NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
NOTE 1. ORGANIZATION AND BUSINESS
Organization and Operations
IDdriven, Inc., (“IDdriven”, “we”, “us”, or the “Company”) is a Nevada corporation incorporated on January 27, 2014 under the name TiXFi, Inc. Insight Innovators B.V., was incorporated on May 22, 2013 in the Netherlands and has its registered corporate seat in Amersfoort, The Netherlands.
Going Concern Matters
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the Company’s continuation as a going concern. The Company has an accumulated deficit of $6,425,785 as of September 30, 2017. In addition, current liabilities exceed current assets by $4,126,028 as of September 30, 2017.
Management intends to raise additional operating funds through equity and/or debt offerings. However, there can be no assurance management will be successful in its endeavors. See Note 12 - Subsequent Events.
There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support its working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available to the Company, it may be required to curtail or cease its operations.
Due to uncertainties related to these matters, there exists a substantial doubt about the ability of the Company to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation of Interim Financial Statements
The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2016 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2016 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on March 31, 2017.
Consolidation Policy
For September 30, 2017, the unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Insight Innovators B.V. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions about collection of accounts and notes receivable, the valuation and recognition of stock-based compensation expense, the valuation and recognition of derivative liability, valuation allowance for deferred tax assets and useful life of fixed assets.
Functional currency
The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars (“USD”). The Company’s wholly owned subsidiary (Insight’s) functional currency is the Euro. The financial statements are translated into USD in accordance with Codification ASC 830, “Foreign Currency Matters”. All assets and liabilities were translated at the current exchange rate, at respective balance sheet dates, shareholders’ equity is translated at the historical rates and income statement items are translated at the average exchange rate for the reporting periods. The resulting translation adjustments are reported as other comprehensive income and accumulated other comprehensive income in the shareholders’ equity in accordance with Codification ASC 220, “Comprehensive Income”.
Translation gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated into Euro at the rate on the date of the transaction and included in the results of operations as incurred. There were no material transaction gains or losses in the periods presented.
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
September 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
Spot Euro: USD exchange rate
|
|
$
|
1.17
|
|
|
$
|
1.05
|
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Euro: USD exchange rate
|
|
1.06–1.16
|
|
|
1.08-1.12
|
|
|
1.11 – 1.12
|
|
Cash and cash equivalents
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less, at the date acquired. As of September 30, 2017, and December 31, 2016, cash primarily consists of cash on hand and in bank. As of September 30, 2017, cash held in a U.S. bank was $4,435 and cash held in foreign bank in the Netherlands was $3,760 (EUR3,214). As of December 31, 2016, cash held in a U.S. bank was $9,971 and cash held in foreign bank in the Netherlands was $3,203 (EUR3,050).
Revenue recognition
The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) services have been rendered; (iii) the fee is fixed or is determinable; and (iv) collectability is reasonably assured. Determination of criteria (iii) and (iv) are based on management’s judgments regarding the fixed nature of the selling prices of the services delivered and the collectability of those amounts. The Company’s agreements do not include general rights of return and do not provide clients with the right to take possession of the software supporting the services being provided. As such, the agreements are accounted for as service contracts.
Revenues from the services rendered are recognized in proportion to the services delivered.
Any amount receivable or received, but unrecognized for revenue recognition purpose is recorded as deferred revenues.
Sales taxes collected from clients and remitted to governmental authorities where applicable are accounted for on a net basis and therefore are excluded from revenues in the statements of operations.
Share-Based Expense
ASC 718,” Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50,” Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Share-based expense totaled $45,090 and $132,645 for the nine months ending September 30, 2017 and 2016, respectively.
Fair value measurements
Fair value is defined as the price that the Company would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent counter-party in the principal market or in the absence of a principal market, the most advantageous market for the investment or liability. A three-tier hierarchy is established to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs); and establishes a classification of fair value measurements for disclosure purposes.
The hierarchy is summarized in the three broad levels listed below:
Level 1
|
-
|
quoted prices in active markets for identical assets and liabilities
|
Level 2
|
-
|
other significant observable inputs (including quoted prices for similar assets and liabilities, interest rates, credit risk, etc.)
|
Level 3
|
-
|
significant unobservable inputs (including the Company’s own assumptions in determining the fair value of assets and liabilities).
|
In accordance with Accounting Standards Codification (“ASC”) 815, the Company’s debt derivative liabilities are measured at fair value on a recurring basis, and are level 3 measurements in the three-tier fair value hierarchy.
There were no transfers between the levels of the fair value hierarchy during the three and nine months ended September 30, 2017 and 2016.
Fair value of financial instruments
The Company’s financial instruments consist primarily of cash, accounts payable and accrued expenses, and debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
The following table summarizes fair value measurements by level at September 30, 2017 and December 31, 2016 measured at fair value on a recurring basis:
September 30, 2017
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,485,750
|
|
|
$
|
1,485,750
|
|
December 31, 2016
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,577,652
|
|
|
$
|
2,577,652
|
|
Reclassification
Certain amounts have been reclassified for consistency with the period presentation in the financial statements filed on Form 10-Q for the three and nine months ended September 30, 2017 and 2016 dated November 21, 2017. These reclassifications had no effect on the reported results of operations. This change in classification does not materially affect previously reported cash flows from operations or from financing activities in the Consolidated Condensed Statement of Cash Flows, and had no effect on the previously reported Consolidated Condensed Statement of Operations for any period.
Recently Issued Accounting Standards
In September 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-13,
“Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.”
The amendments in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. Both of the below entities may still adopt using the public company adoption guidance in the related ASUs, as amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02.
In May 2014, the FASB issued an accounting standards update which modifies the requirements for identifying, allocating and recognizing revenue related to the achievement of performance conditions under contracts with customers. This update also requires additional disclosure related to the nature, amount, timing and uncertainty of revenue that is recognized under contracts with customers. This guidance is effective for fiscal and interim periods beginning after December 15, 2017 and is required to be applied retrospectively to all revenue arrangements. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.
In February 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-05,
“Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.”
The amendments clarify that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Subtopic 610-20 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. Effective at the same time as the amendments in Update 2014-09, Revenue from Contracts with Customers (Topic 606). Therefore, public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the amendments in this Update to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the amendments in this Update to annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. All other entities may apply the guidance earlier as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance earlier as of annual reporting periods beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance. An entity is required to apply the amendments in this Update at the same time that it applies the amendments in Update 2014-09. The Company is currently evaluating the potential impact this standard may have on its financial position and results of operations.
