Sincerity Applied Materials Holdings Corp. - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended   September 30, 2016

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 333-177500

SYMBID CORP.

(Exact name of registrant as specified in its charter)

Nevada		45-2859440
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

Marconistraat 16

3029 AK Rotterdam, The Netherlands

(Address of principal executive offices)

+31(0)1 089 00 400

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☒
		(Do not check if a smaller Reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

There were 187,329,355 shares of the registrant’s common stock outstanding as of December 14, 2016.

SYMBID CORP.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016

TABLE OF CONTENTS

		PAGE
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	43
	SIGNATURES	45

 

 

PART I – FINANCIAL INFORMATION

		PAGE
Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 (unaudited)		4
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and September 30, 2015 (unaudited)		5
Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2016 and September 30, 2015 (unaudited)		6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and September 30, 2015 (unaudited)		7
Notes to Condensed Consolidated Financial Statements (unaudited)		8

 

 

 SYMBID CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

	September 30,	December 31,
	2016	2015
ASSETS
Current assets
Cash	$7,724	$553,696
Accounts receivable, less allowance for doubtful accounts of $-0- and $39,847 respectively	44,404	64,639
Prepaid expenses and other current assets	45,970	42,553
Total current assets	98,098	660,888
Property and equipment, at cost, less accumulated depreciation	17,398	15,108
Investments in associated companies	1,166	1,134
Intangible assets, net	-	785,070
Total assets	$116,662	$1,462,200
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
Current liabilities
Line of credit	$55,479	$-
Accounts payable	101,280	88,774
Accrued expenses and other current liabilities	262,486	301,896
Current maturities of notes payable	33,916	32,993
Subordinated loan – related party	75,059	73,016
Total current liabilities	528,220	496,679
Notes payable, less current maturities	33,902	49,476
8% Convertible promissory notes payable, net of $1,126,807 and $722,622 discount, respectively	733,193	587,378
Total liabilities	1,295,315	1,133,533
Commitments
Stockholders' (Deficiency) Equity
Preferred stock
Authorized: $0.001 par value, 10,000,000 shares authorized	-	-
Issued and outstanding: nil preferred shares
Common stock
Authorized: $0.001 par value, 290,000,000 shares authorized
Issued and outstanding: 37,277,039 and 36,909,472, respectively	37,277	36,909
Additional paid-in capital	8,302,256	7,635,104
Accumulated other comprehensive loss	(297,000)	(322,183)
Accumulated deficit	(9,142,389)	(6,994,274)
Total Symbid Corp. stockholders' (deficiency) equity	(1,099,856)	355,556
Noncontrolling interests	(78,797)	(26,889)
Total stockholders' (deficiency) equity	(1,178,653)	328,667
Total liabilities and stockholders' equity	$116,662	$1,462,200

 

 (The accompanying notes are an integral part of these condensed consolidated financial statements)

 

 

SYMBID CORP. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

	Three months ended September 30,		Nine months ended September 30,
	2016	2015	2016	2015
Revenues
Crowdfunding	$51,748	$58,979	$181,389	$191,177
The Funding Network	(3,155)	-	11,143	-
Other	(2,680)	9,787	631	43,825
Total revenues	45,913	68,766	193,163	235,002
Operating expenses
Selling, general and administrative	103,243	359,779	1,019,277	1,188,655
Professional fees	7,853	226,533	275,441	565,996
Research and development costs	1,674	5,091	28,332	53,410
Depreciation and amortization	1,360	36,414	75,939	109,554
Bad debt expense (recoveries)	(13,170)	4,121	(42,907)	14,013
Impairment expense	-	-	740,073	-
Total operating expenses	100,960	631,938	2,096,155	1,931,628
Operating loss	(55,047)	(563,172)	(1,902,992)	(1,696,626)
Other income (expense)
Interest expense and amortization of debt discount	(91,470)	(69,121)	(246,641)	(74,401)
Other income	-	-	351	11,504
Other expense	-	-	(2,986)	(7,791)
Total other expense	(91,470)	(69,121)	(249,276)	(70,688)
Net loss	(146,517)	(632,293)	(2,152,268)	(1,767,314)
Net income (loss) attributable to noncontrolling interests	9,787	(27,477)	(4,153)	(58,480)
Net loss attributable to Symbid Corp. stockholders	$(156,304)	$(604,816)	$(2,148,115)	$(1,708,834)
Basic and diluted net loss per common share	$(0.00)	$(0.02)	$(0.06)	$(0.05)
Weighted average number of shares outstanding
Basic and diluted	37,277,039	34,924,982	37,102,646	34,707,412
Share-based compensation expense included in operating expenses:
Selling, general and administrative	$(14,391)	$20,424	$33,187	$238,861
Research and development costs	-	910	(942)	32,849
	$(14,391)	$21,334	$32,245	$271,710

 

 

 

SYMBID CORP. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

	Three months ended September 30,		Nine months ended September 30,
	2016	2015	2016	2015
Net loss	$(146,517)	$(632,293)	$(2,152,268)	$(1,767,314)
Other comprehensive loss:
Foreign currency translation income (loss)	(1,646)	(9,918)	25,183	(99,563)
Comprehensive loss	(148,163)	(642,211)	(2,127,085)	(1,866,877)
Net income (loss) attributable to noncontrolling interests	9,787	(27,477)	(4,153)	(58,480)
Foreign currency translation income (loss) attributable to noncontrolling interests	(18)	264	(1,584)	10,396
Comprehensive income (loss) attributable to noncontrolling interests	9,769	(27,213)	(5,737)	(48,084)
Comprehensive loss attributable to Symbid Corp. stockholders	$(157,932)	$(614,998)	$(2,121,348)	$(1,818,793)

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

 

SYMBID CORP. AND SUBSIDIARIES

 

(EXPRESSED IN US DOLLARS)

(UNAUDITED)

 

	Nine months ended September 30,
	2016	2015
Cash flows from operating activities
Net loss	$(2,152,268)	$(1,767,314)
Adjustments to reconcile net loss to net cash
used in operating activities
Employee and non-employee share based compensation	32,245	271,710
Shares issued under service agreements	-	182,386
Depreciation and amortization	75,939	109,554
Amortization of debt discount	145,815	58,132
Impairment of intangible asset	740,073	-
Warrant liability - fair value adjustment	-	7,791
Provision for doubtful accounts	(40,772)	14,013
Loss on liquidation of Symbid Italia	2,986	-
Gain on sale of investment in Gambitious B.V.	-	(11,504)
Changes in assets and liabilities
Accounts receivable	62,711	(5,422)
Prepaid expenses and other current assets	11,570	(14,196)
Accounts payable	10,862	(231,750)
Accrued expenses and other current liabilities	22,371	(71,882)
Net cash used in operating activities	(1,088,468)	(1,458,482)
Cash flows from investing activities
Proceeds from sale of associated companies	$-	$20,309
Net payment from liquidation of Symbid Italia	(44,744)	-
Acquisition of property and equipment	(5,784)	-
Net cash (used in) provided by investing activities	(50,528)	20,309
Cash flows from financing activities
Line of credit, net	$55,221	$-
Repayments of notes payable	(16,879)	(16,872)
Proceeds from convertible notes	550,000	1,500,000
Proceeds from the issuance of common stock, net of issuance costs	-	724,116
Net cash provided by financing activities	588,342	2,207,244
Effect of exchange rate changes on cash	4,682	(41,294)
Net (decrease) / increase in cash	(545,972)	727,777
Cash and cash equivalents, beginning of period	553,696	233,068
Cash and cash equivalents, end of period	$7,724	$960,845
Supplemental cash flow disclosures
Interest paid	$3,847	$9,145
Non-cash investing and financing activities
Change in accrued expenses related to non-employee share based payments	$85,275	$13,080
Deconsolidation of Symbid Italia assets	5,901	-
Beneficial conversion feature	550,000	-
Conversion of 8% convertible promissory notes	-	190,000
Reallocation of noncontrolling interests	-	129,918

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

 

SYMBID CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1 - BUSINESS, ORGANIZATION AND LIQUIDITY

 

Interim Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that we will have for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements for the year ended December 31, 2015 included in our Annual Report on Form 10-K.

 

Business and Organization

Symbid Corp. was incorporated as HapyKidz.com, Inc. in the state of Nevada on July 29, 2011. On September 4, 2013, we filed a Certificate of Amendment to our Articles of Incorporation with the Nevada Secretary of State to change our name from HapyKidz.com, Inc. to Symbid Corp, which we believe more accurately reflects our current business. The Company continues to be a “smaller reporting company,” as defined under the Exchange Act.

 

Symbid Holding B.V. (“Symbid Holding”) was incorporated on October 3, 2013 organized under the laws of the Netherlands.  Symbid Holding was organized to serve as the holding company for all of Symbid’s business activities in the Netherlands and in other countries.  As such, on October 3, 2013, the holders of the capital shares of Symbid B.V. exchanged their shares for capital shares of Symbid Holding and, as a result, Symbid B.V. became a wholly owned subsidiary of Symbid Holding. Symbid B.V. is now the operating entity for the Company’s business in the Netherlands.

 

On December 6, 2013, the Company closed a Share Exchange pursuant to which the 19 shareholders of Symbid Holding B.V. sold all of their capital stock in Symbid Holding B.V. to us in exchange for 21,170,000 shares of our common stock, $0.001 par value per share. Because the Company had no operations at the time of our acquisition of Symbid Holding, Symbid Holding is considered to be the predecessor Company for financial reporting purposes.

 

The Share Exchange has been being accounted for as a “reverse acquisition,” and Symbid Holding is deemed to be the acquirer in the reverse acquisition. Consequently, the assets and liabilities and the historical operations that are reflected in the financial statements prior to the Share Exchange are those of Symbid Holding and are recorded at the historical cost basis of Symbid Holding. The consolidated financial statements after completion of the Share Exchange include the assets and liabilities of Symbid Holding, historical operations of Symbid Holding and operations of the Company and its subsidiaries from the Closing Date of the Share Exchange. As a result of the issuance of the shares of our common stock pursuant to the Share Exchange, a change in control occurred as of the date of consummation of the Share Exchange.

 

1 - BUSINESS, ORGANIZATION AND LIQUIDITY (Continued)

 

The main operating entity of Symbid Corp. is Symbid B.V. (“Symbid B.V.”) and was incorporated in Utrecht, The Netherlands on March 29, 2011 under the laws of the Netherlands. The Company was launched in April 2011 in its headquarters in Rotterdam, The Netherlands as one of the first equity based crowdfunding forerunners worldwide. Entrepreneurs use Symbid to obtain business growth funding from the crowd in exchange for a part of the equity of their company. Investors can participate for as little as $22, and become shareholders of start-up companies or growing businesses in need of capital.

 

Founded as the provider of one of the first equity based crowdfunding platforms, our business evolved in 2015 into a fully integrated, data driven, user friendly online funding network consisting of several products and services known as The Funding Network™. The Funding Network™ is intended to give small and medium sized entities (“SMEs”) direct access to all forms of finance, while offering investors full transparency on the potential risks and return of their portfolios and was developed in response to the following funding hurdles affecting entrepreneurs and investors in general and SMEs in particular:

 

●	Limited or no structured distribution channels for SME finance other than banks, increasing the mismatch between entrepreneurs and financiers;

 

●	No centralized platform for (alternative) financiers, making it difficult and inefficient to find the right financier at the right time;

 

●	No standardized data protocols for SME data, leading to costly and time-intensive (offline) screening and monitoring;

 

●	Limited financial skills of entrepreneurs leading to unnecessary inefficiencies and obstacles within the financing process; and

 

●	Decline in bank financing due to new regulations and recent financial crises, leaving a vacuum in the life cycle of SME financing.

