The Company’s unaudited condensed consolidated interim financial statements for the six month period ended June 30, 2016 are included herewith.
(Unaudited – Expressed in U.S. Dollars)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Notes to the Condensed Consolidated Interim Financial Statements
Six Months ended June 30, 2016
(Unaudited - 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’s is in the business of providing vehicle tracking and recovery solutions to the automotive and power sport industries through its operating subsidiary, Nimbo, LLC.
These condensed consolidated interim 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 $8,077,029 as at June 30, 2016. 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.
2.
|
Summary of Significant Accounting Policies
|
a)
|
Basic of presentation and consolidation
|
These condensed consolidated interim 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).
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.
IGEN NETWORKS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Six Months ended June 30, 2016
(Unaudited - Expressed in U.S. dollars)
2.
|
Summary of Significant Accounting Policies (Continued)
|
c) Loss per share (continued)
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.
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.
IGEN NETWORKS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Six Months ended June 30, 2016
(Unaudited - Expressed in U.S. dollars)
2.
|
Summary of Significant Accounting Policies (continued)
|
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
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.
IGEN NETWORKS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Six Months ended June 30, 2016
(Unaudited - Expressed in U.S. dollars)
2.
|
Summary of Significant Accounting Policies (continued)
|
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 June 30, 2016 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, 2015 and six months ended June 30, 2016.
As at June 30, 2016, and December 31, 2015, the Company had deferred revenues of $55,500 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, 2015. 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.
3.
|
Investment in an associates and Investment
|
Investment in an associate
As at June 30, 2016 and December 31, 2014 and 2015, the Company held approximately 30% of all the outstanding shares of Gogiro Internet Group (“Gogiro”), a private Canadian Company. The Company accounts for its investments in Gogiro with equity method. Consequently the Company has included Gogiro’s income (losses) in the Company’s condensed consolidated interim financial statements in accordance to the percentage ownership during three months ended March 31, 2015. 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 and June 30, 2016, 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 $227,957 for the year ended December 31, 2015 and fully provided for its investment in Gogiro.
Changes in carrying value of the Company’s investment in Gogiro are as follows:
|
|
Number of Gogiro shares owned
|
|
|
Amount ($)
|
|
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
|
)
|
December 31, 2015 and June 30, 2016
|
|
|
2,478,080
|
|
|
|
-
|
|
IGEN NETWORKS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Six Months ended June 30, 2016
(Unaudited - Expressed in U.S. dollars)
4. Equipment
|
|
|
|
|
Accumulated
|
|
|
Effect of
|
|
|
Net book Value
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
foreign exchange
|
|
|
6/30/2016
|
|
|
12/31/2015
|
|
Office equipment
|
|
$
|
1,603
|
|
|
$
|
1,029
|
|
|
$
|
-
|
|
|
$
|
574
|
|
|
$
|
638
|
|
Computer
|
|
|
51,375
|
|
|
|
40,683
|
|
|
|
(141
|
)
|
|
|
10,551
|
|
|
|
14,626
|
|
Software
|
|
|
6,012
|
|
|
|
4,635
|
|
|
|
|
|
|
|
1,377
|
|
|
|
2,379
|
|
TOTAL
|
|
$
|
58,990
|
|
|
$
|
46,347
|
|
|
$
|
(141
|
)
|
|
$
|
12,502
|
|
|
$
|
17,643
|
|
5. Related Party Transactions
Related party transactions not disclosed elsewhere in these consolidated financial statements are as follows:
During six months ended June 30, 2016, the Company incurred $141,118 in management and consulting fees to two officers and a Company controlled by a director (six months ended June 30, 2015 - $68,460).
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). 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 with Gogiro. 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 for the year ended December 31, 2015.
As at June 30, 2016 the Company also had account payable of $119,680 (December 31, 2015 - $63,665) with directors and officers and a company controlled by a director.
As at June 30, 2016, the Company had a promissory note payable to a director with balance owing of $30,840 (December 31, 2015 - $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 $1,146 was included in the Company’s accrued liabilities as at June 30, 2016.
IGEN NETWORKS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Six Months ended June 30, 2016
(Unaudited - Expressed in U.S. dollars)
6.
