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PART I

Item 1. Business

On December 1, 2016, Nuvel Holdings, Inc. acquired OrangeHook, Inc., a Minnesota corporation ("OrangeHook MN"), in an acquisition structured as a reverse triangular merger, under which OH Acquisition Corp, a Minnesota corporation and wholly-owned subsidiary of the Company, merged with and into OrangeHook MN, with OrangeHook MN remaining as the surviving corporation and a wholly-owned subsidiary of the Company (the "Merger"). OrangeHook MN shareholders received as merger consideration shares of the Company's capital stock representing a substantial majority of the voting and financial rights of the Company. As a result, OrangeHook MN was the acquirer in the Merger for accounting and financial reporting purposes.

OrangeHook MN acquired LifeMed, Salamander, and a majority interest in Agilivant prior to the Merger. In addition, OrangeHook MN purchased certain intellectual property and other assets of LifeNexus, Inc. ("LifeNexus") related to identification cards for healthcare patients. The business and operations of OrangeHook MN prior to the Merger currently constitute a substantial majority of the business and operations of the Company. Accordingly, the Company changed its name to "OrangeHook, Inc." on December 27, 2016, to better reflect the business and operations of the combined company following the Merger.  In April 2017, the Company's trading symbol was changed to "ORHK," and the Company is currently trading on the OTC Pink Marketplace.

Portfolio Companies

Management believes that the solutions being offered by our portfolio companies—Salamander, Agilivant, LifeMed and Nuvel, Inc.—are competitive within their respective markets and that our marketing activities will be effective in distinguishing our products from the competition. Furthermore, many of these products are complementary to one another, and management believes that we will be able to leverage each entity's resources and expertise to create an even more robust suite of product offerings for healthcare institutions, emergency healthcare service providers and other first responders, banking institutions, municipalities and its other customers. 

 

 

 

 

 

 

 

 

Salamander

OrangeHook MN acquired Salamander Technologies, Inc., a Michigan corporation located in Traverse City, Michigan, on October 1, 2015 by way of a merger in which Salamander Technologies, Inc. merged with and into Salamander, with Salamander remaining as the surviving company and a wholly-owned subsidiary of OrangeHook MN. As consideration for the merger, OrangeHook MN: (a) issued 144,846 shares of OrangeHook MN common stock (representing 144,846 shares of our common stock on a post-Merger, post-Reverse Stock Split basis) to a majority shareholder of Salamander Technologies, Inc., and (b) paid aggregate cash consideration of $500,000 to certain minority shareholders. Subsequent to closing, OrangeHook MN issued an aggregate of 37,297 shares of its common stock (representing 37,297 shares of our common stock on a post-Merger, post-Reverse Stock Split basis) to creditors of Salamander to satisfy certain obligations.

Salamander competes in the emergency management tracking and accountability solutions industry against companies such as ERT Systems, Elliott Data Systems, Inc. and Advantidge, Inc. It provides installed software and software as a service ("SaaS") solutions, including integrated data-sharing technologies that allow for unique transparency and accountability across multiple levels of local, state and federal governments during emergency or catastrophic situations. Salamander's products, which are positioned to comply with the federal mandate for the National Incident Management System, provide optimization/analytics capabilities and allow for identity verification, incident command tracking, and geospatial location to improve situational awareness of the resources available to first responders during emergency situations.

Salamander's SaaS solutions incorporate Salamander's registered intellectual property and proprietary software code and intellectual property licensed-in from third parties. Salamander has a patent portfolio, consisting of four active U.S. patents with terms ranging from approximately 5 to 18 years, three expired U.S. patents, and one inactive foreign patent application, which is intended to protect the key systems and methodology associated with its SaaS solutions. Salamander also owns four U.S. trademark registrations and one U.S. trademark application for various product names and logos, several domain names, and one U.S. Copyright registration for a resource guide for first responders.

Salamander sells its SaaS solutions primarily through its internal sales staff and through agreements with channel distributors. The channel distributor group is comprised of regional technical centers, resellers and lead generators, all of which have non-exclusive rights to internal sales activity in various geographic territories in the United States. All members of the channel have one-year initial terms and can be terminated upon applicable notice periods. At December 31, 2016, we had 10 active agreements.

Agilivant

On February 12, 2016, OrangeHook MN acquired approximately 82% of the outstanding equity interests of Agilivant pursuant to a membership interest purchase agreement. OrangeHook MN issued an aggregate of 433,551 shares of OrangeHook MN common stock (representing 433,551 shares of our common stock on a post-Merger, post-Reverse Stock Split basis) in exchange for the equity interests. As of closing, Agilivant reported approximately $2.8 million of trade payables and other outstanding indebtedness, approximately $1.3 million of which consisted of principal on loans made by OrangeHook MN.  OrangeHook MN issued 70,997 shares of OrangeHook MN common stock (representing 70,997 shares of our common stock on a post-Merger, post-Reverse Stock Split basis) on June 30, 2016 in exchange for the cancellation of $795,174 of such indebtedness. The Company may seek to acquire the remaining equity interests of Agilivant at some time in the future.

Agilivant offers a hybrid SaaS-based payment technology solution, encompassing both issuing and acquiring functionality, in the financial transfer and remittance services industry. By providing this combined capability, Agilivant can offer open, closed and hybrid (semi-closed) payment solutions to its customers. Additionally, Agilivant provides full merchant acquiring capabilities as a sub-agent to two partner companies.

The Agilivant system is flexible and can provide mobile, web-based and card-based solutions. It operates in a private data cloud, eliminating the need for a bank to purchase expensive computer systems with complex applications and software or to hire more staff to handle mobile banking systems, operations processing, legal compliance and call centers. Agilivant's cash card management system integrates with bank-issued debit-based bank accounts.

Agilivant competes with a large number of companies that offer financial transfer and remittance services as well as with payment associations. Agilivant's principal direct competitors include financial transfer and remittance companies like Western Union, MoneyGram, PayPal and Xoom, as well as individual banks.

 

 

 

 

 

 

 

 

Agilivant currently focuses on the sale of instances of its software and third party joint revenue sharing opportunities and does not maintain a relationship with a bank for card programs. Agilivant continues to pursue limited marketing and sale of card programs. On April 19, 2016, Agilivant entered into a license agreement granting Corporate Resources Australia Limited, a third party online banking and payment systems company, together with its subsidiary, WAIV International Pty Ltd., a non-exclusive, worldwide, perpetual license to use, modify, engineer, host, create derivative works from, reproduce and otherwise exploit, and to market, sell, distribute and otherwise commercialize, Agilivant's online banking and payment systems software and related applications. Both parties agreed to continue to further develop the software and bring it market under their own branding. Corporate Resources Australia Limited paid to OrangeHook a one-time licensing fee of $1,200,000 under the agreement. The license agreement also contains a revenue-sharing feature under which both parties have agreed to pay to the other party a percentage of any revenue received under licenses sold to customers referred by the other party. The license agreement also contains certain restrictive covenants that prohibit Agilivant from issuing any exclusive licenses and from selling software licenses to customers of the third-party company.

LifeMed

On July 20, 2016, OrangeHook MN acquired LifeMed pursuant to an amended and restated agreement and plan of merger dated as of May 31, 2016.  OrangeHook MN issued 1,454,261 shares of its common stock (representing 1,454,261 shares of our common stock on a post-Merger, post-Reverse Stock Split basis) to former LifeMed shareholders as consideration for the merger.

LifeMed provides a cloud-based patient identification solution with robust workflow automation, dynamic reporting, and customizable functionalities to enable streamlined electronic registration that is optimized for each healthcare facility and every patient. LifeMed issues a patient a token that identifies the patient throughout his or her life and enables medical professionals to obtain a complete medical history of the patient (including allergies, pre-existing conditions, and other related medical information) before making a medical diagnosis. The LifeMed application can also dramatically reduce insurance fraud utilizing its deterministic matching properties.

