment
The Company’s investment consists of 43 common shares of Machlink Inc. (“Machlink”) which is a private company conducting information technology business. The Company is not considered having significant influence in Machlink’s operations. The shares of Machlink do not have quoted market prices in an active market.
During the year ended December 31, 2014, this investment was fully written off as management determined the investment cannot be recovered and the Company recorded an impairment loss of $150,000 during the year ended December 31, 2014.
Investment in an associate
Pursuant to an option agreement, the Company incurred $50,000 and $50,000 (totaling $100,000) to acquire 200,000 and 200,000 (totaling 400,000) common shares of Gogiro Internet Group (“Gogiro”), a private Canadian Company, on November 23, 2011 and October 17, 2012 respectively.
On March 12, 2013, the Company signed an agreement to acquire 2,078,080 shares of Gogiro through the issuance of 1,744,747 restricted common shares of the Company (the “Gogiro Acquisition”). Neil Chan, CEO and Director of both companies, would exchange 2,000,000 Gogiro shares for 1,666,667 restricted common shares of the Company. The proceeds of Gogiro Acquisition was $174,475 which was the fair value of the 1,744,747 restricted shares of the Company.
Upon the completion of the Gogiro Acquisition in March 2013, the Company’s interest on Gogiro increased to more than 30%. As a result, the Company has changed its method to account for its investment in Gogiro from “cost less impairment value” method to equity method as the Company’s interest on Gogiro has surpassed 20% whereby the Company is considered having significant influence on Gogiro. The Company’s ownership on Gogiro was 30.37 % during the year ended December 31, 2015. Consequently the Company has included Gogiro’s income (losses) in the Company’s consolidated financial statements in accordance to the percentage ownership. In addition, gains and losses resulting from 'upstream' and 'downstream' transactions between IGEN and Gogiro are recognized in IGEN’s consolidated financial statements only to the extent of unrelated investors' interests in Gogiro. As at December 31, 2015, the Company reviewed the recoverability of the investment in Gogiro and concluded that the investment was fully impaired. As a result, the Company recorded impairment charges of $227,957 for the year ended December 31, 2015. Changes in carrying value of the Company’s investment in Gogiro are as follows:
|
|
Number of Gogiro
shares owned
|
|
|
Amount
($)
|
|
Balance, December 31, 2013
|
|
|
2,478,080
|
|
|
|
241,338
|
|
Share of Gogiro’s loss during fiscal 2014
December 31, 2014 (30.44%)
|
|
|
-
|
|
|
|
(14,263
|
)
|
Balance, December 31, 2014
|
|
|
2,478,080
|
|
|
|
227,075
|
|
Share of Gogiro’s income during nine months ended December 31, 2015 (30.37%)
|
|
|
-
|
|
|
|
882
|
|
Impairment on investment
|
|
|
|
|
|
|
(227,957
|
)
|
|
|
|
2,478,080
|
|
|
|
-
|
|
The following table summarizes Gogiro's revenue, expenses and net loss on an aggregate basis without adjusting for IGEN's proportionate interest:
|
|
2015
$
|
|
|
2014
$
|
|
Revenue
|
|
|
141,517
|
|
|
|
203,259
|
|
Expense
|
|
|
(138,612
|
)
|
|
|
(197,296
|
)
|
Net income (loss)
|
|
|
2,905
|
|
|
|
5,963
|
|
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
For the Year ended December 31, 2015
(Expressed in U.S. dollars)
5. Equipment
|
|
|
|
|
|
|
|
|
|
|
Net Book Value
|
|
|
|
Cost
|
|
|
Accumulated Amortization
|
|
|
Effect of foreign change
|
|
|
2015/12/31/
|
|
|
2014/12/31
|
|
Office equipment
|
|
$
|
1,603
|
|
|
$
|
965
|
|
|
$
|
-
|
|
|
$
|
638
|
|
|
$
|
799
|
|
Computer
|
|
|
51,375
|
|
|
|
36577
|
|
|
|
(172
|
)
|
|
|
14,626
|
|
|
|
28,276
|
|
Software
|
|
|
6,012
|
|
|
|
3633
|
|
|
|
2,379
|
|
|
|
4,383
|
|
|
|
|
|
TOTAL
|
|
$
|
58,999
|
|
|
$
|
41,175
|
|
|
$
|
(172
|
)
|
|
$
|
17,643
|
|
|
$
|
33,458
|
|
6. Related Party Transactions
Related party transactions not disclosed elsewhere in these consolidated financial statements are as follows:
During the year ended December 31, 2015, the Company incurred $184,797 in management and consulting fees to two officers and a Company controlled by a director (2014 - $119,592).