In January 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-04,
“Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”
These amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Effective for public business entities that are a SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis.
In January 2017, the FASB issued ASU No. 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition of a Business.”
This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This new standard will be effective for the Company on January 1, 2018, however, early adoption is permitted with prospective application to any business development transaction.
In December 2016, the FASB has issued Accounting Standards Update (ASU) No. 2016-20,
“Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.”
The amendments affect narrow aspects of the guidance issued in ASU 2014-09 including Loan Guarantee Fees, Contract Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining Performance Obligations, Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable, Refund Liability, Advertising Costs, Fixed Odds Wagering Contracts in the Casino Industry, and Costs Capitalized for Advisors to Private Funds and Public Funds. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements for FASB Accounting Standards Codification Topic 606. Public entities should apply Topic 606 (and related amendments) for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein.
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 2017 and December 31, 2016:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Furniture
|
|
$
|
5,915
|
|
|
$
|
5,915
|
|
Computers
|
|
|
18,886
|
|
|
|
18,886
|
|
|
|
|
24,801
|
|
|
|
24,801
|
|
Accumulated Depreciation
|
|
|
(20,403
|
)
|
|
|
(17,593
|
)
|
Foreign currency translation effect
|
|
|
(2,076
|
)
|
|
|
(2,439
|
)
|
|
|
$
|
2,322
|
|
|
$
|
4,769
|
|
Depreciation expense for the three and nine months ended September 30, 2017 and 2016 amounted to $698, $2,810, $1,244, and $3,917, respectively
NOTE 4. NOTES PAYABLE
Notes Payable
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Promissory Notes - December 2016
|
|
$
|
-
|
|
|
$
|
51,000
|
|
Promissory Notes - January 2017
|
|
|
-
|
|
|
|
-
|
|
Less current portion of notes payable
|
|
|
-
|
|
|
|
51,000
|
|
Long-term notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
As of September 30, 2017, and December 31, 2016, the accrued interest related to this promissory note was $6,242 and $28, respectively.
Dated December 30, 2016
On December 30, 2016, the Company issued a 20% Promissory Note for $51,000. The note bears interest at a rate of 20% per annum and the maturity date is the twelve months from the issue date.
Dated January 26, 2017
On January 26, 2017, the Company issued a 20% Promissory Note for $10,000. The note bears interest at a rate of 20% per annum and the maturity date is the twelve months from the issue date.
Dated July 10, 2017
On July 10, 2017, the Company replaced the Promissory Notes of $61,000 to a Convertible Note with a principal amount $61,000 (see Note 5).
Notes Payable - Related Parties
Notes payable - related party consisted of the following at September 30, 2017 and December 31, 2016:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Promissory Notes
|
|
$
|
43,290
|
|
|
$
|
38,850
|
|
Less current portion of notes payable
|
|
|
43,290
|
|
|
|
38,850
|
|
Long-term notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Dated June 29, 2016
On June 29, 2016, the Company issued an 8% Promissory Note for EUR 10,000 ($11,400). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender.
Dated June 30, 2016
On June 30, 2016, the Company issued an 8% Promissory Note for EUR 10,000 ($11,400). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender.
Dated August 29, 2016
On August 29, 2016, the Company issued an 8% Promissory Note for EUR 35,000 ($39,900). The note bears interest at a rate of 8% per annum and is due within ten days after demand by the lender. EUR18,000 ($18,900) of note was repaid in December 2016.
As of September 30, 2017, and December 31, 2016, the accrued interest related to these promissory notes - related parties was $4,598 and $2,046, respectively.
NOTE 5. CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following at September 30, 2017 and December 31, 2016:
|
|
September 30,
|
|
|
December31,
|
|
|
|
2017
|
|
|
2016
|
|
Convertible Note - December 2015
|
|
$
|
323,054
|
|
|
$
|
350,000
|
|
Convertible Note - February 2016
|
|
|
-
|
|
|
|
30,000
|
|
Convertible Note - March 2016
|
|
|
250,000
|
|
|
|
250,000
|
|
Convertible Notes - May 2016
|
|
|
62,500
|
|
|
|
75,000
|
|
Convertible Note - June 2016
|
|
|
-
|
|
|
|
15,000
|
|
Convertible Notes - September 2016
|
|
|
24,926
|
|
|
|
201,511
|
|
Convertible Notes -October 2016
|
|
|
-
|
|
|
|
148,798
|
|
Convertible Notes - November 2016
|
|
|
-
|
|
|
|
25,000
|
|
Convertible Notes - December 2016
|
|
|
-
|
|
|
|
75,000
|
|
Convertible Notes - March 2017
|
|
|
168,500
|
|
|
|
-
|
|
Convertible Notes - April 2017
|
|
|
223,500
|
|
|
|
-
|
|
Convertible Notes - June 2017
|
|
|
83,000
|
|
|
|
-
|
|
Convertible Notes - July 2017
|
|
|
363,829
|
|
|
|
-
|
|
Convertible Notes - August 2017
|
|
|
77,110
|
|
|
|
-
|
|
|
|
|
1,576,419
|
|
|
|
1,170,309
|
|
Less debt discount and debt issuance cost
|
|
|
(261,103
|
)
|
|
|
(414,118
|
)
|
|
|
|
1,315,316
|
|
|
|
756,191
|
|
Less current portion of convertible notes payable
|
|
|
1,315,316
|
|
|
|
756,191
|
|
Long-term convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company recognized amortization expense related to the debt discount and deferred financing fees of $500,182 and $188,048 for the nine months ended September 30, 2017 and 2016, respectively, which are included in interest expense in the consolidated statements of operations.
10% Convertible Note - December 2015
On December 21, 2015, the Company issued a 10% Convertible Note (the “10% Convertible Note”) in the amount of $500,000, in exchange for a promissory note for $500,000 originally issued by Insight on October 20, 2015 to an unrelated third party investor (the “Investor”). The company assumed accrued interest of $3,838 due from this previous promissory note. The 10% Convertible Note bears interest at the rate of 10% per annum and matures May 1, 2017. The holder is entitled to convert any portion of the outstanding and unpaid conversion amount in to fully paid and non-assessable shares of Common Stock. The conversion price (the “Conversion Price”) is 75% of the volume weighted average price of the Common Stock for the ten (10) trading days immediately prior to the applicable conversion date, subject to adjustment herein but in no event: (i) lower than $4,000,000 divided by the total number of shares of Common Stock outstanding immediately prior to the conversion date; or (ii) greater than $12,000,000 divided by the total number of shares of common stock outstanding immediately prior to the conversion date.