 

On February 20, 2015, Symbid Italia SPA (“Symbid Italia”), an Italian corporation was created to develop the business of equity crowdfunding in Italy, was formed by our wholly owned subsidiary, Symbid Holding B.V., together with Banca Sella Holding SPA (“Banca Sella”) and Marco Bicocchi Pichi. Through Symbid Italia, we intend to create a new online funding platform, based on our existing crowdfunding technology, in which Italian investors and entrepreneurs can connect, fund, grow together and digitalize financial services for Italian small and medium enterprises. Symbid Italia represents the first stage of the European roll-out of our crowdfunding platform outside of The Netherlands. In connection with the formation of Symbid Italia, we paid $284,525 for a 50.1% ownership interest. Banca Sella holds a 29.94% ownership interest and Mr. Pichi holds a 19.96% interest. At the direction of the Symbid Italia board of directors, a special Symbid Italia shareholder meeting was held on April 29, 2016, at which it was determined to liquidate Symbid Italia and return the residual capital to the Symbid Italia shareholders. On May 26, 2016, Symbid Italia was liquidated and the Company received $44,744 for its 50.1% interest and recognized a loss of $2,986. The results of Symbid Italiaís operations have been included in the condensed consolidated financial statements (see Note 9).

 

As of September 30, 2016 and December 31, 2015, the Company had a 14.53% ownership in Kredietpaspoort Coöperatie U.A. (“Kredietpaspoort”), a Cooperative located in the Netherlands, through its wholly owned subsidiary Symbid B.V. and Symbid Coöperatie UA (“Symbid Coop”), a variable interest entity which we effectively controlled through corporate governance rather than through any ownership. In addition, the Companyís former Chief Commercial Officer owned a 5.72% interest in Kredietpaspoort. The Kredietpaspoort is a cloud- based platform that was developed to provide credit evaluation and financing options to SME companies in the Netherlands. At September 30, 2016 and December 31, 2015, the combined holdings in Kredietpaspoort by Symbid B.V., Symbid Coop and our former Chief Commercial Officer totaled approximately 20.25% (see Note 5). On November 15, 2016, our ownership interest decreased below 20%, refer to Note 5 for additional discussion.

 

1 - BUSINESS, ORGANIZATION AND LIQUIDITY (Continued)

 

During the first quarter of 2015, the Company sold its remaining interest in Gambitious Coöperatie UA (“Gambitious Coop”) to better align the goals of the Company (see Note 5).

 

As of September 30, 2016 and December 31, 2015, the Company held a 7% ownership interest in Equidam Holding B.V. (“Equidam”). Equidam started as an online valuation tool for private companies with a particular focus on SME’s, Equidam now also offers simple monitoring services to investors on the Company’s platform.

 

Because the Company was not able to raise additional capital from investors during the second half of 2016 it was forced to enter into settlement agreements with its creditors and note holders and ultimately restructure the Company (See Note 12). As a result of the restructuring, the Company curtailed certain operations and changed its business focus from the operation of online funding platforms and the provision of software solutions for SMEs in the alternative financing market to the licensing of available software packages that the Company owns and licenses intellectual property.

 

The revised business model will require fewer employees, advisors and consultants and will be more economical to operate. Over the past few years the Company has developed several software products suitable for the alternative market which it will continue to offer to third parties. Such products and related services include white label versions of crowdfunding software for investor groups and monitoring software to provide investors with ongoing insight into the performance of SMEs to which they have loaned money. Related licensing fees and subscription agreements may include set fees and yearly contribution fees.

 

The Company’s goal is to substantially reduce or eliminate its debt, continue to operate its business and negotiate a possible acquisition or other business combination with another operating entity. There can be no assurance that the Company will be successful in this endeavor or that if a business combination is consummated that it will be on favorable terms. In the interim, the Company will continue forward with its ongoing operations under th revised business model.

 

Liquidity and Going Concern Matters

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which contemplates continuation of the Company as a going concern.

 

The Company has suffered recurring losses during the three months ended September 30, 2016 and 2015, of $146,517 and $632,293, respectively. Losses during the nine months ended September 30, 2016 and 2015 were $2,152,268 and $1,767,314, respectively. At September 30, 2016 and December 31, 2015, the Company had a working capital deficit of $430,122 and working capital of $164,209, respectively. As of September 30, 2016, the Company had cash on hand of $7,724 and current liabilities to credit institutions of $89,395. The recurring losses raise substantial doubt about the Company’s ability to continue as a going concern.

 

1 - BUSINESS, ORGANIZATION AND LIQUIDITY (Continued)

 

Management has evaluated the significance of these conditions and has determined that the recoverability of a major portion of the recorded asset amounts shown in the accompanying condensed consolidated balance sheet is dependent upon continued operations of the Company, which in turn, is dependent upon the Company’s ability to raise capital and/or generate positive cash flows from operations. The financial statements do not include any adjustments related to the recoverability and classification of recorded assets and classifications that might be necessary in the event the Company cannot continue in existence.

 

To mitigate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern management sought out new and current strategic institutional investors. However, the Company was unable to raise additional funds and during the fourth quarter of 2016 ultimately decided to restructure and convert the majority of its liabilities into participation rights in Symbid Coöp. Additionally, to avoid bankruptcy due to the cash flow position of the Company management decided to implement a cost reduction program during the second quarter of 2016. During the reporting period, the following cost reduction actions have been successfully implemented and have provided a positive impact on the cost structure of the Company:

 

 

In addition to the measures implemented in the first nine months of 2016, the Company also implemented the following cost reductions in connection with the restructuring during the fourth quarter of 2016:

 

 

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its significant subsidiaries on a combined and consolidated basis. The Company also includes subsidiaries over which a direct or indirect legal or effective control exists and for which the Company is deemed to direct the significant activities and has the obligation to absorb the losses or benefits of the entities. All intercompany accounts, balances and transactions with other consolidated entities have been eliminated. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and include the Company’s accounts as well as those of a certain variable interest entity (“VIE”) for which the Company was the primary beneficiary.

 

Reclassifications

Certain reclassifications have been made to the 2015 financial statements to conform to the condensed consolidated 2016 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.

 

Use of Estimates

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

 

Noncontrolling Interests

The Company presents noncontrolling interests as a component of equity. Changes in a parent’s ownership interest while the parent retains its controlling interest will be accounted for as equity transactions, and upon loss of control, retained ownership interest will be re-measured at fair value, with any gain or loss recognized in earnings. Income

and losses attributable to the noncontrolling interests associated with Symbid Coop and Symbid Italia are presented separately in the Company’s condensed consolidated statement of operations.

 

Revenue Recognition

 

Crowdfunding

The Company generates its revenue from registration, administration and success fees within The Funding Network. Registration fee revenue is recognized as new portfolio companies register to The Funding Network. Revenue from administration fees are collected from investors and recognized on a monthly basis calculated as a percentage of the volume of payments during the reporting period. There is no credit risk since the fees are collected directly at the moment that the transaction takes place on the platform. There is no right of return to investors once a crowdfunding proposition has been successfully funded. Revenue from success fees are recognized at the time the loan or equity crowdfunding proposition is successfully funded and there are no further obligations to the portfolio company. Prior to January 2016 there was no credit risk as the success fees were collected directly at the moment the transaction took place on the platform. As of January 2016, we changed the policy for collecting the success fees and there will be a credit risk going forward. At the start of a funding campaign, the entrepreneur signs a contract with Symbid pursuant to which he or she agrees to pay Symbid a success fee once a successful fund raising campaign for that entrepreneur closes. Once the funding campaign has closed, Symbid’s success fee is transferred by Intersolve, the third party banking entity that holds all funds in escrow until closing, and the net proceeds of the funding are transferred by Intersolve to the notary or in case of loan crowdfunding directly to the entrepreneur. Upon completion of the funding campaign on Symbid’s platform, services delivered under the contract with the entrepreneur have been rendered and Symbid recognizes its success fee revenue at the time the campaign has been successfully closed.

 

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

The Funding Network

On June 16, 2015, Loan Crowdfunding was launched by our wholly owned subsidiary, Symbid Holding B.V. The launch of this new peer-to-business lending service is intended to complement our existing Equity Crowdfunding service and support the development of our online funding platform for start-ups and small businesses, The Funding Network. This service will make use of our monitoring technology to provide investors ongoing insights into the performance of the business to which they have lent money. All businesses funded via Loan Crowdfunding will be required to register for Monitoring by Symbid for one full year via a monthly-based subscription model. Revenue related to monitoring start packages is recognized ratably over the term of the subscription.

 

Other

Revenue related to licensing is recognized on a monthly basis determined by the contracted monthly license fee. If the monthly license fee is not paid, the Company is entitled to set the platform offline.

 

Revenues from URL services are based on a fixed annual fees and recognized ratably over the contract period, typically one year. 

 

Fair Value of Financial Instruments

The accounting standard for fair value establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under the provisions of the pronouncement, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

 

GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below:

 

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

 

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

The Company’s current financial assets and liabilities approximate fair value due to their short term nature and include cash accounts. The Company’s borrowings approximate fair value as the rates of interest are similar to what they would receive from other financial institutions.

 

Concentrations of Credit Risk

 

Cash Held in Banks

The Company has cash balances at financial institutions located in the Netherlands. Balances at financial institutions in the Netherlands may, from time to time, exceed insured limits. Currently the insured limit amounts to $112,110.

 

Accounts Receivable

Customer accounts typically are collected within a short period of time, and based on its assessment of current conditions and its experience collecting such receivables, management believes it has no significant risk related to its concentration within its accounts receivable.

 

 

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Foreign Currency Translation

The Company uses the United States dollar (“U.S. dollars” or “USD”) for financial reporting purposes and to maintain its books and records. The Company’s subsidiaries maintain their books and records in their functional currency, the Euro (“EUR”), the currency of the Netherlands.

 

In general, for consolidation purposes, the Company translates its assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, the statements of operations and cash flows are translated at average exchange rates during the reporting period. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.  Equity accounts are translated at historical rates. Adjustments resulting from the translation of the financial statements are recorded as accumulated other comprehensive income or loss.

 

As of September 30, 2016 and December 31, 2015, the balance sheet accounts, with the exception of equity, were translated at 1 EUR to $1.1211 and $1.0906, respectively. The average translation rates applied to the statements of operations and cash flows for the three months ended September 30, 2016 and 2015 were at 1 EUR to $1.1157 and 1 EUR to $ 1.1122, respectively. The average translation rates applied to the statements of operations and cash flows for the nine months ended September 30, 2016 and 2015 were at 1 EUR to $1.1159 and 1 EUR to $ 1.1154, respectively.

 

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is charged to operations using the straight-line method over the estimated useful lives of 5 years. Property and equipment consists mainly of computers.

 

Expenditures for maintenance and repairs are charged to operations as incurred. Expenditures for betterments and major renewals are capitalized. The cost of assets sold or retired and the related amounts of accumulated depreciation are eliminated from the accounts in the period of disposal, and any resulting gains or losses are included in operations.

 

Impairment of Intangible Assets with Definite Lives

An intangible asset arose as the result of the acquisition of the FAC B.V., a limited liability entity incorporated in the Netherlands, resulting in the acquisition of a perpetual, worldwide, exclusive license to a software library of infrastructure technology. The Company amortizes the costs of the acquired intangible asset using the straight- line method over the estimated useful life of 7 years.

