NOTE TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
In the opinion of the Company, the
accompanying unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form
10-Q, and include all adjustments (consisting only of normal recurring accruals) which we considered as necessary for a fair
presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for
the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for future periods
or the full year.
The condensed consolidated financial statements
include the accounts of Ipsidy Inc. and its wholly-owned subsidiaries MultiPay S.A.S., ID Global LATAM, IDGS S.A.S., ID Solutions,
Inc., Fin Holdings, Inc. and Cards Plus Pty Ltd. (the "Company"). All significant intercompany balances and transactions
have been eliminated in consolidation.
Net Loss per Common Share
The Company computes net income or loss
per share in accordance with FASB ASC 260, "Earnings per Share". ASC 260 requires presentation of both basic
and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net
income (loss) available to common shareholders by the weighted average number of common shares outstanding during the
period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock
options, using the treasury stock method, and convertible notes and stock warrants, using the if-converted method. In
computing diluted EPS, 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, warrants and conversion of convertible notes. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. The
following table illustrates the computation of basic and diluted EPS:
|
|
For
the three-months ended June 30, 2016
|
|
|
For
the three-months ended June 30, 2015
|
|
|
For
the six-months ended June 30, 2016
|
|
|
For
the six months ended June 30. 2015
|
|
|
|
|
|
|
|
|
|
Per-Share
|
|
|
|
|
|
|
|
|
Per-Share
|
|
|
|
|
|
|
|
|
Per-Share
|
|
|
|
|
|
|
|
|
Per-Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to stockholders
|
|
$
|
(832,691
|
)
|
|
|
213,260,870
|
|
|
$
|
(0.00
|
)
|
|
$
|
(3,415,771
|
)
|
|
|
166,054,195
|
|
|
$
|
(0.02
|
)
|
|
$
|
6,859,819
|
|
|
|
207,538,833
|
|
|
$
|
0.03
|
|
|
$
|
(4,125,634
|
)
|
|
|
166,054,195
|
|
|
$
|
(0.00
|
)
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
10,714,189
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
25,634,957
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Convertible
Debt
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(17,712,426
|
)
|
|
|
31,465,287
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to stockholders plus assumed conversions
|
|
$
|
(832,691
|
)
|
|
|
213,260,870
|
|
|
$
|
(0.00
|
)
|
|
$
|
(3,415,771
|
)
|
|
|
166,054,195
|
|
|
$
|
(0.02
|
)
|
|
$
|
(10,852,607
|
)
|
|
|
275,353,266
|
|
|
$
|
(0.04
|
)
|
|
$
|
(4,125,634
|
)
|
|
|
166,054,195
|
|
|
$
|
(0.00
|
)
|
Going concern
As of June 30, 2016, the Company has a working
capital and accumulated deficit of approximately $12.0 million and $32.2 million, respectively. For the six months ended June
30, 2016 the Company earned revenue of approximately $811,000 and incurred an operating loss of approximately $8.5 million.
These condensed consolidated financial statements
have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its
operations for the next fiscal year. The continuation of the Company as a going concern is dependent upon financial support from
the Company’s current shareholders, the ability of the Company to obtain additional equity financing to continue operations,
the Company’s ability to generate sufficient cash flows from operations, successfully locating and negotiating with other
business entities for potential acquisition and /or acquiring new clients to generate revenues and cash flows.
There is no assurance that the Company will
ever be profitable. These condensed consolidated financial statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should
the Company be unable to continue as a going concern.
Inventories
Inventories of kiosks held by IDGS
S.A.S are stated at the lower of cost (using the first-in, first-out method) or market. The kiosks provide electronic
ticketing for transit systems. Inventory of plastic/ID cards, digital printing material, which are held by Cards Plus Pty
Ltd., are stated at the lower of cost (using the average method) or market. The plastic/ID cards and digital printing
material are used to provide plastic loyalty, ID and other types of cards. Inventories at June 30, 2016 consist solely of the Cards Plus inventory as the kiosks were deployed in
the second quarter of 2016 subject to a direct financing lease.
Income Taxes
The Company accounts for income
taxes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740
“Income Taxes.” Under the asset and liability method of FASB ASC 740, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period the enactment occurs. A valuation allowance is provided for deferred tax assets if
it is more likely than not that the Company will not realize tax assets through future operations. For the three and six months ended June 30, 2016 and 2015, there is no provision for income tax as the Company had a tax loss for United States and foreign
activities. The Company’s gain on derivative liability during the three and six months ended June 30, 2016 and 2015, is not taxable.
Leases
All leases are classified at the
inception as direct finance leases or operating leases based on whether the lease transfers substantially all the risks
and rewards of ownership.
Leases that transfer to the
lessee substantially all of the risks and rewards incidental to the ownership of the asset are classified as direct finance
leases.
Revenue Recognition
The Company recognizes revenue when products are shipped or services have been performed. Financing revenue
related to direct-financing leases is recognized over the term of the lease using the effective interest method.
NOTE 2
–
FIN HOLDINGS ACQUISITION
On February 8, 2016, the Company entered
into a Share Exchange Agreement with Fin Holdings, Inc., a Florida corporation ("FIN"), and all of the FIN
shareholders (the "FIN Shareholders"), pursuant to which the Company acquired 100% of the issued and outstanding
shares of FIN (the "FIN Shares") and FIN's two wholly-owned subsidiaries, ID Solutions, Inc. and Cards Plus Pty
Ltd. (collectively, the "Subsidiaries"), from the FIN Shareholders. One of the FIN shareholders was the Company’s Chief Operating Officer and owned approximately 1.7%
of the Company’s outstanding common stock at the acquisition date. In consideration for the FIN Shares, the
Company issued and sold to the FIN Shareholders an aggregate of 22,500,000 shares of common stock of the Company (the
"Purchase Shares") at a per share price of $0.40 or $9,000,000. The closing occurred on February 8, 2016.
In accordance with ASC 805, “Business
Combinations”, the Company accounted for the acquisition of FIN as a business combination using the acquisition method
of accounting. The purchase price was allocated to specific identifiable tangible and intangible assets at their respective fair
values at the date of acquisition.