Stockholders' Equity
a) During fiscal 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 settlement of debt of $50,644. There is no gain or loss in connection with this debt settlement.
b) During six months ended June 30, 2016, the Company issued the following common shares:
·
|
55,556 shares for exercise of options at $0.09/share for total proceeds of $5,000
|
·
|
386,290 shares with the fair value of $64,550 in exchange for consulting services rendered by external consultants
|
·
|
588,240 units for cash proceed of $72,484 (CAD$100,000). Each unit is comprised of one common share and one share purchase warrant. Each warrant is exercisable into one common share at CAD$0.34 (equivalent to $0.25)/share before March 29, 2018.
|
·
|
312,500 units for cash proceed of $38,634 (CAD$50,000). Each unit is comprised of one common share and one share purchase warrant. Each warrant is exercisable into one common share at $0.20/share before June 9, 2017.
|
·
|
250,000 units for cash proceed of $23,404 (CAD$30,000). Each unit is comprised of one common share and one share purchase warrant. Each warrant is exercisable into one common share at $0.15/share before May 4, 2018.
|
IGEN NETWORKS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Six Months ended June 30, 2016
(Unaudited - Expressed in U.S. dollars)
6.
Stockholders' Equity (continued)
c) Subscription received
As at December 31, 2015 and June 30, 2016, 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.
d) Common share purchase warrants:
Continuity of the Company’s share purchase warrant is as follows:
December 31, 2015
|
|
|
exercise price
|
|
|
expiry date
|
|
|
Issuance
|
|
|
June 30, 2016
|
|
|
147,059
|
|
|
$
|
0.40
|
|
|
30-Sep-16
|
|
|
|
-
|
|
|
|
147,059
|
|
|
66,666
|
|
|
$
|
0.28
|
|
|
22-Apr-17
|
|
|
|
-
|
|
|
|
66,666
|
|
|
600,000
|
|
|
$
|
0.28
|
|
|
14-May-17
|
|
|
|
-
|
|
|
|
600,000
|
|
|
18,000
|
|
|
$
|
0.26
|
|
|
13-Aug-17
|
|
|
|
-
|
|
|
|
18,000
|
|
|
294,118
|
|
|
$
|
0.35
|
|
|
11-Dec-17
|
|
|
|
-
|
|
|
|
294,118
|
|
|
-
|
|
|
$
|
0.25
|
|
|
29-Mar-18
|
|
|
|
588,240
|
|
|
|
588,240
|
|
|
-
|
|
|
$
|
0.20
|
|
|
9-Jun-17
|
|
|
|
312,500
|
|
|
|
312,500
|
|
|
-
|
|
|
$
|
0.15
|
|
|
4-May-18
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
1,125,843
|
|
|
|
|
|
|
|
|
|
|
1,150,740
|
|
|
|
2,276,583
|
|
The number of outstanding warrants as at June 30, 2016 was 2,276,583. As at June 30, 2016, the weighted average exercise price and weight average remaining life of the warrants was $0.26/share (2015/12/31-$0.32/share) and 1.25 years (2015/12/31 – 1.45 years).
e) Stock Options
The following table summarizes information about stock options outstanding and exercisable at June 30, 2016:
|
|
Number of Options
|
|
|
Weighted average exercise price
|
|
|
|
|
|
|
$
|
|
Options outstanding, December 31, 2014
|
|
|
1,640,556
|
|
|
|
0.12
|
|
Options exercised
|
|
|
(100,000
|
)
|
|
|
0.09
|
|
Options granted
|
|
|
2,540,000
|
|
|
|
0.19
|
|
Options outstanding, December 31, 2015
|
|
|
4,080,556
|
|
|
|
0.16
|
|
Options exercised
|
|
|
(55,556
|
)
|
|
|
0.09
|
|
Options granted
|
|
|
200,000
|
|
|
|
0.14
|
|
Options cancelled/forfeited
|
|
|
(450,000
|
)
|
|
|
0.18
|
|
Options outstanding, June 30, 2016
|
|
|
3,775,000
|
|
|
|
0.17
|
|
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
Six Months ended June 30, 2016
(Expressed in U.S. dollars)
6.
Stockholders' Equity – Continued
Number of options exercisable as June 30, 2016 was 3,325,000. The weighted average remaining life is 3.58 year.
The fair values of stock options granted are amortized over the vesting period where applicable. During six months ended June 30, 2016, the Company recorded $20,090 (six months ended June 30, 2015 - $33,358) 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:
|
|
2016
|
|
|
2015
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Volatility
|
|
|
200
|
%
|
|
|
200
|
%
|
Risk free interest rate
|
|
|
1.52
|
%
|
|
|
1.52
|
%
|
Expected option life
|
|
5 years
|
|
|
5 years
|
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
7.