On July 22, 2016, $150,000 of the Convertible Note was converted into 941,620 common shares at market trading price $0.27 per share. $160,771 value of derivative liability on the date of conversion was extinguished and the conversion generated $56,534 gain on extinguishment of debt in the consolidated statements of operations.
On July 10, 2017, the Convertible Note were amended with expiry date extended to January 10, 2018 and the conversion price was changed to 60% of the lowest trading price of the Common Stock for the ten (20) trading days immediately prior to the applicable conversion date. The change of conversion feature resulted in Inducement loss on conversion modification of $802,585 during the three and nine months ended September 30, 2017.
During the nine months ended September 30, 2017, $29,946 of the Convertible Note was converted into 29,940,000 common shares at market trading price of the conversion date at the range of $0.0019 to $0.0178, resulting in gain on note conversion of $2,169.
Additional features of the 10% Convertible Note include:
|
·
|
Liquidation Preference
. Upon a liquidation event, we will first pay to the Investor the principal amount owing, plus all accrued and unpaid interest, and any other fees or liquidated damages then due and owing thereon. After full payment of the liquidation preference amount to Investor, we will then distribute the remaining assets to holders of common stock, other junior securities (if any). The 10% Convertible Note is intended to rank senior to our common stock or any equivalents thereof, or any preferred stock we may designate, including the Series A Preferred, in respect of any dividends or distributions many in respect thereof.
|
|
·
|
Mandatory Conversion
. The 10% Convertible Note shall automatically convert into shares of our common stock at the Conversion Price without any action of the holder upon the occurrence of any of the following events after the closing date of the Share Exchange: (i) the completion of a public offering of our securities for gross proceeds of at least $5,000,000 pursuant to an effective registration statement under the Securities Act; or (ii) if we complete one or more financing transactions for gross proceeds of at least $5,000,000.
|
|
·
|
Ownership Limitations
. The 10% Convertible Note is not convertible to the extent that (a) the number of shares of our common stock beneficially owned by the Investor and (b) the number of shares of our common stock issuable upon the conversion of the 10% Convertible Note or otherwise would result in the beneficial ownership by holder of more than 4.99% of our then outstanding common stock. This ownership limitation can be increased or decreased to any percentage not exceeding 9.99% by the Investor upon 61 days’ notice to us.
|
|
·
|
Certain Adjustments
. The conversion price of the 10% Convertible Note is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
|
|
·
|
Negative Covenants
. As long as the 10% Convertible Note is outstanding, unless the holders of at least 75% of the then outstanding principal amount of the 10% Convertible Note shall have otherwise given prior written consent, we agreed that we will not amend our charter documents and bylaws in any manner that materially and adversely affects any rights of the holder, repurchase our common stock or certain other securities, pay dividends or distributions on any securities junior to the 10% Convertible Note, sell, lease or otherwise dispose of any significant portion of our assets outside the ordinary course of business or enter into any agreement with respect to any of the foregoing.
|
|
·
|
Redemption Upon Triggering Events
. If we fail to meet our obligations under the terms of the 10% Convertible Note, it will become immediately due and payable and subject to penalties provided for within the note.
|
|
·
|
Piggy-Back Registration Rights.
The holder of the 10% Convertible Note is entitled to Piggy-Back Registration Rights as provided for in the Piggy-Back Registration Rights Agreement provided for in Exhibit B to the Securities Purchase Agreement.
|
Dated - Issued in Fiscal Year 2016
During the year ended December 31, 2016, the Company issued a total Convertible Notes in the amount of $820,308 and warrants to purchase up to 450,755 shares of our common stock, with the following terms:
|
·
|
Terms 6 - 18 months
|
|
|
|
|
·
|
Annual interest rates ranging from 8% to 20%
|
|
|
|
|
·
|
Convertible at the option of the holders either at issuance or 6 months from issuance.
|
|
|
|
|
·
|
Conversion prices are typically based on the discounted (20% - 40% discount) lowest trading prices of the Company’s shares during various periods prior to conversion.
|
Dated - Issued in Fiscal Year 2017
During the nine months ended September 30, 2017, the Company issued a total Convertible Notes in the amount of $811,333 with the following terms:
|
·
|
Term 6 – 12 months
|
|
|
|
|
·
|
Annual interest rate ranging from 10% to 20%
|
|
·
|
Convertible at the option of the holders either at issuance
|
|
|
|
|
·
|
Conversion prices are typically based on the discounted (25% to 40% discount) lowest trading prices of the Company’s shares during various periods prior to conversion.
|
|
|
|
|
·
|
Original issue discount and Financing cost on note issuance at $58,500
|
Certain notes allow the Company to redeem the notes at rates ranging from 110% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day.
The Company determined that the conversion feature met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock therefore the embedded conversion option is bifurcated once the note becomes convertible and accounted for it as a derivative liability. The fair value of the conversion feature is recorded as a debt discount and amortized to interest expense over the term of the note.
The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the notes and warrants that became convertible as of September 30, 2017 and December 31, 2016 amounted to $1,485,750 and $2,577,652, respectively. During the nine months ended September 30, 2017 and 2016, $1,844,033 and $548,333 of the value assigned to the derivative liability was recognized as a debt discount to the notes and warrants, $718,326 and $313,217 was recognized as a “day 1” derivative loss, $865,470 and $160,771 value of derivative liability on the date of conversion was extinguished, $30,196 and $0 of new derivative liabilities recognized as issuance of warrants as stock based compensation expense, $257,502 and $0 value of derivative liabilities was reduced from note amendment, and $2,561,485 and $139,766 was recorded as gain on change in fair value of derivative liability, respectively.
Amendments to Convertible Promissory Notes
On July 10, 2017 (the “Effective Date”), the Company entered into amendments (the “Amendments”) with the owners and holders of convertible promissory notes in the original aggregate principal amount of $1,214,011 issued by the Company in 2015 and 2016 (the “Convertible Notes”):
The Amendments extend the maturity date for each of the Convertible Notes to six months from the Effective Date and, so long as the Convertible Note is not in default, the Company has the right to extend its Maturity Date for an additional period of six months. The Amendments also revise the conversion price under the Convertible Note to mean 60% multiplied by the lowest trading price for the Company’s Common Stock during the twenty trading day period prior to the date of conversion. In the event that shares of the Company’s Common Stock are not deliverable via DWAC following the conversion of any amount under the Convertible Note, the holder shall be entitled to an additional 10% discount. The Company agreed to increase the number of authorized shares of its Common Stock covenants that within 30 days from the Effective Date to an amount that will allow it to and keep available out of its authorized and unissued shares a number of shares of Common Stock at least equal to two times the number of shares of common stock issuable upon conversion of the entire principal amount plus accrued interest due under the Convertible Notes.