The following table summarizes the total fair
value of the consideration transferred as well as the fair values of the assets and liabilities assumed.
Common stock consideration
|
|
$
|
9,000,000
|
|
Liabilities assumed
|
|
|
914,218
|
|
Total purchase consideration
|
|
|
9,914,218
|
|
Current assets
|
|
|
(843,317
|
)
|
Property and equipment
|
|
|
(100,339
|
)
|
Customer relationships
|
|
|
(1,587,159
|
)
|
Intellectual property
|
|
|
(814,049
|
)
|
Goodwill
|
|
$
|
6,569,354
|
|
Goodwill is calculated as the excess
of the consideration transferred over the net assets recognized and represents the expected revenue and benefits of the
combined company. FIN was acquired on February 8, 2016 pursuant to a Share Exchange Agreement, at which time control was
achieved through a restructuring of the reporting hierarchy to Company management.
The condensed consolidated
financial statements for the six months ended June 30, 2016 include FIN’s results for the period from the date of
acquisition to June 30, 2016. FIN Holdings Revenue and Operating Income included in the consolidated results of operations for
the six months ended June 30, 2016, was approximately $670,000 and $89,000 respectively.
The following unaudited proforma financial
information gives effect to the Company’s acquisition of FIN as if the acquisition had occurred on January 1, 2015 and had
been included in the Company’s consolidated statement of operations for the six months ended June 30, 2016 and June 30,
2015.
|
|
Six months ended June 30
|
|
|
|
2016
|
|
|
2015
|
|
Proforma net revenues
|
|
$
|
932,297
|
|
|
$
|
1,088,960
|
|
Proforma net income (loss)
|
|
$
|
6,852,278
|
|
|
$
|
(3,944,838
|
)
|
NOTE 3 – INTANGIBLE ASSETS, NET (OTHER
THAN GOODWILL)
The Company’s intangible assets
consist of intellectual property acquired from MultiPay in April 2015 and FIN and are amortized over their estimated
useful lives as indicated below. The following is a summary of activity related to intangible assets for the six months ended
June 30, 2016:
|
|
Customer
Relationships
|
|
|
Intellectual
Property
|
|
|
Non-
Compete
|
|
|
|
|
Useful Lives
|
|
10 Years
|
|
|
7 Years
|
|
|
5 Years
|
|
|
Total
|
|
Carrying Value at December 31, 2015
|
|
$
|
-
|
|
|
$
|
1,423,537
|
|
|
$
|
12,997
|
|
|
$
|
1,436,534
|
|
Additions
|
|
|
1,587,159
|
|
|
|
814,049
|
|
|
|
-
|
|
|
|
2,401,208
|
|
Amortization
|
|
|
(61,635
|
)
|
|
|
(173,689
|
)
|
|
|
(1,408
|
)
|
|
|
(236,732
|
)
|
Carrying Value at June 30, 2016
|
|
$
|
1,525,524
|
|
|
$
|
2,063,897
|
|
|
$
|
11,589
|
|
|
$
|
3,601,010
|
|
The following is a summary of intangible assets as of June 30,
2016:
|
|
Customer
Relationships
|
|
|
Intellectual
Property
|
|
|
Non-
Compete
|
|
|
Total
|
|
Cost
|
|
$
|
1,587,159
|
|
|
$
|
2,444,646
|
|
|
$
|
14,087
|
|
|
$
|
4,045,892
|
|
Accumulated amortization
|
|
|
(61,635
|
)
|
|
|
(380,749
|
)
|
|
|
(2,498
|
)
|
|
|
(444,882
|
)
|
Carrying Value at June 30, 2016
|
|
$
|
1,525,524
|
|
|
$
|
2,063,897
|
|
|
$
|
11,589
|
|
|
$
|
3,601,010
|
|
Future expected amortization of intangible assets is as follows:
Year Ending December 31,
|
|
|
|
|
2016
|
|
$
|
249,550
|
|
2017
|
|
|
494,950
|
|
2018
|
|
|
494,950
|
|
2019
|
|
|
494,950
|
|
2020
|
|
|
494,950
|
|
2021
|
|
|
496,631
|
|
Thereafter
|
|
|
875,029
|
|
|
|
$
|
3,601,010
|
|
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following as of June 30,
2016 and December 31, 2015:
|
|
2016
|
|
|
2015
|
|
Computers and equipment
|
|
$
|
88,587
|
|
|
$
|
88,047
|
|
Furniture and fixtures
|
|
|
179,485
|
|
|
|
69,168
|
|
|
|
|
268,072
|
|
|
|
157,215
|
|
Less Accumulated depreciation
|
|
|
143,469
|
|
|
|
119,440
|
|
Property and equipment, net
|
|
$
|
124,603
|
|
|
$
|
37,775
|
|
Depreciation expense totaled $24,029 and $12,505 for the six months
ended June 30, 2016 and 2015, respectively.
NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following
as of June 30, 2016 and December 31, 2015:
|
|
2016
|
|
|
2015
|
|
Trade payables
|
|
$
|
334,192
|
|
|
$
|
301,455
|
|
Accrued interest
|
|
|
323,817
|
|
|
|
96,579
|
|
Accrued payroll and related
|
|
|
261,548
|
|
|
|
204,125
|
|
Other accrued expenses
|
|
|
78,566
|
|
|
|
115,341
|
|
Total
|
|
$
|
998,123
|
|
|
$
|
717,500
|
|
NOTE 6 - NOTES PAYABLE, NET
The following is a summary of notes payable as of June 30, 2016
and December 31, 2015:
|
|
2016
|
|
|
2015
|
|
In connection with the acquisition of MultiPay in 2015, the Company assumed three
promissory notes. At June 30, 2016, the remaining outstanding note carried an outstanding balance of $79,014. Payments
of $6,300 including principal and interest are due monthly. The notes accrue interest at an annual rate of 15.47%. Total outstanding
principal and interest is due on September 16, 2017.
