Source: https://currencyworks.io/investors/link_files/2018/05-14-2018/Form10-Q(5-14-2018)ICOXINNOVATIONSINC/Form10-Q.html
Timestamp: 2019-09-21 22:00:03
Document Index: 781753125

Matched Legal Cases: ['arty 35', 'arty 30', 'arty 200', 'arty 723', 'arty 105', 'arty 198', 'arty 41', 'arty 752', 'arty 723', 'arty 200']

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 11,600,000 common shares issued and outstanding as at May 14, 2018.
ITEM 2. MANGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK 22
PART II 22
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AN USE OF PROCEEDS 22
It is the opinion of management that the unaudited interim financial statements for the quarter ended March 31, 2018 include all adjustments necessary in order to ensure that the unaudited interim financial statements are not misleading.
Cash and cash equivalents $ 28,448 $ 214,993
Prepaid expenses 84,166 30,000
Prepaid expenses, related party 35,000 35,000
Deferred service costs 61,228 21
Deferred offering costs 121,558 -
Related party loans receivable and related accrued interest - 100,752
Subscription receipts in escrow 5,468,195 -
Total Current Assets 5,798,595 880,766
Total Assets $ 5,798,632 $ 880,803
Accounts payable and accrued expenses $ 363,504 $ 131,303
Accounts payable and accrued expenses, related party 30,531 51,616
Loans payable, related party 200,000 -
Accrued interest on loans payable, related party 723 -
Total Current Liabilities 594,758 182,919
Accrued interest on convertible notes 68,744 52,949
Total Liabilities 1,163,827 736,193
Subscription receipts 5,468,195 -
Total Mezzanine Equity 5,468,195 -
Common stock, $0.001 par value, 75,000,000 shares authorized; 11,600,000 shares issued and outstanding as at March 31, 2018 and December 31, 2017, respectively 11,600 11,600
Additional paid-in-capital 870,536 826,018
Accumulated deficit (1,715,526 ) (693,008 )
Total Stockholders’ Equity (Deficit) (833,390 ) 144,610
Total Liabilities and Stockholders’ Equity (Deficit) $ 5,798,632 $ 880,803
Service revenue $ - $ -
General and administrative expense 514,117 29,241
Consulting fees, related party 105,000 -
Service costs 387,080 -
Total operating expenses 1,006,197 29,241
Net loss from operations (1,006,197 ) (29,241 )
Interest income, related party 198 -
Note interest expense (16,519 ) (7,315 )
Total other income (expense) (16,321 ) (7,315 )
Provision for taxes - -
Net loss $ (1,022,518 ) $ (36,556 )
Loss per common share – Basic and diluted $ (0.09 ) $ (0.01 )
Weighted average number of common shares outstanding, basic and diluted 11,600,000 6,000,000
Net loss for the period $ (1,022,518 ) $ (36,556 )
Stock-based compensation 3,229 -
Stock-based compensation, related party 41,289 -
Prepaid expense (54,166 ) -
Deferred service costs (61,207 ) -
Deferred offering costs (121,558 ) -
Accrued interest receivable, related party 752 -
Accounts payable and accrued expenses 232,201 -
Accounts payable and accrued expenses, related party (21,085 ) 7,315
Accrued interest on loans payable, related party 723 (43,893 )
Accrued interest on notes payable 15,795 -
Net cash (used in) operating activities (486,545 ) (73,134 )
Net cash provided by investing activities 100,000 -
Proceeds from issuance of loans payable, related party 200,000 -
Proceeds from issuance of convertible notes payable - 20,000
Net cash provided by financing activities 200,000 20,000
Net changes in cash and equivalents (186,545 ) (53,134 )
Cash and equivalents at beginning of the period 214,993 56,050
Cash and equivalents at end of the period $ 28,448 $ 2,916
Stock-based compensation $ 3,229 $ -
Stock-based compensation, related party $ 41,289 $ -
Subscription receipts - escrow $ 5,468,195
As of March 31, 2018 and for the three months ended March 31, 2018 and 2017
ICOX Innovations Inc. (formerly AppCoin Innovations Inc., formerly RedStone Literary Agents, Inc.) (the “Company”) was incorporated under the laws of State of Nevada on July 20, 2010, with an authorized capital of 75,000,000 common shares, having a par value of $0.001 per share. During the period ended December 31, 2010, the Company commenced operations by issuing shares and developing its publishing service business, focused on representing authors to publishers.