With the LifeMed application, all medical records can be linked via a secure, cloud-based application to allow access to a complete history quickly through a SaaS-based solution. The LifeMed application utilizes a library of application programming interfaces to overlay, enhance, and integrate, with existing systems, while at the same time facilitating connectivity with outside third party systems and databases. The application does not require time-intensive installation or ramp-up and can be installed and operational in short order.  The application also enables both internal and external systems to securely send patient data back and forth for real-time electronic medical record updates. The end result offers physicians, hospitals, and first responders the ability to access and act on a single complete and accurate set of records via the secure cloud infrastructure.

LifeMed has a patent portfolio that is intended to protect the key systems and methodology associated with its SaaS-based solutions.  Its patent portfolio consists of owned and licensed active U.S. patents with durations generally expiring within 10 years and two pending U.S. patents. Currently, LifeMed has entered into strategic and reseller agreements, all of which will use the patented healthcare patient solutions developed by LifeMed. LifeMed competes in the healthcare information systems industry against companies such as Right Patient, Imprivata, CrossChx and MedicFp.

Management expects to further enhance the LifeMed platform through the integration of additional OrangeHook portfolio products including payment applications, personal health storage features, and secure health record file transfer capabilities.

Effective March 10, 2016, OrangeHook and LifeMed entered into a business partnership agreement ("BPA") with Lenovo PC HK Limited ("Lenovo"), an electronics manufacturing company based out of Asia, which was subsequently amended on September 1, 2016 and January 24, 2017. The BPA, as amended, contemplates that LifeMed's patient identification application will be preloaded onto Lenovo's computers, tablets and other electronic devices for marketing and sale as a bundled system to hospitals and other healthcare facilities and providers throughout the world. Lenovo has agreed to be LifeMed's exclusive electronics hardware partner throughout the world, and LifeMed has agreed to be its exclusive provider of patient identification software. The BPA also allows Lenovo the non-exclusive right to offer the software products of OrangeHook's other portfolio companies. OrangeHook has agreed to share with Lenovo a percentage of revenues from hardware, service and usage fees, including upgrades and upsells, generated from customers under their joint marketing efforts.  Lenovo paid LifeMed one lump sum licensing fee in March 2016 and paid OrangeHook two lump sum licensing fees in October and December 2016. LifeMed agreed to assign to Lenovo Financial Services, a financial services provider affiliated with Lenovo, LifeMed's rights to licensing fees under customer contracts resulting from the joint marketing efforts. In exchange, Lenovo Financial Services agreed to pay to LifeMed its portion of the fees upfront upon entrance into agreements with end users, which will be subject to true-ups by LifeMed for any monthly fees that are not subsequently paid by the end user. In addition, if OrangeHook achieves certain revenue targets from sales of the bundled products to customers located in China, Lenovo has agreed to pay OrangeHook a one-time fee within 60 days of April 30, 2017 or such time as OrangeHook achieves a certain sales revenue milestone, whichever is later.

 

 

 

 

 

 

 

 

Management believes that the BPA with Lenovo, coupled with what we believe to be extensive selling and customer service capacities, could substantially improve our operating efficiencies and resulting cash flows, by, among other things, providing broader exposure to the OrangeHook suite of solution products.

Nuvel, Inc.

Nuvel, Inc. is a start-up company engaged in the business of designing, developing and selling a family of proxy and other appliances and related software and services that can secure, accelerate and optimize the delivery of business applications, web content and other information to users over private enterprise networks, or across an enterprise's gateway to the public Internet. The products and services provide end users with information about the applications and web traffic running on their networks, including the ability to discover, classify and manage the flow of data and communications between users and applications across the customer's internal networks, WAN and the Internet. Nuvel, Inc.'s products are also designed with the intent to accelerate and optimize the performance of end users' business applications and content, whether used internally or hosted by external providers.

Nuvel, Inc. competes directly with several data acceleration software companies, including Aspera, BMC, Code Sector, Inc., Cisco and Sony.  Many of these competitors focus upon the size and type of file being transferred.  Nuvel, Inc. takes a different approach-the Network Data Tunnel (NDT) solution—which streamlines the transfer process itself rather than modifying the file being sent.  The NDT solution can increase transfer speeds by up to 150 times.  The software itself is lightweight, minimal time and effort to incorporate into extant systems, and due to the massive increases in bandwidth utilization, can be used to facilitate mass integration into cloud-based systems.

Nuvel Inc.'s data acceleration solutions are built to accelerate and optimize the flow of information across enterprise networks to improve the performance of customer networks and reduce network costs. Management expects to further develop Nuvel, Inc.'s data acceleration solutions through the expansion into Linux, iOS, and Windows operating systems.  Management expects that the opportunity to bundle Nuvel Inc.'s platform with the products offered by OrangeHook's other portfolio companies creates the potential to increase market exposure, present new sales opportunities and lead to stronger customer loyalty for Nuvel Inc.'s platform.

LifeNexus Technologies

On June 2, 2016, OrangeHook MN acquired certain copyrights, trademarks, patents and other assets of LifeNexus. Spring Grove Finance, S.A. previously acquired the assets from the Chapter 7 bankruptcy estate of LifeNexus and agreed to sell the assets to OrangeHook MN in exchange for 178,571 shares of OrangeHook MN common stock (representing 178,571 shares of our common stock on a post-Merger, post-Reverse Stock Split basis).

The LifeNexus intellectual property relates to personal health smart cards for maintaining an individual's personal health record, enabling users to store, update, and share their medical information, including medical history, allergies, vaccinations, prescriptions, emergency contacts, insurance information, dependent information, advance directives, and more, offering healthcare providers access to critical patient information at the time and point of need. If we decide to pursue further development of the LifeNexus intellectual property, we anticipate that the LifeNexus personal health smart card would serve as a debit or prepaid card for making healthcare-related payments and managing individual health-related spending, such as co-pays and other fees at the physician's office, pharmacy, and hospital.

Management believes that the solutions being offered by our portfolio companies are competitive within their respective markets and that our marketing activities will be effective in distinguishing our products from the competition. Furthermore, many of these products share complementary features to one another, and management believes that we will be able to leverage each entity's resources and expertise to create a more robust suite of product offerings for healthcare institutions, emergency healthcare service providers, banking institutions, municipalities and its other customers, as well as higher returns for our shareholders. Although there exists no assurance that our development plans will definitively lead to expanded revenues, management believes that the interoperable capacity of the solutions offered by OrangeHook's portfolio companies are an important value proposition to the adoption of our products and solutions that will enhance our overall competitive position.

 

 

 

 

 

 

 

 

 

Business Operations

Center of Innovation

We opened our Center of Innovation ("COI"), located in Roseville, California, in October 2016. The COI provides technical sales and customer support and is assisting with the development of customer training programs for our LifeMed product. The COI also is intended to pursue the leveraging of the technical capabilities and interoperability of our other technologies across the OrangeHook suite of products. Management believes that centralization of these functions better positions OrangeHook to develop robust solutions that transcend offering our products on a stand-alone basis. The COI shares approximately half of the space at our Roseville, California location with LifeMed's sales, operations and administrative functions and includes a staff of approximately 10 employees.

Centralized Functions

Our corporate office is located in Wayzata, Minnesota. We have centralized many of the critical aspects of our operations in order to create standardization, and to maximize our operating efficiencies and uniformity of service. Some of the critical aspects of our business that we have centralized include contract administration, accounting, legal and information technology.

Employees

 

We had 49 regular employees as of December 31, 2016, including 47 full-time and 2 part-time employees. Of such employees, 6 were sales representatives, 29 were operations personnel and 14 were employed in corporate support functions.

 

None of our employees are covered by a collective bargaining agreement, and we have experienced no work stoppages to date. We believe that our relations with our employees are good.

Available Information

Our investor relations website may be found at www.orangehook.com/investor-relations, and we encourage investors to use it as a way of easily finding information about OrangeHook. We promptly make available on this website, free of charge, the annual and periodic reports that we file with or furnish to the SEC, corporate governance information (including our Code of Ethical Business Conduct), and select press releases and social media postings.

Item 1A. Risk Factors

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

Item 1B. Unresolved Staff Comments

None.