|
|
$
|
79,014
|
|
|
$
|
96,669
|
|
|
|
|
|
|
|
|
|
|
The below notes payable were not initially convertible; except for the accrued interest
portion which was convertible into common stock of the Company. Further, in January 2017, the below notes, which were being
renegotiated, and related accrued interest were converted into common stock of the Company (see note 13).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In August 2015, the Company issued a 12% note in the amount of $27,000. The note is
secured by the assets of the Company, matures in August 2016, and accrued interest is convertible into common stock of
the Company at a rate of $0.10 per share. In connection with the issuance of this note, the Company also issued warrants for the purchase of 180,000 shares of the Company’s common stock at an exercise price of $0.15 per share
for a period of five years. The Company also incurred debt issuance costs of $148,160, which are presented as
a discount against the note and amortized into interest expense over the term of the note.
|
|
|
27,000
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
In September 2015, the Company issued 12% notes in the amount of $973,000. The
notes are secured by the assets of the Company, mature in September 2016, and accrued interest is convertible into common
stock of the Company at a rate of $0.10 per share. In connection with the issuance of these notes, the Company
also issued warrants for the purchase of 6,486,667 shares of the Company’s common stock at an exercise price of $0.15
per share for a period of five years. The Company also incurred debt issuance costs of $77,480, which are presented
as a discount against the note and amortized into interest expense over the term of the notes.
|
|
|
973,000
|
|
|
|
973,000
|
|
|
|
|
|
|
|
|
|
|
In October 2015, the Company issued 12% notes in the amount of $225,000. The notes
are secured by the assets of the Company, mature in October 2016, and accrued interest is convertible into common stock of
the Company at a rate of $0.10 per share. In connection with the issuance of this note, the Company also issued
warrants for the purchase of 1,500,000 shares of the Company’s common stock at an exercise price of $0.15 per share
for a period of five years. The Company also incurred debt issuance costs of $36,400, which are presented as a
discount against the note and amortized into interest expense over the term of the notes.
|
|
|
225,000
|
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
In November 2015, the Company issued a 12% note in the amount of $25,000. The
note is secured by the assets of the Company, matures in October 2016, and accrued interest is convertible into common stock
of the Company at a rate of $0.10 per share. In connection with the issuance of this note, the Company also issued
warrants for the purchase of 166,667 shares of the Company’s common stock at an exercise price of $0.15 per share for
a period of five years. The Company also incurred debt issuance costs of $94,400, which are presented as a discount
against the note and amortized into interest expense over the term of the note.
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
In December 2015, the Company issued 12% notes in the amount of $850,000. The
notes are secured by the assets of the Company and mature in December 2016. Any unpaid accrued interest on the
note is convertible into common stock of the Company at a rate of $0.48 per share. In connection with the issuance
of these notes, the Company also issued warrants for the purchase of 1,770,834 shares of the Company’s common stock
at an exercise price of $0.48 per share for a period of five years. The conversion rate on the accrued interest
and the exercise price on the warrants provide the holders with anti-dilution protection that requires these features to be
bifurcated and presented as derivative liabilities at their fair values. See Note 8.
|
|
|
850,000
|
|
|
|
850,000
|
|
(Continued on next page)
(Continued)
|
|
2016
|
|
|
2015
|
|
In January 2016, the Company issued 12% notes
in the amount of $100,000. The notes are secured by the assets of the Company, mature in January 2017, and accrued interest
is convertible into common stock of the Company at a rate of $0.48 per share. In connection with the issuance of
these notes, the Company also issued warrants for the purchase of 208,332 shares of the Company’s common stock at an
exercise price of $0.48 per share for a period of five years. The conversion rate on the accrued interest and the
exercise price of the warrants provide the holders with anti-dilution protection that requires these features to be bifurcated
and presented as derivative liabilities at their fair values. See Note 8.
|
|
|
100,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Principal Outstanding
|
|
$
|
2,279,014
|
|
|
|
2,196,669
|
|
Unamortized Deferred Debt Discounts
|
|
|
(482,943
|
)
|
|
|
(1,193,947
|
)
|
Unamortized Deferred Debt Issuance costs
|
|
|
(217,603
|
)
|
|
|
(368,653
|
)
|
Convertible Notes, Net
|
|
$
|
1,578,468
|
|
|
$
|
634,069
|
|
The following is a roll-forward of the Company’s
notes payable and related discounts for the six months ended June 30, 2016:
|
|
Principal
Balance
|
|
|
Debt
Issuance
Costs
|
|
|
Debt
Discounts
|
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
2,196,669
|
|
|
|
(368,653
|
)
|
|
|
(1,193,947
|
)
|
|
$
|
634,069
|
|
New issuances
|
|
|
100,000
|
|
|
|
|
|
|
|
(66,830
|
)
|
|
|
33,170
|
|
Payments
|
|
|
(17,655
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,655
|
)
|
Amortization
|
|
|
-
|
|
|
|
151,050
|
|
|
|
777,834
|
|
|
|
928,884
|
|
Balance at June 30, 2016
|
|
$
|
2,279,014
|
|
|
$
|
(217,603
|
)
|
|
$
|
(482,943
|
)
|
|
$
|
1,578,468
|
|
NOTE 7 – CONVERTIBLE NOTES PAYABLE, NET
Convertible notes consisted of the following as of June 30, 2016
and December 31, 2015:
In January 2017, the below convertible notes payable, which
were being renegotiated, and related accrued interest were converted into Common stock of the Company (Note 13).