The Company’s new business model provides a turnkey set of services for companies to develop and integrate blockchain and cryptocurrency technologies into their business operations. The Company will enable its customers to focus on their core competencies while providing the necessary resources and expertise to execute a strategy that will enable companies to integrate new blockchain plus cryptocurrency technologies into their business operations. The Company will be compensated on a fee-for-services model. The Company may also accept tokens or coins in payment for its services, to the extent permitted under applicable law.
These consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated deficit of $1,715,526 as of March 31, 2018 and further losses are anticipated in the pursuit of the Company’s new service business opportunity, raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from directors and/or the private placement of common stock.
In order to address the above factors, subsequent to year end, the Company completed private placements of an aggregate of 9,113,659 subscription receipts at a price of $0.60 per subscription receipt for aggregate gross proceeds of $5,468,195.
The interim condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“ GAAP ”) in the United States of America.
Costs that the Company incurred in relation to the private placement that has not yet closed has been recorded as deferred offering costs on the Condensed Balance Sheet. Once the private placement is closed then these deferred offering costs will be charged to equity as share issue costs. If the private placement does not close, then these costs will be written off during that period.
Subscription receipts that have been received by the Company in relation to the private placement that has not yet closed has been recorded as Mezzanine Equity on the Condensed Balance Sheet. These funds are being recorded separately from shareholders’ equity.
On September 14, 2015, the Company entered into a private placement subscription agreement and issued an unsecured convertible note (the “ First Note ”) in the principal amount of $73,825 to one subscriber. The First Note, and accrued interest, will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded annually. The principal amount of the First Note, plus any interest accrued thereon, may be converted into shares of common stock of the Company at a conversion price of $0.03 per share. As at March 31, 2018, the First Note had a balance outstanding of $107,611 (December 31, 2017 - $104,334), comprised of a principal amount of $73,825 and accrued interest of $33,786 (December 31, 2017 - $30,509). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On December 31, 2016, the Company entered into a private placement subscription agreement and issued an unsecured convertible note (the “ Second Note ”) in the principal amount of $50,000 to one subscriber. The Second Note, and accrued interest, will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded annually. The principal amount of the Second Note, plus any interest accrued thereon, may be converted into shares of common stock of the Company at a conversion price of $0.03 per share. As at March 31, 2018, the Second Note had a balance outstanding of $61,243 (December 31, 2017 - $59,025), comprised of a principal amount of $50,000 and accrued interest of $11,243 (December 31, 2017 - $9,025). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On December 31, 2016, the Company entered into a private placement subscription agreement and issued an unsecured convertible note (the “ Third Note ”) in the principal amount of $21,500 to one subscriber. The Third Note included repayment of the principal amount of $20,000 for an unsecured note issued on June 6, 2016 plus a $1,500 restructuring fee. The Third Note, and accrued interest, will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded annually. The principal amount of the Third Note, plus any interest accrued thereon, may be converted into shares of common stock of the Company at a conversion price of $0.03 per share. As at March 31, 2018, the Third Note had a balance outstanding of $26,335 (December 31, 2017 - $25,380), comprised of a principal amount of $21,500 and accrued interest of $4,835 (December 31, 2017 - $3,880). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
3. NOTES PAYABLE (CONT’D)
