Exhibit 99.1

 

 

INDEX

 

iOra Software Limited and Subsidiary

Index to the Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of December 31, 2016 and 2015	F-2
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2016 and 2015	F-3
Consolidated Statement of Stockholder’s Deficit For the Years Ended December 31, 2016 and 2015	F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015	F-5
Notes to the Consolidated Financial Statements	F-6

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of iOra Software Limited

 

We have audited the accompanying consolidated balance sheets of iOra Software Limited and Subsidiary, (the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive loss, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2016. iOra Software Limited’s management is responsible for these consolidated financial statements. 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 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 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 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 iOra Software Limited and Subsidiary as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ RBSM LLP

RBSM LLP

Henderson, Nevada

August 25, 2017

 

 

iOra Software Limited and Subsidiary

Consolidated Balance Sheets

(Audited)

 

		December 31,				December 31,
		2016				2015
ASSETS
Current assets
Cash		$	-			$	274
Accounts receivables			10,194				23,500
Other prepaid expenses			1,926				49,576
Total current assets			12,120				73,350
Furniture, equipment and software, net			54,747				99,059
Intangible asset, net			92,960				233,385
Deposit			30,238				36,199
Total assets		$	190,065			$	441,993
LIABILITIES AND STOCKHOLDER’S DEFICIT
Current liabilities
Bank overdraft		$	547			$	261
Accounts payable and accrued liabilities			632,419				409,648
Accrued payroll			441,179				586,988
Loan payable, net of discount of $0 and $16,813, respectively			1,015,786				657,306
Due to related party			3,000,539				699,391
Deferred income - short-term portion			670,937				1,320,571
Total current liabilities			5,761,407				3,674,165
Deferred income - long-term portion			119,903				781,254
Total liabilities			5,881,310				4,455,419
Stockholder’s deficit
Common stock, $1 par value,
100 shares authorized, 100 shares and 1 share issued and outstanding as of December 31, 2016 and 2015, respectively			130				1
Accumulated other comprehensive income			915,679				178,586
Accumulated deficit			(6,607,054	)			(4,192,013	)
Total stockholder’s deficit			(5,691,245	)			(4,013,426	)
Total liabilities and stockholder’s deficit		$	190,065			$	441,993

  

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

  

iOra Software Limited and Subsidiary

Consolidated Statements of Operations and Comprehensive Loss

(Audited)

 

		For the Years Ended
		December 31,
		2016				2015
Revenues
License revenue		$	553,064			$	197,342
Service revenue			1,437,410				1,331,323
Total revenues			1,990,474				1,528,665
Cost of revenues			5,219				4,053
Total cost of revenues			5,219				4,053
Gross profit			1,985,255				1,524,612
Operating expenses
Selling expense			19,370				161,472
General and administrative expense			1,505,410				2,307,305
Management fees – related party			2,968,370				808,227
Total operating expenses			4,493,150				3,277,004
Loss from operations			(2,507,895	)			(1,752,392	)
Other income (expense)
Other income			-				43,079
Interest expense			(73,580	)			(44,781	)
Total other expense			(73,580	)			(1,702	)
Loss from operations before provision for income taxes			(2,581,475	)			(1,754,094	)
Benefit for income taxes			166,434				178,057
Net loss		$	(2,415,041	)		$	(1,576,037	)
Other comprehensive income
Currency translation adjustments			737,093				115,353
Comprehensive loss		$	(1,677,948	)		$	(1,460,684	)
Weighted average share – basic			100				100
Net loss per share – basic		$	(24,150	)		$	(15,760	)

 

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

 

 

iOra Software Limited and Subsidiary

Consolidated Statement of Stockholder’s Deficit

Years Ended December 31, 2016 and 2015

(Audited)

 

										Accumulated Other
		Common Stock								Comprehensive				Accumulated				Stockholder’s
		Shares				Amount				Income (Loss)				Deficit				Deficit
BALANCE, December 31, 2014			1			$	1			$	62,233			$	(2,615,976	)		$	(2,552,742	)
Cumulative translation adjustment			-				-				115,353				-				115,353
Net loss			-				-				-				(1,576,037	)			(1,576,037	)
BALANCE, December 31, 2015			1				1				178,586				(4,192,013	)			(4,013,426	)
Issue of shares at par			99				129				-				-				129
Cumulative translation adjustment			-				-				737,093				-				737,093
Net loss			-				-				-				(2,415,041	)			(2,415,041	)
BALANCE, December 31, 2016			100			$	130			$	915,679			$	(6,607,054	)		$	(5,691,245	)