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
In June 2015, the Company issued 10% convertible notes with an aggregate principal
amount of $700,000. The notes are secured by the assets of the Company, matured in June 2016, and are convertible
into common stock of the Company at a conversion rate of $0.03 per share, subject to adjustment. In connection
with the issuance of these notes, the Company also issued warrants for the purchase of 15,400,000 shares of the Company’s
common stock at an exercise price of $0.05 per share for a period of five years. The conversion rate on the notes
and exercise price of the warrants are subject to adjustment for anti-dilution protection that requires these features to be
bifurcated and presented as derivative liabilities at their fair values. See Note 8. The Company also incurred
debt issuance costs of $124,500, which are presented as a discount against the note and amortized into interest expense over
the term of the note. During the six months ended June 30, 2016, one note holder elected to convert principal and accrued
interest totaling $21,222 into 704,074 shares of common stock.
|
|
$
|
680,000
|
|
|
$
|
700,000
|
|
|
|
|
|
|
|
|
|
|
In July 2015, the Company issued 10% convertible notes with in the aggregate principal
amount of $190,000. The notes are secured by the assets of the Company, matured in July 2016, and are
convertible into common stock of the Company at a conversion rate of $0.03 per share, subject to
adjustment. In connection with the issuance of these notes, the Company also issued warrants for the purchase
of 4,180,000 shares of the Company’s common stock at an exercise price of $0.05 per share for a period of five
years. The conversion rate on the notes and exercise price of the warrants are subject to adjustment for
anti-dilution protection that requires these features to be bifurcated and presented as derivative liabilities at their
fair values. See Note 8. The Company also incurred debt issuance costs of $16,200, which are presented as a
discount against the note and amortized into interest expense over the term of the note.
|
|
|
166,000
|
|
|
|
166,000
|
|
(Continued on next page)
(Continued)
|
|
2016
|
|
|
2015
|
|
In February 2016, the Company re-issued a 12% convertible note in the amount of
$172,095. The note is secured by the assets of the Company, originally maturing in September 2016, and is convertible into
common stock of the Company at a rate of $0.10 per share.
|
|
|
172,095
|
|
|
|
172,095
|
|
|
|
|
|
|
|
|
|
|
In April 2016, the Company issued 12% convertible notes in the amount
of $1,550,000. The notes are secured by the assets of the Company, mature in October 2016, and are convertible into common
stock of the Company at a rate of $0.25 per share. In connection with the issuance of these notes, the Company
also issued 1,033,337 shares of common stock and warrants for the purchase of 6,200,000 shares of the Company’s common
stock at an exercise price of $0.25 per share for a period of five years. The conversion rate on
the notes and exercise price of the warrants are subject to adjustment for anti-dilution protection that
require these features to be bifurcated and presented as derivative liabilities at their fair
values. See Note 8. The portion of the remaining proceeds attributable to the notes and common stock
were allocated to the instruments based on their relative fair values. See Notes 8 and
10. The Company also incurred debt issuance costs of $226,400, which are presented as a discount
against the note and amortized into interest expense over the term of the note.
|
|
|
1,550,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Principal Outstanding
|
|
$
|
2,568,095
|
|
|
$
|
1,038,095
|
|
Unamortized Deferred Debt Discounts
|
|
|
(442,097
|
)
|
|
|
(583,049
|
)
|
Unamortized Deferred Debt Issuance costs
|
|
|
(180,583
|
)
|
|
|
(71,700
|
)
|
Convertible Notes, Net
|
|
$
|
1,945,415
|
|
|
$
|
383,346
|
|
The following is a roll-forward of the Company’s
convertible notes and related discounts for the six months ended June 30, 2016:
|
|
Principal
Balance
|
|
|
Debt
Issuance
Costs
|
|
|
Debt
Discounts
|
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
1,038,095
|
|
|
$
|
(71,700
|
)
|
|
$
|
(583,049
|
)
|
|
$
|
383,346
|
|
New issuances
|
|
|
1,550,000
|
|
|
|
(226,400
|
)
|
|
|
(636,373
|
)
|
|
|
687,227
|
|
Conversions
|
|
|
(20,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,000
|
)
|
Amortization
|
|
|
-
|
|
|
|
117,517
|
|
|
|
777,325
|
|
|
|
894,842
|
|
Balance at June 30, 2016
|
|
$
|
2,568,095
|
|
|
$
|
(180,583
|
)
|
|
$
|
(442,097
|
)
|
|
$
|
1,945,415
|
|
NOTE 8 –DERIVATIVE LIABILITY
Due to the potential adjustment in the conversion
price associated with certain of the convertible debentures and the potential adjustment in the exercise price of certain of the
warrants, the Company has determined that certain conversion features and warrants are derivative liabilities.
The fair values of the embedded conversion
features and the warrants are estimated and recorded as derivative liabilities on the date of issuance, offset by a discount on
the related convertible note payable up to the face amount of the note, with any excess fair value recorded as derivative expense
on the date of issuance. The Company’s convertible debt is convertible into common stock at conversion rates that vary based
on the trading prices of the Company’s common stock. Accordingly, the conversion feature is required to be presented at
fair value on the dates of issuance, settlement, and at each reporting date. The Company also has warrants to purchase common
stock outstanding that provide for adjustments to the exercise prices upon the future dilutive issuances. The Company utilizes
Monte Carlo simulations and stochastic forecasting to estimate the fair value of the warrants and conversion options. The ranges
of assumptions utilized in estimating the fair value of the warrants and conversion options during the six months ended June 30,
2016, are as follows:
Expected Volatility
|
|
|
66%
to 87%
|
|
Expected Term
|
|
|
0.4
to 5.0 Years
|
|
Risk Free Rate
|
|
|
0.36%
to 1.21%
|
|
Dividend Rate
|
|
|
0.00%
|
|
Triggering Capital Raise Probabilities
|
|
|
50%
- 75%
|
|
A summary of derivative activity for the six
months ended June 30, 2016 is as follows:
Balance at December 31, 2015
|
|
$
|
25,445,645
|
|
New issuances
|
|
|
648,836
|
|
Conversion feature reclassified to equity upon conversion of related notes payable
|
|
|
(692,850
|
)
|
Change in fair value
|
|
|
(17,677,252
|
)
|
Balance at June 30, 2016
|
|
$
|
7,724,379
|
|
NOTE 9 – RELATED PARTY TRANSACTIONS
Acquisition of FIN
As discussed in Note 2, the Company acquired all of the issued and outstanding shares of FIN in February
2017. The Company’s Chief Operating Officer and then 1.7% shareholder in the Company was also a significant shareholder
in FIN at the time of the acquisition.
Convertible Notes Payable
As of June 30, 2016, the Company has outstanding convertible notes
payable to certain members of the Company’s Board of Directors. Total amounts due to these related parties included in convertible
notes payable amounted to $150,000 at June 30, 2016. See Note 7.
