Exhibit 99.2

 

 

 

 

 

 

 

 

 

 

 

 

BILLGUARD, INC.

2014 ANNUAL REPORT

 

 

 

 

 

 

 

 

 

 

 

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BILLGUARD, INC.

2014 ANNUAL REPORT

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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INDEPENDENT AUDITOR'S REPORT

To the Stockholders of

BILLGUARD, INC.

 

 

We have audited the accompanying consolidated financial statements of BillGuard, Inc. and its subsidiary (the "company"), which comprise the consolidated balance sheets as of December 31, 2014 and 2013 and the related consolidated statements of operations, stockholders' equity (capital deficiency) and cash flows for the years then ended.

 

Management's Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated statements that are free from material misstatement, whether due to fraud or error.

 

Auditor's Responsibility

 

Our responsibility is to express an opinion on the consolidated financial statements based on our audits.  We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.  

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.  The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.  In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BillGuard, Inc. and its subsidiary as of December 31, 2014 and 2013, and the consolidated results of their operations, and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

 

Kesselman & Kesselman, Trade Tower, 25 Hamered Street, Tel-Aviv 6812508, Israel,

P.O Box 50005 Tel-Aviv 6150001  Telephone: +972 -3- 7954555, Fax:+972 -3- 7954556, www.pwc.com/il

 

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Emphasis of Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1c to the financial statements, the Company has incurred losses since inception and has negative cash flow from operations. These factors raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

 

 

 

 

 

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BILLGUARD, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

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BILLGUARD, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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BILLGUARD, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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BILLGUARD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - GENERAL:

 

BillGuard Technologies, Ltd. (the “Subsidiary”) was incorporated in Israel on April 15, 2010, as a wholly owned subsidiary of the Company. The Company and its subsidiary develop a new Platform for identifying unwanted and unauthorized charges on consumer credit card bills.

 

 

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies applied are as follows:

 

 

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

 

 

The consolidated financial statements include the accounts of the Company and its wholly owned Subsidiary. Inter-company balances and transactions have been eliminated.

 

 

The currency of the primary economic environment in which the operations of the Company and its Subsidiary are conducted is the U.S. dollar (“dollar”; “$”). The Company’s financing is mostly in dollars and revenue is expected to be in dollars. Thus, the functional currency of the Company and its Subsidiary is the dollar.

 

Transactions and balances originally denominated in Dollars are presented at their original amounts. Balances in non-Dollar currencies are translated into Dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non- Dollar transactions and other items (stated below) reflected in the statements of operations, the following exchange rates are used: (i) for transactions - exchange rates at transaction dates or average rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization, etc.) - historical exchange rates. Currency transaction gains or losses are carried to financial income or expenses, as appropriate.

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

 

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

On an on-going basis, management evaluates its estimates, judgments and assumptions.

Management bases its estimates, judgments and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. As applicable to these consolidated financial statements, the most significant estimate relates to assumptions underlying stock-based compensation expenses.

 

 

The Company and its Subsidiary consider all highly liquid investments, which include short-term bank deposits (up to three months from date of deposit) that are not restricted as to withdrawal or use to be cash equivalents.

 

 

Restricted cash short term is used as a security for the Subsidiary’s guarantee for its credit cards and restricted cash long term is used as a security for the Subsidiary’s rent agreement.

 

 

 

Annual rates of depreciation are as follows:

 

Leasehold improvements are amortized using the straight line method over the term of the lease, which is shorter than the estimated useful life of the improvements.

 

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset might not be recoverable. Long-lived assets are tested for impairment at the lowest level asset grouping for which cash flows can be separately identified by comparing estimated future undiscounted cash flows to the carrying value of the asset when an impairment indicator, such as a change in business, or obsolete technology, exists. If it is determined that an impairment exists, the asset is written down to its estimated fair value which is typically based upon its estimated discounted future cash flows.

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

 

 

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, the services have been provided to the customer, the sales price is fixed or determinable and collectability is reasonably assured.

 

Revenue is recognized based on the net amount and by the end customers when the Company is not the primary obligor of the service.

 

Deferred revenue represents the billed and paid portion of existing contracts for services to be provided.

 

As of December 31, 2014 no revenues have been recognized.

 

 

Costs incurred in connection with the research and developments of the Company’s products are expensed as incurred.

 

 

The carrying amount of some of the Company's financial instruments, including cash equivalents, accounts payable and accrued liabilities approximate their fair value, due to their maturities.

 

 

The fair value of each option granted from the Company's stock option plan was estimated on the date of grant using the Black-Scholes option-pricing model. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility, (ii) the expected term of the award, which for options is the period of time over which employees and directors are expected to hold their options prior to exercise, (iii) expected dividend yield, (iv) a risk-free interest rate, which is based on quoted U.S. Treasury rates for securities with maturities approximating the expected term, and (v) estimated fair value of the underlying equity instrument.

 

The expected term of options has been determined using the simplified method which uses the midpoint between the vesting date and the end of the contractual term. The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate paying any in the foreseeable future.