One of the Convertible Notes in the principal amount of $150,000 and another in the principal amount of $75,000 were each increased by $60,000 to include liquidated damages due to the holders of such convertible notes as a result of the Company’s failure to deliver shares of its Common Stock for more than 30 days as provided for in the Convertible Notes held by such holder.
The Company assessed the note amendments for a debt extinguishment or modification in accordance with ASC 470-50. As a result of note modifications, we assessed the fair value of the derivative liability at the point of modification and recognized $1,043,429 as an inducement loss on modification of the conversion features, for the three and nine month period ended September 30, 2017. As a result of note extinguishments, we assessed the fair value of the note and of the derivative liability, at the point of modification and recognized $28,780 and $374,434 as a new discount on note and loss on extinguishment of debt, respectively, for the three and nine month period ended September 30, 2017.
Termination of Stock Pledge and Security Agreement
The Amendments terminate a stock pledge agreement whereby the Company’s executive officers and directors had pledged their shares of the Company’s common stock as collateral for certain of the Convertible Notes and terminated an intellectual property security agreement whereby the Company had pledged all of its intellectual property as collateral for certain of the Convertible Notes. As a result of these terminations, none of the Convertible Notes are secured. Further, the holders of the Convertible Notes agreed to forbear from exercising any of their respective rights or remedies under the Convertible Notes as a result of any breach by the Company under the Convertible Note.
Securities Exchange Agreement
On July 10, 2017, the Company issued to Taconic Group, LLC (“Taconic”) a Convertible Promissory Note in the principal amount of $94,333 (the “Taconic Note”) in exchange for 94,333 shares of the Company’s Series A Preferred Stock held by Taconic.
Conversion
During the nine months ended September 30, 2017, convertible notes totaled $405,222 and $9,688 accrued interest were converted into 229,863,949 common shares with the recognition of gain on note conversion at $137,152.
Warrants
We accounted for the issuance of the Warrants in accordance with ASC 815 as a derivative (see Note 6).
Fiscal Year 2016
On March 28, 2016, the Company issued a Convertible Note in the amount of $250,000 and warrants to purchase up to 250,000 shares of our common stock. The warrants are exercisable into 250,000 shares of common stock, for a period of five years from issuance, at a price of $0.40 per share.
On September 12, 2016, the Company issued a Convertible Note in the amount of $101,511 and warrants to purchase up to 50,755 shares of our common stock. The warrants are exercisable into 50,775 shares of common stock, for a period of one year from issuance, at 120% of the lowest trading price during 20 trading day prior to the exercise date.
On September 12, 2016, the Company issued a Convertible Note in the amount of $150,000 of which $150,000 was received as of December 31, 2016, and warrants to purchase up to 75,000 shares of our common stock. The warrants are exercisable into 75,000 shares of common stock, for a period of one year from issuance, at 120% of the lowest trading price during 20 trading day prior to the exercise date.
On September 21, 2016, the Company issued Convertible Notes in the amount of $150,000 of which $150,000 was received as of December 31, 2016, and warrants to purchase up to 75,000 shares of our common stock. The warrants are exercisable into 75,000 shares of common stock, for a period of one year from issuance, at 120% of the lowest trading price during 20 trading day prior to the exercise date.
Fiscal Year 2017
During the nine months ended September 30, 2017, the Company issued a total of 3,136,500 stock warrants as follows:
|
·
|
On January 30, 2017, the Company entered into a public relations agreement with an unaffiliated party with warrants to purchase up to 2,000,000 shares of common stock. The warrants are exercisable into 2,000,000 shares of common stock, for a period of 3 years, at a price of $0.25 per share. The 2,000,000 warrants are considered tainted and the Company has recorded the related derivative liability.
|
|
·
|
On February 21, 2017, the Company entered into a consulting agreement with an unaffiliated party with warrants to purchase up to 1,000,000 shares of common stock. The warrants will be vested and can be exercised into 1,000,000 shares of common stock in 3 months from the agreement date by May 21 2017, for a period of three years from issuance, at a price of $0.02 per share. The related derivative liability for the 1,000,000 warrants will be recorded in May 2017 when they become tainted.
|
|
|
|
|
·
|
On February 28, 2017, the Company entered into a share subscription agreement with an unaffiliated party with attached warrants to purchase up to 136,500 shares of common stock. The warrants are exercisable into 136,500 shares of common stock, for a period of two years from issuance, at a price of $0.02 per share. The 136,500 warrants are considered tainted and the Company has recorded the related derivative liabilities.
|
The following table summarizes information relating to outstanding and exercisable warrants as of September 30, 2017:
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
|
Weighted
Average Remaining
|
|
|
Weighted
Average
|
|
|
|
|
|
Weighted
Average
|
|
Number of
Shares
|
|
|
Contractual
life (in years)
|
|
|
Exercise
Price
|
|
|
Number of
Shares
|
|
|
Exercise
Price
|
|
|
250,000
|
|
|
|
3.49
|
|
|
$
|
0.40
|
|
|
|
250,000
|
|
|
$
|
0.40
|
|
|
75,000
|
|
|
|
1.92
|
|
|
$
|
0.0019
|
|
|
|
75,000
|
|
|
$
|
0.0019
|
|
|
50,755
|
|
|
|
1.92
|
|
|
$
|
0.0019
|
|
|
|
50,755
|
|
|
$
|
0.0019
|
|
|
75,000
|
|
|
|
1.95
|
|
|
$
|
0.0019
|
|
|
|
75,000
|
|
|
$
|
0.0019
|
|
|
2,000,000
|
|
|
|
2.33
|
|
|
$
|
0.25
|
|
|
|
2,000,000
|
|
|
$
|
0.25
|
|
|
1,000,000
|
|
|
|
0.39
|
|
|
$
|
0.02
|
|
|
|
1,000,000
|
|
|
$
|
0.02
|
|
|
124,000
|
|
|
|
1.41
|
|
|
$
|
0.02
|
|
|
|
124,000
|
|
|
$
|
0.02
|
|
|
12,500
|
|
|
|
1.41
|
|
|
$
|
0.02
|
|
|
|
12,500
|
|
|
$
|
0.02
|
|
|
3,587,255
|
|
|
|
|
|
|
$
|
0.1739
|
|
|
|
3,587,255
|
|
|
$
|
0.1739
|
|
A summary of activity during the nine months ended September 30, 2017 as follows:
|
|
Warrants Outstanding
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
Shares
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2016
|
|
|
450,755
|
|
|
$
|
0.23
|
|
Granted
|
|
|
3,136,500
|
|
|
|
0.17
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
Balances as of September 30, 2017
|
|
|
3,587,255
|
|
|
$
|
0.17
|
|
NOTE 6.
