Notes
to Consolidated Financial Statements
December
31, 2017 and 2016
1.
NATURE AND CONTINUANCE OF OPERATIONS
ICOX
Innovations Inc. (formerly AppCoin Innovations Inc., formerly RedStone Literary Agents, Inc.) (the “Company”) was
incorporated under the laws of State of Nevada, U.S. 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.
On
August 1, 2017, the Company incorporated a Nevada subsidiary, AppCoin Innovations (USA) Inc., which will be used to operate the
Company’s new business of providing blockchain consulting services.
On
August 17, 2017, the Company changed its name from “RedStone Literary Agents, Inc.” to “AppCoin Innovations
Inc.”
On
February 14, 2018, the Company changed its name from “AppCoin Innovations Inc.” to “ICOX Innovations Inc.”
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.
The
Company’s services will include strategic planning, project planning, structure development and administration, business
plan modelling, technology development support, whitepaper preparation, due diligence reporting, governance planning and management.
Going
Concern
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 $693,008 as of December 31, 2017 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 $5,468,195.40.
The
financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts
and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles
(“
GAAP
”) in the United States of America.
Basis
of Consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany transactions and balances
have been eliminated.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates and these differences could be material.
Cash
and Cash Equivalents
Cash
and cash equivalents include short-term, highly liquid investments, such as certificates of deposit or money market funds that
are readily convertible to known amounts of cash and have original maturities of three months or less. All cash balances are held
by major banking institutions.
The
carrying amounts of cash and cash equivalents, prepaid expenses, short-term loans receivable, trade payables and convertible notes
payable approximate their fair value due to the short-term maturity of such instruments.
Contingent
Liabilities:
The
Company accounts for its contingent liabilities in accordance with ASC No. 450 “Contingencies”. A provision is recorded
when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
With
respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal
rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2017 and
2016, the Company was not a party to any litigation that could have a material adverse effect on the Company’s business,
financial position, results of operations or cash flows.
Income
Taxes
The
Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities
are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values
and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
FASB
Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”), clarifies the accounting for uncertainty in
income taxes recognized in the financial statements. ASC 740 provides that a tax benefit from an uncertain tax position may be
recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any
related appeals or litigation processes, based on the technical merits of the position. Income tax positions must meet a more-likely-than-not
recognition threshold to be recognized. ASC 740 also provides guidance on measurement, derecognition, classification, interest
and penalties, accounting in interim periods, disclosure and transition. We have determined that the Company does not have uncertain
tax positions on its tax returns for the years 2017 and prior. Based on evaluation of the 2017 transactions and events, the Company
does not have any material uncertain tax positions that require measurement.
Our
policy is to recognize interest and/or penalties related to income tax matters in income tax expense. We had no accrual for interest
or penalties on our consolidated balance sheets at December 31, 2017 or 2016, and have not recognized interest and/or penalties
in the consolidated statement of operations for the years ended December 31, 2017 or 2016.
We
are subject to taxation in the U.S. and the state of California. All of our tax years are subject to examination by the U.S. and
California tax authorities due to the carry-forward of unutilized net operating losses.
Collectability
of Accounts Receivable
In
considering the collectability of accounts receivable, the Company takes into account the legal obligation for payment by the
customer, as well as the financial capacity of the customer to fund its obligation to the Company.
Earnings
per Share
The
Company computes earnings (loss) per share in accordance with ASC 105, “Earnings per Share” which requires presentation
of both basic and diluted earnings per share on the face of the statement of operations. Basic earnings (loss) per share is computed
by dividing net loss available to common stockholders by the weighted average number of outstanding common shares during the period.
Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Common shares
from the conversion of debt (10,730,310 shares) (Note 3) and exercise of stock options (733,331 shares) (Note 7) have been excluded
as their effect is anti-dilutive.
Stock-Based
Compensation
The
Company has adopted FASB guidance on stock-based compensation. Under FASB ASC 718-10-30-2, all share-based payments to employees,
including grants of employee stock options, are recognized in the income statement based on their fair values. The fair value
of the options is calculated based upon the Black Scholes valuation model. (Note 7)
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
The
Company has issued stock options to employees and non-employees. Stock options granted to non-employees for services or performance
not yet rendered would be expensed over the service period or until the goals had been reached. The fair value calculation is
recalculated at the end of every reporting period until the goal had been reached, when the expense has been wholly recognized.