On March 2, 2017, the Company entered into a private placement subscription agreement and issued an unsecured convertible note (the “ Fourth Note ”) in the principal amount of $20,000 to one subscriber. The Fourth Note, and accrued interest, will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded annually. The principal amount of the Fourth Note, plus any interest accrued thereon, may be converted into shares of common stock of the Company at a conversion price of $0.03 per share. As at March 31, 2018, the Fourth Note had a balance outstanding of $23,886 (December 31, 2017 - $22,998), comprised of a principal amount of $20,000 and accrued interest of $3,886 (December 31, 2017 - $2,998). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On June 8, 2017, the Company entered into a private placement subscription agreement and issued an unsecured convertible note (the “ Fifth Note ”) in the principal amount of $10,000 to one subscriber. The Fifth Note, and accrued interest, will mature five (5) years from the date of issuance and will bear interest at the rate of 18% interest per annum, compounded annually. The principal amount of the Fifth Note, plus any interest accrued thereon, may be converted into shares of common stock of the Company at a conversion price of $0.03 per share. As at March 31, 2018, the Fifth Note had a balance outstanding of $11,460 (December 31, 2017 - $11,016), comprised of a principal amount of $10,000 and accrued interest of $1,460 (December 31, 2017 - $1,016). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On September 7, 2017, the Company received a $250,000 loan from a less than 5% shareholder. The loan is unsecured, repayable on demand and is non-interest bearing. On October 30, 2017, this loan was used to subscribe to an unsecured convertible debenture (the “ Sixth Note ”) in the principal amount of $250,000 to one subscriber. The Sixth Note, and accrued interest, will mature three (3) years from the date of issuance and will bear interest at the rate of 10% interest per annum, compounded annually. The principal amount of the Sixth Note, plus any interest accrued thereon, may be converted into shares of common stock of the Company at a conversion price of $0.10 per share. As at March 31, 2018, the Sixth Note had a balance outstanding of $260,411 (December 31, 2017 - $254,247), comprised of a principal amount of $250,000 and accrued interest of $10,411 (December 31, 2017 - $4,247). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
On October 30, 2017, the Company entered into a private placement subscription agreement and issued an unsecured convertible note (the “ Seventh Note ”) in the principal amount of $75,000 to one subscriber. The Seventh Note, and accrued interest, will mature three (3) years from the date of issuance and will bear interest at the rate of 10% interest per annum, compounded annually. The principal amount of the Seventh Note, plus any interest accrued thereon, may be converted into shares of common stock of the Company at a conversion price of $0.10 per share. As at March 31, 2018, the Seventh Note had a balance outstanding of $78,123 (December 31, 2017 - $76,274), comprised of a principal amount of $75,000 and accrued interest of $3,123 (December 31, 2017 - $1,274). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
Based upon the balances as of March 31, 2018, the convertible notes and the related interest will come due in the following years:
2020 398,825 47,320 446,145
2021 71,500 16,078 87,578
2022 30,000 5,346 35,346
Total $ 500,325 $ 68,744 $ 569,069
On March 13, 2018, we entered into a loan agreement with Michael Blum, our Chief Financial Officer, whereby Mr. Blum advanced $100,000 to us. The principal amount of $100,000 is repayable on demand (but no longer than a term of six month) and bears simple interest at a rate of 12% per annum, which is payable upon repayment of the principal amount of $100,000. We are entitled to repay the whole or any portion of the principal amount of $100,000, plus accrued interest on the portion of the principal amount of $100,000 being repaid, at any time. The loan agreement provides that we must, within five days of the release of funds to us from our private placement of subscription receipts that closed in March 2018, repay the principal amount of $100,000 plus accrued interest in full. The loan agreement also provides that if we obtain any indebtedness on terms that are superior to the terms set forth in the loan agreement, then the terms under the loan agreement will be deemed to be amended, as of March 13, 2018, to match such superior terms in a manner and on terms as nearly equivalent as practicable to such superior terms. As at March 31, 2018, interest accrued is $592.