  

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

 

 

iOra Software Limited and Subsidiary

Consolidated Statements of Cash Flows

(Audited)

 

		For the Years Ended
		December 31,
		2016				2015
OPERATING ACTIVITIES
Net loss		$	(2,415,041	)		$	(1,576,037	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization			142,701				151,955
Amortization on loan discount			15,418				29,072
Changes in operating assets and liabilities:
Receivables			11,069				583,917
Other assets			7,809				68,099
Deferred revenue			(1,102,470	)			(734,584	)
Prepaid expenses			35,879				(12,475	)
Accrued expenses and others			7,780				339,507
Accounts payable			303,557				(59,650	)
Due to related parties			2,590,321				1,520,551
Net cash (used in) provided by operating activities			(402,977	)			310,355
INVESTING ACTIVITIES
Purchase of fixed assets			-				(5,761	)
Proceeds from sales of fixed asset			-				2,231
Net cash used in investing activities			-				(3,530	)
FINANCING ACTIVITIES
Proceeds on factoring loan			401,532				-
Bank overdraft			361				(194,699	)
Net cash provided by (used in) financing activities			401,893				(194,699	)
Effect of rate changes on cash			810				(114,565	)
NET CHANGE IN CASH			(274	)			(2,439	)
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD			274				2,713
END OF PERIOD		$	-			$	274
SUPPLEMENTAL DISCLOSURES:
Interest paid		$	-			$	-
Income taxes paid		$	-			$	-

 

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

 

 

iOra Software Limited and Subsidiary

Notes to the Consolidated Financial Statements

December 31, 2016 and 2015

(Audited)

 

1. Description of the Company

 

iOra Software Limited’s (the “Company” or “iOra”) principal activity is, by utilizing its unique Geo-Replicator platform, the replication of SharePoint content to branch office servers, to provide remote users with faster access to SharePoint content, as well as mobile workers access to SharePoint offline on their laptops.

 

Corporate Structure and Business

 

The Company is a software company headquartered in the United Kingdom. The Company has one wholly owned subsidiary, iOra Inc, a Delaware Corporation.  The primary purpose of iOra Inc is identical to that of the Company with its clients predominantly based in the United States of America.

 

Corporate History 

 

The Company is a global replication software provider with multiple-patented technology which assists in the transfer and replication of mission-critical data over low bandwidth connections such as satellite links. Basically, we can ensure data updates are moved very efficiently over tiny bandwidths.

 

Originally founded in 1997 to solve specific data replication issues, the Company has grown over time to create robust patents in key geographies and has a solution used by globally recognized customers.

 

The Company’s customers have significant operations across more than 25 countries including many of the world’s largest military organisations and private sector multinationals.

 

Growth opportunities are driven by the explosion in data and increasingly decentralised IT infrastructures versus the constraints of low bandwidth connections in difficult to access territories such as military bases, commercial sites in inhospitable parts of the world and marine to shore communications, including the need for essential back up of cloud data.

 

The Company has a patented technology for complex data transfer and wishes to grow both organically and by the strategic acquisitions of complementary businesses to be the standard replication offering in both the defence and commercial sectors.

 

2. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company (a United Kingdom Corporation) and its wholly owned subsidiary, iOra Inc. All significant intercompany transactions have been eliminated in consolidation.

 

 

Basis of Presentation

 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Management uses its historical records and knowledge of its business in making estimates.  Accordingly, actual results could differ from those estimates.

 

Cash Equivalents

 

The Company considers deposits that can be redeemed on demand and investments that have original maturities of less than three months, when purchased, to be cash equivalents.

 

Concentration of Credit Risk for Cash Deposits at Banks

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits.

 

The Company’s Parent company, Stocksfield Limited, had an overdraft facility with the Company’s bankers, Coutts & Co until July 2016. The facility was available for use by all entities within the Stocksfield Limited Group. Effective as of August 2016, the Stocksfield Limited Group overdraft borrowing was consolidated into a term loan. The loan was agreed for a sum of $266,660 at an annualized interest rate of 4% above the bank’s base rate (bank’s base rate at date of signature being 0.5% per annum) repayable quarterly. The loan would be repaid in equal monthly installments of $32,531. To date all monthly repayments have been met. The final repayment date of the loan is scheduled for May 2017. As of December 31, 2016 and 2015, the Company has an overdraft balance that related to this loan of $547 and $261, respectively.