DERIVATIVE LIABILITIES
The Company analyzed the conversion option for derivative accounting consideration under ASC 815, “
Derivatives and Hedging,”
and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of September 30, 2017. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note and warrants is estimated using the Black-Scholes valuation model. The following weighted-average assumptions were used in September 30, 2017 and December 31, 2016:
|
|
Nine Months Ended
|
|
|
Year Ended
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Expected term
|
|
0.07 - 3.99 years
|
|
|
0.10 - 5.00 years
|
|
Expected average volatility
|
|
100% - 185%
|
|
|
98% - 169%
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free interest rate
|
|
0.67%-1.89%
|
|
|
0.36% - 1.93%
|
|
The following table summarizes the derivative liabilities included in the balance sheet at September 30, 2017:
Fair Value Measurements Using Significant Observable Inputs (Level 3)
|
|
Balance - December 31, 2016
|
|
$
|
2,577,652
|
|
Addition of new derivative liabilities upon issuance of convertible notes as debt discounts
|
|
|
1,844,033
|
|
Addition of new derivatives liabilities recognized as loss on convertible notes
|
|
|
718,326
|
|
Addition of new derivatives liabilities recognized as issuance of warrants as stock based compensation expense
|
|
|
30,196
|
|
Reduction of derivatives liabilities from conversion of convertible note to common shares
|
|
|
(865,470
|
)
|
Reduction of derivative liabilities from note amendment
|
|
|
(257,502
|
)
|
Gain on change in fair value of the derivative liabilities
|
|
|
(2,561,485
|
)
|
Balance – September 30, 2017
|
|
$
|
1,485,750
|
|
ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item. The following table summarizes the loss (gain) on derivative liability included in the income statement for the nine months ended September 30, 2017 and 2016, respectively.
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Day one loss due to derivative liabilities on convertible notes and warrants
|
|
$
|
718,326
|
|
|
$
|
313,217
|
|
(Gain) loss on change in fair value of the derivative liabilities
|
|
|
(2,561,485
|
)
|
|
|
139,766
|
|
(Gain) loss on change in the fair value of derivative liabilities
|
|
$
|
(1,843,159
|
)
|
|
$
|
452,983
|
|
NOTE 7. RELATED PARTY CONSIDERATIONS
Management Agreements
Insight entered into Management Agreements with Berlisa B.V., Eagle Consulting LLC and Sterling Skies B.V. (entities that are owned by Messrs. Verweij, van Wijk and de Vries, executive officers of our company and related parties) on July 1, 2014 for a period of one year which expired on June 30, 2015 with a monthly fee of €7,500 per month.
The Company charged $378,341 and $376,189 during the nine months ended September 30, 2017 and 2016, respectively to operations for the management fees stemming from these Management Agreements.
As of September 30, 2017, and December 31, 2016, the amount due to related parties was $565,650 and $296,816 and accrued interest on the payable amount of $53,909 and $9,172, respectively.
NOTE 8. CONCENTRATIONS
The following table sets forth information as to each customer that accounted for 10% or more of the Company’s revenues for the nine months ended September 30, 2017 and 2016. In 2015 Insight Innovators decided to stop with consultancy and move forward as a product company.
|
|
Nine Months
Ended
|
|
|
Nine Months
Ended
|
|
Customer
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
|
|
EU PWN
|
|
|
56
|
%
|
|
|
100
|
%
|
EU Computer Profile
|
|
|
12
|
%
|
|
|
-%
|
|
US NRECA
|
|
|
32
|
%
|
|
|
-%
|
|
$33,382 of our total sales $49,359 was generated in foreign countries by Insight and $15,976 was generated in the US by IDdriven during the periods ended September 30, 2017. All of our sales were generated in foreign countries by Insight during the periods ended September 30, 2016.
NOTE 9. STOCKHOLDERS’ DEFICIT
On June 8, 2017, the Company filed a Certificate of Amendment with the state of Nevada, to the Company’s Articles of Incorporation, to increase the number of authorized shares of capital stock to 2,010,000,000 shares. With 2,000,000,000 shares of common stock, par value $0.001 and 10,000,000 shares of preferred stock, par value $0.001.
On September 14, 2017, the Company filed a Certificate of Amendment with the state of Nevada, to the Company’s Articles of Incorporation, to increase the number of authorized shares of capital stock to 10,010,000,000 shares. With 10,000,000,000 shares of common stock, par value $0.001 and 10,000,000 shares of preferred stock, par value $0.001.
Preferred Stock
The Company has authorized 10,000,000 preferred shares with a par value of $0.001 per share. The Board of Directors is authorized to divide the authorized shares of Preferred Stock into one or more series, each of which shall be so designated as to distinguish the shares thereof from the shares of all other series and classes.
Series A Convertible Preferred Stock
The Company has designated 808,000 shares of Series A Convertible Preferred Stock.
The designations, rights and preferences of the Series A Preferred include:
|
·
|
the stated value of the Series A Preferred is $1.00 per share.
|
|
|
|
|
·
|
the shares have no voting rights, provided, however, that for so long as any shares are outstanding, we many not, without the affirmative vote of at least 51% of the then outstanding shares of the Series A Preferred, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred or alter or amend the Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation (as defined) senior to, or otherwise in
pari passu
with, the Series A Preferred, (c) amend our articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders, (d) increase the number of authorized shares of Series A Preferred, or (e) enter into any agreement with respect to any of the foregoing.
|
|
|
|
|
·
|
each share is convertible at the option of the holder based upon a conversion price of $0.1778 ($0.0296 per share post forward stock split), into shares of our common stock at any time. The rate of conversion is subject to adjustment as discussed below.
|
|
|
|
|
·
|
Upon our liquidation, dissolution or winding-up, the holders will be entitled to receive out of our assets, whether capital or surplus, an amount equal to the stated value per share, $1.00, plus any accrued and unpaid dividends thereon.