Other
In connection with the Company’s
ability to secure third-party financing, the Company paid Network 1 Financial Securities, Inc. (“Network 1”), a
registered broker-dealer, a cash fee of $124,000 and issued Network 1 1,430,000 shares of common stock of the Company in
accordance with its agreement during the six months ended June 30, 2016. A member of the Company’s Board of
Directors previously maintained a partnership with a key principal of Network 1. In addition to the cash fee paid, the
agreement calls for Network 1 to receive an 8% commission of the total amount of proceeds from any financing it secures for
the Company.
NOTE 10
–
STOCKHOLDER’S
DEFICIT
Common Stock
During the six months ended June 30, 2016,
the Company issued 704,074 shares of common stock upon the conversion of principal and interest on convertible debt totaling $21,222.
During the six months ended June 30, 2016,
the Company issued 675,000 shares of common stock as consideration for services related to its acquisition of FIN Holdings. The
fair value of the shares, totaling $270,000, was estimated based on the publicly quoted trading price and recorded as an expense
on the date of the acquisition.
During the six months ended June 30, 2016,
the Company issued 1,430,000 shares of common stock as consideration for debt issuance costs. The fair value of the shares, totaling
$169,125, was estimated based on publicly quoted trading prices and recorded as debt issuance costs to be amortized into interest
expense over the terms of the respective debt agreements.
During the six months ended June
30, 2016, the Company issued 1,033,337 shares of common stock to investors in connection with the April 2016 Convertible
notes (see Notes 7) of which $54,470 of the proceeds from the issuance of convertible notes was attributed to the common
stock based on their relative fair value to that of the notes and recorded as a debt discount to be amortized into interest
expense over the terms of the respective debt agreements.
During the six months ended June 30, 2016,
the Company issued 22,500,000 shares of common stock as consideration for the acquisition of FIN. See Note 2.
Warrants
During the six months ended June 30, 2016,
in connection with the issuance of debt, the Company issued warrants to acquire 6,408,332 shares of common stock over
five-year terms. Warrants to acquire 208,332, and 6,200,000 shares of common stock are exercisable for an exercise price of $0.48
per share and $0.25 per share, respectively.
During the six months ended June 30,
2016, the Company issued warrants to acquire 258,621 shares as partial consideration for the purchase of inventory. The
warrants are exercisable at $0.58 per share over a five-year term. The fair value of the warrants, totaling $79,081 and was
estimated using the Black Scholes method and the following assumptions: volatility – 81%, Term – 5 Yeas, and Risk
Free Rate – 1.57%, The warrants qualified for equity accounting.
The following is a summary of the Company’s
warrant activity for the six months ended June 30, 2016:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
Outstanding at December 31, 2015
|
|
|
35,171,744
|
|
|
$
|
0.10
|
|
|
4.1 Years
|
Granted
|
|
|
6,666,953
|
|
|
$
|
0.27
|
|
|
4.8 Years
|
Outstanding at June 30, 2016
|
|
|
41,838,697
|
|
|
$
|
0.13
|
|
|
4.2 Years
|
Stock Options
During the six months ended June 30, 2016, the Company granted
to employees, options to acquire 3,000,000 shares of common stock, of which 1,000,000 are exercisable at an exercise price of
$0.45 per share vesting over two years, 1,000,000 are exercisable at an exercise price of $0.40 per share vesting on the date
of grant, 500,000 are exercisable at an exercise price of $0.25 per share with 100,000 exercisable immediately and the balance vesting over two years, and 500,000 are exercisable at an exercise price of $0.10 per share vesting over two years. The options
have a 5 year term. The Company determined the grant date fair value of the options granted during the six months ended June 30,
2016 using the Black Scholes Method and the following assumptions:
Expected Volatility – 80.0% to 93.0%
Expected Term – 2.5 – 3.1 Years
Risk Free Rate – 0.98%
Dividend Rate – 0.00%
Activity related to stock options for the
six months ended June 30, 2016 is summarized as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Contractual
Term (Yrs)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding as of December 31, 2015
|
|
|
47,800,000
|
|
|
$
|
0.32
|
|
|
|
4.24
|
|
|
$
|
924,650
|
|
Granted
|
|
|
3,000,000
|
|
|
$
|
0.34
|
|
|
|
5.41
|
|
|
$
|
25,000
|
|
Outstanding as of June 30, 2016
|
|
|
50,800,000
|
|
|
$
|
0.32
|
|
|
|
4.31
|
|
|
$
|
949,650
|
|
Exercisable as of June 30, 2016
|
|
|
40,016,667
|
|
|
$
|
0.37
|
|
|
|
4.27
|
|
|
$
|
493,575
|
|
The following table summarizes stock option
information as of June 30, 2016:
Exercise Prices
|
|
|
Outstanding
|
|
|
Weighted
Average
Contractual
Life
|
|
Exercisable
|
|
$
|
0.0001
|
|
|
|
3,500,000
|
|
|
4.25 Years
|
|
|
1,750,000
|
|
$
|
0.10
|
|
|
|
8,500,000
|
|
|
4.22 Years
|
|
|
4,625,000
|
|
$
|
0.15
|
|
|
|
6,300,000
|
|
|
4.25 Years
|
|
|
2,416,666
|
|
$
|
0.25
|
|
|
|
500,000
|
|
|
9.76 Years
|
|
|
100,000
|
|
$
|
0.40
|
|
|
|
1,000,000
|
|
|
4.67 Years
|
|
|
1,000,000
|
|
$
|
0.45
|
|
|
|
31,000,000
|
|
|
4.25 Years
|
|
|
30,125,000
|
|
|
Total
|
|
|
|
50,800,000
|
|
|
4.31 Years
|
|
|
40,016,667
|
|
As discussed in Note 13, the term of all
the options was extended to ten years in August 2016 from their original grant date and therefore the remaining contractual
term in the table above would all increase to 9.25 years.
During the six months ended June 30, 2016,
the Company recognized approximately $6,152,000 of stock-based compensation expense. As of June 30, 2016, there was approximately
$2,357,000 of unrecognized compensation costs related to stock options outstanding which is expected to be recognized through
2019.