Item 2.  Properties

OrangeHook does not own any real property. OrangeHook's corporate office currently occupies approximately 6,300 square feet of office space in Wayzata, Minnesota under two separate operating leases: (1) 2,100 square feet subleased through September 30, 2017 with base monthly rent payments of $5,304 and (2) 4,268 square feet leased through December 31, 2020 with base monthly rent payments of $13,565.  In addition, OrangeHook is party to a lease for an additional 850 square feet through September 2020 with base monthly payments of $2,299, which is subleased to an unaffiliated, third-party lessee at the same base rate.

Salamander currently occupies 5,501 square feet of office space in Traverse City, Michigan that is leased through April 30, 2017 with base monthly rental payments of $6,705.

Until March 31, 2017, Agilivant occupied 1,650 square feet of office space in Vancouver, Washington under a lease that expired September 30, 2016 with base monthly holdover rental payments of $3,816. Beginning April 1, 2017, Agilivant no longer occupies the Vancouver, Washington office. Certain Agilivant management functions are now located at the Roseville, California offices in order to consolidate operations and to reduce facility costs.

 

 

 

 

 

 

 

 

 

LifeMed, along with our Center of Innovation, currently occupies 9,820 square feet of office space in Roseville, California through October 31, 2026 with starting base monthly rent payments of $19,149 and is a party to another lease at a monthly rate of $5,533 per month through March 31, 2022.

Until March 31, 2017, Nuvel, Inc. occupied a satellite office in Los Gatos, California under a lease with variable monthly rental payments based on office usage. Beginning April 1, 2017, Nuvel, Inc. no longer uses the satellite office in Los Gatos.  Certain Nuvel, Inc. management functions are now located at the Roseville, California offices in order to consolidate operations and to reduce facility costs.

We believe all of our facilities are suitable and adequate for current operating needs.

Item 3.  Legal Proceedings

On March 17, 2017, a former shareholder of LifeMed filed a complaint with the Superior Court of California, County of Sacramento with respect to the shareholder's exercise of dissenters' rights under the California Corporations Code in connection with OrangeHook MN's acquisition of LifeMed.  On June 20, 2016, the shareholder provided notice of his election to dissent from LifeMed's merger with OrangeHook MN and be paid cash in the amount of $2 for each of his 97,389 shares of LifeMed Series A Preferred Stock. The complaint names LifeMed as defendant, alleges claims for breach of contract and conversion of personal property, and asks for declaratory relief in addition to damages for the fair market value of the shares plus interest, punitive damages and attorney's fees. Given the preliminary stage of the case, OrangeHook cannot reasonably comment on the outcome of this action.

Except as previously described, OrangeHook is not a party to any material litigation or claims. However, no assurance can be given that material claims or disputes will not arise or occur in the future; in such event, we would be required to incur legal costs and fees to assert critical claims or defend claims made against us or our portfolio companies.

Item 4.  Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

OrangeHook common stock trades under the symbol "ORHK" on the OTC Pink Marketplace. On March 9, 2017, the high and low bid quotations per share of OrangeHook common stock as reported on the OTC Pink Marketplace were $1.16 and $1.38, respectively (as adjusted for the Reverse Stock Split).

 

Holders

The number of record holders of OrangeHook common stock as of April 10, 2017 was approximately 99 based on information received from our transfer agent. This amount excludes an indeterminate number of shareholders whose shares are held in "street" or "nominee" name with a brokerage firm or other fiduciary.

Dividends

Holders of OrangeHook common stock are entitled to receive dividends if and when declared by OrangeHook's board of directors out of funds legally available for the payment of dividends. OrangeHook has never paid a cash dividend on its common stock and presently intends to retain any earnings to fund the development of its business. OrangeHook does not anticipate paying any dividends on its common stock for the foreseeable future. 

Due to OrangeHook's current cash flow position, OrangeHook is unable to declare or pay any dividends on its common stock. Any future determination as to declaration and payment of dividends will be made at the discretion of OrangeHook's board of directors and will depend on earnings, financing requirements and other factors.

Item 6. Selected Financial Data

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

 

 

 

 

 

Overview

 

OrangeHook, Inc., a Minnesota corporation ("OrangeHook MN"), was formed on October 17, 2014, to acquire select software applications and technology that service consumer, healthcare, and governmental organizations. On December 1, 2016, OrangeHook MN was acquired by Nuvel Holdings, Inc., a Florida corporation ("Nuvel Holdings"), under an Agreement and Plan of Merger dated July 1, 2016, as amended by Amendment No. 1 to Agreement and Plan of Merger dated October 14, 2016 (as amended, the "Merger Agreement"), by and among Nuvel Holdings, OH Acquisition Corp, a Minnesota corporation and wholly-owned subsidiary of Nuvel Holdings ("Merger Sub"), and OrangeHook MN. Under the terms of the Merger Agreement, Merger Sub merged with and into OrangeHook MN, with OrangeHook MN remaining as the surviving corporation and a wholly-owned subsidiary of Nuvel Holdings (the "Merger"). Although Nuvel Holdings was the legal acquirer due to the reverse triangular merger structure of the Merger, OrangeHook MN shareholders received as merger consideration shares of Nuvel Holdings capital stock representing a substantial majority of the voting rights of Nuvel Holdings. As a result, OrangeHook MN was the accounting and financial acquirer in the Merger. Subsequent to the Merger, Nuvel Holdings adopted the OrangeHook, Inc. ("OrangeHook") name.

During 2015 and 2016, prior to the Merger, OrangeHook MN acquired Salamander Technologies, Inc. (now Salamander Technologies, LLC, "Salamander"), Agilivant LLC, ("Agilivant") and LifeMed ID, Inc. ("LifeMed"), all of which have entered their revenue generation phase. In addition, OrangeHook MN purchased certain intellectual property and other assets of LifeNexus, Inc. ("LifeNexus"). OrangeHook acquired OrangeHook MN pursuant to the Merger and, consequently, is the ultimate parent entity of Salamander, Agilivant and LifeMed and the ultimate owner of the LifeNexus assets. Following the Merger, OrangeHook continues to own its other operating subsidiary, Nuvel, Inc. The LifeNexus technologies and the technologies offered by Nuvel, Inc. are in the late stages of development, and we expect to commence field trial activity during the current calendar year.

Portfolio Companies

Our four operating portfolio companies—Salamander, Agilivant, LifeMed and Nuvel, Inc.-have developed proprietary software applications and services which are unique to the OrangeHook suite of identification solutions. OrangeHook believes that the solutions offered by its portfolio have the potential to provide an efficient, cost effective, and comprehensive solution to the issues surrounding correct patient identification, first responder credentialing, and payment authentication.  Although initially recognized as an opportunity for the health care industry, management believes that our identity solutions can transcend specific industry verticals and become usable across a wide spectrum of applications. Our ability to implement our solutions across industry specific verticals will depend, in part, on our ability to fund any necessary information technology initiatives, to market the solutions at correct management levels in our customer base and our success in early adopter installations. Management believes the interoperability features of our portfolio companies' suite of software applications position OrangeHook for a competitive advantage in the healthcare, first responder, and banking industries and will be attractive to other industries across multiple disciplines in the future.

To improve investors' understanding of OrangeHook's financial condition, results of operations, and business prospects, management voluntarily undertakes to report financial results in three operating segments: LifeMed, Salamander, and Agilivant. Although management and certain administrative functions are centralized at OrangeHook, each segment operates independently with its own staffing and facilities and offers complementary but unique software solutions. Management evaluates the financial results of each operating segment separately to determine how to allocate resources and to assess performance. Management includes the development and marketing activities related to software technologies which were acquired through our acquisitions of LifeNexus and Nuvel, Inc. in the OrangeHook corporate results.

Salamander

OrangeHook acquired the Salamander business in October of 2015. Salamander competes in the emergency management tracking and accountability solutions industry. It provides installed software and SaaS solutions, including integrated data-sharing technologies that allow for unique transparency and accountability across multiple levels of local, state and federal governments during emergency or catastrophic situations. Salamander's products, which are positioned to comply with the federal mandate for the National Incident Management System, provide optimization/analytics capabilities and resolve issues associated with identity verification, incident command tracking, and geospatial location.