|
|
|
|
|
·
|
the conversion price of the Series A Preferred is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events by adjustment of the conversion price by its multiplication by a fraction the numerator of which is the number of shares of common stock outstanding immediately before such event, and the denominator of which is the number of shares outstanding immediately after such event.
|
|
|
|
|
·
|
If, at any time while the Series A Preferred is outstanding, the Company or any subsidiary, as applicable sells or grants any option to purchase or sells or grants any right to re-price, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any person to acquire shares of common stock at an effective price per share that is lower than a conversion price then in effect for any of the Series A Preferred, as adjusted, then the conversion price for shares of Series A Preferred shall be reduced to equal the lower issuance price.
|
|
|
|
|
·
|
As long as any shares of Series A Preferred are outstanding, unless the holders of at least 51% in Stated Value of the then outstanding shares of such Series A Preferred shall have given prior written consent, the Corporation shall not, and shall not permit any Subsidiary to, directly or indirectly:
a) The Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents (or a combination of units thereof) involving a variable rate transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of common stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the common stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price.
|
During the nine months ended September 30, 2017, 105,946 shares of Series A Convertible Preferred Stock were converted into 3,579,256 shares of common stock.
During the nine months ended September 30, 2017, 94,333 shares of Series A Convertible Preferred Stock were converted into convertible note at principal amount $94,333.
As of September 30, 2017 and December 31, 2016, the Company had 0 and 200,279, respectively, shares of Series A Convertible preferred stock issued and outstanding, respectively.
Series B Preferred Stock
On May 11, 2017, the Company filed a certificate of designation, preferences and rights of Series B Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada to designate 1,500,000 shares of its previously authorized preferred stock as Series B Preferred Stock. The holders of shares of Series B Preferred Stock that are not entitled to dividends or distributions have the following voting rights:
|
·
|
Each share of Series B Preferred Stock entitles the holder to 250 votes on all matters submitted to a vote of the Company’s stockholders. In the event that such votes do not total at least 51% of all votes, then the votes cast by the holders of the Series B Preferred Stock shall be equal to 51% of all votes cast at any meeting of the Company’s stockholders or any issue put to the stockholders for voting.
|
|
|
|
|
·
|
Except as otherwise provided in the Certificate of Designation, the holders of Series B Preferred Stock, the holders of Company common stock and the holders of shares of any other Company capital stock having general voting rights and shall vote together as one class on all matters submitted to a vote of the Company’s stockholders.
|
|
|
|
|
·
|
The holders of the Series B Preferred Stock do not have any conversion rights.
|
On May 12, 2017, the Company entered into investment agreements (the “Investment Agreements”) with three entities in which Arend D. Verweij, Geurt van Wijk and Remy de Vries, individuals who are either executive officers and directors or both of the Company, have a pecuniary interest in and exercise voting and dispositive control over. Pursuant to the terms of each of the respective Investment Agreements, the Company sold to each of the three entities 500,000 shares of the Series B Preferred Stock at a purchase price of $500 ($0.001 per share).
Common Stock
During the nine months ended September 30, 2017, the Company issued 234,808,205 shares of common stock, as follows:
|
·
|
1,365,000 shares of common stock issued for net proceeds of $27,300.
|
|
|
|
|
·
|
3,579,256 shares of common stock in a conversion of 105,946 shares of Series A Convertible Preferred Stock.
|
|
|
|
|
·
|
229,863,949 shares of common stock in a conversion of $405,222 of Convertible Notes and accrued interest $9,688 valued at $1,143,223.
|
As at September 30, 2017 and December 31, 2016, the Company had 332,265,602 and 97,457,397 shares of common stock issued and outstanding, respectively.
NOTE 10. INCENTIVE STOCK PLANS
2015 Stock Option Grants
We granted stock options, which was adopted by our board of directors on December 21, 2015, provides for equity incentives to be granted to our employees, executive officers or directors.
During the year ended December 31, 2015 we issued options to purchase an aggregate of 8,173,686 shares of our unregistered common stock at a price of $.04893 per share for 1/3 of the shares, $.05873 per share for 1/3 of the shares, and $.06852 per share for 1/3 of the shares. The options had an aggregate value totaling $71,630 were issued to Messrs. Verweij, van Wijk and de Vries, executive officers of our company.
A summary of activity during the nine months ended September 30, 2017 follows:
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Fair Value
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
on Grant
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Date
|
|
|
Value
|
|
Balances as of December 31, 2016
|
|
|
8,173,686
|
|
|
$
|
0.0587
|
|
|
$
|
71,630
|
|
|
$
|
2,997
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balances as of September 30, 2017
|
|
|
8,173,686
|
|
|
$
|
0.0587
|
|
|
$
|
71,630
|
|
|
$
|
-
|
|
The outstanding options have a weighted-average remaining contract term of 3.23 years. As of September 30, 2017, 5,449,124 options remain unvested.
One-third of the options granted vest at the end of the first, second and third year after the date of the award date of December 21, 2015. After vesting, the option generally can be exercised for the period remaining in the 5-year term from issuance date. Total compensation cost expected to be recognized for unvested options at September 30, 2017 amounted to $12,584. During the nine months ended September 30, 2017 and 2016, the Company charged to operations stock based compensation expense of $14,894 and $32,645, respectively.
The following table summarizes information relating to outstanding and exercisable stock options as of September 30, 2017:
Options Outstanding
|
|
|
Options Exercisable
|
|
Number of Shares
|
|
|
Weighted Average
Remaining
Contractual life
(in years)
|
|
|
Weighted Average
Exercise Price
|
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,173,686
|
|
|
|
3.23
|
|
|
$
|
0.0587
|
|
|
|
2,724,562
|
|
|
$
|
0.0489
|
|
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the stock options at September 30, 2017 for those stock options for which the quoted market price was in excess of the exercise price (“in-the-money options”). As of September 30, 2017, 2,724,562 options to purchase shares of common stock were exercisable and the intrinsic values of these options are $nil. As of September 30, 2017, the intrinsic value of 5,449,124 outstanding options is $nil, as these options to employees vest in the future periods.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Rent commitment
Insight leases approximately 4,000 square feet of space at Nijverheidsweg Noord 78, 3812PM Amersfoort, The Netherlands. The terms of the lease require that Insight pay €1,500 per month (approximately $1,590 per month) on a month to month basis.
Total rent expenses for the nine months ended September 30, 2017 and 2016 were $14,940 and $15,075, respectively. Total rent expenses for the three months ended September 30, 2017 and 2016 were $5,220 and $5,040, respectively.