On March 27, 2018, we entered into a loan agreement with Greg Burnett, a member of our Advisory Board, whereby Mr. Burnett advanced $100,000 to us. The principal amount of $100,000 is repayable on demand (but no longer than a term of six month) and bears simple interest at a rate of 12% per annum, which is payable upon repayment of the principal amount of $100,000. We are entitled to repay the whole or any portion of the principal amount of $100,000, plus accrued interest on the portion of the principal amount of $100,000 being repaid, at any time. The loan agreement provides that we must, within five days of the release of funds to us from our private placement of subscription receipts that closed in March 2018, repay the principal amount of $100,000 plus accrued interest in full. The loan agreement also provides that if we obtain any indebtedness on terms that are superior to the terms set forth in the loan agreement, then the terms under the loan agreement will be deemed to be amended, as of March 27, 2018, to match such superior terms in a manner and on terms as nearly equivalent as practicable to such superior terms. As at March 31, 2018, interest accrued is $131.
Based upon the balances as of March 31, 2018, the loans payable and the related interest will come due in the following years:
2018 $ 200,000 $ 723 $ 200,723
Total $ 200,000 $ 723 $ 200,723
The Company’s office premises were provided to it at no cost by one of its directors. This director did not take any fees for serving as director during the period ended March 31, 2018.
In October 2017, the Company signed an agreement with a company in which the Company’s Chairman is a director, officer, and 30.5% shareholder, to provide strategic management services. The agreement is for a two-year term that will automatically be renewed unless: (i) mutually agreed to by BIG and us, or (ii) written notice of non-renewal is provided by the non-renewing party to the other at least 90 days prior to the end of the term. This agreement committed the Company to pay $35,000 a month and a signing bonus of $100,000 payable as follows: (i) $50,000 upon closing of up to $750,000 of equity financing and (ii) $50,000 payable on signing of the first client agreement. As of March 31, 2018, the Company had trade and other payables owing to this related party of $30,531.
5. RELATED PARTY TRANSACTIONS (CONT’D)
2019 350,000
Total $ 665,000
On December 29, 2017, the Company signed a master service agreement with WENN Digital Inc. (“WENN”), a company in which there is a common director. The agreement was amended on March 15, 2018, pursuant to which the Company changed the scope of services to provide WENN with the services in connection with WENN’s development of an image rights management and protection platform (the “Platform”) using blockchain technology, including (i) the business development and technical services, (ii) the business launch services and (iii) the post-business launch support services.
The business services agreement with WENN provides that the fees for the services provided in connection with the development and launch of the Platform (the business development and technical services and business launch services) were deemed earned on the date of execution of the business services agreement. The Company has waived WENN’s requirement to pay the $250,000 fixed fee in connection with the business development and technical services as a concession. The Company has recognized the business development and technical service fee of $500,000 during the year end December 31, 2017, paid in January by WENN upon the completion of its first round of pre-ICO fundraising.
The fees for the post-business launch support services (the “Monthly Services” ) are $35,000 per month and they will be due at the beginning of each month in which the Monthly Services are performed. With respect to the Monthly Services, the Company has agreed to provide the Monthly Services for one year commencing on the date of the Platform Launch (as defined below), after which the business services agreement and the provision of the Monthly Services will automatically renew for a one year period and can be terminated by either our company or WENN with 30 days’ written notice. “Platform Launch” means the publicized product launch of the Platform to the general public, including the ability of the general public to use Tokens as the primary means of exchange for transactions on the Platform.
In addition, the business services agreement with WENN provides that the work fee in the amount of $4,175,000 is deemed earned on March 15, 2018 and the work fee is subject to a Renegotiation Obligation (as defined below). The business services agreement with WENN also provides that the additional fee of rights to receive an aggregate of 20,000,000 Platform tokens or coins (the “Tokens” ) pursuant to a Simple Agreement for Future Tokens is also deemed earned on the date of execution of the business services agreement and the additional fee is subject to a Renegotiation Obligation. However, for financial reporting purposes, the work fee and additional fee are deemed earned on the date of the launch of the Platform. If WENN does not raise more than $40 million in connection with its offer and sale for cash of (i) one or more Simple Agreements for Future Tokens ( “SAFTs” ), which SAFTs will entitle the holders thereof to receive Tokens under certain circumstances, and/or, (ii) Tokens, in the event that WENN determines to offer and sell Tokens in lieu of or in addition to SAFTs in connection with its fundraising efforts (collectively, the “WENN Offering” ), prior to May 31, 2018, the Company will be required to return the work fees and additional fee to WENN and WENN and our company will be required to negotiate in good faith the amount of each of such fee (such requirement to negotiate is referred to herein as the “Renegotiation Obligation” ).