 

At year ended December 31, 2016, the outstanding balance of the term loan was $228,142. The term loan was fully settled on May 3, 2017.

 

Accounts Receivable

 

Accounts receivable represent balances related to products sold for which the Company has not received the related funds from various financial institutions as of the reporting period. Interest is not accrued on accounts receivable and all receivables are received within ninety days of the end of the reporting period and, as such, the Company has no allowance for doubtful accounts as of December 31, 2016 and 2015.

 

Fair Value of Financial Instruments

 

The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

Fair value measurements are based on a three tier hierarchy that prioritizes the inputs used to measure fair value, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).

 

 

The Company did not have any assets measured at fair value on a recurring basis at December 31, 2016 and 2015.

 

The Company believes the carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued salaries, wages and payroll taxes, and other accrued expenses are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.

 

Intangible asset, net

 

Intangible assets include customer contracts purchased and recorded based on the cost to acquire them. These assets are amortized over 5 years. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable.

In accordance with ASC 350-30-65, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

 

Factors the Company considers to be important which could trigger an impairment review include the following:

 

●      Significant underperformance relative to expected historical or projected future operating results;

●      Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and

●      Significant negative industry or economic trends.

 

When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company did not consider it necessary to record any impairment charges during the years ended December 31, 2016 and 2015, respectively.

 

Basis for Recording Fixed Assets, Lives, and Depreciation Methods

 

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:

 

Furniture and fixtures		3 years
Computers and equipment		2 years
Office equipment		3 years
Software		2 years
Leasehold improvement		5 years

 

 

Loan

 

The Loan payables balance consists of amounts owing to Leonard Curtis and Bibby Financial Services (Note 8). The Leonard Curtis loan payable is recorded at carrying-value on the financial statements. The loan incurs interest at a rate of 3% per annum. In 2015 the loan had no stated interest and was treated in accordance with ASC500 for accounting purposes. The interest method was applied using a 4.5% borrowing rate. The Company recorded an unamortized discount based on the 4.5% borrowing rate and the discount amortized throughout the life of the loan.

 

Revenue Recognition

  

Revenue comprises revenue recognized by the Company in respect of goods and services supplied during the year, exclusive of Value Added Tax and trade discounts.

 

Software license fees are recognized as revenue when delivery of the software has occurred provided a signed agreement is in place, the license fee is fixed and determinable, no specific vendor obligations remain and the collection of the fee is probable.

 

Service/Maintenance contracts are invoiced in advance and income is recognized on a straight-line basis over the life of the contract. Where receipts exceed recognized income on a contract the Company defers the relevant amount to be released over the remainder of the contract.

 

For certain key customer contracts iOra utilizes the services of sales partners who assist with the concluding of these contracts. In certain, but not all, instances a fee is agreed with the partner for providing these services. Where a sales partner is used the partner is invoiced directly and they are responsible for invoicing the final customer. When a fee is agreed it is netted against the face value of the amount invoiced to the sales partner in order to arrive at the sales figure. iOra is of the view that this accurately reflects the substance of the underlying transaction and relationship and other alternatives would result in an overstatement of revenue.

 

In accordance with ASC 605-25, Revenue Recognition — Multiple-Element Arrangements, based on the terms and conditions of the product arrangements, the Company believes that its products and services can be accounted for separately as its products and services have value to the Company’s customers on a stand-alone basis.

 

 Income Taxes

 

The Company accounts for income taxes under the asset and liability method in accordance with FASB ASC 740-10. Under this standard, deferred income tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Deferred income tax assets are reduced by a valuation allowance when the Company is unable to make the determination that it is more likely than not that some portion or all of the deferred income tax asset will be realized.

 

Earnings (Loss) per Share

 

The Company utilizes FASB ASC 260. Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.

 

 

Foreign Currency Translation

 

The Company’s reporting currency is US Dollars. The accounts of iOra are maintained using the appropriate local currency, Great British Pound, as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders' equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive income (loss). Transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations.

 

The relevant translation rates are as follows: for the year ended December 31, 2016 closing rate at 1.2332 US$: GBP, average rate at 1.3538 US$: GBP and for the year ended 2015 closing rate at 1.47663 US$: GBP, average rate at 1.51637 US$.