Salamander's SaaS solutions incorporate Salamander's registered intellectual property and proprietary software code and intellectual property licensed-in from third parties. Salamander has a patent portfolio consisting of four active patents, ranging in duration from 5 to 18 years, which is intended to protect the key systems and methodology associated with its SaaS solutions. Salamander also owns four U.S. trademark registrations and one U.S. trademark application for various product names and logos, several domain names, and one U.S. Copyright registration for a resource guide for first responders.

 

 

 

 

 

 

 

 

 

Salamander sells its SaaS solutions primarily through its internal sales staff and through agreements with channel distributors. The channel distributor group is comprised of regional technical centers, resellers and lead generators, all of which have non-exclusive rights to internal sales activity in various geographic territories in the United States. All members of the channel have one-year initial terms and can be terminated upon applicable notice periods. At December 31, 2016, we had 10 active agreements.

Agilivant

OrangeHook acquired a majority interest (82%) in Agilivant, LLC in February of 2016. Agilivant offers a hybrid SaaS-based payment technology solution, encompassing both issuing and acquiring bank functionality, in the financial transfer and remittance services industry. By providing this combined capability, Agilivant can offer open, closed and hybrid (semi-closed) payment solutions to its customers. Additionally, Agilivant may issue licenses for use of its software technology solution.

Agilivant offers a hybrid SaaS-based payment technology solution, encompassing both issuing and acquiring functionality, in the financial transfer and remittance services industry. By providing this combined capability, Agilivant can offer open, closed and hybrid (semi-closed) payment solutions to its customers. Additionally, Agilivant provides full merchant acquiring capabilities as a sub-agent to two partner companies.

The Agilivant system is flexible and can provide mobile, web-based and card-based solutions. It operates in a private data cloud, eliminating the need for a bank to purchase expensive computer systems with complex applications and software or to hire more staff to handle mobile banking systems, operations processing, legal compliance and call centers. Agilivant's cash card management system integrates with bank-issued debit-based bank accounts.

Agilivant's current activities focus on the sale of instances of its software and third party joint revenue sharing opportunities and does not maintain a relationship with a bank for card programs. Agilivant continues to pursue limited marketing and sale of card programs.

LifeMed

We made a series of investments in LifeMed beginning in December 2014. We acquired the remaining equity interests in LifeMed on July 20, 2016. LifeMed competes in the healthcare information systems industry. It provides a cloud-based patient identification solution with robust workflow automation, dynamic reporting, and customizable functionalities to enable streamlined electronic registration that is optimized for each healthcare facility and every patient. LifeMed issues a patient token that identifies the patient throughout his or her life and enables medical professionals to obtain a complete medical history of the patient (including allergies, pre-existing conditions, and other related medical information) before making a medical diagnosis.

With the LifeMed application, all medical records can be linked via a secure, cloud-based application to allow access to a complete history instantly through a SaaS-based solution. The LifeMed application utilizes a library of application programming interfaces to overlay, enhance, and integrate, with existing systems, while at the same time facilitating connectivity with outside third party systems and databases. The application does not require time-intensive installation or ramp-up and can be installed and operational in short order.  The application also enables both internal and external systems to securely send patient data back and forth for real-time electronic medical record updates. The end result is physicians, hospitals, and first responders all being able to access and act on a single complete and accurate set of records via the secure cloud infrastructure. We believe that the LifeMed application's proprietary deterministic matching properties can help to decrease health insurance fraud.

LifeMed has a patent portfolio intended to protect the key systems and methodology associated with its SaaS-based solutions.  Its patent portfolio consists of owned and licensed active U.S. patents or pending U.S. patents with durations expiring generally within 10 years. Currently, LifeMed has entered into strategic and reseller agreements, all of which will use the patented healthcare patient solutions developed by LifeMed.

Management expects to further enhance the LifeMed platform through the integration of additional OrangeHook portfolio products including payment applications, personal health storage features, and secure health record file transfer capabilities.

 

 

 

 

 

 

 

 

Nuvel, Inc.

Nuvel, Inc. is an early stage company engaged in the business of designing, developing and selling a family of proxy and other appliances and related software and services that can secure, accelerate and optimize the flow, delivery and performance of end users' business applications, web content and other information to users over private enterprise networks, or across an enterprise's gateway to the public Internet. The products and services provide end users with information about the applications and web traffic running on their networks, including the ability to discover, classify and manage the flow of data and communications between users and applications across the customer's internal networks, WAN and the Internet. Nuvel, Inc.'s products are also designed with the intent to accelerate and optimize the performance of end users' business applications and content, regardless whether used internally or hosted by external providers.

Nuvel, Inc. competes directly with several data acceleration software companies, including Aspera, BMC, Code Sector, Inc., Cisco and Sony.  Many of these competitors focus upon the size and type of file being transferred.  Nuvel, Inc. takes a different approach—the Network Data Tunnel (NDT) solution—which streamlines the transfer process itself rather than modifying the file being sent.  The NDT solution can increase transfer speeds by up to 150 times.  The software requires minimal time and effort to incorporate into extant systems, and due to the massive increases in bandwidth utilization, can be used to facilitate mass integration into cloud-based systems.

Nuvel Inc.'s data acceleration solutions are built to accelerate and optimize the flow of information across enterprise networks to improve the performance of customer networks and reduce network costs. Management expects to further develop Nuvel, Inc.'s data acceleration solutions through the expansion into Linux, iOS, and Windows operating systems.  Management expects that, when bundled with the products offered by OrangeHook's other portfolio companies, Nuvel, Inc.'s platform will gain increased market exposure, present new sales opportunities, and lead to stronger customer loyalty.

LifeNexus Technologies

OrangeHook acquired certain copyrights, trademarks, patents and other assets of LifeNexus in June 2016. The LifeNexus intellectual property relates to personal health cards for maintaining an individual's personal health record, enabling users to store, update, and share their medical information, including medical history, allergies, vaccinations, prescriptions, emergency contacts, insurance information, dependent information, advance directives, and more, offering healthcare providers access to critical patient information at the time and point of need. If we decide to pursue further development of the LifeNexus intellectual property, we anticipate that the LifeNexus personal health card would serve as a prepaid card for making healthcare-related payments and managing individual health-related spending, such as co-pays and other fees at the physician's office, pharmacy, and hospital.

Financial Presentation

Description of Certain Line Items

Revenue

Revenue consists of license and subscription and other fees generated from the sales and licensing of our portfolio products. OrangeHook provides installed software and SaaS based solutions that are billed on a periodic basis throughout the subscription or licensing period.

Cost of Sales

Cost of sales includes the costs associated with the sale, subscription and licensing of our products including installation and support costs.

Product Development

Product development consists primarily of expenses relating to software maintenance and development of all portfolio company products.

Sales and Marketing

Sales and marketing consists primarily of trade shows, the travel expense related to the trade shows, and the salaries and compensation for the employees that are selling and marketing the solutions.

 

 

 

 

 

 

 

 

General and Administrative

General and administrative consists primarily of the salaries for the employees of OrangeHook, Salamander, Agilivant and LifeMed, along with rent, legal, accounting and other professional fees, including merger-related expenses, for OrangeHook and amortization of intangible assets as a result of the acquisition of the portfolio entities.

Critical Accounting Estimates and Policies

The following discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and applicable rules and regulations of the SEC regarding financial information. The accompanying consolidated financial statements include those of the OrangeHook as well as those of its subsidiaries OrangeHook MN, Salamander, Agilivant, LifeMed and Nuvel, Inc.  All intercompany transactions and balances have been eliminated in consolidation.  Please see the Note 3 to OrangeHook's financial statements for a more complete description of our significant accounting policies.

Use of Estimates

Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing customer agreements, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. Actual results could differ from those estimates.

Business Combinations

For acquisitions, OrangeHook allocates the purchase price based on the fair value of assets acquired and liabilities assumed.  For material acquisitions, OrangeHook engaged an independent specialist to assist us in the valuation of the intangible assets, utilizing discounted cash value methods.  In most cases, OrangeHook exchanges shares of its common stock to acquire the businesses.  The evaluation of OrangeHook's common stock requires us to make assumptions about future cash flows of OrangeHook that include, among others, growth in revenues, margins realized, level of operating expenses and cost of capital. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. OrangeHook engaged an independent specialist to assist us in evaluating the fair value of OrangeHook's common stock.  We ultimately concluded on the fair value of OrangeHook's common stock and the allocation of the fair value of the purchase price between intangibles and goodwill.