Rent payable as of September 30, 2017 and December 31, 2016 amounted to $27,606 and $17,152, respectively and included under accounts payable in the consolidated balance sheet.
Employment Agreements
Arend D. Verweij. Under the terms of the December 21, 2015 employment agreement we entered into with Mr. Verweij, he agreed to serve as our Chief Executive Officer and Chairman of the board of directors for a period of two years, that term automatically renewable for one year periods thereafter unless notice by either of Mr. Verweij or us is provided to the other to the contrary within 30 days prior to the expiration of any such period. The employment agreement provides for, among other things, Mr. Verweij’s full time service in our U.S. offices, for a base annual salary in the amount of $180,000, subject to the possible increase at each anniversary thereof to be determined by a majority of the independent members of the board of directors in its discretion; provided, however, that Mr. Verweij’s annual salary will be increased to $252,000 upon our entry into fully executed contracts with at least three customers who are unrelated parties that have a minimum of 500 users of the software system being licensed by our subsidiary, Insight, and each of such three contracts are in full force and effect.
Additionally, Mr. Verweij is eligible to receive a performance bonus during each year of employment of up to 100% of the base salary. The award of each year’s performance bonus, if any, is to be based upon certain performance criteria specified in the employment agreement and to be further determined by a majority of the independent members of the board of directors or a compensation committee to be made up of at least a majority of independent members appointed by the board or directors. Moreover, Mr. Verweij will receive a stock option grant entitling him to purchase an aggregate of 3,065,130 shares of our common stock which vests one-third on each of the three anniversary dates of his employment, but only if he is still in our employ on the date of vesting. The exercise prices of the option shares as to one third their number on their three respective vesting anniversaries are $0.04893, $0.05873 and $0.06852 per share. The number of unvested option shares available as of a given time during his employ are subject to appropriate adjustment in the event we undertake or undergo, as applicable, a stock split, reverse stock split, merger, recapitalization and similar transactions, and should Mr. Verweij cease to be in our employ, except for under certain specified circumstances, he will have one month to exercise vested options or otherwise they will become void. Those certain specified circumstances are his termination by us without cause, his termination for good reason, or his termination by reason of a change in control.
Further, Mr. Verweij shall be entitled to five weeks’ paid vacation, as well as in respect of all conventional holidays, a $1,500 monthly health insurance allowance, reimbursement of his out of pocket expenses incurred in connection with his employment, and such other perquisites and benefits as are or as may be made available to other of our executive employees. As of the date of this report, the board of directors has not established a complete set of performance benchmarks for purposes of determining bonuses payable to Mr. Verweij or other of our executives.
If Mr. Verweij’s employment is terminated by us, for cause, or by Mr. Verweij without good reason, he shall be entitled to be paid his accrued salary through, and earned but unused compensated absence time as of, the date of termination, but all remaining unvested stock options will be immediately forfeited by him.
Should we terminate Mr. Verweij’s employment without cause, or should he terminate the same for good reason, he shall be entitled to (i) be paid his then current base salary earned through the date of termination, together with all reimbursements and other amounts owed to him through such date pursuant, including any accrued but unused vacation/holiday time, (ii) an amount equal to one hundred percent (100%) of the greater of (A) his bonus for the year of termination or (B) the bonus actually earned for the year prior to the year of termination, if any, (iii) a lump-sum severance payment severance in an amount equal to the lesser of (A) one (1) times the base salary in the year of such termination or (B) the amount of base salary owed to him for the remainder of the first two years of his employment, (iv) we will continue to provide him with those medical, life and disability insurance benefits, if any, which are provided to him on the last day of his employment by us (or reimburse him for COBRA) for a period of five years, and (v) all stock options granted to him shall immediately vest, and any transfer restrictions thereon shall cease to be effective.
Finally, during the term of his employment and for a period of (i) one year thereafter if we terminate his employment without cause or he terminates his employment for good reason or (ii) two years otherwise, Mr. Verweij agreed to not engage in any competitive business or activities anywhere in the world, and during and subsequent to his employment, he has agreed to keep certain of our important or sensitive information confidential.
Geurt van Wijk. Under the terms of the December 21, 2015 employment agreement we entered into with Mr. van Wijk, he agreed to serve as our Chief Operating Officer for a period of two years, that term automatically renewable for one year periods thereafter unless notice by either of Mr. van Wijk or us is provided to the other to the contrary within 30 days prior to the expiration of any such period. The employment agreement provides for, among other things, Mr. van Wijk’s full time service from our offices in the Netherlands, for a base annual salary equal to EURO 120,000, subject to the possible increase at each anniversary thereof to be determined by a majority of the independent members of the board of directors in its discretion; provided, however, that Mr. van Wijk’s annual salary will be increased to EURO 150,000 upon our entry into fully executed contracts with at least three customers who are unrelated parties that have a minimum of 500 users of the software system being licensed by our subsidiary, Insight, and each of such three contracts are in full force and effect.
Additionally, Mr. van Wijk is eligible to receive a performance bonus during each year of employment of up to 75% of the base salary. The award of each year’s performance bonus, if any, is to be based upon certain performance criteria specified in the employment agreement and to be further determined by a majority of the independent members of the board of directors or a compensation committee to be made up of at least a majority of independent members appointed by the board or directors. Moreover, Mr. van Wijk will receive a stock option grant entitling him to purchase an aggregate of 2,554,278 shares of our common stock which vest one-third on each of the three anniversary dates of his employment, but only if he is still in our employ on the vesting dates. The exercise prices of the option shares as to one third their number on their three respective vesting anniversaries are $0.04893, $0.05873 and $0.06852 per share. The number of unvested option shares available as of a given time during his employ are subject to appropriate adjustment in the event we undertake or undergo, as applicable, a stock split, reverse stock split, merger, recapitalization and similar transactions, and should Mr. van Wijk cease to be in our employ, except for under certain specified circumstances, he will have one month to exercise vested options or otherwise they will become void. Those certain specified circumstances are his termination by us without cause, his termination for good reason, or his termination by reason of a change in control.
Further, Mr. van Wijk shall be entitled to five weeks’ paid vacation, as well as in respect of all conventional holidays, a EURO 1,350 monthly vehicle allowance, which will stop when his annual base salary reaches EURO 150,000, reimbursement of his out of pocket expenses incurred in connection with his employment, and such other perquisites and benefits as are or as may be made available to other of our executive employees. As of the date of this report, the board of directors has not established a complete set of performance benchmarks for purposes of determining bonuses payable to Mr. van Wijk or other of our executives.