During 2015, IGEN recorded the following transactions with Gogiro:
|
- Commission fees income from Gogiro of $Nil (2014 - $30,207)
|
|
- Management service income from Gogiro of $Nil (2014 - $12,261)
|
|
- Advertising expenses charged by Gogiro of $Nil (2014 - $4,077)
|
|
- Office rent expenses charged by Gogiro of $Nil (2014 – 5,436)
|
Account payable settlement
During the year ended December 31, 2015, the Company settled accounts payable due to a former chief financial officer and record a gain of settlement of $10,577.
Balance with related parties
As at December 31, 2015, the Company has an advance receivable of $30,700 from Gogiro, a company of which IGEN has significant influence (Note 4) (2014/12/31 - $20,578). This advance receivable is unsecure, due on demand, and has an interest of 5% per annum. As at December 31, 2015, the Company fully provided this advance receivable due to uncertainty of collectability and recorded a bad debt expenditure of $30,700 for the year ended December 31, 2015.
As at December 31, 2015, the Company had a trade receivable of $143,425 (CAD$198,511) with Gogiro (2014/12/31 - $170,719(CAD$198,511)). As at December 31, 2015, the Company fully provided these trade receivable due to uncertainty of collectability and recorded a bad debt expenditure of $155,490 (CAD$198,511) for the year ended December 31, 2015.
As at December 31, 2015 the Company also had account payable of $77,564 (December 31, 2014 - $59,180) with directors and officers and a company controlled by a director.
As at December 31, 2015, the Company had a promissory note payable to a director with balance owing of $29,000. This promissory note is unsecured, has an interest of 5% per annum and is due on October 30, 2016. An accrued interest of $452 was included in the Company’s accrued liabilities as at December 31, 2015.
7.
Stockholders' Equity
|
a) During 2014, the company issued the following shares/ units under the Securities Act of 1933 exemption Rule 14
|
|
pursuant to non-brokerage private placements:
|
|
·
|
On January 28, 2014 the Company issued 843,750 units (“Unit A”) for $67,500 ($0.08/share). Each Unit A consisted of one common share and one share purchase warrant, each warrant entitling the holder to purchase one share at an exercise price of $0.20 per share for one year.
|
|
·
|
During the second quarter of 2014, the Company issued 625,000 common shares at for $50,000 ($0.08/share), issued 333,333 common shares for $50,000 ($0.15/share), issued 384,616 units (“Unit B”) for $50,000 ($0.13/unit). Each Unit B consisted of one common share and one share purchase warrant, each warrant entitling the holder to purchase one share at an exercise price of $0.26 per share for one year.
|
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
For the Year ended December 31, 2015
(Expressed in U.S. dollars)
7. Stockholders' Equity (Deficit) – Continued
|
·
|
During the third quarter of 2014, the Company issued 297,619 common shares for $50,000 ($0.168/share), 277,778 common shares for $50,000 ($0.18/share), and issued 147,059 unit (“Unit C”) for $25,000 ($0.17/unit). Each Unit C consisted of one common share and one share purchase warrant. Each warrant entitles the holder to purchase one common share at an exercise price of $0.40 for two years.