Derivative liabilities – options and warrants
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). 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 June 30, 2016 was $29,269 (2015/12/31 - $33,982). 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%. The fair values of warrants and stock options as at June 30, 2016 were determined using the Binomial option pricing model the following assumptions: risk free interest rate of 0.59% to 0.73%, expected life of 1.37-4.25 years, volatility of 88.19%-111.10% and expected dividend of 0%.
January 1, 2015
|
|
$
|
-
|
|
Issuance of warrants
|
|
|
28,267
|
|
Stock options granted
|
|
|
5,715
|
|
December 31, 2015
|
|
$
|
33,982
|
|
Changes of fair value
|
|
|
(4,713
|
)
|
June 30, 2016
|
|
$
|
29,269
|
|
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
Six Months ended June 30, 2016
(Expressed in U.S. dollars)
8.
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 $90,974 on June 30, 2016 (2015/12/31 -$87,238). Including in the Company’s accrued liabilities, there was an interest payable of $8,349 as at (2015/12/31 - $5,938) in connection with this outstanding promissory note.
As at June 30, 2016, the Company also had a promissory note payable of $30,840 owing to a director of the Company (Note 5).
9.
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 June 30, 2016, the Company had a working capital deficiency of $727,284 (December 31, 2015 – working capital deficiency of $536,863). The Company intends to have more equity financing, long term debt financing, share for debt settlement in order to eliminate the working capital deficiency and to the operations of the Company.
IGEN NETWORKS CORP.
Notes to the Consolidated Financial Statements
Six Months ended June 30, 2016
(Expressed in U.S. dollars)
10.
Convertible debenture and derivative liabilities
On June 1, 2016, the Company issued two convertible debentures (“CDs”) in the principal of CAD$50,000 ($38,634) and CAD$20,000 ($15,453) respectively. The CD with the principal of CAD$50,000 (“CD#1) and the CD with the principal of CAD$20,000 (“CD#2”) were agreed to mature on four month anniversary of the closing date of June 8, 2016 (i.e. October 8, 2016). These CDs are non-secured, carry interest of 15% per annum payable monthly or at term. Subject to the approval of the holder of the CDs, IGEN may convert any of all of the principal and/or interest at any time following the 4 month anniversary of the issuance date of the CDs into common shares of IGEN at a price per share equal to a 20% discount to the fair market value of IGEN’s common share.
As the CDs are denominated in Canadian dollars (a currency different from the functional currency of the Company) and the exercise prices are not fixed (a 20% discount to the fair market value of IGEN’s common share), a derivative is recognized as a liability. The derivative liability is recorded at fair value and re-measured each period with the movement being recorded as a gain or loss in consolidated income (loss). The CDs are classified as a liability, less the portion relating to the derivative feature. During the period ended June 30, 2016, the Company recorded derivative liabilities of $20,104 and convertible notes of $38,663. The fair value of derivative liabilities was established by using the valuation technique, the Binomial option pricing model. Assumptions used in the option pricing model were as follows: average risk free interest rate – 0.22%; expected life – 0.35 year; expected volatility – 52%%; and expected dividends – nil.
The Company records accretion expense over the term of the convertible notes up to their principal when these CDs come due. During the period ended June 30, 2016, accretion expenses of $4,680 (2015 - $nil) was recorded. Interest expense on the CDs is composed of the interest calculated on the face value of the CDs at 15% per annum which amounted to $672 during the period ended June 30, 2016 (2015 - $nil).
11. Supplemental information for statements of cash flow
Supplementary information in connection with the Company’s cash flow is as follows:
Six months ended June 30,
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2016
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2015
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Cash paid for interest
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$
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-
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$
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-
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Cash paid for income taxes
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|
|
-
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|
|
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-
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Shares issued for services
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64,550
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-
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12. Contingency
On Mar 9 2016 a complaint for damages was filed in the Superior Court of the State of California, County of Riverside, Southwest District-Murietta, against Nimbo LLC, a wholly owned subsidiary of the Company, by Global Tracking Products Inc. Notice of the suit was served on April 11, 2016. The plaintiff was suing for $145,477.32, which was accrued in accounts payable on the consolidated statement of balance sheet of the Company as at June 30, 2016, in monies owed by Nimbo LLC to the plaintiff. Subsequent to being served, Nimbo negotiated and signed an out of court settlement agreement with the plaintiff on July 19, 2016, and a stipulation for entry of judgement was filed in the same court previously referenced on July 22, 2016.