The Company has agreed that WENN will not be responsible for any out-of-pocket expenses incurred by our company in connection with our performance of the services. In addition, the Company has agreed to pay, and otherwise be financially responsible for (including through the reimbursement of disbursements made by WENN and its affiliates), (i) all legal costs and expenses incurred by WENN, our company and any of their affiliates in connection with the WENN Offering; (ii) all business and travel expenses incurred by WENN, our company and any of their affiliates in connection the WENN Offering; and (iii) all fees and expenses incurred by WENN in connection with its conversion of cryptocurrencies into US dollars in connection with the WENN Offering, including bank, exchange and other similar fees and expenses. WENN will have the right to deduct any such amounts from the fees otherwise payable by it to our company and apply such deducted amounts to the payments to our company.
The business services agreement will continue for a period of one year unless earlier terminated by either our company or WENN.
Either the Company or WENN may terminate the business services agreement upon the provision of 30 days’ written notice to the other party. If the Company provides such notice, WENN may immediately terminate the business services agreement and the Company will be entitled to no further compensation except for any fees earned prior to the date of the termination. If WENN provides such notice, the Company may immediately terminate the business services agreement and will be entitled to no further compensation, except for the following lump sum payments: (i) any fees earned to the effective date of termination; and (ii) a lump sum payment of $105,000.
For the purpose of determining our fees earned to the date of the termination in the event that either party terminates the business services agreement, all fees for services in connection with the development and launch of the Platform (the business development and technical services and business launch services) and the additional fee of rights to receive an aggregate of 20,000,000 Tokens are deemed earned on the date of execution of the business services agreement and the work fee is deemed earned as of March 15, 2018. However, the work fees and additional fee are subject to the Renegotiation Obligation. As such, our work fee and additional fee are not determinable or deemed collectible for the financial reporting purposes until the WENN Offering is completed or, if applicable, those fees are renegotiated pursuant to the Renegotiation Obligation.
The Company’s chairman and one of its directors, Cameron Chell, is a director, officer and an indirect shareholder of Business Instincts Group Inc. which owns 10% of the common stock of WENN and he is also a director, officer and indirect shareholder of Blockchain Merchant Group, Inc. which owns 2.5% of the common stock of WENN and the Company owns 7.5% of the common stock of WENN. Mr. Chell is also a director, chairman, and officer of WENN. Mr. Elliott is a former officer of WENN.
The Company’s common stock is issued at a $0.001 par value. 75,000,000 shares have been authorized. As at March 31, 2018, 11,600,000 shares were issued and outstanding (December 31, 2017 – 11,600,000).