Accounts Receivable

The carrying value of OrangeHook's accounts receivable represents their estimated net realizable value. No collateral or other security is required to support accounts receivable, which are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts (90 to 120 days outstanding) are written off through a charge to the valuation allowance and a credit to accounts receivable. OrangeHook does not charge interest on past due accounts receivable balances.

Revenue Recognition

Revenue from sales of our software is recognized in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 605, Revenue Arrangements with Multiple Deliverables. When elements such as the product (e.g., hardware, software and other components) installation and training are contained in a single arrangement, or in related arrangements with the same customer, revenue is allocated to each element based upon its relative fair value. Management believes the individual elements within its contracts meet the ASC Topic 605 criteria for treatment as separate units of accounting. The price charged when the element is sold separately generally determines fair value. Revenue from product sales is recognized when the related goods are shipped whereas revenue from installation and training activities is recognized when the services are performed. Discounts in multiple elements sold as a single arrangement are allocated proportionately to the individual elements based on the fair value charged when the element is sold separately.

 

 

 

 

 

Income Taxes

OrangeHook accounts for deferred tax assets and liabilities under the liability method.  Deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years.  Deferred tax assets are recognized for deductible temporary differences and tax operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled.  OrangeHook regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income.  OrangeHook has recorded a full valuation related to deferred tax assets and liabilities.  We account for uncertainty in income taxes recognized in financial statements in accordance with ASC 740 (formerly FIN 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109,"). ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Only tax positions that meet the more-likely-than-not recognition threshold may be recognized. We do not have any material uncertain tax positions.

Stock-Based Compensation

OrangeHook measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. During 2016 and 2015, OrangeHook granted common stock to employees and outside directors in exchange for their services. In connection with those awards, the fair value of the award was measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period.

Software Development Costs

To date, OrangeHook has not capitalized any of the costs incurred related to the development of its software products being marketed as the period of time between achieving technological feasibility and the general availability of OrangeHook's software products has been very short and any costs incurred subsequent to achieving technological feasibility have not been significant. These costs are expensed and included in product development expenses in the accompanying consolidated statements of operations.

Goodwill and Intangible Assets

In accordance with ASC Topic No. 350, Intangibles-Goodwill and Other, goodwill and intangible assets without a defined life shall not be amortized over a defined period, but instead must be tested for impairment at least annually. Additionally, goodwill is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The goodwill impairment test is a two-step impairment test. In the first step, OrangeHook compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of that reporting unit, goodwill is not impaired and OrangeHook is not required to perform further testing. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, then OrangeHook must perform the second step in order to determine the implied fair value of the reporting unit's goodwill and compare it to the carrying value of the reporting unit's goodwill. The activities in the second step include valuing the tangible and intangible assets and liabilities of the impaired reporting unit and determining the implied fair value of the impaired reporting unit's goodwill based upon the residual of the fair value of the net assets.

 

 

 

 

 

 

 

 

 

 

 

Results of Operations for the Year Ended December 31, 2016 compared to the Year Ended December 31, 2015

(in thousands)

 

Total Revenue 

Total revenue for the years ended December 31, 2016 and 2015 was $2,311 and $245, respectively, representing a year-over-year increase of $2,066 or 943.3%.  The increase was primarily due to a full year of financial results for our Salamander segment in 2016 compared to three months in 2015, ten months of financial results for our Agilivant segment in 2016 compared to none in 2015, and approximately six months of financial results for our LifeMed segment compared to none in 2015. In addition, we recognized a one-time fee of $1,200 during the fiscal year ended December 31, 2016 for the license of Agilivant's online banking and payment systems software and related applications to a third party online banking and payment systems company.

Total Cost of Sales

Total cost of sales for the years ended December 31, 2016 and 2015 was $359 and $32, respectively, representing an increase of $327 or 1021.8%.  The increase was primarily due to a full year of financial results for our Salamander segment in 2016 compared to three months in 2015, ten months of financial results for our Agilivant segment in 2016 compared to none in 2015, and approximately six months of financial results for our LifeMed segment compared to none in 2015.

Total Gross Profit

Total gross profit for the years ended December 31, 2016 and 2015 was $1,952 and $213, respectively, representing an increase of $1,739 or 816.4%.  The increase was primarily due to a full year of financial results for our Salamander segment in 2016 compared to three months in 2015, ten months of financial results for our Agilivant segment in 2016 compared to none in 2015, and approximately six months of financial results for our LifeMed segment compared to none in 2015.  Gross margins were 84.5% and 86.9% for the years ended December 31, 2016 and 2015, respectively. The Company expects gross margin to remain at comparable levels in the foreseeable future.

Operating expenses

Our operating expenses consist primarily of personnel costs, including salaries, commissions, bonuses, share-based compensation and related benefits, and taxes, marketing programs, external consulting and professional services, travel, and depreciation expenses. Additionally, operating expenses were impacted by the additional results of our acquired companies, LifeMed and Agilivant, in 2016 and a full year of expenses for Salamander compared to three months in 2015.

(in thousands)		Year Ended December 31,
		2016				2015				Change				% Change
Product Development		$	2,077			$	141			$	1,936				1,373.0	%
Sales and marketing			733				123				610				495.9	%
General and administrative			9,227				3,539				5,688				160.7	%
Net loss from investment in LifeMed ID, Inc.			438				-				438				*
Gain on extinguishment of debt			(742	)			(404	)			(338	)			83.7	%
Interest Expense			3,027				494				2,533				512.8	%
*Not meaningful

 

Product development expense for the year ended December 31, 2016 increased by $1,936, or 1,373.0%, to $2,077 as compared to $141 for the same period of 2015. The increase was primarily due to a full year of financial results for our Salamander segment in 2016 compared to three months in 2015, ten months of financial results for our Agilivant segment in 2016 compared to none in 2015, and approximately six months of financial results for our LifeMed segment compared to none in 2015. Product Development expenses as a percentage of total revenue was 89.9% and 57.6% for the years ended December 31, 2016 and 2015, respectively.  The Company plans to invest a consistent dollar amount on product development in fiscal year 2017 when taking into consideration a full-year effect of the companies acquired in fiscal year 2016.

Sales and marketing expense for the year ended December 31, 2016 increased by $610, or 495.9%, to $733 as compared to $123 for the same period of 2015. The increase was primarily due to a full year of financial results for our Salamander segment in 2016 compared to three months in 2015, ten months of financial results for our Agilivant segment in 2016 compared to none in 2015, and approximately six months of financial results for our LifeMed segment compared to none in 2015. Sales and marketing expenses as a percentage of total revenue was 31.7% and 50.2% for the years ended December 31, 2016 and 2015, respectively.  The Company expects sales and marketing expense as a percentage of total  revenue to remain at consistent levels in the foreseeable future.

 

 

 

 

 

 

 

 

 

General and administrative expense for the year ended December 31, 2016 increased by $5,688, or 160.7%, to $9,227 as compared to $3,539 for the same period of 2015. The increase was primarily due to a full year of financial results for our Salamander segment in 2016 compared to three months in 2015, ten months of financial results for our Agilivant segment in 2016 compared to none in 2015, and approximately six months of financial results for our LifeMed segment compared to none in 2015.  The Company expects general and administrative expenses to decrease as a percentage of revenue in fiscal year 2017 due to the one-time nature of merger-related expenses in fiscal year 2016.

Net Loss From Investment in LifeMed

Based on the Company's purchase of common and preferred shares of LifeMed from 2014 through 2016, on March 31, 2016, the Company's ownership percentage of LifeMed totaled 24%. As a result, the Company began to account for this investment using the equity method of accounting as of April 1, 2016, versus the cost basis it had carried it in prior periods. On July 20, 2016, the Company completed its acquisition of LifeMed. From April 1, 2016 through the acquisition on July 20, 2016, we recorded a loss of $438 which represented our proportionate share of the net loss incurred by LifeMed for that period. Effective July 20, 2016, the Company began to consolidate the results of LifeMed.