 

Accumulated Other Comprehensive Income

 

Comprehensive income is comprised of net loss and all changes to the statements of stockholders’ deficit. For the Company, comprehensive loss for the years ended December 31, 2016 and 2015 included net loss and unrealized gains from foreign currency translation adjustments.

 

Recent Accounting Pronouncements

 

ASU 2016-16

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory. This new standard eliminates the exception for an intra-entity transfer of an asset other than inventory. Under the new standard, entities should recognize the income tax consequences on an intra-entity transfer of an asset other than inventory when the transfer occurs. This new standard will be effective for the Company on January 1, 2018 and will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the potential impact this standard may have on its financial position and results of operations.

 

ASU 2016-15

In August, 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”). The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under ASC Topic 230, Statement of Cash Flows. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period. The Company has not yet completed the analysis of how adopting this guidance will affect its consolidated financial statements.

 

ASU 2016-02

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for us on January 1, 2019. The adoption of this standard is not expected to have a material impact on its net financial position, but will impact our assets and liabilities. The Company is currently evaluating the potential impact that this standard may have on our results of operations.

 

 

ASU 2015-14

In August 2015, the FASB issued ASU No. 2015-14, Revenue From Contracts With Customers (Topic 606)." The amendments in this ASU defer the effective date of ASU 2014-09. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are still evaluating the effect of the adoption of ASU 2014-09.

 

ASU 2015-05

In April 2015, the FASB issued ASU 2015-05, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)." ASU 2015-05 provides guidance regarding the accounting for a customer's fees paid in a cloud computing arrangement; specifically, about whether a cloud computing arrangement includes a software license, and if so, how to account for the software license. ASU 2015-05 is effective for public companies' annual periods, including interim periods within those fiscal years, beginning after December 15, 2015 on either a prospective or retrospective basis. Early adoption is permitted. We do not expect the adoption of ASU 2015-05 to have a material effect on our financial position, results of operations or cash flows.

 

ASU 2015-02

In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis," which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity ("VIE"), and changing consolidation conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of ASU 2015-02 to have a material effect on our financial position, results of operations or cash flows.

  

The Company has evaluated other recent pronouncements and believes that none of them will have a material impact on the Company's financial position, results of operations or cash flows.

 

3. Going Concern

 

During the year ended December 31, 2016, the Company incurred a loss of $2,415,041 and had a negative working capital of $5,749,287 as of December 31, 2016, which can indicate a material uncertainty over the ability of the Company to continue as a going concern for the next twelve months. Included within net liabilities is a balance of $790,840 relating to deferred income and a balance of $3,000,539 due to Stocksfield Limited, the immediate parent undertaking. The uncertainty of this situation could raise substantial doubt about the Company’s ability to continue as going concern. The accompanying consolidation financial statements do not include any adjustment that might result from failure to continue as going concern.

 

The total deferred income balance of $790,840 arises from the revenue recognition policy explained further in the Revenue recognition footnote and is in line with current accounting standards. The balance principally relates to maintenance contracts which are invoiced in advance but, as the contract is delivered over time, the balance is recognized as revenue over the life of the contract.

 

At the date of signing the accounts, the directors can foresee no circumstance where Stocksfield Limited, would seek to collect the entire balance of $3,000,539 due.

 

 

The Company’s consolidated financial statements have been prepared on a going concern basis following the progress made in terms of the Company’s efforts to raise capital through a private placement, as well as debt funding.

 

4. Property and Equipment

 

Property and equipment consisted of the following:

 

		December 31,				December 31,
		2016				2015
Computers and equipment		$	37,794			$	46,348
Furniture & Fixtures			7,932				9,496
Office equipment			2,984				3,573
Short term Leasehold Property			89,422				107,052
			138,132				166,469
Accumulated depreciation and amortization			(83,385	)			(67,410	)
Property and equipment, net		$	54,747			$	99,059

 

Depreciation and amortization expense on property, equipment and software for the years ended December 31, 2016 and 2015 was $30,738 and $45,416, respectively. The Company did not sell any fixed assets during the current year but for 2015, disposals to value of $2,231 were made.

 

5. Intangible Assets

 

During the year ended December 31, 2013, the decision was taken to dissolve iOra Limited, one of the Group entities, into the Company as iOra Limited was no longer trading but still held a number of customer contracts with its trading name. As a result, the difference between the purchase price paid and the net asset value received was found to meet the definition of an intangible asset.