 

The carrying value of the intangible asset is reviewed on a regular basis for the existence of facts or circumstances that the intangible asset may be impaired. An intangible asset is subject to amortization and is assessed for impairment whenever events or circumstances indicate that their carrying value may not be recoverable. In testing the recoverability of the asset, the carrying value of the asset is compared to the future projected undiscounted cash flows. The cash flows are based on management’s expectations of future revenues and expenses including costs to maintain the assets over their respective service lives. An impairment loss is recognized as the excess of the carrying value over the fair value when an asset is not recoverable. Fair value is based on valuation techniques or third party appraisals. Significant estimates and judgments are applied in determining these cash flows and fair values. In accordance with US GAAP, we perform interim impairment testing should circumstances requiring it arise. Due certain impairment indicators which were triggered during the three months ended June 30, 2016, the Company performed an impairment analysis of its intangible asset which indicated that the future undiscounted cash flows of the asset did not exceed its net carrying value. As such, the Company fully impaired its intangible asset at June 30, 2016 (see Note 4).

 

 

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Income Taxes

Income taxes have been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes result from differences between the financial statement and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The assessment of whether or not a valuation allowance is required often requires significant judgment.

 

Net Loss Per Common Share

Basic and diluted net loss per share is presented in conformity with ASC Topic 260, Earnings per Share, for all periods presented. In accordance with this guidance, basic and diluted net loss per share was determined by dividing net loss applicable to common stockholders by the weighted- average common shares outstanding during the period. In a period where there is a net loss position, diluted weighted average shares are the same as basic weighted average shares. Shares used in the diluted net loss per common share calculation exclude potentially dilutive share equivalents as the effect would be antidilutive.

 

Risks and Uncertainties

The Company’s operations are subject to a number of risks, including but not limited to, changes in the general economy, demand for the Company’s platform, the success of its customers, research and development results, uncertainties surrounding crowdfunding rules and regulations, and the ability to attract new funding.

 

Accounts Receivable

Accounts receivable are carried at the amount billed to a customer, net of the allowance for doubtful accounts, which is an estimate for credit losses based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.

 

The Company reviews the collectability of accounts receivable based on an assessment of historic experience, current economic conditions, and other collection indicators. At September 30, 2016 and December 31, 2015, the Company has recorded an allowance for doubtful accounts of $-0- and $39,847, respectively.

 

Comprehensive Loss

Comprehensive loss refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive loss but are excluded from net loss as these amounts are recorded directly as an adjustment to stockholders’ equity. The Company’s other comprehensive loss is comprised of foreign currency translation adjustments.

  

Cost Method Investments

Direct and or indirect investments in business entities in which the Company does not have a controlling financial interest and has no ability to exercise significant influence over operating and financial policies (generally 0-20 percent ownership), are accounted for by the cost method.

 

Equity Method Investments

Direct and or indirect investments in business entities in which Symbid Corp. does not have a controlling financial interest, but has the ability to exercise significant influence over operating and financial policies (generally 20-50 percent ownership), are accounted for by the equity method.

 

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases, requiring lessee’s to recognize assets and liabilities for leases with lease terms of more than 12 months in the balance sheet. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new guidance is effective for fiscal years and for interim periods within those fiscal years, beginning after December 15, 2018. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The adoption of this guidance is not expected to have an impact on the Company’s condensed consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share based Payment Accounting (“ASU 2016-09”), which addresses how companies account for certain aspects of share based payments to employees. Entities will be required to recognize the income tax effects of awards in the statement of income when the awards vest or are settled, and to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. The ASU also addresses such areas as an accounting policy election for forfeitures and the amount an employer can withhold to cover income taxes and still qualify for equity classification. The amendments in this ASU will be effective for annual periods and for interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of this guidance is not expected to have an impact on the Company’s condensed consolidated financial statements.

 

In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control (“ASU 2016-17”), which addresses how companies evaluate whether a reporting entity is the primary beneficiary of a VIE by changing how the reporting entity that is a single decision marker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. If a reporting entity satisfies the first characteristic of a primary beneficiary (such that it is the single decision maker of a VIE), the amendments in ASU 2016-17 require that reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a VIE and, on a proportionate basis, its indirect variable interests in a VIE held through related parties, including related parties that are under common control with the reporting entity. The amendments in this ASU will be effective for annual periods and for interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

 

3 - VARIABLE INTEREST ENTITY- SYMBID COOP

At September 30, 2016, the Company held a variable interest in Symbid Coop. Symbid Coop is the lessee of the Company’s online crowdfunding platform. Symbid B.V. licenses the online platform exclusively to Symbid Coop. The management of Symbid Coop is the same as the management of Symbid B.V. and Symbid Holding.

 

The Company has an implicit variable interest in Symbid Coop through common control and management has the ability to compel payment whether stated or silent in the lease agreement. The Company is deemed to be the primary beneficiary of Symbid Coop and has a controlling financial interest as it has the power to direct the activities of the VIE that most significantly impact Symbid Coop’s economic performance.

 

The Company reassesses every reporting period the presentation of Symbid Coop to conclude if consolidation is required. As such, the conclusion regarding the primary beneficiary status is subject to change and circumstances are continually reevaluated.

 

3 - VARIABLE INTEREST ENTITY- SYMBID COOP (Continued)

On November 15, 2016 Symbid B.V. and Symbid Coop entered into an Intellectual Property License Termination Agreement which terminated the April 13, 2011 License Agreement between them retroactive to November 1, 2016. Symbid B.V. had controlled and operated Symbid Coop through corporate governance under the license agreement pursuant to which the online crowdfunding platform was leased. Also on November 15, 2016 Symbid Coop assumed certain debts and obligations from Symbid B.V. in consideration of cancellation of the current account between Symbid B.V. and Symbid Coop and office furniture from Symbid B.V. to be obtained in return by Symbid Coop, under the suspending condition that all other debts and obligations of Symbid B.V. were settled, with the exception of any intercompany balances within the Company. Symbid Coop has been assuming the debts and obligations under the condition the Company would have given up its board control over Symbid Coop. By November 1, 2016, the effective date of the Intellectual Property License Termination Agreement and after having given up the board control in Symbid Coop the Company lost control of Symbid Coop which became an independent entity.

The classification and carrying amounts of assets and liabilities of Symbid Coop in the condensed consolidated balance sheets are as follows: 

 

	September 30, 2016	December 31, 2015
Current assets	$45,593	$73,600
Current liabilities	$125,180	$186,214

  

The assets related to Symbid Coop are not restricted.

 

4 – INTANGIBLE ASSET

 

On July 29, 2014, our wholly owned subsidiary Symbid Holding, a limited liability corporation in the Netherlands, acquired all the issued and outstanding shares of FAC B.V. in exchange for 2,750,000 shares of our restricted common stock. The sole asset of the FAC B.V. was a perpetual, worldwide, exclusive license to a software library of infrastructure technology, upon which we have developed a platform to enable cloud based financing solutions for small and medium sized enterprises, expanding on our current equity based crowdfunding solutions in the Netherlands. The asset acquired in the acquisition of the FAC B.V. does not meet the definition of a business and, therefore, has been accounted for as an asset acquisition.

 

The Company measured the fair value of the restricted shares issued as consideration in the acquisition of the FAC B.V. based on a weighted average fair value calculation using available observable inputs of recent arm’s length transactions in the Company’s recent private placement offering and, to a lesser extent, the publicly traded share price, resulting in a fair value of approximately $1,195,000. The total purchase price was allocated to the software library acquired in the acquisition. Transaction costs directly related to the acquisition of the software of approximately $17,000 incurred to acquire the software have been capitalized. The software was deemed to have a useful life of 7 years.

 

On June 30, 2016, the Company fully impaired its intangible asset as it was deemed that the fair value of the asset was not recoverable. A non-cash impairment charge of $740,000 has been included in the results of operations for the nine month period ended September 30, 2016.

 

4 – INTANGIBLE ASSET (Continued)

 

The intangible asset consists of software obtained through the acquisition of the FAC B.V. The intangible asset consists of the following:

 

	September 30,	December 31,
	2016	2015
Software	$1,019,103	$984,267
Less - Accumulated amortization	(274,394)	(199,197)
Impairment	(740,063)	-
Translation adjustment	(4,646)	-
	$-	$785,070

 

During the three months ended September 30, 2016 and 2015, amortization expense related to software was $-0- and approximately $36,000, respectively. During the nine months ended September 30, 2016 and 2015, amortization expense related to software was $72,000 approximately $108,000, respectively.

 

5 - INVESTMENTS IN ASSOCIATED COMPANIES

 

Kredietpaspoort

As of April 2014, Symbid B.V. and Symbid Coop acquired membership interests of 6.50% and 6.03% of Kredietpaspoort, respectively. The initial investments in Kredietpaspoort by Symbid B.V. and Symbid Coop of approximately $17,000 and $16,000, respectively, were recorded in Investments in Associated Companies. In addition, during 2014 our Chief Executive Officer and Chief Commercial Officer, both of whom are Directors of the Company, each acquired membership interests of 5.15% and 4.96%, respectively, in Kredietpaspoort. In December of 2014, our Chief Executive Officer sold his interest of 5.15% in Kredietpaspoort, also there was a re-allocation of memberships. At September 30, 2016 and December 31, 2015, our Chief Commercial Officer holds an interest of 5.72%, while the interests of each Symbid Coop and Symbid B.V. are 6.96% and 7.57%, respectively. As a result, our combined interest decreased from 22.64% to 20.25%.

 

As of December 31, 2014, the Kredietpaspoort investment balance was reduced to nil, as the Company suffered losses beyond the initial investment balance. On November 15, 2016, the Company’s Chief Commercial Officer resigned from the Company. Due to the departure of this officer and the loss in control of Symbid Coop during the fourth quarter the combined interest in Kredietpaspoort decreased from 20.25% to 7.57%.

 

The Company has accounted for its investment in Kredietpaspoort on the equity method basis of accounting through September 30, 2016, as Symbid had the ability to exercise significant influence over the operating and financial policies of Kredietpaspoort through representation on the Kredietpaspoort board of directors and the combined voting interest of Symbid and its Chief Commercial Officer. However, upon the departure of the Company’s Chief Commercial officer Company will no longer have significant influence over Kredietpaspoort and will account for its investment on the cost method of accounting basis in future periods. As of September 30, 2016, the initial investment has not been recovered.

 

Gambitious

In previous periods, the Company had an indirect ownership interest in Gambitious B.V. (“Gambitious”), a Company located in the Netherlands, which used the Company’s platform to raise capital for video games produced by a wide range of developers. On February 9, 2015, the Company sold its remaining 12% indirect interest in Gambitious for $20,360 and recorded a gain on investment of $11,504 which is included in other income in the condensed consolidated statement of operations for the nine months ended September 30, 2015.

 

5 - INVESTMENTS IN ASSOCIATED COMPANIES (Continued)

 

Equidam

In August 2013, the Company acquired a 10% interest in Equidam Holding B.V. (“Equidam”) for $1,166 recorded in Investments in Associated Companies. As of September 30, 2016, the Company has a 7% ownership in Equidam, as the initial investment was diluted through a subsequent round of seed funding. The Company is accounting for their investment in Equidam on the cost basis of accounting. There have been no material transactions with Equidam during the reporting period.

 

6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

	September 30, 2016	December 31, 2015
Advisory costs	$31,984	$89,829
Interest	141,611	45,863
Wage tax return	2,005	19,035
Holiday pay allowance/Net salary	13,133	24,533
Penalty waiver	14,630	14,630
Marketing	24,804	38,069
Accrued stock liability	11,018	20,541
Other current liabilities	20,787	49,396
	$262,486	$301,896

All amounts are payable within one year.