Gain on Extinguishment of Debt

The gain of $742 and $404 for the years ended December 31, 2016 and 2015, respectively, reflected the difference between the reacquisition price and the carrying amount of the debt and accrued interest, which resulted from the issuance of shares of common stock in exchange for the extinguishment of certain debt and accrued interest.  The Company views the gains on extinguishment of debt experienced in fiscal years 2016 and 2015 as non-recurring in nature.

Interest Expense

Interest expense for the year ended December 31, 2016 increased by $2,533 or 512.8%, to $3,027 as compared to $494 for the same period of 2015. Outstanding debt increased $2,803 to $7,841 at December 31, 2016 compared to $5,038 the same period of 2015. As such, interest expense, which includes amortization of warrants, increased, and we had higher levels of short term borrowings at higher interest rates during the year ended December 31, 2016.

 

Net Gain Attributable to Noncontrolling Interest in Subsidiary

During the year ended December 31, 2016, the net gain attributable to noncontrolling interest in subsidiary was $89. The noncontrolling interest in the subsidiary is due to OrangeHook owning 82% of Agilivant, while the remaining 18% is held by minority owners.

 

Net Loss

As a result of the above, net loss for the year ended December 31, 2016 was $10,775 as compared to $3,680 for the same period of 2015.

 

 

 

 

 

 

 

 

Salamander Segment

(in thousands)

 

		Year Ended December 31,
		2016				2015				Change				% Change
Total revenue		$	959			$	245			$	714				291.4	%
Cost of sales			206				32				174				543.8	%
Gross margin		$	753			$	213			$	540				253.5	%
Gross margin %			78.5	%			86.9	%
Product Development		$	680			$	141			$	539				382.3	%

Total revenue in the Salamander segment for the year ended December 31, 2016 increased by $714, or 291.4%, to $959 as compared to revenue of $245 for the year ended December 31, 2015.  The increase resulted from owning Salamander Technologies for three months in 2015, compared to results from the full year in 2016. Salamander had customer contracts serving 10 active regional technical centers in 2016, which generated 50% percent of our contracted revenue for the year ended December 31, 2016, and customer contracts serving 11 active regional technical centers in 2015, which generated 51% of our contracted revenue for the year ended December 31, 2015.

Total cost of sales in the Salamander segment for the year ended December 31, 2016 increased by $174 or 543.8% to $206 as compared to cost of sales of $32 for the year ended December 31, 2015. The increase resulted from owning Salamander Technologies for three months in 2015, compared to a full year in 2016.

Total gross profit for the Salamander segment was $753 and $213 for the years ended December 31, 2016 and 2015, respectively.  Gross margin in the Salamander segment was 78.5% and 86.9% for the years ended December 31, 2016 and 2015, respectively. The year-over-year decrease to gross margin rate was impacted by Salamander entering into two new large contracts, which because of certain customer specifications, had lower gross margins.

 

Total product development expenses for the Salamander segment for the year ended December 31, 2016 increased by $539 or 382.3%, to $680 as compared to $141 for the year ended December 31, 2015.  Product development expenses as a percentage of total revenue was 70.9% and 57.6% for the years ended December 31, 2016 and 2015, respectively.  In 2016, product development expense was primarily related to reconfiguring our SalamanderLive^TM product to a cloud-based platform and ongoing software support.

Agilivant Segment

(in thousands)

 

		Year Ended December 31,
		2016				2015				Change				% Change
Total revenue		$	1,234			$	-			$	1,234				*
Cost of sales			16				-				16				*
Gross margin		$	1,218			$	-			$	1,218				*
Gross margin %			98.7	%			*	%
Product Development		$	420			$	-			$	420				*
*Not meaningful

 

 

 

 

 

 

 

 

OrangeHook acquired an 82% equity interest in Agilivant on February 12, 2016. Total revenue in the Agilivant segment for the year ended December 31, 2016 was $1,234 compared to $0 for the year ended December 31, 2015.  The increase resulted from owning Agilivant for approximately ten months in 2016 compared to none in 2015.Agilivant's revenue in 2016 was primarily related to the sale of a software instance under a license agreement granted to a third-party banking and payment systems company. The sale of the instance grants non-exclusive rights to license and market the Agilivant system and includes the option for future revenue-sharing arrangements.

Total cost of sales in the Agilivant segment for the year ended December 31, 2016 was $16 compared to $0 for the year ended December 31, 2015.  The increase resulted from owning Agilivant for approximately ten months in 2016 compared to none in 2015.  Cost of sales was primarily comprised of fees for external services associated with contract deliverables.

Total product development expenses for the year ended December 31, 2016 were $420. Product development expenses as a percentage of total revenue was 34.04% the year ended December 31, 2016. The product development expense was primarily related to fees for external services to continue the development of the Agilivant software, running of an instance of the software and to meet banking industry regulatory compliance obligations.

LifeMed Segment

(in thousands)

 

		Year Ended December 31,
		2016				2015				Change				% Change
Total revenue		$	118			$	-			$	118				*
Cost of sales			138				-				138				*
Gross margin		$	(20	)		$	-			$	(20	)			*
Gross margin %			-16.9	%			*
Product Development		$	977			$	-			$	977				*
*Not meaningful

LifeMed was acquired by OrangeHook on July 20, 2016. Total revenue in the LifeMed segment for the year ended December 31, 2016 was $118 compared to $0 for the year ended December 31, 2015. The increase resulted from owning LifeMed for approximately six months in 2016 compared to none in 2015.  Revenue in 2016 resulted primarily from the licensing of our SecureReg 2.0 software to hospitals. As of December 31, 2016, we had active contracts with five customers.

Total cost of sales in the LifeMed segment for the year ended December 31, 2016 was $138 compared to $0 for the year ended December 31, 2015.  The increase resulted from owning LifeMed for approximately six months in 2016 compared to none in 2015.  Cost of sales was primarily comprised of hosting and technical services fees and the costs of hardware and supplies.

Total gross loss for the LifeMed segment was $20 for the year ended December 31, 2016.  As a percentage of total revenue, gross margin for the LifeMed segment was (16.9)% for the year ended December 31, 2016. Gross margin rate was impacted by the fixed costs of hosting expenses.

 

Total product development expenses for the LifeMed segment for the year ended December 31, 2016 were $977 compared to $0 for the year ended December 31, 2015.  The increase resulted from owning LifeMed for approximately six months in 2016 compared to none in 2015.  Product development expenses as a percentage of total revenue was 828.0% for the year ended December 31, 2016.  In 2016, product development expense was primarily related to developing our proprietary Authoritative Identity Management Exchange ("AIMe^TM") software, developing and integrating the electronic payments platform, and other software support.

 

 

 

 

 

 

 

 

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

During the years ended December 31, 2016 and 2015, we recorded revenues of $2,311 and $245, respectively, and incurred net losses of $10,775 and $3,680, respectively.  Net cash used in operating activities was $4,237 for and $1,940 for the years ended December 31, 2016 and 2015, respectively.

 

 

Cash Flows – Operating Activities

 

Net cash used in operating activities was $4,237 during the year ended December 31, 2016. Net cash used in operating activities consisted principally of a net loss of $10,775 offset by deferred revenue received of $2,640.

Net cash used in operating activities was $1,939 during the year ended December 31, 2015. Net cash used in operating activities consisted principally of a net loss of $3,680, adjusted for certain non-cash income and expense items and changes in operating assets and liabilities.

Cash Flows – Investing Activities

 

During the year ended December 31, 2016, net cash used for investing activities was $3,409 which consisted principally of net advances of $1,359 in advances to LifeMed, $85 in net advances to Agilivant, and $675 in advances to Nuvel Holdings, Inc. In addition, the Company purchased shares of LifeMed common and preferred stock of $1,310 during the period prior to the completion of its acquisition on July 20, 2016.

 

During the year ended December 31, 2015, net cash used for investing activities was $5,320, which consisted principally of $1,925 for purchases of LifeMed preferred and common stock, $1,006 in advances to Agilivant, $1,045 in advances to LifeMed and $699 in advances to Nuvel Holdings, Inc.

Cash Flows – Financing Activities

 

Net cash provided by financing activities was $7,523 during the year ended December 31, 2016 which consisted primarily of proceeds of $2,689 from the sale of Series A, A-1, and OH-2 preferred stock, net of financing fees, net proceeds of $2,255 from director loans and net proceeds from short-term debt of $3,873.