On March 12 and 19, 2018, we completed private placements of an aggregate of 9,113,659 subscription receipts at a price of $0.60 per subscription receipt for aggregate gross proceeds of $5,468,195. In the event of the occurrence of the escrow release condition (as defined below), each subscription receipt will automatically convert into one share of our common stock, for no additional consideration. The subscription amounts will be held by an escrow agent until the escrow release condition. The escrow release condition is the receipt by our company of conditional approval for the listing of the shares of our common stock on a Canadian stock exchange. In the event that the escrow release condition is satisfied prior to 5:00 p.m. (Vancouver time) on May 31, 2018, we will deliver a notice to the escrow agent confirming the escrow release condition has been satisfied. Upon receipt of the notice, the escrow agent will, as soon as practicable thereafter, release the subscription amounts to our company and each subscription receipt will automatically convert into one share of our common stock without payment of any additional consideration. If the escrow release condition is not satisfied by 5:00 p.m. (Vancouver time) on May 31, 2018 or if we deliver a written default notice to the escrow agent that the escrow release condition will not be satisfied by that time, the subscription receipts will expire and be of no further force and effect, effective as of the earlier of (i) 5:00 p.m. (Vancouver time) on May 31, 2018 and (ii) the date of the receipt of the default notice, and the subscribers will be entitled to receive from the escrow agent a refund of the subscription amounts held in escrow, without interest and less applicable expenses. In connection with the closing of the private placements, we paid cash finder’s fees in the aggregate amount of $29,400 and we agreed to issue 160,865 shares of our common stock at a deemed price of $0.60 per share as the finder’s fee, which will be issued only if the subscription receipts are converted into shares of our common stock.
In connection with this private placement, the Company agreed with each subscriber who purchased these Subscription Receipts to prepare and file a registration statement with respect to 50% of the Shares issuable upon conversion of the Subscription Receipts with the United States Securities and Exchange Commission within 90 days following the closing of the private placement and agreed to use commercially reasonable efforts to have the registration statement declared effective by the United States Securities and Exchange Commission as soon as possible after filing.
The Company has adopted the 2017 Equity Incentive Plan (“the Plan”) under which non-transferable options to purchase common shares of the Company may be granted to directors, officers, employees, or consultants of the Company. The terms of the Plan provide that the Board of Directors have the right to grant options to acquire common shares of the Company at not less than the closing market price of the shares on the day preceding the grant at terms of up to ten years. No amounts are paid or payable by the recipient on receipt of the options. As of December 31, 2017, the maximum number of options available for grant was 3,000,000 shares. On January 22, 2018, the maximum number of options available for grant was increased to 3,900,000 shares. As of March 31, 2018, there are 3,075,000 stock options issued (December 31, 2017 – 2,900,000) and 825,000 stock options unissued (December 31, 2017 – 100,000).
7. STOCK-BASED COMPENSATION (CONT’D)
Exercise price $ 0.60 N/A
Time to maturity (years) 10 N/A
Risk-free interest rate 2.83%-2.87% N/A
Expected volatility 187.27%-187.29% N/A
Options outstanding, December 31, 2017 2,900,000 0.10 0.10 9.5
Granted 175,000 0.60 0.60 9.9
Options outstanding, March 31, 2018 3,075,000 0.12 0.13 9.5
Options exercisable, March 31, 2018 766,664 0.12 0.12 9.5
On April 13, 2018, we entered into a loan agreement with a subscriber whereby the subscriber advanced $200,000 to us. The principal amount of $200,000 is repayable on demand (but no longer than a term of six month) and bears simple interest at a rate of 12% per annum, which is payable upon repayment of the principal amount of $200,000. We are entitled to repay the whole or any portion of the principal amount of $200,000, plus accrued interest on the portion of the principal amount of $200,000 being repaid, at any time.
As used in this quarterly report, the terms “we”, “us” “our” and “ICOX” mean ICOX Innovations Inc. and its wholly-owned subsidiary, AppCoin Innovations (USA) Inc., unless otherwise specified.
On December 29, 2017, we entered into a business services agreement with WENN and, on March 19, 2018, we entered into the amendment no. 1 to business services agreement dated as of March 15, 2018 with WENN. Pursuant to the business services agreement, we agreed to provide WENN with the services in connection with WENN’s development of the Platform using blockchain technology, including (i) the business development and technical services, (ii) the business launch services and (iii) the post-business launch support services.
WENN has entered into a licensing partnership agreement with Eastman Kodak Company, which announced the launch of the KODAKOne blockchain platform and KODAKCoin ICO. We are providing the services relating to the KODAKOne blockchain platform and the KODAKCoin ICO pursuant to a business services agreement dated December 29, 2017, as amended as of March 15, 2018 with WENN.