The stock options granted to non-employees during the year ended December 31, 2017 were for services already rendered in lieu
of cash compensation and, as such, the service period has already passed and the entirety of the expense was recognized in the
year.
Digital
Currency Valuation
Digital
currencies consist of cryptocurrency denominated assets and are included in current assets. Digital currencies are carried at
their fair market value determined by an average spot rate of the most liquid digital currency exchanges. On an interim basis,
we recognize decreases in the value of the assets caused by market declines. Subsequent increases in the value of these assets
through market price recoveries during the same fiscal year are recognized in the later interim period, but may not exceed the
total previously recognized decreases in value during the same year. Such unrealized gains or losses resulting from changes the
value of the digital currency are recorded in Other Income, net in the consolidated statements of operations. Gains and losses
realized upon sale of digital currencies are also recorded in Other Income, net in the consolidated statement of operations.
Fair
market value is determined by taking the average spot rate from the most liquid digital currency exchanges. Digital currencies
are measured using level one fair values, determined by taking the rate from market currency exchanges. Digital currency prices
are affected by various forces including global supply and demand, interest rates, exchange rates, inflation or deflation and
the global political and economic conditions. The Company may not be able to liquidate its inventory of digital currency at its
desired price if required. A decline in the market prices for digital currencies could negatively impact the Company’s future
operations. The digital currency market is still a new market and is highly volatile; historical prices are not necessarily indicative
of future value; a significant change in the market prices for digital currencies would have a significant impact on the Company’s
earnings and financial position.
The
Company did not hold any digital currency at December 31, 2017 and December 31, 2016.
Revenue
Recognition
Revenue
is recognized in accordance with FASB ASC Topic 606, Revenue Recognition. The Company recognizes revenue when persuasive evidence
of an arrangement exists, the related services are rendered or delivery has occurred, the price is fixed or determinable and collectability
is reasonably assured. The Company has early adopted this policy.
The
Company primarily generates revenues from professional services consulting agreements. These arrangements are generally entered
into on a contingent fee basis. There is no prepayment or retainer required prior to performing services and the entire fees is
earned on a contingent basis. The Company also provides monthly post-business launch support services. The recurring monthly post-business
launch support services are recognized as revenue each month that the subscription is maintained.
The
Company generally enters into arrangements for which revenues are contingent upon achieving a pre-determined deliverable or future
outcome. Any contingent revenue for these arrangements is not recognized until the contingency is resolved and collectability
is reasonably assured.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Differences
between the timing of billings and the recognition of revenue are recognized as either unbilled revenue (a component of accounts
receivable) or deferred revenue on the consolidated balance sheet. Revenues recognized for services performed but not yet billed
to clients are recorded as unbilled revenue.
Reimbursable
expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included as a component
of revenues. Typically, an equivalent amount of reimbursable expenses are included in total direct client service costs. Taxes
collected from customers and remitted to governmental authorities are presented in the statement of operations on a net basis.
Service
costs
The
Company’s policy is to defer direct service costs that relate to the earning of contingent fee revenue. These deferred costs
are expensed when the contingent fee revenue is recognized or when the earning the contingent fee revenue is in doubt.
Reclassification
Certain
reclassifications have been made to the 2016 financial statements in order for them to conform to the 2017 presentation. Such
reclassifications have no impact on the Company’s financial position or results or operations.
Recently
Adopted Accounting Pronouncements
Statement
of Cash Flows (ASU 2016-15)
This
update provides specific guidance to clarify how entities should classify certain cash receipts and cash payments on the statement
of cash flows. The update also clarifies the application of the predominance principle when cash receipts and cash payments have
aspects of more than one class of cash flows. We will be required to adopt this standard effective January 1, 2018. We do not
expect the adoption of this update to have a material effect on our financial statements.
Financial
Instruments – Recognition and Measurement (ASU 2016-01)
This
update retains the current accounting for classifying and measuring investments in debt securities and loans, but requires equity
investments to be measured at fair value with subsequent changes recognized in net income, except for those accounted for under
the equity method or requiring consolidation. We will be required to adopt this standard effective January 1, 2018. We do not
expect the adoption of this update to have a material effect on our financial statements.
3.