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities was $7,360 during the year ended December 31, 2015, which consisted primarily of proceeds of $3,050 from the sale of convertible debentures, proceeds of $3,948 from the sale of Series A and A-1 preferred stock, net of expenses and proceeds of $950 from director loans.

The following table sets forth selected historical information regarding our cash flows:

 

		Year Ended December 31,
		2016				2015
Other Financial Data:
Net cash used in operating activities		$	(4,237	)		$	(1,939	)
Net cash used in investing activities			(3,409	)			(5,320	)
Net cash provided by financing activities			7,523				7,360

 

Off-Balance Sheet Arrangements

OrangeHook does not have any off-balance sheet arrangements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

Item 8. Consolidated Financial Statements and Supplementary Data

The Report of the Independent Registered Public Accounting Firm, Financial Statements, and Schedules are set forth in Part IV, Item 15 of this annual report on Form 10-K and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

As previously disclosed in a current report filed with the SEC on December 5, 2016, the Audit Committee of our board of directors approved the engagement of Baker Tilly Virchow Krause, LLP ("Baker Tilly") effective December 1, 2016 as our independent registered public accounting firm for the fiscal year ending December 31, 2016. The engagement of Baker Tilly also resulted in the end of our relationship with Marcum LLP as our independent registered public accounting firm. The change in independent registered public accounting firms was motivated solely by a desire to maintain OrangeHook MN's working relationship with Baker Tilly following the Merger.

Item 9A. Controls and Procedures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

Nuvel Holdings, Inc. had limited segregation of duties within its accounting and financial reporting functions. Segregation of duties within Nuvel Holdings, Inc. was limited due to limited financial resources and the small number of employees that were assigned to positions that involve the processing of financial information.

·	Nuvel Holdings, Inc. also identified a material weakness relating to the valuation of certain complex financial instruments issued during the period.

Nuvel Holdings, Inc.'s internal controls over financial reporting were essentially performed by one individual during fiscal 2015 due to a limited workforce and operations.

Although the control deficiencies identified at December 31, 2015 and further described in the section titled "Evaluation of Disclosure Controls and Procedures" included Nuvel Holdings, Inc., operations within that entity were limited as of December 31, 2015, particularly in comparison to OrangeHook's operations following the Merger. Therefore, a specific remediation plan to address deficiencies related solely to the former Nuvel Holdings, Inc. operations was not designed or included below. We have implemented internal control processes and procedures initiatives described below as they relate to OrangeHook on a post-Merger basis.

Following the December 1, 2016 Merger, numerous material changes in our internal control processes and procedures occurred, materially affecting our internal controls over financial reporting. These changes included: (i) an increase in the size of the board of directors to eight persons, including the six individuals who were directors of OrangeHook MN immediately prior to the closing of the Merger and who were not also directors of Nuvel Holdings, Inc.; and (ii) appointing as our officers those individuals who were the officers of OrangeHook MN immediately prior to the closing of the Merger. As a result, we added a Chief Financial Officer who has initiated a number of changes to processes and procedures which have served to strengthen OrangeHook's internal accounting and disclosure controls. In addition, as a result of the Merger, we believe that the following additional changes remediated the material weaknesses noted in the annual report on Form 10-K for the year ended December 31, 2015:

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OrangeHook, Inc. and Subsidiaries

Consolidated Financial Statements

As of December 31, 2016 and 2015

For the years ended December 31, 2016 and 2015

 

 

---

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders, Audit Committee and Board of Directors

OrangeHook, Inc.

Wayzata, MN

We have audited the accompanying consolidated balance sheets of OrangeHook, Inc. as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of its internal control over financial reporting as a basis for designing 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 over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of OrangeHook, Inc. as of December 31, 2016 and 2015 and the results of their operations and cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern.  As discussed in Note 2 to the consolidated financial statements, the company has incurred losses from its operations which includes product development investments and merger and acquisition related expenses.  These activities have resulted in an accumulated deficit of $16,038,000 and a working capital deficiency of $16,239,000.  The company requires additional working capital to fund operations.  These factors raise substantial doubt about its ability to continue as a going concern.  Managements plans in regard to these matters are also described in Note 2.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

      Baker Tilly Virchow Krause, LLP

Minneapolis, Minnesota

April 17, 2017

 

 

 

 

 

 

 

 

OrangeHook, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
		As of
		December 31, 2016				December 31, 2015
Assets
Current assets:
Cash		$	159			$	282
Accounts receivable			132				145
Inventory			21				32
Other current assets			294				106
Total current assets			606				565
Furniture, equipment and leasehold improvements, net:			455				127
Other assets:
Due from:
Agilivant, LLC			-				1,225
Nuvel Holdings, Inc.			-				856
LifeMed ID, Inc.			-				1,045
Total other assets			-				3,126
Investment in LifeMed ID, Inc.			-				4,425
Intangible assets, net of amortization			16,272				869
Goodwill			12,302				1,567
Other			134				-
			28,708				9,987
Total assets		$	29,769			$	10,679

 

 

 

 

 

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

 

 

 

 

 

 

OrangeHook, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands except for share and per share amounts)		As of
		December 31, 2016				December 31, 2015
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	3,754			$	607
Accrued compensation			719				210
Accrued dividends			1,113				144
Accrued Interest			624				228
Other accrued expenses			1,622				426
Current portion of capital lease obligation			119				-
Current portion of deferred revenue			1,143				291
Line of credit			350				-
Notes payable to directors, net of discount			2,793				218
Convertible debentures, net of discount			3,337				383
Other current debt			1,361				-
Total current liabilities		$	16,935			$	2,507
Long-term liabilities
Capital lease obligation, less current portion		$	171			$	-
Deferred revenue, noncurrent			2,602				32
Put option obligation			1,886				-
Installment payable to related party			546				-
Other long-term Liabilities (Earnout Shares)			967				-
Other long-term liabilities			158				-
Convertible debentures, net of discount- long-term			-				2,379
Notes payable to directors, net of discount- long-term			-				2,058
Total liabilities			23,265				6,976
Commitments and contingencies
Stockholders' equity
Series A and Series A1 cumulative convertible redeemable preferred stock;
authorized 9,000 and 6,000 shares; 0 and 6,188 shares issued
and outstanding; liquidation preference of $0 and $6,188			-				-
Series OH-2 cumulative convertible redeemable preferred stock;
authorized 11,000 and 0 shares; 10,093 and 0 shares issued
and outstanding; liquidation preference of $11,206 and $0			-				-
Series B cumulative preferred stock;
authorized 200,000 and 0 shares; 20,000 and 0 shares issued
and outstanding; liquidation preference of $137 and $0			-				-
Series C cumulative preferred stock;
authorized 500,000 and 0 shares; 371,052 and 0 shares issued
and outstanding; liquidation preference of $2,575 and $0			-				-
Series D cumulative preferred stock;
authorized 2,000,000 and 0 shares; 0 and 0 shares issued
and outstanding			-				-
Common stock - Voting; $0.001 par value; authorized 100,000,000
shares; 6,838,084 and 3,620,726 shares issued as of December 31, 2016 and
2015, respectively; 6,686,706 and 3,420,726 shares
outstanding as of December 31, 2016 and 2015, respectively			7				3
Additional paid-in capital			22,143				8,142
Preferred stock subscription receivable			-				(150	)
Accumulated deficit			(16,038	)			(4,292	)
Total stockholders' equity			6,112				3,703
Noncontrolling interest			392				-
			6,504				3,703
Total liabilities and stockholders' equity		$	29,769			$	10,679

 

 

 

 

 

 

 