 

Intangible assets consisted of the following:

 

		December 31,				December 31,
		2016				2015
Customer lists		$	433,219			$	518,633
Accumulated amortization			(340,259	)			(285,248	)
Intangible assets, net		$	92,960			$	233,385

 

 

Amortization expense on intangible assets for the years ended December 31, 2016 and 2015 was $111,964 and $106,539 respectively.

 

Future amortization of intangible assets is as follows:

2017		$	(74,368	)
2018			(18,592	)
Total		$	(92,960	)

 

6. Related Party Transactions

 

Related Party Accounts Receivable and Payable

 

At December 31, 2016, the Company had a payable balance of $3,000,539 to Stocksfield Limited for payments made by Stocksfield Limited on behalf of iOra and a payable balance of $699,391 at December 31, 2015. Stocksfield Limited is the parent entity of the Company.

 

Issuance of shares to Related Party

On July 18, 2016, it was resolved that an additional 99 shares would be issued by the Company. Of the 99 common shares issued, 89 would be issued to Stocksfield Limited, making the total share capital in the Company owned by Stocksfield Limited 90 common shares and 10 common shares would be issued to Lexalytics Inc. The effect of this transaction was that Lexalytics Inc would hold 10% of the issued shares in iOra in exchange for providing an interest free working capital credit line to iOra.

 

Pursuant to the Company’s Memorandum and Articles of Association, directors are entitled to issue shares on such terms and in such manner as they think fit (subject to the Company’s articles of association).

 

On December 31, 2016, BTHC X, Inc., a Delaware corporation (”BTHC”) entered into a contribution agreement, which was amended pursuant to a letter of agreement dated February 13, 2017 (the contribution agreement and letter of agreement together referred to as the “Contribution Agreement”), with iOra Software Limited, a United Kingdom company (“iOra”), the shareholders of iOra (the “Contributors”), each of whom contributed their iOra shares to BTHC , pursuant to which BTHC effected an acquisition of iOra and, as a result, indirectly acquired iOra’s wholly owned U.S. subsidiary, iOra, Inc. (such transaction referred to herein as the “Business Combination”). The Business Combination was consummated on February 13, 2017 and, pursuant to the terms of the Contribution Agreement, iOra became a wholly-owned subsidiary of BTHC.

 

Management Fees

 

During the years ended December 31, 2016 and 2015, the Company incurred a management fee expense payable to Stocksfield Limited of $2,968,370 and $808,227, respectively. 

 

7. Stockholder’s Deficit

 

As of December 31, 2016, the Company authorized 100 common shares having par value of $1.30 each and had 100 common shares issued and outstanding.

 

On July 18, 2016, the Company’s sole shareholder, Stocksfield Limited, who owned 1 share of the Company, approved to give 10% of the Company shares to a related party, Lexalytics Limited. As a result of such approval, the Company issued an additional 99 shares, in which 10 shares were issued to Lexalytics Limited and 89 shares were issued to Stocksfield Limited. The shares were issued for no consideration and have been recorded at par.

 

 

8. Loan Payable

 

8.1 Leonard Curtis

 

On March 12, 2013, iOra Limited, one of the Group entities, was placed into Creditors Voluntary Liquidation. As a result of intercompany financing, iOra Limited advanced an aggregate of $563,099 to the Company as an intercompany loan. Leonard Curtis were appointed joint liquidators and agreement was reached for the Company to settle full and finally the iOra Limited debt by means of a single payment of $563,099 once funds become available. .

 

The loan was unsecured, non-interest bearing, and was subject to a 4.5% discount rate. The Company recorded an initial discount of $96,677 and amortized throughout the life of the loan. The Company incurred interest expense from the amortized loan discount of $15,418 and $29,072 during the years ended December 31, 2016 and 2015, respectively. For the year ended December 31, 2016, the Company incurred overdue charges on the loan in the amount of $32,218. Of this amount $13,972 related to interest (at a rate of 3% per annum) and $18,247 related to liquidators time cost. The outstanding balance of this loan at December 31, 2016 and 2015 was $592,477 and $657,306 respectively. Total interest expense and other charges for the years ended December 31, 2016 and 2015 were $32,218 and $16,813 respectively.