 

7 - NOTES PAYABLE

	September 30,	December 31,
	2016	2015
Line of credit	$55,479	$-
Working capital facility	67,818	82,469
Subordinated loan – related party	75,059	73,016
8% Convertible promissory notes	733,193	587,378
Total notes payable	931,549	742,863
Less - Current Maturities	(164,454)	(106,009)
Notes payable, less current maturities	$767,095	$636,854

 

Working Capital Facility

The Company has two credit facilities with the Rabobank, a national bank in the Netherlands.

 

The facility consists of the following two agreements:

 

 

 

7 - NOTES PAYABLE (Continued)

The working capital facility is secured by the following assets: 

 

On November 15, 2016 Symbid B.V. transferred its outstanding debt under the working capital facility and line of credit including all accrued interest due thereon to Symbid Coop. Refer to Note 12 for additional discussion.

 

2015 - 8% Convertible Promissory Notes

On June 10, 2015, the Company entered into a subscription agreement to conduct a private offering consisting of a minimum of $250,000 and up to a maximum of $1,500,000 of 8% unsecured convertible promissory notes (the “2015 Notes”), convertible into common shares of the Company’s common stock. The 2015 Notes have a three year maturity from the date of issue and interest is payable annually. The 2015 Notes may be redeemed at any time after issuance by the Company for a pre-payment fee of 10% of the principal balance plus outstanding interest due. The 2015 Notes have an optional conversion feature price of $0.25 per share that can be exercised any time. However, upon maturity the mandatory conversion price is the lesser of (a) $0.25 or (b) the amount equal to 20% discount to the 10 day volume weighted average price per share for the period immediately prior to the mandatory conversion date with a floor price of $0.10 per share. The subscribers have been granted preemptive rights allowing participation in future financings at the then current price for a term of three years so that such subscriber may maintain its pro-rata interest in the Company.

 

Because the conversion rate of the Notes was less than the market value of the Company’s stock on the closing dates, the Company has recorded a beneficial conversion feature (“BCF”). The BCF is calculated by using the most favorable conversion price that would be in effect at the conversion date to measure the intrinsic value of an embedded conversion option. The BCF is recorded to additional paid-in capital with an offset to debt discount as prescribed by ASC 470-20. The discount against the Notes is accreted to interest expense using the effective interest rate method.

 

On July 14, 2015 the initial closing of the Notes took place under which the Company raised $250,000 from a total of seven investors. The Company recorded a debt discount related to the BCF of $62,500. At September 30, 2016, there are 1,538,320 common shares underlying the convertible principal and interest balance. The effective interest rate of the liability component is equal to 17.7% for the three and nine months ended September 30, 2016 and 2015. Accrued interest at September 30, 2016 is $5,813 and included in accrued expenses and other current liabilities. The conversion rate (shares of common stock per $1 principal amount of notes) and the conversion price at September 30, 2016, are 23.37 and $0.043, respectively. As of September 30, 2016, the unamortized debt discount will be amortized over a remaining period of approximately 1.76 years. The if converted value as of September 30, 2016 exceeds the principal balance of the Convertible Notes by $16,916.

 

On July 14, 2015, four investors from the July 14, 2015 closing converted an aggregate of $190,000 in Notes into 760,000 shares of unregistered common stock. Upon conversion the Company recorded $47,500 in interest expense and a corresponding reduction to the debt discount associated with these Notes.

 

 

 

7 - NOTES PAYABLE (Continued)

 

On September 8, 2015 the Company held the final closing of the Notes under which it raised $1,250,000 from a total of six investors. The Company recorded a debt discount related to the BCF of $759,876. At September 30, 2016, there are 31,697,719 common shares underlying the convertible principal and interest balance. The effective interest rate of the liability component was equal to 40.4% for the three and nine months ended September 30, 2016 and 2015. Accrued interest at September 30, 2016 is $106,111 and included in accrued expenses and other current liabilities. The conversion rate (shares of common stock per $1 principal amount of notes) and the conversion price at September 30, 2016, are 23.37 and $0.043, respectively. As of September 30, 2016, the unamortized debt discount will be amortized over a remaining period of approximately 1.91 years. The if converted value as of September 30, 2016 exceeds the principal balance of the Convertible Notes by $334,886.

 

As of September 30, 2016, we were in default with respect to the initial interest payments which were due on July 14, 2016 and September 8, 2016, with respect to an aggregate of $60,000 and $1,310,000 in principal amount of the 2015 Notes dated July 14, 2015 and September 8, 2015, respectively. On November 15, 2016, the Company entered into a Note Termination and Conversion Agreement with each of the 2015 Note holders. An aggregate of $1,310,000 in principal amount together with all accrued interest was cancelled in exchange for equity participation rights in Symbid Coop representing an aggregate of 6.5% of the profit rights in Symbid Coop. One note holder of $1,175,000 in principal amount of 2015 Notes agreed to receive the right of first refusal with respect to any direct or indirect activities of the Company. Refer to Note 12 for additional discussion.

 

2016 - 8% Convertible Promissory Notes

On June 1, 2016, the Company entered into a subscription agreement to conduct a private offering consisting of a minimum of $350,000 and up to a maximum of $700,000 of 8% unsecured convertible promissory notes (the “2016 Notes”), convertible into common shares of the Company’s common stock. The 2016 Notes have a three year maturity from the date of issuance and interest is payable annually. The 2016 Notes may be redeemed upon mutual agreement of the Company and the investors. The 2016 Notes are convertible upon the completion of the next equity offering (a “Qualified Offering”) for gross proceeds of not less than $1,500,000, the holders may, at their option, convert all or a portion of the principal and interest then due on the 2016 Notes into shares of common stock at a price per share equal to 50% of the price at which the common stock is sold in the Qualified Offering.

 

The conversion rate is subject to proportionate adjustment in the event of a subdivision, combination or stock split, stock dividends, reorganization reclassification, consolidation or merger. The Company may not incur senior indebtedness to exceed $250,000, must provide notice of default and notice of entry in certain material transactions such as; voluntary liquidation, merger or consolidation, sale or transfer of assets and amendments to the articles of incorporation. The 2016 Notes are subject to customary events of default such as bankruptcy, reorganization or insolvency and will become due immediately upon such event. While the 2016 Notes remain outstanding, the Company cannot incur any indebtedness that ranks senior in priority to the 2016 Notes. The 2016 Notes rank pari passu with the 2015 Notes.

 

Because the conversion rate of the Notes was less than the market value of the Company’s stock on the closing date the Company has recorded a BCF. The BCF is calculated by using the most favorable conversion price that would be in effect at the conversion date to measure the intrinsic value of an embedded conversion option. The BCF is recorded to additional paid-in capital with an offset to debt discount as prescribed by ASC 470-20. The discount against the Notes is accreted to interest expense using the effective interest rate method.

 

7 - NOTES PAYABLE (Continued)

 

On June 1, 2016, the closing of the 2016 Notes took place under which the Company raised $550,000 from a total of three investors. The Company recorded a debt discount related to the BCF of $550,000. At September 30, 2016, there are 66,416,993 common shares underlying the convertible principal and interest balance. The effective interest rate of the liability component was equal to 960% for the three and nine months ended September 30, 2016. Accrued interest at September 30, 2016 is $14,544 and included in accrued expenses and other current liabilities. The conversion rate (shares of common stock per $1 principal amount of notes) and the conversion price at September 30, 2016, are 40 and $0.025, respectively. As of September 30, 2016, the unamortized debt discount will be amortized over a remaining period of approximately 2.63 years. The if converted value as of September 30, 2016 exceeds the principal balance of the Convertible Notes by $579,089.

 

On November 15, 2016, the Company entered into a Note Termination and Conversion Agreement with each of the 2016 Note holders. An aggregate of $550,000 in principal amount together with all accrued interest was cancelled in exchange for equity participation rights in Symbid Coop representing an aggregate of 18.75% of the profit rights in Symbid Coop. Refer to Note 12 for additional discussion.

Convertible promissory notes payable and related convertible accrued interest as of September 30, 2016 are as follows:

 

	Principal	Unamortized Debt Discount	Balance as of September 30, 2016
8% Convertible promissory notes July 14, 2015	$60,000	$(9,458)	$50,542
8% Convertible promissory notes September 8, 2015	1,250,000	(567,350)	682,650
8% Convertible promissory notes June 1, 2016	550,000	(549,999)	1
	$1,860,000	$(1,126,807)	$733,193

 

Subordinated Loan - Related Party

A stockholder of the Company has granted a loan of approximately $75,000 to the Company due on December 31, 2016 with interest only payments of 4% per annum. The loan is subordinate to the interests of the working capital facility and is unsecured.

 

On November 15, 2016 Symbid B.V. entered into an agreement with the holder of the Subordinated related party loan which provided for the termination of a September 15, 2011 promissory note from Symbid B.V., including all accrued interest due thereon, in consideration of the grant of a 1.33% participation in Symbid Coop.

 

Interest expense

For the three and nine months ended September 30, 2016, the Company recognized interest expense associated with its debt balances as follows:

 

	Three months ended September 30, 2016	Nine months ended September 30, 2016
Cash Interest Expense	$39,096	$100,826
Coupon interest expense
Noncash Interest Expense
Amortization of debt discount	52,374	145,815
	$91,470	$246,641

 

 

Common and Preferred Stock

The Company’s Certificate of Incorporation authorizes the issuance of 300,000,000 shares of capital stock, consisting of 290,000,000 shares of Common Stock and 10,000,000 shares of “blank check” preferred stock, $0.001 par value per share.

 

Net Loss per Share

Basic and diluted net loss per share is presented in conformity with ASC Topic 260, Earnings per Share, for all periods presented. In accordance with this guidance, basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. In a period where there is a net loss position, diluted weighted-average shares are the same as basic weighted-average shares. Shares used in the diluted net loss per common share calculation exclude potentially dilutive share equivalents as the effect would be antidilutive. As of September 30, 2016, there are 5,853,530 Investor and 93,000 Broker Warrants which are excluded on the aforementioned basis. As of September 30, 2016, there are 55,817,817 shares related to the convertible Notes that would be potentially dilutive if converted.

 

Private Placement Offerings

On June 16, 2015, the Company completed a private placement offering in which 200,000 shares of common stock were sold to a related party at $.50 per share generating gross proceeds of $100,000. In connection with the private placement offering the Company incurred advisory and professional fees of $1,050.

 

On January 28, 2015, the Company completed a private placement offering in which 1,248,232 shares of common stock were sold at $.50 per share generating gross proceeds of $624,116. In connection with the private placement offering the Company incurred advisory and professional fees of $21,410.

 

2013 Stock Incentive Plan

Before the Share Exchange on December 6, 2013, our Board of Directors adopted, and our stockholders approved, our 2013 Equity Incentive Plan (the “2013 Plan”), which provides for the issuance of incentive awards of up to 5,000,000 shares of our common stock to officers, key employees, consultants and directors. Refer to Note 10 on share based compensation plans.

 

8 – CAPITAL STOCK (Continued)

 

Common Stock Issued for Services

During the nine months ended September 30, 2016, the Company issued 249,567 shares common stock as consideration for professional services valued at $77,701. These services had been accrued for as of March 31, 2016 and resulted in a non-cash financing adjustment when issued during the nine months ended September 30, 2016. No shares were issued for services during the three months ended September 30, 2016. During the three and nine months ended September 30, 2015, the Company issued 71,911 and 74,991 shares of common stock as consideration for professional services valued at $21,930 and $88,859.

 

During the three and nine months ended September 30, 2015, the Company issued 222,763 and 455,913 shares of fully vested restricted common stock to non- employee advisors and consultants as consideration for services performed. The fair value of fully vested restricted common stock issued to advisors and consultants during the three and nine months ended September 30, 2015 was $66,474 and $159,826.

