Form 10-K for BREEDIT CORP.
31-Mar-2015
Annual Report
OF OPERATION Back to Table of ContentsThe following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our historical results of operations during the periods presented and our financial condition. This MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes to consolidated financial statements, and contains forward-looking statements that involve risks and uncertainties. See section entitled “Forward-Looking Statements” above.
Executive Overview
We are a company with limited operations and no significant revenues from our business operations. There is substantial doubt that we can continue as an on-going business for the next twelve months. We do not anticipate that we will generate significant revenues until we enter into licensing agreements with additional online gaming servers, or web advertisers, to permit them to offer games of skill on our platform as part of their member services, or as part of their advertising campaign. Accordingly, we must raise cash from sources other than our operations in order to implement our marketing plan.
In our management’s opinion, there is a potential demand for our technology which will enable online game service providers, and websites engaged in marketing efforts designed to increase traffic, to provide a platform offering financial rewards to winners of online competitive games of skill.
On July 10, 2011, we executed a license agreement with GT-SAT International S.A.R.L (“GT-SAT”), a corporation organized under the laws of Luxemburg. Such license agreement granted GT-SAT a non-exclusive right to develop websites and offer online games based on our proprietary gaming platform in Europe, with an exclusive license to develop websites and offer online games based on our proprietary gaming platform in Luxembourg, Belgium, and Holland. In consideration of such license, GT-SAT made an upfront, non-refundable, payment of $90,000 and has agreed to pay us royalties on future revenues. On December 26, 2011, GT-SAT terminated this agreement. The stated reason for termination was the economic situation in Europe.
On July 1, 2011, we executed a license agreement with Yanir Levin Ltd., an Israeli corporation. Such license agreement granted the licensee a non-exclusive right to develop websites and offer online games based on our proprietary gaming platform in Asia, with an exclusive license to develop websites and offer online games based on our proprietary gaming platform in Israel. In consideration of the license granted to the licensee, the licensee made an upfront, non refundable, payment of $29,000 and has agreed to pay us royalties on future revenues.
In April 2011, we raised $40,000 and issued 400,000 shares of our common stock to two non-US investors. These transactions did not involve any underwriters, underwriting discounts or commissions, nor any public offering. We believe these transactions were exempt from registration pursuant to Regulation S of the Securities Act.
On August 19, 2013, we disclosed that we had entered into a preliminary agreement (the “Preliminary Agreement”) with BreedIT Israel and its founder, Dr. Oded Sagee, pursuant to which we agreed to acquire 66.67% of BreedIT Israel’s capital stock. Subsequently, we were issued 200 shares of BreedIT Israel’s capital stock (“Ordinary Shares”) which represent 66.67% of BreedIT’s outstanding Ordinary Shares with the founder, Dr. Oded Sagee owning the remaining 100 Ordinary Shares, representing 33.33% of the outstanding Ordinary Shares.
In connection with the Preliminary Agreement, we agreed with Dr. Sagee that prior to the execution of any definitive agreement, certain conditions had to be satisfied, including, but not limited to: (i) completion of due diligence reviews; (ii) obtaining requisite regulatory approvals; and (iii) the execution of the binding agreement by and between BreedIT Israel and a leading Israeli university granting BreedIT Israel the exclusive, world-wide license for a unique and highly sophisticated decision making software used for the purpose of advanced agriculture breeding (the “IDSS Software”).
On October 21, 2013, we filed our Form 8-K report disclosing that the Registrant, BreedIT Israel and Dr. Sagee executed the definitive Share Purchase Agreement (the “SPA”) which provided that we inject an initial investment of US$245,000 (the “Initial Investment”) which the parties agreed should be sufficient to fund BreedIT Israel’s operations during the ensuing twelve-month period. The Registrant and BreedIT Israel further agreed that the remaining US$755,000 of the US$1,000,000 investment amount be funded from time to time, based upon BreedIT Israel’s financial needs during the twelve-month period. The closing of the SPA was subject to the execution of the binding License Agreement between BreedIT Israel and the leading Israeli academic institution (the “Licensor”), which closed on October 24, 2013.
Consideration for the purchase was paid by us through issuance of BreedIT Corp. Common Stock and Class A/B Options, the fair market value of the Tangible/Intangible Assets acquired, as of the valuation date, was determined to be $849,671 and the excess fair value of the assets over the fair value of the identifiable assets owned at closing of $630,880 was booked as goodwill. As the company is not generating income from the software sales and to ensure the asset is carried at no more than the recoverable amount, $630,880 or entire goodwill amount was impaired to expense during Q4 of 2013.
We believe that we have sufficient cash on hand to allow us to market our IDSS Software to potential clients and remain in business throughout 2015. If after that we are unable to generate significant revenues for any reason, or if we are unable to make a reasonable profit, we may have to suspend or cease operations.
We have begun to sell and/or license our IDSS Software to potential customers in the seed breeding market. We initially intend to sign agreements and to establish alliances with national and international major seed companies by providing them with access to knowledge and proprietary technology developed by researchers of various Universities.