ACCOUNTS RECEIVABLE
As
at December 31, 2017, the Company had outstanding accounts receivable of $500,000 (2016 - $0). The entire amount was received
subsequent to year end.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
4.
NOTES PAYABLE
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 December 31, 2017, the First Note had a balance outstanding of
$104,334 (2016 - $91,734), comprised of a principal amount of $73,825 and accrued interest of $30,509 (2016 - $17,909). 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 December 31, 2017, the Second Note had a balance outstanding of
$59,025 (2016 - $50,025), comprised of a principal amount of $50,000 and accrued interest of $9,025 (2016 - $25). 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 December 31, 2017, the Third Note had a
balance outstanding of $25,380 (2016 - $21,511), comprised of a principal amount of $21,500 and accrued interest of $3,880 (2016
- $11). The Company has determined that no beneficial conversion feature exists due to the share value on the date of issuance.
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 December 31, 2017, the Fourth Note had a balance outstanding of
$22,998 (2016 - $0), comprised of a principal amount of $20,000 and accrued interest of $2,998 (2016 - $0). The Company has determined
that no beneficial conversion feature exists due to the share value on the date of issuance.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
4.
NOTES PAYABLE (CONT’D)
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 December 31, 2017, the Fifth Note had a balance outstanding of $11,016
(2016 - $0), comprised of a principal amount of $10,000 and accrued interest of $1,016 (2016 - $0). 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 December 31, 2017, the Sixth Note had a balance outstanding of $254,247 (2016 - $0),
comprised of a principal amount of $250,000 and accrued interest of $4,247 (2016 - $0). 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 December 31, 2017, the Seventh Note had a balance outstanding
of $76,274 (2016 - $0), comprised of a principal amount of $75,000 and accrued interest of $1,274 (2016 - $0). 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 December 31, 2017, the convertible notes and the related interest will come due in the following years:
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2020
|
|
|
398,825
|
|
|
|
36,030
|
|
|
|
434,855
|
|
2021
|
|
|
71,500
|
|
|
|
12,905
|
|
|
|
84,405
|
|
2022
|
|
|
30,000
|
|
|
|
4,014
|
|
|
|
34,014
|
|
Total
|
|
$
|
500,325
|
|
|
$
|
52,949
|
|
|
$
|
553,274
|
|
5.
NOTES RECEIVABLE – RELATED PARTY
On
November 20, 2017, the Company made a $99,963 loan to WENN Digital Inc., a customer of the Company. This loan is unsecured, will
mature one (1) year from the date of issuance and will bear interest at the rate of 7% interest per annum. As of December 31,
2017, interest of $789 has been accrued. The Company also received a 7.5% stake in the WENN Digital Inc. for making the loan.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
6.
RELATED PARTY TRANSACTIONS
In
support of the Company’s efforts and cash requirements, it may rely on advances from stockholders until such time as the
Company can support its operations through revenue generation or attain adequate financing through sales of its equity or traditional
debt financing. There is no formal written commitment for continued support by stockholders. Amounts represent advances or amounts
paid in satisfaction of liabilities.
The
Company’s office premises were provided to it at no cost by one of its directors. The Company’s director did not take
any fees for serving as director during the year ended December 31, 2017.
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 December 31, 2017, the Company had trade and other payables owing to this related
party of $51,616.
Future
minimum payments per the agreement are:
2018
|
|
$
|
470,000
|
|
2019
|
|
|
350,000
|
|
Total
|
|
$
|
820,000
|
|
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 services fee of $500,000 during the year ended December 31, 2017, which WENN paid in January 2018 upon
the completion of its first round of pre-ICO fundraising.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
6.
RELATED PARTY TRANSACTIONS (CONT’D)
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.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
6.
RELATED PARTY TRANSACTIONS (CONT’D)
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.
7.
SHARE CAPITAL
The
Company’s common stock is issued at a $0.001 par value. 75,000,000 shares have been authorized. As at December 31, 2017,
11,600,000 shares were issued and outstanding (2016 – 6,000,000).
On
October 30, 2017, the Company entered into a private placement subscription agreement with 35 subscribers, pursuant to which it
issued an aggregate of 5,600,000 shares of common stock of the Company at a price of $0.10 per share for aggregate gross proceeds
of $560,000.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
8.