 

9 – NONCONTROLLING INTERESTS

 

The composition of the net loss attributable to noncontrolling interests are as follows:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2016	2015	2016	2015
Symbid Coop- 100%	$9,787	$(14,149)	$35,992	$(24,371)
Symbid Italia – 49.9%	-	(13,328)	(40,145)	(34,109)
Total	$9,787	$(27,477)	$(4,153)	$(58,480)

 

The composition of noncontrolling interests as reported in the balance sheets are as follows:

 

	September 30, 2016	December 31, 2015
Symbid Coop - 100%	$(78,797)	$(112,614)
Symbid Italia – 49.9%	-	85,725
Total deficiency attributable to noncontrolling interests	$(78,797)	$(26,889)

 

Symbid Italia

In connection with the formation of Symbid Italia on February 20, 2015 (Refer to Note 1), the Company paid $284,525 for a 50.1% ownership interest. Two other shareholders obtained 29.94% and 19.96% ownership interests and collectively own a 49.9% noncontrolling interest in Symbid Italia. Upon formation, to reflect the Company’s 50.1% equity interest in Symbid Italia, we reduced our investment through a charge to additional paid capital of $129,918. The reduction to additional paid in capital reallocated the equity balances between the Company’s controlling interest and the noncontrolling interest.

 

9 – NONCONTROLLING INTERESTS (Continued)

 

From the date of formation through December 31, 2015, Symbid Italia incurred operating losses, of approximately $118,000. Based thereon and following an extensive review of the prospects of Symbid Italia developing profitable operations in the near future and beyond, the board of directors and shareholders of Symbid Italia have determined that further investment in Symbid Italia is not warranted. This conclusion was based upon an assessment of the current and expected medium term Italian equity crowdfunding market, the view that the current European regulatory framework for equity crowdfunding reflects a country by country market rather than a pan European market which greatly limits expected synergies and economies of scale and because the Italian equity crowdfunding regulations restrict the ability to attract non-domestic investors. At the direction of the Symbid Italia board of directors, a special Symbid Italia shareholder meeting was held on April 29, 2016, at which it was determined to liquidate Symbid Italia and return the residual capital to the Symbid Italia shareholders.

 

On May 26, 2016, the Symbid Italia was liquidated and the Company received proceeds of $44,744 and recognized a loss on derecognition of $2,986 which is included in other expense in the condensed consolidated statements of operations for the nine month period ended September 30, 2016. The loss represents the difference between the fair value of the proceeds received, the carrying amount of the noncontrolling interest and the carrying amount of Symbid Italia’s net assets at May 26, 2016.

 

Refer to Notes 1 and 12 for the discussion regarding the loss of the control in Symbid Coop subsequent to the reporting period end.

 

10 - SHARE BASED COMPENSATION PLANS

 

2013 Stock Incentive Plan

Under the 2013 Plan, 5 million shares of the Company’s common stock have been reserved for issuance to officers, employees, directors, consultants and advisors to the Company. The stock plan provides for grants of options, stock appreciation rights, performance share awards, restricted stock and restricted stock unit awards (“the Awards”). Up to 1,666,666 shares may be granted during the first 12 months following the Share Exchange and the remaining 3,333,332 shares may be granted during the first 24 months following the Share Exchange. As of September 30, 2016, there are 3,716,932 shares available for issuance under the 2013 Plan. The vesting period for the Awards under the 2013 Plan is determined by the Board at the date of grant and is generally one year. No awards were granted to employees or non-employees during the three months ended September 30, 2016.

 

Employee Share Based Compensation

 

There were no restricted stock unit grants to employees during the three and nine months ended September 30, 2016. During the three months ended September 30, 2015 133,332 restricted stock units ("RSUs") were awarded to four members of management under the 2013 Plan. During the nine months ended September 30, 2015, we awarded 280,568 RSUs to five employees and four members of management under the 2013 Plan.

 

Each restricted stock unit represents the right to receive one share of our restricted common stock upon vesting.

During the three and nine months ended September 30, 2016, 4,610 and 168,379 RSUs vested, respectively. During the three and nine months ended September 30, 2016, there were 165,081 and 367,890 forfeitures of restricted stock, respectively. During the three and nine months ended September 30, 2015, 8,000 and 888,736 RSUs vested. During the three and nine months ended September 30, 2015, there were nil and 9,750 forfeitures of restricted stock. The fair market value for stock-based compensation expense is equal to the closing price of our common stock on the date of grant, which is measured based on the publicly traded share price. The restrictions on the stock awards are released generally over one year.

 

 

 

10 - SHARE BASED COMPENSATION PLANS (Continued)

 

Due to forfeitures of unvested awards during the three months ended September 30, 2016, the Company reversed share based compensation expense for employee awards of approximately $14,000, all of which was recorded in selling, general and administrative expenses. The Company recognized share based compensation expense for employee awards of approximately $28,000 for the nine months ended September 30, 2016, of which approximately $29,000 is recorded in selling, general and administrative expenses and $1,000 was reversed from research and development expense.

 

The Company recognized share based compensation expense for employee awards of approximately $11,000 for the three months ended September 30, 2015, of which $10,000 and $1,000 was recorded in selling, general and administrative expenses and research and development, respectively. The Company recognized share based compensation expense for employee awards of approximately $242,000 for the nine months ended September 30, 2015, of which $209,000 and $33,000 is recorded in selling, general and administrative expenses and research and development, respectively.

 

There is no unrecognized compensation expense for unvested employee RSU’ at September 30, 2016.

 

Non-employee Share Based Compensation

Share- based compensation expense related to restricted stock and restricted stock units (collectively ‘Non-Employee Awards’) granted to non- employees is measured at the fair value of consideration received or the fair value of the equity instruments issued or liabilities incurred, whichever is more reliably measured. The cost of the share based payments to non- employees that are fully vested and non- forfeitable as at the grant date are remeasured and recognized at that date, unless there is a contractual term for services, in which case such compensation would be amortized over the contractual term. For the nine month period ended September 30, 2016, no equity awards were granted to non- employees under the 2013 Plan.

 

During the nine months ended September 30, 2015, we awarded 30,000 RSU’s to one advisor under the 2013 Plan. There were no grants during the three month period ended September 30, 2015. During the three and nine month periods ended September 30, 2016, -0- and 17,505 Awards vested. During the three and nine month periods ended September 30, 2015, 56,500 and 137,500 Awards vested. As of September 30, 2016, no non-employees have forfeited restricted stock or RSUs awarded under the 2013 Plan.

 

Under the 2013 Plan, for the three and nine months ended September 30, 2016, the Company recognized share based compensation expense for non-employees of nil and $4,038, all of which was recorded in selling general and administrative expenses. As of September 30, 2016, the Company has recorded approximately $13,000 in accrued expenses and other liabilities related to these non- employee share arrangements, which are either subject to continued contractual service conditions or have not been settled in common stock of the Company. For the three and nine months ended September 30, 2015, the Company recognized share based compensation expense for non-employees of $11,000 and $30,000. There was no unrecognized compensation expense for unvested non-employee RSUs at September 30, 2016.

 

11 – COMMITMENTS

 

Fortion Agreement

On December 8, 2014, we entered into an agreement with Fortion Holding B.V., a Netherlands limited liability corporation conducting its business under the trade name Credion. Under the agreement with Credion, for the period January 1, 2016 through December 31, 2017, we may be required to issue up to an additional 750,000 shares of our restricted common stock as follows:

 

 

For the years ended December 31,	Shares of Restricted Common Stock
2016	500,000
2017	250,000
	750,000

 

The number of shares to be issued for each of 2016 and 2017 will be based upon the number of monitoring start packages of EUR 300 times the number of companies purchasing those packages from us that have been introduced to us by Credion. The value of this turnover will be translated into a number of shares of restricted stock based on the fair value valuation as at December 31 of the relevant time periods as defined in the table above, and maximized at the number of shares for the specific period payable on December 31, 2016 and 2017. For the year ended December 31, 2015, 5 monitoring start packages were sold under the agreement and an accrual of approximately $1,700 has been recorded in accrued expenses and other current liabilities at September 30, 2016. For the nine months ended September 30, 2016, no monitoring start packages were sold under the agreement.

 

12- SUBSEQUENT EVENTS

 

Employment Agreements

Effective October 12, 2016, each of the executive officers, Korstiaan Zandvliet, Maarten van der Sanden and Robin Slakhorst, executed amendments to their respective employment agreements pursuant to which each executive agreed to have their base salaries reduced to zero retroactive to August 1, 2016. No other changes were made to the employment agreements.

On November 1, 2016 Symbid B.V. entered into agreements with Symbid Coop and persons having employment agreements with Symbid B.V., providing for the termination of all Symbid B.V. employment agreements and the entry into new agreements between such employees and Symbid Coop.

Robin Slakhorst resigned as the Company’s Chief Commercial Officer and as a Director effective the close of business on November 15, 2016. The resignation of Mr. Slakhorst was not the result of any disagreement with the Company on any matter related to our operations, policies or practices.

 

12- SUBSEQUENT EVENTS (Continued)

 

Debt restructuring

On November 15, 2016, the Company entered into a Note Termination and Conversion Agreement with each of the holders of the 2016 Notes, pursuant to which the holders agreed to the termination of their 2016 Notes in exchange for their receipt of equity participation rights in Symbid Coop. An aggregate of $550,000 in principal amount of 2016 Notes together with all accrued interest due thereon was cancelled and participation rights representing an aggregate of 18.75% of the equity in Symbid Coop was issued.

On November 15, 2016, the Company entered into a Note Termination and Conversion Agreement with each of the holders of the 2015 Notes pursuant to which the holders agreed to the termination of their respective 2015 Notes in exchange for equity participation rights in Symbid Coop and/or a right of first refusal with respect to any direct or indirect activities of Symbid Corp. and related entities and any future group companies in the field of funds activities and mandates for asset management in the small and medium enterprise (“SME”) segment. As to Symbid Corp., the right of first refusal shall terminate if and when there is a change in control of Symbid Corp. involving another entity with business activities different from those currently undertaken by Symbid Corp. In connection with the foregoing, one note holder of $1,175,000 in principal amount of 2015 Notes agreed to receive the right of first refusal pursuant to a Right of First Refusal Agreement executed on November 15, 2016, in combination with an equity participation in Symbid Coop while all of the other holders agreed to receive equity participation rights in Symbid Coop. An aggregate of $1,310,000 in principal amount of 2015 Notes together with all accrued interest due thereon was cancelled and participation rights representing an aggregate of 6.5% of the profit rights in Symbid Coop was issued. The Note Termination and Conversion Agreements also provided for the termination of pre-emptive rights which holders of the 2015 Notes had been granted in connection with their purchases of 2015 Notes.

On November 15, 2016, a note holder entered into the Right of First Refusal Agreement (“ROFRA”) described above, with the Company, Symbid Holding, Symbid Coop, Stichting Symbid IP Foundation (“IP Foundation”), Korstiaan Zandvliet, Maarten van der Sanden and Robin Slakhorst. The ROFRA requires Symbid Corp. and related parties to inform the note holder in writing, accompanied by a reasonably detailed business plan, of any asset management activities to be undertaken by any of the Symbid group companies after having developed a material marketing plan at least 60 days before such intended asset management activity is marketed. The note holder shall have 15 days after receipt of notice to inform the Symbid Corp. related parties as to its intention to exercise the right of first refusal. The ROFRA has a term which runs through December 31, 2020.