Results of Operations during the year ended December 31, 2014 as compared to the year ended December 31, 2013
During 2014 we generated revenues of $5,824 compared to revenues of $5,800. Our research and development expenses increased to $207,246 during 2014 compared to $21,087 during the same period in the prior year. The increase was due to increased software development costs of the iBreedIt IDSS system at BreedIT Ltd. Our general and administrative expenses during 2014 were $4,123,929 as compared to $1,483,140 during 2013. The significant increase was due to office and staff expenses at our subsidiary, BreedIT Israel, and increased non-cash compensation. We incurred a net loss of $4,365,589 attributable to BreedIT Corp during 2014 compared to a net loss of $1,445,529 in 2013.
Purchase or Sale of Equipment
Other than the purchase of servers, work stations and relevant literature, we do not expect to purchase or sell any plant or significant equipment.
Liquidity and Capital Resources
Our balance sheet as of December 31, 2014 reflects assets of $1,788,625 consisting of cash and cash equivalents of $1,101,164, certificates of deposit of $639,979, other receivables of $30,270, investment accounted for using equity method of $10,339 and fixed assets of 6,873. As of December 31, 2013, we had total assets of $656,278 consisting of cash and cash equivalents of $656,067 and restricted cash of $43 and fixed assets of 168.
As of December 31, 2014, we had total current liabilities of $389,536 consisting of $123,826 in accounts payable and accrued liabilities, $40,910 accrued interest payable, $18,000 due to related parties, $5,800 in deferred revenues and $201,000 in convertible notes payable, net of discount. As of December 31, 2014, we had $2,852 in long-term deferred revenues.
As of December 31, 2013, we had total current liabilities of $160,052 consisting of $59,574 in accounts payable and accrued liabilities, $2,305 due to related parties, $5,800 in deferred revenues, $15,565 accrued interest payable and $76,808 in convertible notes payable, net of discount. As of December 31, 2013, we had $8,676 in long-term deferred revenues.
We had positive working capital of $1,381,877 as of December 31, 2014 compared to positive working capital of $496,058 at December 31, 2013. Such working capital has been sufficient to sustain our operations to date. Our total liabilities as of December 31, 2014 were $392,388 compared to $168,728 at December 31, 2013.
During 2014, we used $1,806,298 in our operating activities. This resulted from a net loss of $4,581,311, increase to other assets of $639,936, increase in current assets of $30,270, decrease in deferred revenues of $5,824 and offset principally by $3,195,525 related to non-cash compensation, $128,192 amortization expenses related to debt discount, $89,597 increase in accounts payable and accrued liabilities and $15,695 increase related parties payable.
During 2013, we used $352,942 in our operating activities. This resulted from a net loss of $1,681,230, increase in accounts payable of $14,312, increase in current assets of $4,063, decrease in deferred revenues of $5,800 and offset principally by impairment of goodwill of $630,880, loss on trading securities of $114,752, amortization expenses related to debt discount of $62,244, decrease in other assets of $3,991 and $511,651 related to non-cash compensation.
During the year ended December 31, 2014, we used $23,097 from investing activities which resulted from $14,075 cash paid for investment and $9,022 purchases of equipment, as compared to $63,545 produced from investing activities during 2013 which resulted from sale of trading securities.
During the year ended December 31, 2014, we financed our negative cash flow from sale of common stock in the amount of $2,040,900 and proceeds from exercise of warrants in the amount of $239,500. During the year ended December 31, 2013, we financed our negative cash flow from operations through the issuance of convertible debt in the amount of $146,920 and from sale of common stock in the amount of $787,512 offset by principal payment on debt in the amount of $10,020.
While management of the Company believes that the Company will be successful in its current and planned operating activities, there can be no assurance that the Company will be successful in the achievement of sales of its products that will generate sufficient revenues to earn a profit and sustain the operations of the Company. The Company intends to conduct additional capital formation activities through the issuance of its common stock in 2014 unless and until we begin to generate revenues from our IDSS Software.
Our ability to create sufficient working capital to sustain us over the next twelve month period, and beyond, is dependent on our entering into additional licensing agreement and on our success in issuing additional debt or equity, or entering into strategic arrangement with a third party. There can be no assurance that sufficient capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
Going Concern Consideration
There is substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures with respect to this matter.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
Our significant accounting policies are described in the notes to our financial statements for the years ended December 31, 2014and 2013, and are included elsewhere in this annual report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Back to
Table of ContentsWe have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Back to Table of
Contents
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm 24
Financial Statements for the Years Ended December 31, 2014 and 2013
Balance Sheets 25
Statements of Operations 26
Statement of Stockholders' Deficit 27
Statements of Cash Flows 28
Notes to Financial Statements 29
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BreedIt Corp.
Tel Aviv, Israel
We have audited the accompanying balance sheets of BreedIt Corp. as of December 31, 2014 and 2013 and the related statements of operations, stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 financial statements referred to above present fairly, in all material respects, the financial position of BreedIt Corp. as of December 31, 2014 and 2013 and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
March 31, 2015
BREEDIT CORP.
(Formerly Progaming Platforms Corp.)