We incurred general and administrative expenses of $514,117 and $29,241 for the three months ended March 31, 2018 and 2017, respectively, representing an increase of $484,876 between the two periods. These expenses consisted primarily of consulting fees, professional fees, bank charges, and other general and administrative costs. The increase in consulting fees between the two periods from $20,800 in 2017 to $297,188 in 2018 was due to the entering into of a consulting agreement with Business Instincts Group to provide strategic and project management services as well as consulting agreements with our senior and executive staff. Business Instincts Group is a related party as Cameron Chell is a common director of the companies. Professional fees increased from $7,201 in 2017 to $108,198 in 2018 and the increase was primarily due to an increase in legal services related to the evaluation of potential business opportunities and regulatory compliance. The increase in bank charges from $nil in 2017 to $451 in 2018 was due to the increased bank activity. The increase in other general and administrative costs increased from $1,240 in 2017 to $213,282 in 2018 due to increased travel costs, advertising and marketing costs, compliance fees, and stock-based compensation. Service costs increased from $nil in 2017 to $387,080 in 2018 is a result of services rendered for our client in our new business or operations.
Consulting fees of $297,188 in the first quarter of 2018 relate in part to $105,000 paid to Business Instincts Group Inc., $36,995 to our directors, $34,000 paid to our president, Bruce Elliott, for management services, $30,000 paid to our chief financial officer, Michael Blum, for management services, $26,846 paid for development services, $24,000 paid for accounting services, $15,000 paid for financial services, $12,500 paid for recruiting services, $9,122 paid to our Advisory Board members, and $3,228 in stock-based compensation.
Service fees of $387,080 in 2017 relate to $187,610 for public relation and marketing services, $113,291 for legal services, $50,000 for website fees and logo design, $27,254 for business travel, $5,116 for due diligence, $1,908 to establish a social media presence, and $1,051 for office supplies.
Other income includes $198 of interest earned on a loan receivable from a related party compared to $0 for the same period last year. Other expenses include interest expense on convertible notes payable of $16,519 for the three months ended March 31, 2018 compared to $7,315 for the same period last year
We incurred net losses from operations of $1,006,197 and $29,241 for the three months ended March 31, 2018 and 2017, respectively, representing an increase of $976,956, primarily attributable to the factors discussed above under the heading “Operating Expenses”.
March 31, 2018 As at
Current Assets $ 5,798,595 $ 880,766
Current Liabilities 1,163,827 182,919
Working Capital 5,203,837 697,847
Current assets were $5,798,595 as at March 31, 2018 and $880,766 as at December 31, 2017. The increase in current assets as at March 31, 2018 was due recording the funds held in escrow relating to the private placement, deferred service costs held until certain milestones are reached and deferred offering costs held until the closing of the private placement partially offset by the payment of business expenses.
Current liabilities as at March 31, 2018 were attributable to $394,035 in accounts payable and accrued expenses, and current loans payable of $200,723 compared to $182,919 in accounts payable and accrued expenses as at December 31, 2017.
Net cash (used in) operating activities $ (486,545 ) $ (73,134 )
Net changes in cash and cash equivalents $ (186,545 ) $ (53,134 )
Net cash used in operating activities was $486,545 for the three-month period ended March 31, 2018, as compared to $73,134 for the three-month period ended March 31, 2018, an increase of $413,411. The increase in net cash used in operating activities was primarily due an increase in operating expenses, deferred service costs, and deferred offering costs partially offset by receipts of accounts receivable, and an increase in the accounts payable outstanding.
Investing activities provided cash of $100,000 for the three-month period ended March 31, 2018 as compared to $0 for the three-month period ended March 31, 2017. The cash received was from the repayment of the loan made to WENN Digital Inc.
Financing activities provided cash of $200,000 for the three months ended March 31, 2018 and $20,000 for the three months ended March 31, 2017. To help fund our operating activities until our private placement closes, we received a $100,000 loan from Michael Blum, the chief financial officer of our company, and a $100,000 loan from Greg Burnett, a member of our advisory board.