On November 15, 2016 Symbid B.V. entered into an agreement with Voyager Beheer BV (“Voyager”) and Symbid Coop which provided for the termination of the September 15, 2011 €66,950 subordinated related party loan from Symbid B.V. to Voyager, including all accrued interest due thereon, in consideration for a 1.33% participation in Symbid Coop.

On November 15, 2016 Symbid B.V. entered into an agreement with Rabobank Leiden-Katwijk (“Rabobank”), IP Foundation and Symbid Coop pursuant to which Symbid B.V.’s outstanding €52,959 debt to Rabobank and all accrued interest due thereon will be transferred to and assumed by Symbid Coop. The agreement further provided that a related line of credit with an amount due of €60,500 be transferred to and assumed by Symbid Coop. The agreement contains a condition precedent for an approval required by RVO, a Dutch government agency, for the transaction to be completed.

12- SUBSEQUENT EVENTS (Continued)

 

On November 18, 2016 the Company settled approximately €101,000 in debts with two creditors through agreements with Symbid Coop under which the creditors agreed to the termination of the debts in consideration of receiving participation rights in Symbid Coop aggregating to 5% of Symbid Coop.

On November 15, 2016 Symbid Coop assumed certain debts and obligations from Symbid B.V. in consideration of cancellation of the current account between Symbid B.V. and Symbid Coop and office furniture from Symbid B.V. to be obtained in return by Symbid Coop, under the suspending condition that all other debts and obligations of Symbid B.V. are settled, with the exception of any liabilities owed to Symbid Corp. or Symbid Holding B.V. by Symbid B.V.

License Agreements

On November 15, 2016 Symbid B.V. and Symbid Coop entered into an Intellectual Property License Termination Agreement which terminated the April 13, 2011 License Agreement between them retroactive to November 1, 2016.

On November 15, 2016 IP Foundation and Symbid Holding executed Addendum 2 to their Intellectual Property License and Transfer Agreement dated October 16, 2013 to enable IP Foundation to grant a non-exclusive license to Symbid Coop in return for Symbid Coop’s bearing the costs for the further development of the related software, intellectual property rights and know-how. This was done in recognition of the fact that Symbid Holding is no longer able to continue development of the software in compliance with applicable Netherlands laws and regulations.

On November 15, 2016 Symbid Coop and IP Foundation entered into an Intellectual Property License and Transfer Agreement (the “Agreement”) with retroactive effect to November 1, 2016 pursuant to which IP Foundation granted Symbid Coop a perpetual, royalty free license which included the right to grant sublicenses to affiliates of Symbid Coop to use the Symbid online crowdfunding platform to conduct crowdfunding business worldwide and to further develop and maintain the platform. Any sublicenses granted to Symbid Coop affiliates are required to provide for the subsequent transfer of any intellectual property rights and know how relating to the Symbid platform created by such affiliates to Symbid Coop. In the Agreement, Symbid Coop acknowledged and agreed that all intellectual property rights and other ownership rights in the intellectual property would remain with IP Foundation.

On November 15, 2016, the Company settled approximately €15,000 in debts with one creditor through a settlement agreement. The creditor is the owner of the FAC monitoring technology intellectual property rights for which we hold through our wholly owned subsidiary FAC B.V. the exclusive perpetual worldwide free of charge license. In consideration of the settlement of €15,000 the terms of the license were changed to a non-exclusive perpetual worldwide free of charge license.

Deconsolidation of Symbid Coop

 

As the result of the restructuring, our previous crowdfunding platform in the Netherlands will be operated through Symbid Coop. We previously controlled and operated Symbid Coop through corporate governance but as the result of the restructuring, Symbid Coop has become an independent entity. As we do not currently have the resources available to continue the software development of the online funding platform, Symbid Coop will be required to further develop the software for operating the crowdfunding platform under the laws and regulations of The Netherlands before January 1, 2017 in order to remain compliant. Symbid Coop has, in return for reimbursing the further development of the software, been granted a non-exclusive license to the intellectual property from IP Foundation in order to continue crowdfunding operations in The Netherlands. We will continue to hold an identical non-exclusive license to the intellectual property of the crowdfunding platform whereby we will be allowed to use the most up to date versions of the software and other intellectual property.

Issuances of common stock

On December 8, 2016, we issued an aggregate of 188,832 shares of our restricted common stock to three advisors and four former board members in connection with the vesting of restricted stock units.

On December 9, 2016, we entered into a Securities Purchase Agreement with CKR Law LLP ("CKR"), pursuant to which we issued 149,863,484 shares of our restricted common stock to CKR and its designees for (i) the cancellation of an aggregate of $86,456.41 due from the Company to CKR for services and expense reimbursements; (ii) a cash payment of $43,614 to be used to pay an aggregate of $37,614 to creditors of the Company, including payments required to enable the filing of this Quarterly Report; and (iii) the commitment of CKR to fund, to the extent future net revenues of the Company prove insufficient, additional operating expenses of the Company necessary to ensure its continuing operation and existence until such time that the Company can fund operations independently or until the Company completes an acquisition, business continuation, or similar transaction with an operating entity in a transaction that results in a change of control.

 

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statement Regarding Forward-Looking Information

The following management’s discussion and analysis should be read in conjunction with the historical financial statements and the related notes thereto contained in this report. The management’s discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.

The following discussion highlights the Company’s results of operations and the principal factors that have affected our financial condition, as well as our liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on the Company’s unaudited financial statements contained in this Quarterly Report, which we have prepared in accordance with United States generally accepted accounting principles. You should read this discussion and analysis together with such financial statements and the related notes thereto.

Company Background

Founded in The Netherlands in April 2011 as the provider of one of the first crowdfunding platforms, our business evolved in 2015 into a fully integrated, data driven, user friendly online funding network consisting of several products and services known as The Funding Network™. The Funding Network™ is intended to give small and medium sized entities (“SMEs”) direct access to all forms of finance, while offering investors full transparency on the potential risks and return of their portfolios and was developed in response to the following funding hurdles affecting entrepreneurs and investors in general and SMEs in particular:

Since 2011, we have been a Dutch leader in equity-based crowdfunding having funded 125 small and medium sized enterprises (“SME”) with over €12.9 million (approximately $14.5 million) in total crowdfunding volume since inception. As of September 30, 2016, we had a community of approximately 40,000 active investors.

Presently, all of the entrepreneurs making use of our crowdfunding platforms are located in The Netherlands and all of the investors are located in Europe with approximately 80% of such investors being located in The Netherlands. We do not presently provide equity based crowdfunding in the United States or to United States investors. The regulations governing equity based crowdfunding in the United States have not yet been adopted. There can be no assurance given that following the adoption of these regulations, we will be able to structure our United States crowdfunding operations, if any, in a manner that complies with such regulations.

On December 8, 2014 we entered into an agreement (the “Agreement”) with Fortion Holding B.V., a Netherlands limited liability corporation conducting its business under the trade name Credion (“Credion”). Credion provides financial advisory services in the Dutch small and medium enterprise (“SME”) markets and specializes in debt and equity financings for SMEs. The Agreement provides for a strategic alliance between us and Credion in which Credion’s extensive network of investors and entrepreneurs will be connected with each other through our online funding platform. Credion will process the funding for its SME clients through our platform resulting in monthly recurring revenue and transaction fees for us. The alliance is intended to provide more efficient access to capital for SMEs while greatly improving SME data monitoring standards for investors. SMEs utilizing the platform will have direct access to Credion’s investor clients as well as our investors.

Symbid Coöperatie U.A. is the contractor for all of our crowdfunding business in the Netherlands. We do not own or have any interest in Symbid Coöperatie U.A. Symbid Coöperatie U.A is a variable interest entity (“VIE”) which we, through Symbid B.V., effectively control through corporate governance rather than through any ownership. Because we own no interest in Symbid Coöperatie U.A., we have no right to receive any distributions from Symbid Coöperatie U.A. The revenues to us from Symbid Coöperatie U.A. come from administrative, success and management fees paid to us by Symbid Coöperatie U.A. Because of the corporate governance control structure, we consolidate the financial statements of Symbid Coöperatie U.A. with our own. If we were to lose control of Symbid Coöperatie U.A. through a loss of our majority vote on the members’ counsel of Symbid Coöperatie U.A., we would not be able to continue to consolidate the financial results of Symbid Coöperatie U.A. and this would have a negative impact on our financial condition and results of operations. For the nine month period ended September 30, 2016 and 2015, approximately 94% and 80% of our revenues, respectively, were derived from Symbid Coöperatie U.A. For the nine month period ended September 30, 2016 and 2015 we had net losses of $2,152,268 and $1,767,314, respectively.

 

In August 2014 we incorporated in Germany our indirect, majority owned, subsidiary Symbid Germany GmbH. We contributed capital of $7,749 to this subsidiary, which is currently an entity without operations. After the strategic decision to put the internationalization on hold we cannot provide an outlook on when this entity will be capitalized and become commercially operational.

Further to the planned European expansion of our equity crowdfunding operations, on February 20, 2015, Symbid Italia SPA (“Symbid Italia”), an Italian corporation created to develop the business of equity crowdfunding in Italy, was formed by our wholly owned subsidiary, Symbid Holding B.V., together with Banca Sella Holding SPA (“Banca Sella”) and Marco Bicocchi Pichi. In connection with the formation of Symbid Italia, we paid $ 284,525 for a 50.1% ownership interest. Banca Sella holds a 29.94% ownership interest and Mr. Pichi holds a 19.96% interest. During the second quarter of 2016, after an extensive review of the prospects of Symbid Italia developing profitable operations in the near future and beyond, the board of directors and shareholders of Symbid Italia determined to liquidate Symbid Italia and return the residual capital to the shareholders of Symbid Italia (See Item 5. Other Information for additional details)

In June 2015, our loan crowdfunding program was launched, and in the beginning of July 2015 our first successful loan crowdfunding campaign was realized. The launch of this peer-to-business lending service complements our existing equity crowdfunding service and supports the development of our online funding platform for start-ups and small businesses, The Funding Network. Based on our existing crowdfunding technology, loan crowdfunding by Symbid will enable established businesses with at least 3 years of activity and positive cash flows to borrow money from a large group of investors, the “crowd”. The loan crowdfunding product has been tested with the successfully realized campaign, but in 2016 no additional loan crowdfunding campaigns were launched. Within the current market we recognize a risk reward perception at investors which is out of balance in our view. Within this dynamic we cannot guarantee to be offering both investors and entrepreneurs a fair proposition.

This service operates through a transaction-based model similar to our current equity crowdfunding service. There is a fixed 1% success fee upon the successful funding of a loan crowdfunding campaign, paid by the business, plus 1% per year for the term of the loan immediately payable upon successful closing of the campaign. In addition, investors are being charged a flat 1% administration fee.

To operate the loan crowdfunding Symbid Coöperatie UA obtained an exemption to mediate in redeemable funds from the Dutch Authority Financial Markets.

Progress on cost reduction program

During the third quarter we focused on attracting additional capital in order to prevent bankruptcy. In addition to our capital search efforts we continued to cut back on costs. Due to our liquidity problems we laid off employees in the second and third quarter and reduced our employee head count to 8. As of August 1, 2016, management decided to reduce salaries to nil in order to extend the life of the Company and increase the chances of raising additional capital from investors. As part of our cost reduction program, we closed both our offices in Amsterdam and Milan during early 2016. In addition, we ceased internal product technology development efforts and international business development. The focus of the Company going forward will be to provide online funding services and licensing of our developed technology with minimal operational costs, whereby the geographical focus will be on The Netherlands.