NOTE 11 – DIRECT FINANCING LEASE
In September 2015, the Company and
an entity in Colombia entered into a rental contract for the rental of 78 kiosks to provide cash collection and fare services
at transportation stations. The lease term began in May 2016, when the kiosks were installed and operational. The term of
the rental contract is ten years at an approximate monthly rate of $11,856. The lessee has the option at the end of the
lease term to purchase each unit for approximately $40. The term of the lease approximates the economic life of the kiosks.
The lease was accounted for as a direct-financing lease.
The Company has recorded the
transaction at its net investment in the lease and will receive monthly payments of $11,856 before estimated executory costs,
or $142,272 annually, to reduce the investment in the lease and record income associated with the related amount due.
Executory costs are estimated to be $1,677 per month and initial direct costs are not considered significant. The transaction
resulted in incremental revenue for the three and six months ended June 30, 2016 of approximately $13,000.
The equipment subject to the direct
financing lease is valued at approximately $748,000. At inception of the lease term, the aggregate minimum future lease
payments to be received is approximately $1,423,000 before executory costs. Unearned income recorded at the inception of this
lease was approximately $474,000 and will be recorded over the term of the lease using the effective interest rate method.
Future minimum lease payments to be received under this lease for the next five years and thereafter are as follows:
Year Ending December 31,
|
|
|
|
|
2016
|
|
$
|
61,074
|
|
2017
|
|
|
122,148
|
|
2018
|
|
|
122,148
|
|
2019
|
|
|
122,148
|
|
2020
|
|
|
122,148
|
|
2021
|
|
|
122,148
|
|
Thereafter
|
|
|
529,308
|
|
|
|
|
1,201,122
|
|
Less deferred income
|
|
|
(460,221
|
)
|
Net investment in lease
|
|
$
|
740,901
|
|
NOTE 12
–
COMMITMENTS AND
CONTINGENCIES
Contingent Purchase Consideration
The Company has recorded a contingent liability
of approximately $370,000 related to the acquisition of Multipay because of the contingency of the shares to be issued and debt
to be released upon the payment of certain liabilities by the Multipay Shareholders.
Legal Matters
From time to time, claims are made against
the Company in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject
to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties or injunctions prohibiting
the Company from selling one or more products or engaging in other activities. The occurrence of an unfavorable outcome in any
specific period could have a material adverse effect on the Company’s results of operations for that period or future periods.
The Company is not presently a party to any pending or threatened legal proceedings.
NOTE 13 – SUBSEQUENT EVENTS
From August 10, 2016 through August 26,
2016, the Company entered into and closed Subscription Agreements with several accredited investors (the "August 2016
Accredited Investors") pursuant to which the August 2016 Accredited Investors purchased an aggregate of 25,000,000
shares of the Company's common stock (the "2016 Subscription Shares") for an aggregate purchase price of
$1,250,000. In order to reduce the dilution to the other shareholders as a result of this private offering, certain
shareholders of the Company including the Chief Executive Officer, directors and others agreed to return to the Company an
aggregate of approximately 10,000,000 shares of common stock for cancellation. In connection with this private offering,
the Company paid Network 1 Financial Securities, Inc., a registered broker-dealer, a cash fee of $100,000 and issued
2,000,000 shares of common stock of the Company (See Note 9).
On August 10, 2016, the Company issued
to several of its employees and consultants stock options (the "Plan Options") under its Equity Compensation Plan
to acquire an aggregate of 17,000,000 shares of common stock of the Company exercisable at $0.05 per share. The Plan Options
contain vesting periods over 12 quarters commencing on October 1, 2016 as well as various vesting milestones. The Plan
Options are exercisable for a period of ten years. Further, the Company amended existing stock options to acquire 50,800,000
shares of common stock under its Equity Compensation Plan to extend the term from five years to 10 years.
On August 10, 2016, the Company entered
into an amended agreement (the "Amendment") with Parity Labs, LLC ("Parity") to amend the compensation
section of an existing Advisory Agreement previously entered into between the Company and Parity on November 16, 2015 for the
provision of strategic advisory services. The Amendment calls for the Company to issue to Parity the option (the "Parity
Option") to acquire 20,000,000 shares of common stock of the Company, exercisable at $0.05 per share for a period of ten
years. The Parity Option vests as to 10,000,000 options immediately and then in 12 equal tranches of 833,333 options per
month commencing on September 1, 2016. The Parity option vested in entirety upon Mr. Beck becoming CEO of Ipsidy in January
2017. Mr. Beck is the manager of Parity Labs.
Form December 1, 2016 through December
27, 2016, the Company entered into and closed Securities Purchase Agreements with several accredited investors
(the "December 2016 Accredited Investors") pursuant to which the December 2016 Accredited Investors invested
an aggregate of $1,275,000 (the "Offering") into the Company in consideration of Promissory Notes
(the "Notes") and an aggregate of 1,912,500 shares of common stock. The Notes are payable one year from the date
of issuance and bear interest of 10% per annum for the initial six months of the term of the Notes and 15% per annum for
the remaining six months of the term of the Notes. The Notes could be prepaid in whole or in part by the Company at any
time without penalty; provided, that any partial payment of principal must be accompanied by payment of accrued interest to
the date of prepayment. Any payment made to the December 2016 Accredited Investors which is not a full payment of all
principal and interest on all of the Notes will be made pro rata to the December 2016 Accredited Investors based on the
respective principal amounts of the Notes. The Notes were converted into shares of common stock on January 31, 2017 as more
fully described below.
On December 30, 2016, ID Global LATAM
S.A.S. (“IDG LATAM”), a wholly owned subsidiary of the Company, entered into a Contract for the Provision of Cash
Collection Services (the "Contract") with Recaudo Bogota S.A.S. ("RB"), a Colombian company, pursuant to
which the Company agreed to supply, maintain and provide platform services for 740 unattended payment collection and fare
ticketing kiosks, in consideration of approximately $30 million dollars (excluding VAT) payable over the ten year period of
the Contract. Pursuant to the contract IDG LATAM is required to obtain a performance bond from a financial institution in the
amount of $6 million dollars. In addition, IDG LATAM will need to obtain financing for the cost of the equipment to be
supplied but has not as of the date hereof entered into a definitive agreement for such financing nor has the required
performance bond been obtained. The parties are currently re-negotiating the terms of the Contract including a potential
phased delivery and a reduction in the number of kiosks. If the negotiation is formalized in a definitive agreement, this
would potentially result in a reduction in the consideration paid over the then year period of the Contract and reduce the
required performance bond.