 

Compensation expense for stock options is recorded over the requisite service period, less estimated forfeitures. Forfeitures of options are estimated at the grant date and reduce the compensation recognized. The Company considers several factors when estimating future forfeitures, including types of awards, employee grade level and historical experience.

Actual forfeitures may differ from current estimates and estimates are trued up as the actual rate becomes known.

 

The Company elected to recognize compensation cost for awards with only service conditions, and which have a graded vesting schedule using the straight line method.

 

The Company records equity instruments issued to non-employees at their fair value on the measurement date. The standard requires adjusting the non-vested fair value of the stock options at each balance sheet date, such that the expense recognized is equal to the fair value of the vested award at the time the performance is complete, which is typical upon vesting.

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

 

 

The Company accounts for income taxes in accordance with ASC 740. Deferred taxes are determined utilizing the assets and liabilities method, which is based on the estimated future tax effects of the differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Deferred tax balances are computed using the tax rates expected to be in effect when those differences reverse. A valuation allowance in respect of deferred tax assets is provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

 

Deferred tax has not been provided on amounts of tax-exempt income generated from the Company’s current Preferred Enterprises (see note 7) as the Company intends to permanently reinvest these profits and does not intend to distribute dividends from such income. If these dividends were to be paid, the Company would have to pay additional taxes at a rate up to 20% on the distribution, and the amount would be recorded as an income tax expense in the period the dividend is declared.

 

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of short term bank deposits and cash and cash equivalents. Primarily all of the Company’s cash and cash equivalents are invested in U.S. dollar instruments with major banks in the U.S. and Israel. Management believes that the credit risk with respect to the financial institutions that hold the Company’s cash and cash equivalents is low.

 

 

The Company applies ASC 220 (which establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements). There was no difference between the Company’s net loss and its total comprehensive loss for the years ended December 31, 2014 and 2013, and the Company does not have accumulated other comprehensive income or loss as of these dates.

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

 

 

 

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):

 

Early adoption is permitted for annual reporting periods beginning after December 15, 2016. This ASU can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

 

 

NOTE 3- LIABILITY FOR SEVERANCE PAY

 

Israeli labor law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The Subsidiary's pension and severance pay liability is covered mainly by purchase of insurance policies. Pursuant to section 14 of the Severance Compensation Act, 1963 ("section 14"), the Subsidiary's employees are entitled to monthly deposits, at a rate of 8.33% of their monthly salary, made in their name with insurance companies. Payments in accordance with section 14 relieve the Subsidiary from any future severance payments in respect of those employees and as such the Subsidiary may only utilize the insurance policies for the purpose of disbursement of severance pay.

 

 

NOTE 4 - COMMITMENTS AND CONTINGENcies:

 

The Subsidiary has a sublease agreement to lease part of the premises it leases that ends in December 2015.

The subsidiary has made deposits and bank guarantees for a total of approximately $77 thousands as stipulated in the lease agreement.

Office lease payments of the Subsidiary for the years ended December 31, 2014 and 2013, for the lease agreements on gross basis were approximately $301 and $287 thousand, respectively.

 

b. In January 2014, the Company signed an operating lease agreement for office space for unlimited term. The lease can be terminated at any time subject to delivering a termination notice in advance. Office lease payments of the Company for the years ended December 31, 2014 and 2013, for the lease agreements on gross basis were approximately $31 and $28 thousand, respectively.

 

Future minimum annual lease payments under the operating leases as of December 31, 2014 are as follows:

 

 

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

 

NOTE 5 - LOANS:

 

a.Line of credit

 

In June 2014, the Company signed an agreement with a financial institution, under which the Company received a Line of Credit (the “Line of Credit “) for an amount of $3 million.

Until December 31, 2014 the Company withdrew $2 million under the Line of Credit. The Line Of Credit bears interest at an annual rate of Prime plus 1.5% which will be reduced to Prime plus 1.25%if the Company makes certain terms as described in the agreement.

In connection with the Line of Credit, the Company issued to the financial institution warrants to purchase 43,333 shares of the Company's Common Stock.

On December 31, 2014 the option to withdraw additional funds under the Line of Credit expired. See note 10d with regard to the repayment of the Line Of Credit.

 

Composition of long term loans as of December 31, 2014:

 

 

 

 

b.Convertible loan

 

In August 2014, the Company received a $3.5 million loan as part of a new financing agreement signed with a new investor. The loan bears interest rate of 5%. All the loan principal, together with accrued and unpaid interest, shall be due and payable 18 months after the date of the financing agreement (the “Maturity Date”), provided that no Automatic Conversion or Voluntary Conversion (both as defined below) has taken place before or on this date.

 

The Convertible loan is converted into preferred shares according to one of three options:

 

 

The loan was accounted for in accordance with the provision of ASC-480, since at inception the monetary value of the loan was based predominately on a fixed monetary amount known as of that date.  

 

Total interest accrued in connection with the Convertible loan as of December 31, 2014, amounted to approximately $68 thousands.