 

Subsequent to year end, the Company has not made repayment of the loan owed to Leonard Curtis. The Company is in regular communication with Leonard Curtis and the intention is that settlement will be made prior to the end of August 2017

 

8.2 Bibby Financial Services

 

During the year ended December 31, 2016, the Company entered into a factoring arrangement whereby cash of $385,941 was advanced by the factor on a large sales invoice which was issued with repayment terms. The amount owing to the factor, Bibby Financial Services, was still outstanding in the amount of $423,338 as of December 31, 2016. This loan was fully repaid on May 3, 2017 and the related charge was removed. The Company incurred financing charges of $55,601 during the year ended December 31, 2016.

 

At the year ended December 31, 2016, Bibby Financial Services had a legal charge over the Company for the following:

 

By way of first legal mortgage, all land belonging to the Company at the date of the debenture without limitation and all buildings and fixtures and fixed plant and machinery at any time thereon and all easements, rights and agreements in respect of such property; and all proceeds of sale of such property; and the benefit of all covenants given in respect of such property.

 

9. Commitments and Contingencies

 

Facility Sublease

 

On October 23, 2014, the Company entered into a five-year lease agreement effective October 23, 2014 for its corporate office. The lease agreement provides for a break clause after 36 months. Under the terms of the sublease the Company pays $4,587 per month and is responsible to pay its own expenses for utilities, taxes, insurance and repairs.  The Company and the Landlord have chosen to exercise a break clause in the agreement, which will see the Company entering into a license agreement with a new landlord which will be effective from April 24, 2017. The annual lease repayments amount to $48,711 in year 1 and $51,794 in years 2 and 3. The lease obligation for the next 5 years is as follows:

2017		$	47,800
2018			50,767
2019			51,794
2020			17,265
Total		$	167,626

 

 

Coutts term loan

 

The Company’s parent, Stocksfield Limited, has a term loan in place with Coutts Bank. As security for the loan facility in case of default, on February 26, 2014, the Company pledged its assets to this facility. Furthermore, Stocksfield Limited, Mckinley Software Limited, Lexalytics Limited and the Company entered into a separate Corporate Cross Guarantee on May 12, 2015 as further security for this facility.

 

The loan was agreed for a sum of $266,660 at an annualized interest rate of 4% above the bank’s base rate (bank’s base rate at date of signature being 0.5% per annum) repayable quarterly. The loan would be repaid in equal instalments of $32,531. At year end the Company’s repayments were in arrears and the balance owing on the term loan was $228,142. The loan was fully repaid on May 8, 2017 and the related charges were removed.

 

Guarantor on a related party loan

 

iOra’s parent company, Stocksfield Limited, has a medium-term loan owing to Bond House SA, for which iOra is named as one of the guarantors. The total loan balance is $2,509,580 (€2,384,966) as of December 31, 2016. The loan has an extended maturity date of December 24, 2016. As of the date of this filing, this loan has yet been repaid. Stocksfield Limited and iOra have obtained a waiver from the Bond House SA indicating that at the time of the waiver Bond House is not contemplating any actions to enforce on their rights and remedies within the agreement.

 

Legal Proceedings

 

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company's business. The Company does not believe that any of these will result in material financial loss to the business.

 

10. Income Taxes

 

The Company provides for income taxes under FASB ASC 740, Accounting for Income Taxes. FASB ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently.

 

FASB ASC 740 requires the reduction of deferred tax assets by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred tax asset has been recorded.

 

The Company and its subsidiary are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. An estimated blended effective tax rate of 38% and 19% have been used to calculate the provision for taxes based on income for the year ended December 31, 2016 and 2015, respectively.

 

 

The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows for the years ended December 31, 2016 and 2015:

 

		2016				2015
Net loss for the years		$	2,415,041			$	1,576,037
Adjustments:
Changes in deferred revenue			(1,310,985	)			853,089
Tax loss for the years			3,726,026				2,429,126
Estimated effective tax rate			38	%			19	%
Changes in deferred tax asset		$	1,415,816			$	463,894

 

The Company’s estimated NOL as of December 31, 2016 is $14,098,177. The table below summarizes the total deferred tax asset December 31, 2016 and 2015:

 

		2016				2015
Deferred tax asset		$	3,565,183			$	2,149,368
Valuation allowance			(3,565,183	)			(2,149,368	)
Provision for income tax		$	-			$	-

 

Tax rate reconciliation:

 

		2016				2015
UK Corporation tax rate			20	%			20	%
US Corporation tax rate			38	%			38	%

 

11. Customer Concentrations

 