If Mr. van Wijk’s employment is terminated by us, for cause, or by Mr. van Wijk without good reason, he shall be entitled to be paid his accrued salary through, and earned but unused compensated absence time as of, the date of termination, but all remaining unvested stock options will be immediately forfeited by him.
Should we terminate Mr. van Wijk’s employment without cause, or should he terminate the same for good reason, he shall be entitled to (i) be paid his then current base salary earned through the date of termination, together with all reimbursements and other amounts owed to him through such date pursuant, including any accrued but unused vacation/holiday time, (ii) an amount equal to one hundred percent (100%) of the greater of (A) his bonus for the year of termination or (B) the bonus actually earned for the year prior to the year of termination, if any, (iii) a lump-sum severance payment severance in an amount equal to the lesser of (A) one (1) times the base salary in the year of such termination or (B) the amount of base salary owed to him for the remainder of the first two years of his employment, (iv) we will continue to provide him with those medical, life and disability insurance benefits, if any, which are provided to him on the last day of his employment by us (or reimburse him for COBRA) for a period of five years, and (v) all stock options granted to him shall immediately vest, and any transfer restrictions thereon shall cease to be effective.
Finally, during the term of his employment and for a period of (i) one year thereafter if we terminate his employment without cause or he terminates his employment for good reason or (ii) two years otherwise, Mr. van Wijk agreed to not engage in any competitive business or activities anywhere in the world, and during and subsequent to his employment, he has agreed to keep certain of our important or sensitive information confidential.
Remy de Vries. As of December 21, 2015, we entered additionally into an employment agreement with Mr. de Vries to serve as our Chief Technology Officer for a period of two years, that term automatically renewable for one year periods thereafter unless notice by either of Mr. de Vries or us is provided to the other to the contrary within 30 days prior to the expiration of any such period. The employment agreement provides for, among other things, Mr. de Vries’ full time service from our offices in the Netherlands, for a base annual salary equal to EURO 120,000, subject to the possible increase at each anniversary thereof to be determined by a majority of the independent members of the board of directors in its discretion; provided, however, that Mr. de Vries’ annual salary will be increased to EURO 150,000 upon our entry into fully executed contracts with at least three customers who are unrelated parties that have a minimum of 500 users of the software system being licensed by our subsidiary, Insight, and each of such three contracts are in full force and effect.
Additionally, Mr. de Vries is eligible to receive a performance bonus during each year of employment of up to 75% of the base salary. The award of each year’s performance bonus, if any, is to be based upon certain performance criteria specified in the employment agreement and to be further determined by a majority of the independent members of the board of directors or a compensation committee to be made up of at least a majority of independent members appointed by the board or directors. Moreover, Mr. de Vries will receive a stock option grant entitling him to purchase an aggregate of 2,554,278 shares of our common stock which vest one-third on each of the anniversary dates of his employment, but only if he is still in our employ on the vesting date. The exercise prices of the option shares as to one third their number on their three respective vesting anniversaries are $0.04893, $0.05873 and $0.06852 per share. The number of unvested option shares available as of a given time during his employ are subject to appropriate adjustment in the event we undertake or undergo, as applicable, a stock split, reverse stock split, merger, recapitalization and similar transactions, and should Mr. de Vries cease to be in our employ, except for under certain specified circumstances, he will have one month to exercise vested options or otherwise they will become void. Those certain specified circumstances are his termination by us without cause, his termination for good reason, or his termination by reason of a change in control.
Further, Mr. de Vries shall be entitled to five weeks’ paid vacation, as well as in respect of all conventional holidays, a EURO 1,350 monthly vehicle allowance, which will stop when his annual base salary reaches EURO 150,000, reimbursement of his out of pocket expenses incurred in connection with his employment, and such other perquisites and benefits as are or as may be made available to other of our executive employees. As of the date of this report, the board of directors has not established a complete set of performance benchmarks for purposes of determining bonuses payable to Mr. de Vries or other of our executives.
If Mr. de Vries’ employment is terminated by us, for cause, or by Mr. de Vries without good reason, he shall be entitled to be paid his accrued salary through, and earned but unused compensated absence time as of, the date of termination, but all remaining unvested stock options will be immediately forfeited by him.
Should we terminate Mr. de Vries’ employment without cause, or should he terminate the same for good reason, he shall be entitled to (i) be paid his then current base salary earned through the date of termination, together with all reimbursements and other amounts owed to him through such date pursuant, including any accrued but unused vacation/holiday time, (ii) an amount equal to one hundred percent (100%) of the greater of (A) his bonus for the year of termination or (B) the bonus actually earned for the year prior to the year of termination, if any, (iii) a lump-sum severance payment severance in an amount equal to the lesser of (A) one (1) times the base salary in the year of such termination or (B) the amount of base salary owed to him for the remainder of the first two years of his employment, (iv) we will continue to provide him with those medical, life and disability insurance benefits, if any, which are provided to him on the last day of his employment by us (or reimburse him for COBRA) for a period of five years, and (v) all stock options granted to him shall immediately vest, and any transfer restrictions thereon shall cease to be effective.
Finally, during the term of his employment and for a period of (i) one year thereafter if we terminate his employment without cause or he terminates his employment for good reason or (ii) two years otherwise, Mr. de Vries agreed to not engage in any competitive business or activities anywhere in the world, and during and subsequent to his employment, he has agreed to keep certain of our important or sensitive information confidential.
Litigation
From time to time we may be a defendant and/or plaintiff in various other legal proceedings arising in the normal course of our business. We are currently not a party to any material legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, we are not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Furthermore, as of the date, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party adverse to our company or has a material interest adverse to us.
NOTE 12. SUBSEQUENT EVENTS
In October and November 2017, the Company issued an aggregate of $103,667 of convertible notes with the following terms:
|
·
|
Term 12 months
|
|
|
|
|
·
|
Annual interest rate ranging from 12% to 18%
|
|
|
|
|
·
|
Convertible at the option of the holders at issuance
|
|
|
|
|
·
|
Conversion prices is based on 40% discount off certain trading prices of the Company’s shares of common stock during various periods prior to conversion.
|
|
|
|
|
·
|
Original issue discount and transaction expenses on note issuance at a total of $20,450
|
Certain notes allow the Company to redeem the notes at rates ranging from 135% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day.
Issuance of Common Stock
Subsequent to September 30, 2017, the Company issued 834,854,631 shares of common stock for the conversion of convertible notes and accrued interest of $268,668.