|
|
·
|
During the fourth quarter of 2014, the Company issued 492,732 common shares for $88,692 ($0.18/share),
|
During 2014, the Company also issued the following common shares:
|
·
|
2,500,000 common shares were issued for the Acquisition (Note 2). The fair value of these common shares is $475,000 which is determined by the market closing prices of these shares at the Acquisition Date.
|
|
·
|
611,995 common shares when a convertible debenture with principal of CAD$100,000 was converted
|
|
·
|
529,722 common shares with fair value of $102,420 for services rendered by various consultants. The fair value were determined by the market closing prices of these shares when they were issued.
|
|
b) During 2015, the Company issued the following common shares:
|
On April 22, 2015, The Company closed two non-brokered private placements of a total of 596,839 shares for gross proceeds of $98,796.
|
·
|
The first private placement was for 133,333 units (“Unit X”) at a subscription price of $0.15 per unit for total proceeds of $20,000. Each Unit X consists of one common share and a half share purchase warrant, each whole warrant exercisable into one common share at $0.35 for a period of two years from the closing date.
|
|
·
|
The second private placement was for 463,506 common shares at a subscription price of $0.17 per share for total proceeds of $78,796.
|
On May 15, 2015, The Company closed a non-brokered private placements of a total of 600,000 units (“Unit Y”) for gross proceeds of $100,367. Each Unit Y consists of one common share and one share purchase warrant. Each warrant is exercisable into one common share at CAD$0.35 ($0.28) for a period of two years from the issuance. These warrants are also subject at the Company’s option, to an acceleration of their expiry if the weighted average closing price of the Company’s common shares on Canadian Stock Exchange is greater than CAD$0.60 for twenty consecutive trading days.
On December 11, 2015, the Company issued 294,118 units (“Unit Z”) for $50,000. Each Unit Z includes one common share and one share purchase warrant, enabling the holder to purchase one additional common share of the Company at a price of $0.35 for a period expiring 2 years from their date of issuance. These warrants are also subject at the Company’s option, to an acceleration of their expiry if the weighted average closing price of the Company’s common shares on Canadian Stock Exchange is greater than $0.50 for ten consecutive trading days.
On April 22, 2015, The Company issued 100,000 common shares for option exercise and received proceeds of $9,000.
During 2015, the Company issued 498,807 common shares for services of $53,374 and prepaid services yet to be rendered of $54,570 (totaling $107,944)
During 2015, the Company issued 310,318 common shares for the exercise of convertible debt of $50,644. There is no gain or loss in connection with this debt settlement.
As at December 31, 2015, the Company received subscription of $25,000 for unit issuance at $0.17/unit. Each unit includes one common share and one share purchase warrant, enabling the holder to purchase one additional common share of the Company at a price of $0.35 for a period expiring 2 years from their date of issuance. As of the date of this report, the Company has not issued units for this subscription.
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
For the Year ended December 31, 2015
(Expressed in U.S. dollars)
7. Stockholders' Equity (Deficit) – Continued
|
d) Common share purchase warrants:
|
The Continuity of the Company’s share purchase warrant is as follows:
December 31, 2014
|
|
|
exercise price
|
|
expiry date
|
|
Expired
|
|
|
Issuance
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
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|
|
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|
|
|
|
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|
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|
|
|
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|
|
|
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|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of outstanding warrants as at December 31, 2015 and December 31, 2014 was 1,125,843 and 1,375,425 respectively. As at December 31, 2015, the weighted average exercise price and weight average remaining life of the warrants was $0.30/share (2014/12/31 -$0.24/share) and 1.44 years (2014/12/31 - 0.32 years).