The Company has certain customers whose revenue individually represented 10% or more of the Company’s total revenue, as follows:

 

The following customers accounted for more than 10% of total revenue during the financial years:

 

Customers		December 31, 2016				December 31, 2015
Software Box Limited		$	701,623			$	785,391
HP Enterprises		$	496,950				--
US Navy		$	341,370				--

 

12. Regional Concentrations

 

The following regions accounted for more than 10% of total revenue during the respective financial years:

 

Regions		December 31, 2016				December 31, 2015
United Kingdom		$	1,279,415			$	898,201
United States			431,662				208,299
Continental Europe			140,228				180,809

 

 

13. Subsequent events

 

13.1 Settlement of secured creditors

 

Subsequent to year end, the Company has not made repayment of the loan owed to Leonard Curtis. The Company is in regular communication with Leonard Curtis and the intention is that settlement will be made prior to the end of August 2017.

 

During the 2016 financial year, the Company entered into a factoring arrangement with Bibby Financial Services whereby cash was advanced by the factor on a large sales invoice which was issued with repayment terms. The balance owing to the factor at year end was fully repaid on May 3, 2017.

 

The Company’s parent, Stocksfield Limited, has a term loan in place with Coutts Bank. As security for the loan facility in case of default, on February 26, 2014, the Company pledged its assets to this facility. Furthermore, Stocksfield Limited, Mckinley Software Limited, Lexalytics Limited and the Company entered into a separate Corporate Cross Guarantee on May 12, 2015 as further security for this facility.

 

The loan was agreed for a sum of $266,660 at an annualized interest rate of 4% above the bank’s base rate (bank’s base rate at date of signature being 0.5% per annum) repayable quarterly. The loan would be repaid in equal monthly instalments of $32,531. At year end the Company’s repayments were in arrears and the balance owing on the term loan was $228,142. The loan was fully repaid on May, 8 2017.

 

13.2 Consummation of Contribution Agreement

 

On December 31, 2016, BTHC X, Inc., a Delaware corporation (”BTHC”) entered into a contribution agreement, which was amended pursuant to a letter of agreement dated February 13, 2017 (the contribution agreement and letter of agreement together referred to as the “Contribution Agreement”), with iOra Software Limited, a United Kingdom company (“iOra”), the shareholders of iOra (the “Contributors”), each of whom contributed their iOra shares to BTHC , pursuant to which BTHC effected an acquisition of iOra and, as a result, indirectly acquired iOra’s wholly owned U.S. subsidiary, iOra, Inc. (such transaction referred to herein as the “Business Combination”). The Business Combination closed on February 13, 2017 and, pursuant to the terms of the Contribution Agreement, iOra became a wholly-owned subsidiary of BTHC.

 

In conjunction with the Business Combination, BTHC has designated a series of 10,000,000 convertible preferred shares, par value $0.001 per share (the “BTHC Series A Convertible Preferred Stock”), which shall be convertible into shares of common stock of BTHC, par value $0.001 per share (the “BTHC Common Stock”) in accordance with the certificate of designation.

 

The Contributors have contributed their iOra Shares (the “Contribution”) to BTHC in exchange for 6,323,530 newly issued shares of BTHC Series A Convertible Preferred Stock, which are convertible into BTHC Common Stock at the rate of one (1) share of BTHC Series A Convertible Preferred Stock to 41.129815535 shares of BTHC Common Stock (the “Contribution Consideration”), to be issued to each Contributor in accordance with each Contributor’s Pro Rata share contribution resulting in iOra becoming a wholly-owned subsidiary of BTHC and the Contributors becoming the majority owners of BTHC.

 

At the closing of the Business Combination, pursuant to the terms of the Contribution Agreement, iOra contributed all of its issued and outstanding shares of capital stock (100 shares) to BTHC and issued a $75,000 promissory note (the “Promissory Note”) payable to BTHC within 14 days of Closing, which funds will be used to repay outstanding loans of BTHC. The BTHC Series A Convertible Preferred Stock gives the Contributors majority voting rights in BTHC which will allow them to increase and then split BTHC’s Common Stock by way of a shareholder vote. The resulting conversion will cause the Contributors to ultimately receive an aggregate of 9,160,000 shares of Common Stock (the “Exchange Shares”), of which 2,925,000 of the Exchange Shares (the “Escrow Shares”) will be held in escrow subject to the Company achieving certain minimum financial performance targets.

 

 

 

F-17