On April 13, 2018, we entered into a loan agreement with Oceanside Strategies Inc., whereby Oceanside Strategies Inc. advanced $200,000 to us. The principal amount of $200,000 is repayable on demand (but no longer than a term of six month) and bears simple interest at a rate of 12% per annum, which is payable upon repayment of the principal amount of $200,000. We are entitled to prepay the whole or any portion of the principal amount of $200,000, plus accrued interest on the portion of the principal amount of $200,000 being prepaid, at any time. The loan agreement provides that we must, within five days of the release of funds to us from our private placement of subscription receipts that closed in March 2018, repay the principal amount of $200,000 plus accrued interest in full. The loan agreement also provides that if we obtain any indebtedness on terms that are superior to the terms set forth in the loan agreement, then the terms under the loan agreement will be deemed to be amended, as of April 13, 2018, to match such superior terms in a manner and on terms as nearly equivalent as practicable to such superior terms.
We expect that we will require $4.327 million, including our current working capital, to fund our operating expenditures for the next twelve months. Projected working capital requirements for the next twelve months are as follows:
General and administrative expenses 2,162,000
Total $ 4,327,000
Estimated operating expenses for the next 12 months are comprised of blockchain platform launch related expenses such as project management and consulting, legal fees, support agents and monitoring expenses, and blockchain and software expenses. We intend to spend between $0.5 million and $1 million on various expenses to assist companies to develop and integrate blockchain and cryptocurrency technologies into their business operations.
Estimated general and administrative expenses for the next 12 months comprised of: $1,260,000 for consulting fees; $250,000 for legal and professional fees; $180,000 for marketing and advertising expenses; $102,000 for trade shows; $250,000 for travel expenses; and $120,000 for miscellaneous and office expenses. Professional fees are expected to include fees related to complying with public reporting requirements, maintaining our quotation on the OTC Pink, conducting capital raises and expenses in connection with our new business.
Pursuant to a business services agreement dated December 29, 2017, as amended as of March 15, 2018, with our first client, WENN, WENN paid us $500,000 in fees in connection with the services relating to the business launch.
We will require additional cash resources, including from the sale of subscription receipts completed in March 2018 to meet our planned capital expenditures and working capital requirements for the next 12 months. We expect to derive such cash through the sale of subscription receipts completed in March 2018 and, if additional cash resources are necessary, through the sale of other equity or debt securities or by obtaining a credit facility. The sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in debt service obligations, could cause additional dilution to our stockholders, and could require us to agree to financial covenants that could restrict our operations or modify our plans to source a new business opportunity. Financing may not be available in amounts or on terms acceptable to us, if at all. Failure to raise additional funds could cause our company to fail.
Our consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have not yet established a source of revenues sufficient to cover our operating costs and to allow us to continue as a going concern. We have incurred losses since inception resulting in an accumulated deficit of $1,715,526 as at March 31, 2018 (December 31, 2017: $693,008). Our ability to operate as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable.
“Disclosure controls and procedures” , as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act” ), include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Our principal executive officer and our principal financial officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2018. Based on this evaluation, they concluded that, as of March 31, 2018, our disclosure controls and procedures were not effective such that the information relating to us that is required to be disclosed in our SEC reports: (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) is accumulated and communicated to our management, including our principal executive and financial officer, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2018, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
Since the beginning of the fiscal quarter ended March 31, 2018, we have not sold any equity securities that were not registered under the Securities Act of 1933 , as amended, that were not previously reported in a quarterly report on Form 10-Q or a current report on Form 8-K.
I, Bruce Elliott, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ICOX Innovations Inc.;
I, Michael Blum, certify that:
The undersigned, Bruce Elliott, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
1. the quarterly report on Form 10-Q of ICOX Innovations Inc. for the period ended March 31, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of ICOX Innovations Inc.
The undersigned, Michael Blum, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that