The following table summarizes information about stock options outstanding and exercisable at December 31, 2015:
|
|
Number of
Options
|
|
Weighted average
exercise price
$
|
Options outstanding – December 31, 2013
|
|
|
|
|
|
Option granted (April 28, 2014)
|
|
|
|
|
|
Options granted (June 5, 2014)
|
|
|
|
|
|
Options outstanding, December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2015
|
|
|
|
|
|
|
*Number of options exercisable as December 31, 2015 was 3,565,556.
|
On April 28, 2014, the Company granted 50,000 stock options to a consultant at an exercise price of $0.17/share. These options will expire on April 1, 2019, and 50% of these 50,000 options will be vested on October 1, 2014 and April 1, 2015 respectively.
On June 5, 2014, the Company granted three consultants totaling 450,000 stock options at an exercise price of $0.18/share. These 450,000 options will be vested 50% on May 1, 2015 and the remaining 50% on May 1, 2016. These 450,000 options will expire on June 5, 2019.
On September 21, 2015, the Company granted 540,000 to consultants at exercise prices ranged from CAD$0.25 to $0.19 per share. The Company also granted 2,000,000 options to its officers at exercise price of $0.19/share. All of these options will expire September 21, 2020 or June 1, 2020, and is vesting in a range from immediate vesting to expiry on September 21, 2017.
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
For the Year ended December 31, 2015
(Expressed in U.S. dollars)
7. Stockholders' Equity (Deficit) – Continued
e) Stock Options (continued)
The fair values of stock options granted are amortized over the vesting period where applicable. During 2015, the Company recorded $480,178 (2014 - $49,625) stock-based compensation in connection with the vesting of options granted. The Company uses the Black-Scholes option pricing model to establish the fair value of options granted with the following assumptions:
|
|
2014
|
|
|
2015
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Volatility
|
|
|
230
|
%
|
|
|
170
|
%
|
Risk free interest rate
|
|
|
1.52
|
%
|
|
|
1.52
|
%
|
Expected option life
|
|
5 years
|
|
|
5 years
|
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
8. Derivative liabilities
Derivate liabilities consist of warrants that were originally issued in private placements and stock options granted that have exercise prices denominated in Canadian dollars, which differs from the Company’s functional currency (United States dollars), (Note 7). Therefore these warrants and stock options cannot be considered to be indexed to the Company’s own stock. Accordingly the fair values of the warrants and stock options must be accounted for as derivative liabilities with changes in fair value recorded in the consolidated statement of operations. The fair value of these warrants and options as at December 31, 2015 is $33,982 (2014 - $nil). The fair values of warrants and stock options as at December 31, 2015 were determined using the Binomial option pricing model the following assumptions: risk free interest rate of 0.86%-1.54%, expected life of 1.37-5.00 years, volatility of 103.19%-176.96% and expected dividend of 0%.
|
|
2015
|
|
|
|
|
Beginning balance
|
|
|
-
|
|
|
|
-
|
|
Issuance of warrants
|
|
|
28,267
|
|
|
|
-
|
|
Stock options granted
|
|
|
5,715
|
|
|
|
-
|
|
Ending balance
|
|
|
33,982
|
|
|
|
-
|
|
9. Note payable
During the fourth quarter of 2014, the Company issued a promissory note with principal of $95,000 in exchange for a settlement of accounts payable of the same amount. This promissory is un-secured, will expire on December 31, 2016, and carries interest of 5% per annum.
The note payable was accounted for at amortized cost using the effective interest rate method with the effective interest rate of 14% per annum. The debt discount of $16,163 was credited to Additional paid-in capital at issuance, and the $16,163 debit to note payable is amortized over the term of the note.
The promissory note was accredited up to $87,238 on December 31, 2015. Including in the Company’s accrued liabilities, there was an interest payable of $5,938 as at (2014/12/31 - $1,197) in connection with this outstanding promissory note.
As at December 31, 2014 the Company had an un-secured, payable on demand, promissory note of $52,592 with interest rate of 14% per annum outstanding, was $52,592 (CAD$61,083). The Company settled this promissory note and accrued interest totaling of $50,644 (CAD$65,667) by issuance of 310,318 common shares in 2015.