On January 31, 2017, the Company converted
the outstanding debt and accrued interest amount of approximately $6.3 million into approximately 84.8 million shares of common
stock, $.0001 par value per share (“Common Stock’), at a conversion price of $0.10 per share unless the debt conversion
price was initially priced at less than the $0.10 per share. Additionally, the exercise price of approximately 11.7 million
warrants to acquire shares of Common Stock were reduced to $.10 per share and certain price protection and anti-dilution provisions
were removed. See Notes 6 and 7 related to the Company’s convertible debt and outstanding notes payable.
On January 31, 2017, the Company entered into
and closed a Securities Purchase Agreement with an accredited investor pursuant to which the Company borrowed $3,000,000 into
the Company in consideration of a Senior Unsecured Note and an aggregate of 4,500,000 shares of Common Stock. The Senior
Unsecured Note matures in January 2019 and bears interest at a rate of 10%. In connection with this private offering, the Company
paid Network 1 Financial Securities, Inc., a registered broker-dealer, a cash fee of $120,000 and issued 1,020,000 shares of common
stock of the Company.
On January 31, 2017, the Company engaged Philip
D. Beck as Chief Executive Officer, President and Chairman of the Board of Directors and Stuart P. Stoller as Chief Financial
Officer. In addition, Andras Vago, David Jones and Charles Albanese resigned as directors of the Company and Mr. Albanese also
resigned as Chief Financial Officer. Thomas Szoke resigned as Chief Executive Officer and was engaged as Chief Technology Officer.
Douglas Solomon resigned as Chief Operating Officer and was engaged as Executive Director, Government Relations and Enterprise
Security. Mr. Szoke and Mr. Solomon continue to serve us directors.
In connection with the engagement
of Philip D. Beck and Stuart P. Stoller, the Company granted Mr. Beck and Mr. Stoller, stock options to acquire 15
million shares and 5 million shares of common stock of the Company, respectively, at an exercise price of $0.10 per share for
a period of ten years. Further, upon the Company being legally entitled to do so, the Company has agreed to enter into
Restricted Stock Purchase Agreements with Mr. Beck and Mr. Stoller to sell 15 million shares and 5 million shares of common
stock, respectively, at a per share price of $0.0001, which shares of common stock vest upon achieving a performance
threshold.
Effective February 1, 2017, the Company amended
its certificate of incorporation to change its legal name to “Ipsidy Inc.” from ID Global Solutions Corporation. The
name change was effected pursuant to Section 242 of the Delaware Corporation Law (the “DGCL”). Under the DGCL, the
amendment to the Company’s certificate of incorporation to effect the name change did not require stockholder approval.
The name change does not affect the rights of the Company’s security holders. There were no other changes to the Company’s
incorporation in connection with the name change.
On March 22, 2017, the Company entered
into Subscription Agreements with several accredited investors (the "March 2017 Accredited Investors") pursuant to
which the March 2017 Accredited Investors agreed to purchase an aggregate of 20,000,000 shares of the Company’s
common stock for an aggregate purchase price of $4,000,000. The Company has received proceeds of $3,170,000 as of March 22,
2017. An individual March 2017 Accredited Investor has agreed to fund $830,000 by April 30, 2017. In connection with this
private offering, the Company paid Network 1 Financial Securities, Inc. (“Network”), a registered broker-dealer,
a cash fee of $240,000 and agreed to issue Network 1,000,000 shares of common stock of the Company upon increasing its
authorized shares of common stock.
NOTE 14 – RESTATEMENT FOR THE
THREE AND SIX-MONTHS ENDED JUNE 30, 2015
During the preparation of its consolidated
financial statements for the year ended December 31, 2015, the Company determined that for the three and six-months ended June
30, 2015 it had previously (1) used incorrect valuations for the fair value of intangible assets acquired; (2) capitalized internal
use software, which should have been expensed in accordance with US GAAP; (3) used incorrect valuations for derivative liabilities;
(4) used incorrect valuations for stock options issued for compensation; (5) recorded certain costs related to the issuance of
its convertible and other notes payable incorrectly as general and administrative expenses; and (6) classified certain expenses
and named certain accounts incorrectly. The Company has adjusted those intangible assets, derivative liabilities and compensation
related to stock options using correct valuations. In addition and in accordance with US GAAP, the Company has now capitalized
the costs related to the issuance of its convertible and other notes payable as debt issuance costs as a reduction of the debt
principal and expensed the previously capitalized internal use software costs. The following summarizes the adjustments made to
the Company’s previously reported amounts for the three and six months June 30, 2015.