STOCK-BASED COMPENSATION
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. The maximum number of options available for grant is 3,000,000. On January 22, 2018, the maximum number
of options available for grant was increased to 3,900,000. As of December 31, 2017, there are 2,900,000 stock options issued (2016
– nil) and 100,000 stock options unissued (2016 – nil).
On
October 15, 2017, the Company granted a total of 1,400,000 stock options to its directors and officers. The stock options are
exercisable at the exercise price of $0.10 per share for a period of ten years from the date of grant. The stock options are exercisable
as follows:
|
(i)
|
1/3
upon the date of grant;
|
|
|
|
|
(ii)
|
1/3
on the first anniversary date; and
|
|
|
|
|
(iii)
|
1/3
on the second anniversary date.
|
On
October 15, 2017, the Company granted a total of 1,325,000 stock options to its consultants. These stock options were granted
to consultants who have provided their services for cash compensation below cost, with the stock options providing additional
compensation in lieu of cash. The stock options are exercisable at the exercise price of $0.10 per share for a period of ten years
from the date of grant. Of the stock options granted, 800,000 are exercisable as follows:
|
(i)
|
1/3
upon the date of grant;
|
|
|
|
|
(ii)
|
1/3
on the first anniversary date; and
|
|
|
|
|
(iii)
|
1/3
on the second anniversary date.
|
The
remaining 525,000 stock options are exercisable as follows:
|
(i)
|
1/3
on the first anniversary date;
|
|
|
|
|
(ii)
|
1/3
on the second anniversary date; and
|
|
|
|
|
(iii)
|
1/3
on the third anniversary date.
|
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
8.
STOCK-BASED COMPENSATION (CONT’D)
On
November 10, 2017, the Company granted a total of 175,000 stock options to its consultants. The stock options are exercisable
at the exercise price of $0.10 per share for a period of ten years from the date of grant. The stock options are exercisable as
follows:
|
(i)
|
1/3
on the first anniversary date;
|
|
(ii)
|
1/3
on the second anniversary date; and
|
|
(iii)
|
1/3
on the third anniversary date.
|
Stock
options granted are valued at the fair value calculation based off the Black-Scholes valuation model. The weighted average assumptions
used in the calculation are as follows:
|
|
For
the years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Share
price
|
|
$
|
0.10
|
|
|
|
N/A
|
|
Exercise
price
|
|
$
|
0.10
|
|
|
|
N/A
|
|
Time
to maturity (years)
|
|
|
10
|
|
|
|
N/A
|
|
Risk-free
interest rate
|
|
|
2.28%-2.40%
|
|
|
|
N/A
|
|
Expected
volatility
|
|
|
191.12%-191.75%
|
|
|
|
N/A
|
|
Dividend
per share
|
|
$
|
0.00
|
|
|
|
N/A
|
|
Forfeiture
rate
|
|
|
Nil
|
|
|
|
N/A
|
|
|
|
Number
of Options
|
|
|
Weighted
Average Grant-Date Fair Value ($)
|
|
|
Weighted
Average Exercise Price ($)
|
|
|
Weighted
Average Remaining Life (Yrs)
|
|
Options
outstanding, December 31, 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
outstanding, December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
2,900,000
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
9.8
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options
outstanding, December 31, 2017
|
|
|
2,900,000
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
9.8
|
|
Options
exercisable, December 31, 2017
|
|
|
733,331
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
9.8
|
|
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
9.
INCOME TAXES
For
the fiscal years 2017 and 2016, there was no provision for income taxes and deferred tax assets have been entirely offset by valuation
allowances.
As
of December 31, 2017 and 2016, the Company had net operating loss carry forwards of approximately $693,008 and $225,850, respectively.
The carry forwards expire through the year 2037. The Company’s net operating loss carry forwards may be subject to annual
limitations, which could reduce or defer the utilization of the losses as a result of an ownership change as defined in Section
382 of the Internal Revenue Code.