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
For the Year ended December 31, 2015
(Expressed in U.S. dollars)
10. Financial instruments
Credit Risk
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents. The Company deposits cash and cash equivalents with high credit quality financial institutions as determined by rating agencies. As a result, credit risk is considered insignificant.
Currency Risk
The Company’s major expenses and payables are in United States dollars and are expected to continue to incur in United States dollars. Fluctuations in the exchange rate between the United States dollar and other currency may have a material effect on the Company’s business, financial condition and results of operations. The Company is subject to foreign exchange risk for transactions in its Canadian subsidiary and its investment in Gogiro, which is a Canadian company. The Company does not actively hedge against foreign currency fluctuations.
Interest Rate Risk
The Company has cash balances and no interest bearing debt. The Company’s current policy is to invest excess cash in high yield term deposits and bankers’ acceptance. The Company regularly monitors its cash management policy. As a result, interest rate risk is considered not significant.
Liquidity Risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with its financial liabilities. The Company manages liquidity risk by continuously monitoring actual and projected cash flows and matching the maturity profile of financial assets and liabilities. As at December 31, 2015, the Company had a working capital deficiency of ($536,863) (December 31, 2014 – working capital of $32,676). The Company intends to have more equity financing and/or long term debt financing in order to eliminate the working capital deficiency and to the operations of the Company.
11. Supplemental information for statements of cash flow
Supplementary information in connection with the Company’s cash flow is as follows:
|
|
2015
|
|
|
2014
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
5,341
|
|
Cash paid for income taxes
|
|
|
-
|
|
|
|
-
|
|
310,318 shares issued for debt settlement
|
|
|
50,664
|
|
|
|
-
|
|
498,801 shares issued for services rendered and yet to rendered
|
|
|
107,944
|
|
|
|
-
|
|
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
For the Year ended December 31, 2015
(Expressed in U.S. dollars)
12. Income taxes
Reconciliation of the Company’s income tax expenses are as follows:
|
|
Dec 31, 2015
|
|
|
Dec 31, 2014
|
|
Loss for the year
|
|
$
|
(1,613,130
|
)
|
|
$
|
(748,223
|
)
|
Expected income tax recovery at statutory rates (2015 -35; 2014 - 35%)
|
|
|
(564,595
|
)
|
|
|
(261,878
|
)
|
Non-deductible item
|
|
|
360,873
|
|
|
|
62,606
|
|
Change in tax rate
|
|
|
27,166
|
|
|
|
24,454
|
|
Increase in valuation allowance
|
|
|
176,556
|
|
|
|
174,818
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The components of future income tax assets are as follows:
|
|
Dec 31, 2015
|
|
|
Dec 31, 2014
|
|
Future income tax assets
|
|
|
|
|
|
|
Non-capital losses carried forward and others
|
|
$
|
1,
771,239
|
|
|
$
|
1,589,431
|
|
Less: Valuation allowance
|
|
|
(
1,771,239
|
)
|
|
$
|
(1,589,431
|
)
|
Net future income tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has adopted FASB ASC 740-10 to account for income taxes. The Company currently has no issues creating timing differences that would mandate deferred tax expense. Net operating losses would create possible tax assets in future years. Due to the uncertainty of the utilization of net operating loss carry forwards, an evaluation allowance has been made to the extent of any tax benefit that net operating losses may generate. A provision for income taxes has not been made due to net operating loss carry-forwards of $5,228,000 and $4,664,000 as of December 31, 2015 and December 31, 2014, respectively, which may be offset against future taxable income through to 2035.
The Company did not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.
The tax years that remain subject to examination by major taxing jurisdictions are those for the years ended December 31, 2015, 2014, 2013, 2012 and 2011.
13. Subsequent Events
Subsequent to the year-ended December 31, 2015, the Company issued a total of 843,796 common shares of the Company