Balance Sheets
As of December 31, 2014 and 2013
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December December
31, 2014 31, 2013
ASSETS
Current assets:
Cash and cash equivalents $ 1,101,164 $ 656,067
Certificate of deposit 639,979 -
Restricted cash - 43
Other receivables 30,270 -
Total current assets 1,771,413 656,110
Investment accountant for using equity method 10,339 -
Property and equipment, net 6,873 168
Total assets $ 1,788,625 $ 656,278
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 123,826 $ 59,574
Deferred revenues 5,800 5,800
Related parties payable 18,000 2,305
Accrued interest payable 40,910 15,565
Convertible notes payable, net of discount 201,000 76,808
Total current liabilities 389,536 160,052
Long-term deferred revenues 2,852 8,676
Total liabilities 392,388 168,728
Stockholders' equity (deficit)
Common stock, par value $0.0001 per share, 500,000,000
shares authorized:
92,049,512 and 72,255,917 shares issued and outstanding 921 723
at December 31, 2014 and 2013, respectively
Stock payable 169,647 321,447
Accumulated other comprehensive income (4,279) (340)
Non-controlling interest (154,187) 47,523
Stock subscription receivable (300) (300)
Additional paid-in capital 7,646,699 2,015,172
(Deficit) accumulated during the development stage (6,262,264) (1,896,675)
Total stockholders' equity (deficit) 1,396,237 487,550
Total liabilities and stockholders' equity (deficit) $ 1,788,625 $ 656,278
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BREEDIT CORP.
(Formerly Progaming Platforms Corp.)
Statements of Operations
For the Years December 31, 2014 and 2013
Back to Table of Contents
For the For the
year ended year ended
December December
31, 2014 31, 2013
Revenues $ 5,824 $ 5,800
Expenses
Research and development (207,246) (21,087)
General and administrative (4,139,929) (1,483,140)
Total operating expenses (4,331,175) (1,504,227)
(Loss) from operations (4,325,351) (1,498,427)
Interest expense (153,537) (75,918)
Loss on trading securities - (114,752)
Other income / (expense) (86,442) 7,867
Financial income (expense) (239,979) (182,803)
Provision for income taxes - -
Net loss $ (4,565,330) $ (1,681,230)
Less: loss attributable to non-controlling interest 199,741 235,701
Net loss attributable to BreedIT Corp. $ (4,365,589) $ (1,445,529)
Net loss per common share - basic and diluted $ (0.05) $ (0.03)
Weighted average number of common shares outstanding - basic 87,665,395 54,418,837
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For the For the
year ended year ended
December December
31, 2014 31, 2013
Foreign currency translation gain (loss) (3,939) (340)
Add: loss attributable to non-controlling interest (199,741) (235,701)
Total comprehensive loss (4,569,269) (1,681,570)
Less: comprehensive loss attributable to non-controlling
interest 199,741 235,701
Comprehensive loss attributable to BreedIT Corp. $ (4,369,528) $ (1,445,869)
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BREEDIT CORP.
(Formerly Progaming Platforms Corp.)
Statement of Changes in Stockholders' Equity
For the Years December 31, 2014 and 2013
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Additional Stock Stock Total
Common Paid-in Subscription Subscription Accumulated stockholders'
Shares Amount Capital Payable Receivable Deficit OCI NCI equity
Balance as of December 31, 2012 52,197,055 522 $ 513,538 $ - (300) $ (451,146) - - $ 62,614
Shares issued for cash 15,750,260 158 787,355 - - - - - 787,513
Debt converted payable converted 1,058,602 11 21,161 - - - - - 21,172
to shares
Warrants issued for services - - 155,750 - - - - - 155,750
Shares issued for services 3,250,000 32 355,868 - - - - - 355,900
Debt discount - - 132,500 - - - - - 132,500
Forgiveness of accrued debt by - - 49,000 - - - - - 49,000
related party
Acquisition of BreedIT subsidiary - - - 321,447 - - - 283,224 604,671
66.67%
Foreign currency adjustment - - - - - - (340) - (340)
Net loss for the year - - - - - (1,445,529) - (235,701) (1,681,230)
Balance as of December 31, 2013 72,255,917 723 $ 2,015,172 $ 321,447 (300) $ (1,896,675) (340) 47,523 $ 487,550
Shares issued for cash 11,613,333 116 2,040,784 - - - - - 2,040,900
Debt converted payable converted 200,000 2 3,998 - - - - - 4,000
to shares
Options issued to employees - - 2,646,394 - - - - - 2,646,394
Warrants issued for services - - 43,091 - - - - - 43,091
Warrants exercised 4,644,262 46 239,454 - - - - - 239,500
Shares issued for services 1,136,000 12 506,028 - - - - - 506,040
Debt discount - - - - - - - - -
Acquisition of BreedIT subsidiary 2,200,000 22 151,778 (151,800) - - - - -
66.67%
Foreign currency adjustment - - - - - - (3,939) (1,969) (5,908)
Net loss for the year - - - - - (4,365,589) - (199,741) (4,565,330)
Balance as of December 31, 2014 92,049,512 921 $ 7,646,699 $ 169,647 (300) $ (6,262,264) (4,279) (154,187) $ 1,396,237
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