 

Subsequent events

Because we were not able to raise additional capital from investors in the fourth quarter we were forced to enter into settlements with our creditors and note holders and restructure the Company. This restructuring caused us to curtail certain business operations and change our focus from the operation of online funding platforms and the provision of software solutions for the alternative financing in the SME market to the licensing of available software packages for which we own or license the intellectual property.

The revised business model will require fewer employees, advisors and consultants and will be more economical to operate than our past operations. Over the past few years we have developed several software products suitable for the alternative market which we will continue to offer to and operate with third parties. Such products and related services include white label versions of crowdfunding software for investor groups and monitoring software to provide investors with ongoing insight into the performance of SMEs to which they have loaned money. Related licensing fees and subscription agreements may include set fees and yearly contribution fees.

Our goal is to substantially reduce or eliminate our debt, continue to operate our business and negotiate a possible acquisition or other business combination with another operating entity. There can be no assurance that we will be successful in this endeavor or that if a business combination is consummated that it will be on favorable terms. In the interim, we will continue forward with our business operations under the revised business model.

As the result of the restructuring, our previous crowdfunding platform in the Netherlands will be operated through Symbid Coöperatie UA (“Symbid Coöp”). We previously controlled and operated Symbid Coöperatie UA through corporate governance but as the result of the restructuring, Symbid Coöp has become an independent entity. As we do not currently have the resources available to continue the software development of the online funding platform, Symbid Coöp will be required to further develop the software for operating the crowdfunding platform under the laws and regulations of The Netherlands before January 1, 2017 in order to remain compliant. Symbid Coöp has, in return for reimbursing the further development of the software, been granted a non-exclusive license to the intellectual property from IP Foundation in order to continue crowdfunding operations in The Netherlands. We will continue to hold an identical non-exclusive license to the intellectual property of the crowdfunding platform whereby we will be allowed to use the most up to date versions of the software and other intellectual property.

 

Results of Operations

The following tables set forth our condensed consolidated statements of income data:

	Three months ended September 30,		Nine months ended September 30,
	2016	2015	2016	2015
Revenues
Crowdfunding	$51,748	$58,979	$181,389	$191,177
The Funding Network	(3,155)	-	11,143	-
Other	(2,680)	9,787	631	43,825
Total revenues	45,913	68,766	193,163	235,002
Operating expenses
Selling, general and administrative	103,243	359,779	1,019,277	1,188,655
Professional fees	7,853	226,533	275,441	565,996
Research and development costs	1,674	5,091	28,332	53,410
Depreciation and amortization	1,360	36,414	75,939	109,554
Bad debt expense (recoveries)	(13,170)	4,121	(42,907)	14,013
Impairment expense	-	-	740,073	-
Total operating expenses	100,960	631,938	2,096,155	1,931,628
Operating loss	(55,047)	(563,172)	(1,902,992)	(1,696,626)
Other income (expense)
Interest expense and amortization of debt discount	(91,470)	(69,121)	(246,641)	(74,401)
Other income	-	-	351	11,504
Other expense	-	-	(2,986)	(7,791)
Total other expense	(91,470)	(69,121)	(249,276)	(70,688)
Net loss	(146,517)	(632,293)	(2,152,268)	(1,767,314)
Net income (loss) attributable to noncontrolling interests	9,787	(27,477)	(4,153)	(58,480)
Net loss attributable to Symbid Corp. stockholders	$(156,304)	$(604,816)	$(2,148,115)	$(1,708,834)
Basic and diluted net loss per common share	$(0.00)	$(0.02)	$(0.06)	$(0.05)
Weighted average number of shares outstanding
Basic and diluted	37,277,039	34,924,982	37,102,646	34,707,412

Crowdfunding Revenues

Crowdfunding Revenues were approximately $52,000 and $181,000 for the three and nine month periods ended September 30, 2016 as compared to $59,000 and $191,000 for the three and nine month periods ended September 30, 2015. Revenues decreased for the three and nine month periods ended September 30, 2016 by approximately $7,000 and $10,000, compared to prior year periods, respectively. The decrease compared to the prior year periods ended September 30, 2016 is primarily attributable to our ability to publish less crowdfunding campaigns on our platform which resulted in lower crowdfunding volumes over the reporting period.

 

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased for the three month period ended September 30, 2016 by approximately $256,000 to $103,000 compared to $359,000 for the prior year period. For the nine month period ended September 30, 2016 expenses decreased by approximately $170,000 to $1,019,000 compared to $1,189,000 for the prior year period. The decrease is primarily attributable to the implementation of our cost reduction program, part of which was to reduce head count to 8 FTE from the original 25 FTE by end of the first quarter of 2016 and the closure of our office locations.

We anticipate that selling, general, and administrative expenses will continue to decrease as a result of the successful implementation of the cost reduction program we described in more detail in above sections.

Professional Fees

Professional fees decreased for the three and nine month periods ended September 30, 2016 by approximately $219,000 and $291,000 to $8,000 and $275,000 compared to $227,000 and $566,000 for the prior year periods. The decrease is primarily attributable to a decrease in complexity of the services required to operate the Company since we had shifted our core focus on the existing products in our home market.

Research and Development

Research and development costs decreased for the three and nine month periods ended September 30, 2016 by approximately $3,000 and $25,000 to $2,000 and $28,000 compared to $5,000 and $53,000 for the prior year periods. The decrease is primarily attributable to a minimal research and development activity within the Company since we had shifted our core focus on the existing products in our home market.

Impairment Expense

During the three and nine month periods ended September 30, 2016 an impairment of the intangible asset for the monitoring technology resulted in an additional one-time impairment expense of $740,000. The intangible asset has been impaired to a nil residual value due to the strategic decisions impacting significantly the cash flow generating ability of the asset going forward. However, we still hold the non-exclusive license for the monitoring technology and expect small amounts of revenues could be generated with the commercialization.

Other Income and Expenses

During the three month period ended September 30, 2016, total other expense increased by approximately $22,000 from $69,000 in other expense to $91,000. During the nine months ended September 30, 2016, total other expense increased by approximately $178,000 from an expense of $71,000 to an expense of $249,000. The increase is primarily attributable to an increase in the interest expense and amortization of debt discount.

 

Loss from Operations Before Noncontrolling Interests

We incurred net losses from operations of approximately $147,000 and $2,152,000 and $632,000 and $1,767,000, respectively, for the three and nine months ended September 30, 2016 and September 30, 2015. The decrease in comparable losses for the three month period ended September 30, 2106 was primarily due to the results from the implementation of the cost reduction program in the second quarter of 2016. The increase in comparable losses for the nine month period ended September 30, 2016 was primarily due to an impairment of the intangible asset for the monitoring technology which resulted in an additional one-time impairment expense of $740,000.

Financial Condition, Liquidity and Capital Resources

We will need additional capital to implement our strategies. There is no assurance that we will be able to raise the amount of capital that we seek for acquisitions or for future growth plans. Even if financing is available, it may not be on terms that are acceptable to us. In addition, we do not have any determined sources for any future funding. If we are unable to raise the necessary capital at the times we require such funding, we may have to materially change our business plan, including delaying implementation of aspects of our business plan or curtailing or abandoning our business plan. We represent a speculative investment and investors may lose all of their investment. In order to be able to achieve our strategic goals, we need to further expand our business and financing activities. We aim to accomplish these goals by further developing our crowdfunding software platform, which will require future capital and liquidity expansion. Since our inception in March 2011, our shareholders have contributed a significant amount of capital, making it possible for us to develop our crowdfunding platform, services, and activities. To continue to develop our product offerings, expand our services and to obtain international coverage, a capital increase has been and will continue to be required.

Our principal sources of liquidity have been cash generated from sales of our equity and debt securities and cash generated from operations.

At September 30, 2016, cash on hand was approximately $8,000, other current assets excluding cash were $90,000 and we had a working capital deficit of $430,000. At the same time, we had current liabilities of approximately $528,000, which consisted principally of accounts payable, accrued expenses and current maturities of debt of $101,000, 262,000 and $109,000, respectively. At December 31, 2015, cash was approximately $554,000 and we had other current assets excluding cash of $107,000. At the same time, we had current liabilities of approximately $497,000 which consisted principally of accounts payable and accrued expenses of $391,000, a significant portion of which are attributable to an accrued advisory costs of $89,000. Our working capital deficit at December 31, 2015 was approximately $164,000. The decrease in our liquidity position at September 30, 2016 compared to December 31, 2015 is primarily attributable to the cash used in operating activities .

Net Cash Used in Operating Activities

Net cash used in operating activities was approximately $1,088,000 for the nine months ended September 30, 2016, as compared to net cash used of $1,458,000 for the nine months ended September 30, 2015. The decrease in net cash used in operations was primarily due to the implementation of the cost reduction program as discussed above. During the three month period ended September 30, 2016 we have implemented measures to decrease cash outflows including a reduction of the salaries of management to zero, a further reduction in the head count to 8 FTE and a decrease of the expenses to professional fees.

 

Net Cash Used in Investing Activities

During the nine months ended September 30, 2016, we used approximately $51,000 of cash in investing activities. Upon liquidation, the residual cash balance in Symbid Italia was distributed to the investors which resulted in a net cash outflow of $45,000 in deconsolidation. In the prior year period ended September 30, 2015, we earned $20,000 of cash in investing activities.

Net Cash Provided by Financing Activities

During the nine months ended September 30, 2016 and 2015, cash flows from financing activities totaled $588,000 and $2,207,000, respectively. Cash flows from financing activities for the nine months ended September 30, 2016 primarily relate to the proceeds from the issuance of additional convertible notes to three investors.

General

We will only commit to capital expenditures for any future projects requiring us to raise additional capital as and when adequate capital or new lines of finance are made available to us. There is no assurance that we will be able to obtain any financing or enter into any form of credit arrangement. Although we may be offered such financing, the terms may not be acceptable to us. If we are not able to secure financing or it is offered on unacceptable terms, then our business plan may have to be modified or curtailed or certain aspects terminated. There is no assurance that even with financing we will be able to achieve our goals.

Going Concern

Our financial statements have been prepared on a going concern basis which assumes that we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. We have incurred losses since inception resulting in an accumulated deficit of approximately $9,142,389 as of September 30, 2016 and further losses are anticipated in the development of our business raising substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our generating profitable operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and/or private placements of debt or equity securities. No assurances can be given that we will be able to raise cash from the sale of our securities or otherwise as or when needed. Our failure to obtain needed financing may cause us to curtail or cease operations. These financials do not include any adjustments relating to the recoverability and reclassification of recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty.

 

 

Critical Accounting Policies and Estimates

There are no material changes from the critical accounting policies set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our December 31, 2015 financial statements included in our Annual Report on Form 10-K filed with the SEC on March 25, 2016. Please refer to that document for disclosures regarding the critical accounting policies related to our business.

Off-Balance Sheet Arrangements

None.

Contractual Obligations

Not applicable.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. At the end of the quarter ended September 30, 2016 we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) and Rule 15d-15(e) under the 1934 Act. Based on this evaluation, management concluded that as of September 30, 2016 our disclosure controls and procedures were not effective due to material weaknesses resulting from our Board of Directors not having any independent members and the fact that no member of our Board of Directors qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Further, controls were not designed and in place to insure that all required disclosures were originally addressed in our financial statements.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Controls

During the fiscal quarter ended September 30, 2016, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

From time to time, we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any material legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, we are not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Furthermore, as of the date of this Quarterly Report, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party adverse to our company or has a material interest adverse to us.

ITEM 1A.   RISK FACTORS

Not applicable.

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On December 8, 2016 we issued an aggregate of 188,832 shares of our restricted common stock to three advisors and four former board members in connection with the vesting of restricted stock units. The shares were issued in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, (the “Securities Act”) and/or Regulation S under the Securities Act.