OrangeHook, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except for share and per share amounts)
		Years ended December 31,
		2016				2015
Revenue		$	2,311			$	245
Cost of sales (exclusive of depreciation and amortization)			359				32
Gross profit			1,952				213
Operating expenses:
Product development			2,077				141
Sales and marketing			733				123
General and administrative			9,227				3,539
Total operating expenses			12,037				3,803
Loss from operations			(10,085	)			(3,590	)
Other income (expense):
Gain on debt extinguishment			742				404
Net loss on Investment in LifeMed ID, Inc.			(438	)			-
Interest expense, net of interest income			(3,027	)			(494	)
Loss before income taxes			(12,808	)			(3,680	)
Income tax benefit			2,122				-
Net loss before non-controlling interest in subsidiary			(10,686	)			(3,680	)
Non-controlling interest in subsidiary			89				-
Net loss			(10,775	)			(3,680	)
Preferred stock dividends			(971	)			(405	)
Net loss attributable to common stockholders		$	(11,746	)		$	(4,085	)
Loss per common share- basic and diluted		$	(2.51	)		$	(2.31	)
Weighted average common shares outstanding- basic and diluted			4,687,039				1,766,030

 

 

 

 

 

 

 

OrangeHook Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2016 and 2015
(in thousands, except for share amounts)
		Series A and A-1 Preferred Stock						Series OH-2 Preferred Stock						Series B Preferred Stock					Series C Preferred Stock
		# Shares			Amount			# Shares		Amount				# Shares		Amount			# Shares		Amount
Balance, December 31, 2014		1,990			$	-		-		$	-			-		$	-		-		$	-
Sales of Series A preferred stock, net
of financing costs		4,198				-		-			-			-			-		-			-
Preferred stock subscription receivable		-				-		-			-			-			-		-			-
Common stock and options issued to
directors for services		-				-		-			-			-			-		-			-
Stock warrants issued for services		-				-		-			-			-			-		-			-
Common stock issued to officers and
employees for services		-				-		-			-			-			-		-			-
Convertible debenture conversion
feature and warrants		-				-		-			-			-			-		-			-
Common stock issued for payment
of dividends		-				-		-			-			-			-		-			-
Common stock warrants exercised		-				-		-			-			-			-		-			-
Common stock issued for acquisition of
Salamander Technologies, Inc.		-				-		-			-			-			-		-			-
Common stock issued for debt
extinguishment		-				-		-			-			-			-		-			-
Net loss		-				-		-			-			-			-		-			-
Dividends accrued on Series A
preferred stock		-				-		-			-			-			-		-			-
Balance, December 31, 2015		6,188				-		-			-			-			-		-			-
Reverse merger with Nuvel Holdings, Inc.		(9,943	)			-		9,943			-			20,000			-		371,052			-
Stock based compensation - common
stock issued to directors		-				-		-			-			-			-		-			-
Stock based compensation - common
stock and options granted to employees		-				-		-			-			-			-		-			-
Stock based compensation - warrants
granted to director		-				-		-			-			-			-		-			-
Warrants issued with notes payable		-				-		-			-			-			-		-			-
Warrants issued with director loans		-				-		-			-			-			-		-			-
Warrants issued with convertible debt		-				-		-			-			-			-		-			-
Warrants issued for services		-				-		-			-			-			-		-			-
Common stock issued for exercise of
warrants		-				-		-			-			-			-		-			-
Common stock issued for acquisition of
Agilivant		-				-		-			-			-			-		-			-
Common stock issued in exchange for
Agilivant debt		-				-		-			-			-			-		-			-
Common stock issued for acquisition of
Life Nexus		-				-		-			-			-			-		-			-
Common stock issued in exchange for
notes payable		-				-		-			-			-			-		-			-
Common stock issued for acquisition of
LifeMed		-				-		-			-			-			-		-			-
Common stock issued for services		-				-		-			-			-			-		-			-
Sale of common stock		-				-		-			-			-			-		-			-
Sale of Series A and A-1 Preferred Stock		2,615				-		-			-			-			-		-			-
Sale of OH-2 Preferred Stock		-				-		150			-			-			-		-			-
Preferred stock issued for notes payable		1,140				-		-			-			-			-		-			-
Shares redeemed in exchange for
receivable		-				-		-			-			-			-		-			-
Proceeds from stock subscription
receivable		-				-		-			-			-			-		-			-
Issuance of put option obligation		-				-		-			-			-			-		-			-
Net loss		-				-		-			-			-			-		-			-
Dividends accrued on Series OH-2
Preferred Stock and Series A Preferred Stock		-				-		-			-			-			-		-			-
Balance, December 31, 2016		-			$	-		10,093		$	-			20,000		$	-		371,052		$	-

 

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

 

 

OrangeHook Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2016 and 2015
(in thousands, except for share amounts)
		Common Stock					Additional Paid-In			Preferred Stock Subscription			Accumulated			Total OrangeHook,			Non Controlling			Total
		# Shares		Amount			Capital			Receivable			Deficit			Inc.			Interest			Equity
Balance, December 31, 2014		1,450,000		$	1		$	1,905		$	-		$	(207	)	$	1,699		$	-		$	1,699
Sales of Series A preferred stock, net
of financing costs		-			-			4,098			-			-			4,098			-			4,098
Preferred stock subscription receivable		-			-			-			(150	)		-			(150	)		-			(150	)
Common stock and options issued to
directors for services		100,000			-			633			-			-			633			-			633
Stock warrants issued for services		-			-			73			-			-			73			-			73
Common stock issued to officers and
employees for services		1,500,000			2			239			-			-			241			-			241
Convertible debenture conversion
feature and warrants		-			-			414			-			-			414			-			414
Common stock issued for payment
of dividends		28,583			-			200			-			-			200			-			200
Common stock warrants exercised		160,000			-			1			-			-			1			-			1
Common stock issued for acquisition of
Salamander Technologies, Inc.		144,846			-			460			-			-			460			-			460
Common stock issued for debt
extinguishment		37,297			-			119			-			-			119			-			119
Net loss		-			-			-			-			(3,680	)		(3,680	)		-			(3,680	)
Dividends accrued on Series A
preferred stock		-			-			-			-			(405	)		(405	)		-			(405	)
Balance, December 31, 2015		3,420,726			3			8,142			(150	)		(4,292	)		3,703			-			3,703
Reverse merger with Nuvel Holdings, Inc.		458,767			1			1,655			-			-			1,656			-			1,656
Stock based compensation - common
stock issued to directors		200,000			-			32			-			-			32			-			32
Stock based compensation - common
stock and options granted to employees		50,000			-			475			-			-			475			-			475
Stock based compensation - warrants
granted to director		-			-			259			-			-			259			-			259
Warrants issued with notes payable		-			-			87			-			-			87			-			87
Warrants issued with director loans		-			-			198			-			-			198			-			198
Warrants issued with convertible debt		-			-			128			-			-			128			-			128
Warrants issued for services		-			-			7			-			-			7			-			7
Common stock issued for exercise of
warrants		105,000			-			9			-			-			9			-			9
Common stock issued for acquisition of
Agilivant		282,173			-			897			-			-			897			303			1,200
Common stock issued in exchange for
Agilivant debt		70,997			-			226			-			-			226			-			226
Common stock issued for acquisition of
Life Nexus		178,571			-			568			-			-			568			-			568
Common stock issued in exchange for
notes payable		387,912			1			1,243			-			-			1,244			-			1,244
Common stock issued for acquisition of
LifeMed		1,454,261			2			4,623			-			-			4,625			-			4,625
Common stock issued for services		6,513			-			21			-			-			21			-			21
Sale of common stock		78,000			-			250			-			-			250			-			250
Sale of Series A and A-1 Preferred Stock		-			-			2,539			-			-			2,539			-			2,539
Conversion of director loans into preferred stock		-			-			-			-			-			1,140			-			1,140
Sale of OH-2 Preferred Stock		-			-			150			-			-			150			-			150
Shares redeemed in exchange for
receivable		(6,214	)		-			(20	)		-			-			(20	)		-			(20	)
Proceeds from stock subscription
receivable		-			-			-			150			-			150			-			150
Issuance of put option obligation		-			-			(486	)		-			-			(486	)		-			(486	)
Net loss		-			-			-			-			(10,775	)		(10,775	)		89			(10,686	)
Dividends accrued on Series OH-2
Preferred Stock and Series A Preferred Stock		-			-			-			-			(971	)		(971	)		-			(971	)
Balance, December 31, 2016		6,686,706		$	7		$	22,143		$	-		$	(16,038	)	$	6,112		$	392		$	6,504