The
Tax Cuts and Jobs Act was enacted on December 22, 2017 which reduced the U.S. corporate statutory tax rate from 35% to 21% beginning
on January 1, 2018. The Company’s tax expense differs from the “expected” tax expense for Federal income tax
purposes (computed by applying the United States Federal tax rate of 21% to loss before taxes (2016 – 21%)), as follows:
|
|
For
the years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net
operating loss before taxes
|
|
|
(467,058
|
)
|
|
|
(88,196
|
)
|
Federal
income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Tax
expense (benefit) at the statutory rate
|
|
|
(98,082
|
)
|
|
|
(18,521
|
)
|
Non-deductible
items
|
|
|
|
|
|
|
|
|
Tax
effect of stock-based compensation (non-qualifying options)
|
|
|
44,401
|
|
|
|
-
|
|
Change
in valuation allowance
|
|
|
53,681
|
|
|
|
18,521
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
The
tax effects of the temporary differences between reportable financial statement income and taxable income are recognized as deferred
tax assets and liabilities. The tax effect of significant components of the Company’s deferred tax assets at December 31,
2017 and 2016, respectively, are as follows:
|
|
2017
|
|
|
2016
|
|
Deferred
tax asset:
|
|
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
|
101,110
|
|
|
|
47,429
|
|
Total
gross deferred tax assets
|
|
|
101,110
|
|
|
|
47,429
|
|
Less:
Deferred tax asset valuation allowance
|
|
|
(101,110
|
)
|
|
|
(47,429
|
)
|
Total
net deferred tax assets
|
|
|
-
|
|
|
|
-
|
|
In
assessing the ability to realize the deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment.
The
returns filed from the year 2014 going-forward are subject to examination by the IRS.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
10.
FINANCIAL INSTRUMENTS
Fair
value is an exit price representing the amount that would be received to sell an asset or aid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based measurement that should be determined based on
assumptions that market participants would use in pricing an asset or a liability.
A
three-tier fair value hierarchy is established as a base for considering such assumptions and for inputs used in the valuation
methodologies in measuring fair value:
|
●
|
Level
1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
|
●
|
Level
2: Observable inputs that reflect quoted prices for identical assets or liabilities in markets that are not active; quoted
prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets
or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other
means.
|
|
|
|
|
●
|
Level
3: unobservable inputs reflecting our own assumptions incorporated in valuation techniques used to determine fair value. These
assumptions are required to be consistent with market participants assumptions that are reasonably available.
|
|
●
|
Investment
in related party
|
|
|
As
of December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Investment
in related party
|
|
|
37
|
|
|
|
-
|
|
The
fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value.
11.
SUBSEQUENT EVENTS
On
January 3, 2018, WENN Digital Inc. repaid the outstanding $100,000 loan plus accrued interest of $950.
As
Lead Director, Mr. Geiskopf will be receiving $120,000 in annual compensation.
On
January 22, 2018, we amended our 2017 Equity Incentive Plan to increase the number of shares of our common stock available for
the grant of awards under the plan from 3,000,000 shares to 3,900,000 shares.
On
February 9, 2018, we appointed Edmund C. Moy as a director of the Company. We granted 100,000 stock options to Mr. Moy at an exercise
price of $0.60 per share. Mr. Moy will be receiving $50,000 in annual compensation.
On
February 14, 2018, we changed our name from “AppCoin Innovations Inc.” to “ICOX Innovations Inc.”. The
name change became effective with the OTC Pink operated by the OTC Markets Group at opening for trading on February 14, 2018 under
the stock symbol “ICOX”.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
11.
SUBSEQUENT EVENTS (CONT’D)
On
February 16, 2018, we appointed Steve Beauregard as Member of the Advisory Board of the Company. We granted 25,000 stock options
at an exercise price of $0.60 per share. Mr. Beauregard will be receiving $25,000 in annual compensation.
On
February 16, 2018, we appointed Russell Stidolph as Member of the Advisory Board of the Company. We granted 50,000 stock options
at an exercise price of $0.60 per share.
On
March 13, 2018, we entered into a loan agreement with Michael Blum 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 prepay 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 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 $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.
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 $5,468,195.40. 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 $29,399.97 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.
ICOX
Innovations Inc.
(formerly AppCoin Innovations Inc.)
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
11.
SUBSEQUENT EVENTS (CONT’D)
None
of the securities issued in the private placement have been registered under the United States Securities Act of 1933, as amended
(the “1933 Act”), and none of them may be offered or sold in the United States absent registration or an applicable
exemption from the registration requirements of the 1933 Act.
On
March 27, 2018, we entered into a loan agreement with Greg Burnett 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 prepay 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 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 $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.