On December 9, 2016 we entered into a Securities Purchase Agreement with CKR Law LLP ("CKR"), pursuant to which we issued 149,863,484 shares of our restricted common stock to CKR and its designees for (i) the cancellation of an aggregate of $86,456.41 due from the Company to CKR for services and expense reimbursements; (ii) a cash payment of $43,614 to be used to pay an aggregate of $37,614 to creditors of the Company, including payments required to enable the filing of this Quarterly Report; and (iii) the commitment of CKR to fund, to the extent future net revenues of the Company prove insufficient, additional operating expenses of the Company necessary to ensure its continuing operation and existence until such time that the Company can fund operations independently or until the Company completes an acquisition, business continuation, or similar transaction with an operating entity in a transaction that results in a change of control. The shares were issued in reliance on Section(4)(a)(2) of the Securities Act.

 

 

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

As of September 30, 2016 we were in default with respect to the initial interest payment which was due on July 14, 2016, with respect to an aggregate of $60,000 in principal amount of 2015 8% Convertible Promissory Notes dated July 14, 2015 (the “Notes”). Subsequent to the period covered by the Report, all of the defaulted notes were cancelled. See Item 5.

As of September 30, 2016 we were in default with respect to the initial interest payment which was due on September 8, 2016, with respect to an aggregate of $1,310,000 in principal amount of 2015 8% Convertible Promissory Notes dated September 8, 2015 (the “Notes”). Subsequent to the period covered by the Report, all of the defaulted notes were cancelled. See Item 5.

ITEM 4.   MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.   OTHER INFORMATION

Amendments to Employment Agreements

On July 1, 2016, each of Korstiaan Zandvliet, our Chief Executive Officer and President, Maarten van der Sanden, our Chief Financial Officer, Treasurer and Secretary, Robin Slakhorst, our Vice President, and Jeroen Bontje, a key employee, executed amendments to their respective employment agreements reducing their respective base annual net salaries by around 50% to €19,200. No other changes were made to such employment agreements.

Effective October 12, 2016, each of our executive officers, Korstiaan Zandvliet, Maarten van der Sanden and Robin Slakhorst, executed amendments to their respective employment agreements pursuant to which each executive agreed to have their base salaries reduced to zero retroactive to August 1, 2016. No other changes were made to the employment agreements.

Debt Restructuring

On November 15, 2016, we entered into a Note Termination and Conversion Agreement with each of the holders of our 2016 3-year, 8% unsecured convertible notes (the “2016 Notes”), pursuant to which the holders agreed to the termination of their 2016 Notes in exchange for their receipt of equity participation rights in Symbid Coöperatie U.A. (“SC”). An aggregate of $550,000 in principal amount of 2016 Notes together with all accrued interest due thereon was cancelled and participation rights representing an aggregate of 18.75% of the equity in SC was issued.

 

On November 15, 2016, we entered into a Note Termination and Conversion Agreement with each of the holders of our 2015 3-year 8% unsecured convertible notes (the “2015 Notes”) pursuant to which the holders agreed to the termination of their respective 2015 Notes in exchange for equity participation rights in SC and/or a right of first refusal with respect to any direct or indirect activities of Symbid Corp. and related entities and any future group companies in the field of funds activities and mandates for asset management in the small and medium enterprise (“SME”) segment. As to Symbid Corp., the right of first refusal shall terminate if and when there is a change in control of Symbid Corp. involving another entity with business activities different from those currently undertaken by Symbid Corp. In connection with the foregoing, one note holder of $1,175,000 in principal amount of 2015 Notes agreed to receive the right of first refusal pursuant to a Right of First Refusal Agreement executed on November 15, 2016, in combination with an equity participation in SC while all of the other holders agreed to receive equity participation rights in SC. An aggregate of $1,310,000 in principal amount of 2015 Notes together with all accrued interest due thereon was cancelled and participation rights representing an aggregate of 6.5% of the profit rights in SC was issued. The Note Termination and Conversion Agreements also provided for the termination of pre-emptive rights which holders of the 2015 Notes had been granted in connection with their purchases of 2015 Notes.

On November 15, 2016, a note holder entered into the Right of First Refusal Agreement (“ROFRA”) described above, with us, Symbid Holding B.V. (“Symbid Holding”), SC, Stichting Symbid IP Foundation (“IP Foundation”), Korstiaan Zandvliet, Maarten van der Sanden and Robin Slakhorst. The ROFRA requires Symbid Corp. and related parties to inform the note holder in writing, accompanied by a reasonably detailed business plan, of any asset management activities to be undertaken by any of the Symbid group companies after having developed a material marketing plan at least 60 days before such intended asset management activity is marketed. The note holder shall have 15 days after receipt of notice to inform the Symbid Corp. related parties as to its intention to exercise the right of first refusal. The ROFRA has a term which runs through December 31, 2020.

On November 15, 2016 Symbid B.V. entered into an agreement with Voyager Beheer BV (“Voyager”) and SC which provided for the termination of a September 15, 2011 €66,950 promissory note from Symbid B.V. to Voyager, including all accrued interest due thereon, in consideration of the grant to Voyager of a 1.33% participation in SC.

On November 15, 2016 Symbid B.V. entered into an agreement with Rabobank Leiden-Katwijk (“Rabobank”), IP Foundation and SC pursuant to which Symbid B.V.’s outstanding €52,959 debt to Rabobank and all accrued interest due thereon will be transferred to and assumed by SC. The agreement further provided that a related line of credit with an amount due of €60,500 be transferred to and assumed by SC. The agreement contains a condition precedent for an approval required by RVO, a Dutch government agency, for the transaction to be completed.

On November 18, 2016 we settled approximately €101,000 in debts with two creditors through agreements with SC under which the creditors agreed to the termination of the debts in consideration of receiving participation rights in SC aggregating to 5% of SC.

 

On November 1, 2016 Symbid B.V. entered into agreements with SC and persons having employment agreements with Symbid B.V., providing for the termination of all Symbid B.V. employment agreements and the entry into new agreements between such employees and SC.

On November 15, 2016 SC assumed certain debts and obligations from Symbid B.V. in consideration of cancellation of the current account between Symbid B.V. and SC and office furniture from Symbid B.V. to be obtained in return by SC, under the suspending condition that all other debts and obligations of Symbid B.V. are settled, with the exception of any liabilities owed to Symbid Corp. or Symbid Holding B.V. by Symbid B.V.

License Agreements

On November 15, 2016 Symbid B.V. and SC entered into an Intellectual Property License Termination Agreement which terminated the April 13, 2011 License Agreement between them retroactive to November 1, 2016.

On November 15, 2016 IP Foundation and Symbid Holding executed Addendum 2 to their Intellectual Property License and Transfer Agreement dated October 16, 2013 to enable IP Foundation to grant a non-exclusive license to SC in return for SC’s bearing the costs for the further development of the related software, intellectual property rights and know-how. This was done in recognition of the fact that Symbid Holding is no longer able to continue development of the software in compliance with applicable Netherlands laws and regulations.

On November 15, 2016 SC and IP Foundation entered into an Intellectual Property License and Transfer Agreement (the “Agreement”) with retroactive effect to November 1, 2016 pursuant to which IP Foundation granted SC a perpetual, royalty free license which included the right to grant sublicenses to affiliates of SC to use the Symbid online crowdfunding platform to conduct crowdfunding business worldwide and to further develop and maintain the platform. Any sublicenses granted to SC affiliates are required to provide for the subsequent transfer of any intellectual property rights and know how relating to the Symbid platform created by such affiliates to SC. In the Agreement, SC acknowledged and agreed that all intellectual property rights and other ownership rights in the intellectual property would remain with IP Foundation.

On November 15, 2016 we settled approximately €15,000 in debts with one creditor through a settlement agreement. The creditor is the owner of the FAC monitoring technology intellectual property rights for which we hold through our wholly owned subsidiary FAC B.V. the exclusive perpetual worldwide free of charge license. In consideration of the settlement of €15,000 the terms of the license were changed to a non-exclusive perpetual worldwide free of charge license.

Officer/Director Resignation

Robin Slakhorst resigned as our Chief Commercial Officer and as a Director effective the close of business on November 15, 2016. The resignation of Mr. Slakhorst was not the result of any disagreement with us on any matter related to our operations, policies or practices.

 

General

Our expenses have outpaced our revenues since our inception causing liquidity issues and raising substantial doubt about our ability to continue as a going concern. In recognition thereof, we have implemented strategies to reduce expenses and restructure our operations. Such restructuring, as described elsewhere in this Report, has caused us to curtail certain of our operations and change our business focus from the operation of online funding platforms and the provision of software solutions for the alternative financing market for the SME market to the licensing of available software packages for which we own or license the intellectual property.

The revised business model requires fewer employees, advisors and consultants and will be more economical to operate than our past operations. Over the past few years we have developed several software products suitable for the alternative market which we will continue to offer to and operate with third parties. Such products and related services include white label versions of crowdfunding software for investor groups and monitoring software to provide investors with ongoing insight into the performance of SMEs to which they have loaned money. Related licensing fees and subscription agreements may include set fees and yearly contribution fees.

Our goal is to substantially reduce or eliminate our debt which we have done, continue to operate our business and negotiate a possible acquisition or other business combination with another operating entity. There can be no assurance that we will be successful in this endeavor or that if a business combination is consummated that it will be on favorable terms. In the interim, we will continue forward with our ongoing business operations.

As the result of the restructuring, our previous crowdfunding platform in the Netherlands will be operated through SC. We previously controlled and operated SC through corporate governance but as the result of the restructuring, SC has become an independent entity. As we do not currently have the resources available to continue the software development of the online funding platform, SC will be required to further develop the software for operating the crowdfunding platform under the laws and regulations of The Netherlands before January 1, 2017 in order to remain compliant. SC has, in return for reimbursing the further development of the software, been granted a non-exclusive license to the intellectual property from IP Foundation in order to continue crowdfunding operations in The Netherlands. We will continue to hold an identical non-exclusive license to the intellectual property of the crowdfunding platform whereby we will be allowed to use the most up to date versions of the software and other intellectual property.

ITEM 6.   EXHIBITS

In reviewing the agreements included as exhibits to this Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

The following exhibits are included as part of this report:

Exhibit Number		Description of Exhibit
10.1		Form of November 15, 2016 Note Termination and Conversion Agreement (2016 Notes)
10.2		Form of November 15, 2016 Note Termination and Conversion Agreement (2015 Notes)
10.3		Right of First Refusal Agreement dated November 15, 2016
10.4		Intellectual Property License Termination Agreement dated November 15, 2016 between Symbid B.V. and Symbid Coöperatie U.A.
10.5		Addendum 2 dated November 15, 2016 to October 16, 2013 Intellectual Property License and Transfer Agreement between Stichting Symbid IP Foundation and Symbid Holding B.V.
10.6		Intellectual Property License and Transfer Agreement dated November 15, 2016 between Symbid Coöperatie U.A. and Stichting Symbid IP Foundation
10.7		Securities Purchase Agreement dated as of December 9,2016 between Registrant and CKR Law LLP.
31.1		Certification of Principal Executive Officer Pursuant to Rule 13a-14
31.2		Certification of Principal Financial Officer Pursuant to Rule 13a-14
32.1**		CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
32.2**		CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

**This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SYMBID CORP.
December 14, 2016	By:	/s/ Korstiaan Zandvliet
	Korstiaan Zandvliet, Chief Executive Officer
	SYMBID CORP.
December 14, 2016	By:	/s/ Maarten van der Sanden
	Maarten van der Sanden, Chief Financial Officer

 

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