Condensed Consolidated Statements of
Operations:
|
|
Three Months Ended June 30, 2015
|
|
|
|
As Reported
|
|
|
Reclassifications
|
|
|
As Reclassified
|
|
|
Adjustments
|
|
|
As Restated
|
|
Revenue
|
|
$
|
11,046
|
|
|
$
|
-
|
|
|
$
|
11,046
|
|
|
$
|
-
|
|
|
$
|
11,046
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,469
|
|
|
|
-
|
|
|
|
11,469
|
(1)
|
|
|
32,549
|
|
|
|
44,018
|
|
Research and development
|
|
|
853
|
|
|
|
-
|
|
|
|
853
|
|
|
|
-
|
|
|
|
853
|
|
General and administrative
|
|
|
570,622
|
|
|
|
(67,918
|
)
|
|
|
502,704
|
(4),(5)
|
|
|
(46,344
|
)
|
|
|
456,360
|
|
Total operating expenses
|
|
|
582,944
|
|
|
|
(67,918
|
)
|
|
|
515,026
|
|
|
|
(13,795
|
)
|
|
|
501,231
|
|
Loss from operations
|
|
|
(571,898
|
)
|
|
|
67,918
|
|
|
|
(503,980
|
)
|
|
|
13,795
|
|
|
|
(490,185
|
)
|
Derivative expense
|
|
|
(3,680,374
|
)
|
|
|
-
|
|
|
|
(3,680,374
|
)(3)
|
|
|
815,021
|
|
|
|
(2,865,353
|
)
|
Interest expense
|
|
|
(11,741
|
)
|
|
|
(67,918
|
)
|
|
|
(79,659
|
)(3)
|
|
|
45,685
|
|
|
|
(33,974
|
)
|
Translation loss
|
|
|
(26,259
|
)
|
|
|
-
|
|
|
|
(26,259
|
)
|
|
|
-
|
|
|
|
(26,259
|
)
|
Net loss
|
|
$
|
(4,290,272
|
)
|
|
$
|
-
|
|
|
$
|
(4,290,272
|
)
|
|
$
|
874,501
|
|
|
$
|
(3,415,771
|
)
|
Net loss per share: Basic and Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
-
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
|
Six Months Ended June 30, 2015
|
|
|
|
As Reported
|
|
|
Reclassifications
|
|
|
As Reclassified
|
|
|
Adjustments
|
|
|
As Restated
|
|
Revenue
|
|
$
|
11,046
|
|
|
$
|
-
|
|
|
$
|
11,046
|
|
|
$
|
-
|
|
|
$
|
11,046
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
22,740
|
|
|
|
-
|
|
|
|
22,740
|
(1)
|
|
|
32,549
|
|
|
|
55,289
|
|
Research and development
|
|
|
24,853
|
|
|
|
-
|
|
|
|
24,853
|
(2)
|
|
|
200,000
|
|
|
|
224,853
|
|
General and administrative
|
|
|
1,043,459
|
|
|
|
(67,918
|
)
|
|
|
975,541
|
(4),(5)
|
|
|
(46,344
|
)
|
|
|
929,197
|
|
Total operating expenses
|
|
|
1,091,052
|
|
|
|
(67,918
|
)
|
|
|
1,023,134
|
|
|
|
186,205
|
|
|
|
1,209,339
|
|
Loss from operations
|
|
|
(1,080,006
|
)
|
|
|
67,918
|
|
|
|
(1,012,088
|
)
|
|
|
(186,205
|
)
|
|
|
(1,198,293
|
)
|
Derivative expense
|
|
|
(3,680,374
|
)
|
|
|
-
|
|
|
|
(3,680,374
|
)(3)
|
|
|
815,021
|
|
|
|
(2,865,353
|
)
|
Interest expense
|
|
|
(13,496
|
)
|
|
|
(67,918
|
)
|
|
|
(81,414
|
)(3)
|
|
|
45,685
|
|
|
|
(35,729
|
)
|
Translation loss
|
|
|
(26,259
|
)
|
|
|
-
|
|
|
|
(26,259
|
)
|
|
|
-
|
|
|
|
(26,259
|
)
|
Net loss
|
|
$
|
(4,800,135
|
)
|
|
$
|
-
|
|
|
$
|
(4,800,135
|
)
|
|
$
|
674,501
|
|
|
$
|
(4,125,634
|
)
|
Net loss per share: Basic and Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
-
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
(1) Fair Value of Intangible Assets
In Connection with Business Acquisition.
During the three months ended June 30, 2015, the Company accounted for the acquisition
of Multipay as a business combination using the acquisition method of accounting utilizing an incorrect valuation. The adjustment
to reflect the correct valuation, including the purchase price allocation of assets acquired, resulted in an increase of $166,689
to Goodwill, $200,986 to Intangible Assets (net of $32,549 additional amortization) and $370,125 to Contingent Purchase Consideration
as of June 30, 2015. In addition, certain previously reported contingent assets and liabilities of $149,848 were eliminated.
(2) Intangible Assets—Capitalized
Software.
The Company determined that previously capitalized software should have been expensed in accordance with US GAAP.
Accordingly, a reduction of $200,000 to Intangible Assets and an increase to Research and Development Expenses is made as of and
for the six months ended June 30, 2015.
(3) Derivative Liability.
The
fair value of the derivative liabilities related to convertible and other notes payable have now been estimated based on the Monte
Carlo Simulation Model because it considers the effect of the down round feature (probability of a triggering capital raise) along
with the other assumptions associated with the Black-Scholes option pricing model. The previously used methodology by the Company
incorrectly did not take into consideration the probability of a financing at a price that would trigger the instruments down round
provision. The adjusted fair value of the Company’s derivatives associated with its Convertible and other Notes Payable resulted
in a decrease of $907,123 to the Derivative Liability as of June 30, 2015. For the three and six months ended June 30, 2015, the
Company’s derivative expense is reduced by $815,021. In addition, the finalized fair value analysis of the Company’s
derivatives associated with its Convertible and other Notes Payable required a reduction to the previously recorded Debt Discount
and interest expense by $45,685 for the three and six months ended June 30, 2015.
(4) Stock-Based Compensation.
The
adjusted fair value of the Company’s stock-based compensation resulted in an increase to general and administrative expenses
of $13,656 for the three and six months ended June 30, 2015.
(5) Debt Issuance Costs.
The
capitalization of debt issuance costs as a reduction of the debt principal resulted in a reduction to convertible notes payable
of $60,000 and a corresponding decrease to general and administrative for the three and six months ended June 30, 2015. The decrease
to General and Administrative expenses, after considering the increase of $13,656 related to stock-based compensation in (4) above
and the capitalization of debt issuance costs of $60,000 is $46,344 for the three and six months ended June 30, 2015.
(6) Reclassifications.
During
the preparation of its consolidated financial statements for the year ended December 31, 2015, the Company changed or renamed the
classification/description of certain accounts and related amounts. Accordingly, certain of the previously stated classifications/descriptions
and related amounts required adjustment for the three and six months ended June 30, 2015. The reclassifications and description
changes relate to General and Administrative and Interest expenses associated with the recording of the Debt Discount amortization.