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

 

NOTE 6 - sTOCKholders’ equity:

 

a.Common Stock

 

 

In accordance with the agreements between the Company and its founders, in the event that any of the founders cease to be engaged by the Subsidiary or the Company as specified under the individual repurchase agreement, the Company shall have the option to repurchase part of his shares at par value price. The repurchase is subject to different terms and conditions as stated in the respected agreements.

 

Each share of Common stock is entitled to one vote and to receive dividends as declared by the board of directors, subject to the priority rights of holders of preferred stock.

 

b.Preferred stock

 

In May 2010, the Company entered into a share purchase agreement with certain investors. In accordance with the agreement, the Company issued the investors 3,000,000 shares of the Company's Series A Preferred stocks of $0.001 par value in consideration of approximately $3 million.

 

On October 6, 2011, the Company's board of directors approved a distribution of bonus shares to all of the shareholders then outstanding. Accordingly, the shareholders received bonus shares in a manner that for each outstanding share, an additional two shares were issued as bonus shares. After the bonus share distribution, the Company had 10,255,500 and 9,000,000 issued Common stock and Series A preferred stock, respectively.

 

On October 6, 2011, the Company also entered into a share purchase agreement with certain investors. In accordance with the agreement, the Company issued the investors 7,500,016 Series B Preferred stocks of $0.001 par value in consideration of approximately $10 million.

 

The rights, preferences and privileges with respect to the Series A and Series B preferred stock are as follows:

 

Conversion

 

Each share of Preferred Stock is convertible at the option of the holder thereof, at any time and from time to time and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of common stock as is determined by dividing the Preferred Stock Original Issue Price (as defined in the Third Amendment and Restated Certificate of Incorporation) by the Preferred Stock Conversion Price in effect at the time of conversion.

 

Dividends

 

The Preferred stockholders shall be entitled to receive dividends as declared by the board of directors prior and in preference to any dividend to the holders of Common stock at the annual rate of 8% per share for the Series A and Series B Preferred Stocks. Such dividends shall be accrued from day to day and shall be cumulative. No dividends have been declared as of December 31, 2014.

 

Voting

 

The holders of the Preferred Stock are entitled to vote, together with the holders of common stock, on all matters submitted to shareholders for a vote except as provided by law or by certain provisions.

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

 

NOTE 6 - sTOCKholders’ equity (continued):

 

Liquidation

 

In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of the preferred Stocks shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of Common Stocks by reason of their ownership thereof, an amount per share equal to the greater of:

 

 

 

In the event that the assets of the Company available for distribution shall be insufficient to make such per share distributions, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Preferred Stocks proportion to the full preferential amount such holder is otherwise entitled to receive under the above terms.

 

Upon completion of the distribution to the holders of shares of the Preferred Stock, the remaining assets available for distribution shall be distributed among the holders of Common Stock only pro rata, based on the number of shares of Common Stock held by each, on an as converted basis.

 

Redemption

 

In the event of a deemed liquidation event such as a merger, asset sale or transfer, the Company shall notice the holders of Preferred Stocks and inquire if they require the redemption of their Preferred Stocks. If the majority of Series A Preferred Stocks or 55% of Series B Preferred Stocks choose to redeem, then the shares will be redeemed to the extent of the amount of assets available, at that time.

 

 

In June 2010, the Company’s Board of Directors approved a stock option plan (the “Plan”). Under the Plan, up to 3,244,500 options can be granted to employees, directors and service providers.

 

On October 6, 2011, the Company’s Board of Directors approved an increase to the number of options under the plan to an amount of 4,985,388 options.

 

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0%; expected volatility of 80%; risk free interest of 0.92% - 2.66%; and expected term of between 5-6 years. In 2014 and 2013 the Company recorded stock based compensation expenses for employees and service providers of approximately $270 and $237 thousands, respectively. The volatility and risk free rate was based on the Company's peer group companies to which it compares itself.

 

The Company’s Board of Directors also approved the Plan for the purpose of Section 102 of the Israeli Tax ordinance. The Company’s Board of Directors selected the capital gains tax track for options granted to the Subsidiary's employees.

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

 

NOTE 6 - sTOCKholders’ equity (continued):

 

The following is a summary of the status of the option plan as of December 31, 2014 and 2013, and the changes during the years then ended:

 

 

The weighted average remaining contractual life of the outstanding options as of December 31, 2014 is 6.9 years.

 

As of December 31, 2014, the unrecognized compensation cost related to all unvested stock options of $535 thousand is expected to be recognized as an expense over a weighted-average period of 2.4 years.

 

 

NOTE 7 - taxes on income:

 

 

 

 

 

 

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

NOTE 7 - taxes on income (continued):

 

 

Taxes on income for the years ended December 31, 2014 and 2013 were composed of the following:

 

 

 

The deferred income tax assets are mainly in respect with provision for employee’s rights of the Israeli Subsidiary and are presented in the balance sheets as follows:

 

 

The realization of abovementioned deferred tax assets is conditioned upon the taxable income in the proper amount in the future.

 

 

 

 

NOTE 8 - SUPPLEMENTARY BALANCE SHEETS INFORMATION:

 

Property and equipment, net:

 

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BILLGUARD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

 

NOTE 9 - SUBSEQUENT EVENTS: