SINCD 10-Q Quarterly Report June 30, 2016 | Alphaminr
Sincerity Applied Materials Holdings Corp.
ALPHAMINR

SINCD 10-Q Quarter ended June 30, 2016

Balance Sheet
Cash Flow
Income Statement
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
10-Q 1 sbid_10q.htm QUARTERLY REPORT Blueprint

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 June 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 37,277,039 shares of the issuer’s common stock outstanding as of August 15, 2016.

SYMBID CORP.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 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
25
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
32
Item 4.
Controls and Procedures
33

PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
34
Item 1A.
Risk Factors
34
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
34
Item 3.
Defaults Upon Senior Securities
34
Item 4.
Mine Safety Disclosures
35
Item 5.
Other Information
35
Item 6.
Exhibits
36

SIGNATURES
38
2
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAGE
Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 (unaudited)
4
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2016 and June 30, 2015 (unaudited)
5
Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2016 and June 30, 2015 (unaudited)
6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and June 30, 2015 (unaudited)
7
Notes to Condensed Consolidated Financial Statements (unaudited)
8
3
SYMBID CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
June 30,
December 31,
2016
2015
ASSETS
Current assets
Cash
$ 35,468
$ 553,696
Accounts receivable, less allowance for doubtful accounts of $10,870 and $39,847 respectively
70,717
64,639
Prepaid expenses and other current assets
79,660
42,553
Total current assets
185,845
660,888
Property and equipment, at cost, less accumulated depreciation
18,586
15,108
Investments in associated companies
1,155
1,134
Intangible assets, net
-
785,070
Total assets
$ 205,586
$ 1,462,200
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
Current liabilities
Accounts payable
$ 156,640
$ 88,774
Accrued expenses and other current liabilities
234,301
301,896
Current maturities of notes payable
33,591
32,993
Subordinated loan – related party
74,340
73,016
Total current liabilities
498,872
496,679
Notes payable, less current maturities
41,976
49,476
8% Convertible promissory notes payable, net of $1,179,181 and $722,622 discount, respectively
680,819
587,378
Total liabilities
1,221,667
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
8,316,647
7,635,104
Accumulated other comprehensive loss
(295,354 )
(322,183 )
Accumulated deficit
(8,986,085 )
(6,994,274 )
Total Symbid Corp. stockholders' (deficiency) equity
(927,515 )
355,556
Noncontrolling interests
(88,566 )
(26,889 )
Total stockholders' (deficiency) equity
(1,016,081 )
328,667
Total liabilities and stockholders' equity
$ 205,586
$ 1,462,200
(The accompanying notes are an integral part of these condensed consolidated financial statements)
4
SYMBID CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
Three months ended June 30,
Six months ended June 30,
2016
2015
2016
2015
Revenues
Crowdfunding
$ 43,549
$ 77,804
$ 129,642
$ 132,198
The Funding Network
2,249
-
14,299
-
Other
12,158
14,566
3,309
34,038
Total revenues
57,956
92,370
147,250
166,236
Operating expenses
Selling, general and administrative
401,227
429,413
916,137
838,766
Professional fees
130,554
152,794
267,589
339,464
Research and development costs
9,540
26,077
26,658
48,319
Depreciation and amortization
37,760
36,202
74,579
73,140
Bad debt expense (recoveries)
(10,145 )
-
(29,737 )
-
Impairment expense
740,073
-
740,073
-
Total operating expenses
1,309,009
644,486
1,995,299
1,299,689
Operating loss
(1,251,053 )
(552,116 )
(1,848,049 )
(1,133,453 )
Other income (expense)
Interest expense and amortization of debt discount
(81,905 )
(2,566 )
(155,171 )
(5,280 )
Other income
484
-
455
11,504
Other expense
(2,986 )
(517 )
(2,986 )
(7,791 )
Total other income (expense)
(84,407 )
(3,083 )
(157,702 )
(1,567 )
Net loss
(1,335,460 )
(555,199 )
(2,005,751 )
(1,135,020 )
Net loss attributable to noncontrolling interests
(6,317 )
(18,155 )
(13,940 )
(31,003 )
Net loss attributable to Symbid Corp. stockholders
$ (1,329,143 )
$ (537,044 )
$ (1,991,811 )
$ (1,104,017 )
Basic and diluted net loss per common share
$ (0.04 )
$ (0.02 )
$ (0.05 )
$ (0.03 )
Weighted average number of shares outstanding
Basic and diluted
37,119,510
34,705,257
37,014,491
34,394,106
Share-based compensation expense included in operating expenses:
Selling, general and administrative
5,239
$ 98,147
$ 47,578
$ 218,437
Professional fees
-
630
-
44,842
Research and development costs
(2,500 )
16,058
(942 )
31,939
2,739
$ 114,835
$ 46,636
$ 295,218
(The accompanying notes are an integral part of these condensed consolidated financial statements)
5
SYMBID CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
Three months ended June 30,
Six months ended June 30,
2016
2015
2016
2015
Net loss
$ (1,335,460 )
$ (555,199 )
$ (2,005,751 )
$ (1,135,020 )
Other comprehensive loss:
Foreign currency translation income (loss)
(5,438 )
14,003
26,829
(89,645 )
Comprehensive loss
(1,340,898 )
(541,196 )
(1,978,922 )
(1,224,665 )
Net loss attributable to noncontrolling interests
(6,317 )
(18,155 )
(13,940 )
(31,003 )
Foreign currency translation (loss) income attributable to noncontrolling interests
1,284
1,260
(1,566 )
10,131
Comprehensive loss attributable to noncontrolling interests
(5,033 )
(16,895 )
(15,506 )
(20,872 )
Comprehensive loss attributable to Symbid Corp. stockholders
$ (1,335,865 )
$ (524,301 )
$ (1,963,416 )
$ (1,203,793 )
(The accompanying notes are an integral part of these condensed consolidated financial statements)
6
SYMBID CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN US DOLLARS)
(UNAUDITED)
Six months ended June 30,
2016
2015
Cash flows from operating activities
Net loss
$ (2,005,751 )
$ (1,135,020 )
Adjustments to reconcile net loss to net cash
used in operating activities
Employee and non-employee share based compensation
46,636
295,218
Depreciation and amortization
74,579
73,140
Amortization of debt discount
93,441
-
Impairment of intangible asset
740,073
-
Warrant liability - fair value adjustment
-
7,791
Provision for doubtful accounts
(29,737 )
9,945
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
24,922
4,963
Prepaid expenses and other current assets
(42,418 )
(14,073 )
Accounts payable
67,004
27,552
Accrued expenses and other current liabilities
14,673
(5,509 )
Net cash used in operating activities
(1,013,592 )
(747,497 )
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
$ -
$ 66,594
Repayments of notes payable
(8,441 )
(8,491 )
Proceeds from convertible notes
550,000
-
Proceeds from the issuance of common stock, net of issuance costs
-
724,116
Net cash provided by financing activities
541,559
782,219
Effect of exchange rate changes on cash
4,333
(32,130 )
Net (decrease) / increase in cash
(518,228 )
22,901
Cash and cash equivalents, beginning of period
553,696
233,068
Cash and cash equivalents, end of period
$ 35,468
$ 255,969
Supplemental cash flow disclosures
Interest paid
$ 2,699
$ 5,279
Non-cash investing and financing activities
Change in accrued expenses related to non-employee share based payments
$ 85,274
$ 70,351
Deconsolidatioin of Symbid Italia assets
5,901
-
Beneficial conversion feature
550,000
-
Reallocation of noncontrolling interests
-
129,918
(The accompanying notes are an integral part of these condensed consolidated financial statements)
7
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 six months ended June 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.
8
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 $44,922 for its 50.1% interest and recognized a loss of $2,986. The results of Symbid Italia’s operations have been included in the condensed consolidated financial statements (see Note 9).
As of June 30, 2016 and December 31, 2015, the Company has 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 Coop, a variable interest entity which we effectively control through corporate governance rather than through any ownership further discussed in Note 3. The Kredietpaspoort is a cloud- based platform that was developed to provide credit evaluation and financing options to SME companies in the Netherlands. In addition, the Company’s Chief Commercial Officer owns a 5.72% interest in Kredietpaspoort. At June 30, 2016 and December 31, 2015, the combined holdings in Kredietpaspoort by Symbid B.V., Symbid Coop and our executive officer totaled approximately 20.25% (see Note 5).
9
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 June 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.
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 June 30, 2016 and 2015, of $1,335,460 and $555,199, respectively. Losses during the six months ended June 30, 2016 and 2015 were $2,005,751 and $1,135,020, respectively. At June 30, 2016 and December 31, 2015, the Company had a working capital deficit of $313,027 and working capital of $164,209, respectively. As of June 30, 2016, the Company had cash on hand of $35,468 and current liabilities to credit institutions of $33,591. The recurring losses raise substantial doubt about the Company’s ability to continue as a going concern.
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.
Management plans to mitigate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern through ongoing fund raising efforts with new and current strategic institutional investors and by implementing a cost reduction program. 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:
●
Closed offices in Milano (Symbid Italia) and Amsterdam (Product development);
●
Reduction in costs of office space Rotterdam HQ;
●
Terminated employment agreements with 9 FTE product development team, our CFO, 2 FTE Symbid Italia, 4 Commercial FTE operating in the Netherlands;
●
Put on hold internationalization of the Symbid services and products;
●
Put on hold the investments related to the roll-out of the monitoring services;
●
Management salaries reduction of 50% of the net salary.
Successful implementation of the cost reduction program should lead to a cost reduction of at least 50% over the second half of 2016, as compared to the costs over the first half of 2016. By raising additional funds and reducing operational costs management intends to lower the overall cash burn of the Company and be able to meet its operating requirements.
10
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 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 is 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.
11
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 $111,038.
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.
12
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 June 30, 2016 and December 31, 2015, the balance sheet accounts, with the exception of equity, were translated at 1 EUR to $1.1104 and $1.0906, respectively. The average translation rates applied to the statements of operations and cash flows for the three months ended June 30, 2016 and 2015 were at 1 EUR to $1.1292 and 1 EUR to $ 1.1058, respectively. The average translation rates applied to the statements of operations and cash flows for the six months ended June 30, 2016 and 2015 were at 1 EUR to $1.1161 and 1 EUR to $ 1.1170, 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 to 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 (see Note 4).
13
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 June 30, 2016 and December 31, 2015, the Company has recorded an allowance for doubtful accounts for $10,870 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 Symbid Corp. 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.
14
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 Company is currently evaluating the impact of the adoption of this standard on its condensed consolidated financial statements.
3 - VARIABLE INTEREST ENTITY- SYMBID COOP
The Company holds a variable interest in Symbid Coöperatie UA (“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.
The classification and carrying amounts of assets and liabilities of Symbid Coop in the condensed consolidated balance sheet are as follows:
June 30,
2016
December 31,
2015
Current assets
$ 70,924
$ 73,600
Current liabilities
$ 159,492
$ 186,214
The assets related to Symbid Coop are not restricted.
15
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.
During the three and six months ended June 30, 2016, the Company recorded a non-cash impairment loss of $740,000 as it was deemed that the fair value of the asset was not recoverable.
The Company’s sole intangible asset consists of software obtained through the acquisition of the FAC B.V. The intangible asset consists of the following:
June 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 June 30, 2016 and 2015, amortization expense related to software totaled approximately $36,000 for both periods. During the six months ended June 30, 2016 and 2015, amortization expense related to software totaled approximately $72,000 for both periods.
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 June 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%.
16
5 - INVESTMENTS IN ASSOCIATED COMPANIES (Continued)
The Company continues to account for its investment in Kredietpaspoort on the equity method basis of accounting, as Symbid has 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. As of December 31, 2014, the Kredietpaspoort investment balance was reduced to nil, as the Company suffered losses beyond the initial investment balance. As of June 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 six months ended June 30, 2015.
Equidam
In August 2013, the Company acquired a 10% interest in Equidam for $1,155 recorded in Investments in Associated Companies. As of June 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
June 30,
2016
December 31,
2015
Advisory costs
$ 21,863
$ 89,829
Interest
103,522
45,863
Wage tax return
45,264
19,035
Holiday pay allowance/Net salary
6,120
24,533
Penalty waiver
14,630
14,630
Marketing
24,568
38,069
Accrued stock liability
10,996
20,541
Other current liabilities
7,338
49,396
$ 234,301
$ 301,896
All amounts are payable within one year.
17
7 - NOTES PAYABLE
June 30,
December 31,
2016
2015
Line of credit
$ -
$ -
Working capital facility
75,567
82,469
Subordinated loan – related party
74,340
73,016
8% Convertible promissory notes, net of discount
680,819
587,378
Total notes payable
830,726
742,863
Less - Current Maturities
(107,931 )
(106,009 ))
Notes payable, less current maturities
$ 722,795
$ 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:
1.
Long term loan for approximately $202,000, bears interest of approximately 6.4%, principal and interest payable quarterly. The loan decreases on a quarterly basis by approximately $8,000, starting on September 30, 2012. As of June 30, 2016, the loan balance was approximately $76,000.
2.
A line of credit of approximately $67,000 with a floating interest rate of approximately 8.40% at June 30, 2016 and December 31, 2015, respectively. There was no balance on the credit facility at June 30, 2016.
The working capital facility is secured by the following assets:
1.
Assets of the Company including receivables and intellectual property developed by the Company.
2.
Guarantee by principal members of management up to approximately $57,000.
3.
Guarantee by the Netherlands government for the remaining balance in a hypothetical liquidation up to approximately $246,000.
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.
18
7 - NOTES PAYABLE (Continued)
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 June 30, 2016, there are 499,476 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 six months ended June 30, 2016. Accrued interest at June 30, 2016 is $4,613 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 June 30, 2016, are 7.73 and $0.13, respectively. As of June 30, 2016, the unamortized debt discount will be amortized over a remaining period of approximately 2.04 years. The if converted value as of June 30, 2016 exceeds the principal balance of the Convertible Notes by $21,167.
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.
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 June 30, 2016, there are 10,289,804 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 six months ended June 30, 2016. Accrued interest at June 30, 2016 is $81,111 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 June 30, 2016, are 7.73 and $0.13, respectively. As of June 30, 2016, the unamortized debt discount will be amortized over a remaining period of approximately 2.19 years. The if converted value as of June 30, 2016 exceeds the principal balance of the Convertible Notes by $440,989.
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 have the same ranking as the Notes issued in 2015.
19
7 - NOTES PAYABLE (Continued)
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 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 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 June 30, 2016, there are 6,512,288 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 six months ended June 30, 2016. Accrued interest at June 30, 2016 is $3,544 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 June 30, 2016, are 11.76 and $0.0850, respectively. As of June 30, 2016, the unamortized debt discount will be amortized over a remaining period of approximately 2.92 years. The if converted value as of June 30, 2016 exceeds the principal balance of the Convertible Notes by $582,353.
Convertible promissory notes payable and related convertible accrued interest as of June 30, 2016 are as follows:
Principal
Unamortized
Debt Discount
Balance As of
June 30, 2016
8% Convertible promissory notes July 14, 2015
$ 60,000
$ (10,654 )
$ 49,346
8% Convertible promissory notes September 8, 2015
1,250,000
(618,527 )
631,473
8% Convertible promissory notes June 1, 2016
550,000
(550,000 )
-
$ 1,860,000
$ (1,179,181 )
$ 680,819
Subordinated Loan - Related Party
A stockholder of the Company has granted a loan of approximately $74,000 to the Company due on September 15, 2015 with interest only payments of 4% per annum. The loan is subordinate to the interests of the working capital facility and is unsecured.
Interest expense
For the three and six months ended June 30, 2016, the Company recognized interest expense associated with its debt balances as follows:
Three months ended
June 30, 2016
Six months ended
June 30, 2016
Cash Interest Expense
Coupon interest expense
$ 33,396
$ 61,730
Noncash Interest Expense
Amortization of debt discount
48,509
93,441
$ 81,905
$ 155,171
20
7 - NOTES PAYABLE (Continued)
Aggregate Maturity Schedule of Borrowings
The aggregate maturities of long-term debt outstanding as of June 30, 2016 are as follows:
Year ending June 30,
2017
107,931
2018
33,591
2019
1,868,384
$ 2,009,906
8 – CAPITAL STOCK
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 June 30, 2016, there are 5,853,530 Investor and 93,000 Broker Warrants which are excluded on the aforementioned basis. As of June 30, 2016, there are 83,220 unvested shares and there are 17,301,568 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.
Common Stock Issued for Services
During the both the three and six months ended June 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 three months ended June 30, 2016. During the three and six months ended June 30, 2015, the Company issued 3,000 and 233,150 shares of fully vested restricted common stock as consideration for professional services valued at $630 and $93,000.
21
9 – NONCONTROLLING INTERESTS
The composition of the net loss attributable to noncontrolling interests are as follows:
Three Months Ended June 30,
Six Months Ended June 30,
2016
2015
2016
2015
Symbid Coop- 100%
$ 12,488
$ (5,076 )
$ 26,205
$ (10,222 )
Symbid Italia – 49.9%
(18,805 )
(13,079 )
(40,145 )
(20,781 )
Total
$ (6,317 )
$ (18,155 )
$ (13,940 )
$ (31,003 )
The composition of noncontrolling interests as reported in the balance sheets are as follows:
June 30,
2016
December 31,
2015
Symbid Coop - 100%
$ (88,566 )
$ (112,614 )
Symbid Italia – 49.9%
-
85,725
Total equity (deficiency) attributable to noncontrolling interests
$ (88,566 )
$ (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.
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 $44,922 and recognized a loss on derecognition of $2,986 which is included in other expense in the condensed consolidated statements of operations for the three and six month periods ended June 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.
22
10 - SHARE BASED COMPENSATION PLANS (Continued)
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 June 30, 2016, there are 3,559,351 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 June 30, 2016.
Employee Share Based Compensation
There were not restricted stock unit grants to employees during the three and six months ended June 30, 2016. During the three months ended June 30, 2015 we awarded 7,500 restricted stock units ("RSUs") to one employee under the 2013 Plan. During the six months ended June 30, 2015, we awarded 147,236 RSUs to three employees and two 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 six months ended June 30, 2016, 81,281 and 162,563 RSUs vested, respectively. During both the three and six months ended June 30, 2016, there were 202,809 forfeitures of restricted stock. During the three and six months ended June 30, 2015, 896,236 RSUs vested. During both the three and six months ended June 30, 2015, there were 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.
The Company recognized share based compensation expense for employee awards of approximately $1,000 for the three months ended June 30, 2016, all of which was recorded in selling, general and administrative expenses. The Company recognized share based compensation expense for employee awards of approximately $43,000 for the six months ended June 30, 2016, all of which is recorded in selling, general and administrative expenses.
The Company recognized share based compensation expense for employee awards of approximately $114,000 for the three months ended June 30, 2015, of which $98,000 and $16,000 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 $231,000 for the six months ended June 30, 2015, of which $199,000 and $32,000 is recorded in selling, general and administrative expenses and research and development, respectively.
Unrecognized compensation expense for unvested employee RSU’s at June 30, 2016 was approximately $10,000, which is expected to be recognized over the remaining weighted average period of .33 years.
23
10 - SHARE BASED COMPENSATION PLANS (Continued)
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 six month period ended June 30, 2016, no equity awards were granted to non- employees under the 2013 Plan.
During the six months ended June 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 June 30, 2015. During the three and six month periods ended June 30, 2015, 38,500 and 81,000 Awards vested. As of June 30, 2015, no non-employees have forfeited restricted stock or RSUs awarded under the 2013 Plan.
Under the 2013 Plan, for the three and six months ended June 30, 2016, the Company recognized share based compensation expense for non-employees of $1,500 and $4,000, all of which was recorded in selling general and administrative expenses. As of June 30, 2016, the Company has recorded approximately $11,000 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 six months ended June 30, 2015, the Company recognized share based compensation expense for non-employees of $0 and $19,000. There was no unrecognized compensation expense for unvested non-employee RSUs at June 30, 2016.
11 - RELATED PARTY TRANSACTIONS
Management Fees
Following the Share Exchange on December 6, 2013, the three officers of the Company entered into employment agreements and became salaried employees of Symbid Corp. During the six months ended June 30, 2015, total expenses recorded under these agreements were approximately $16,000.
Other
See Note 7 for related party financing arrangements.
24
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:
●
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;
25
●
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.
Since 2011, we have been a Dutch leader in equity-based crowdfunding having funded 125 small and medium sized enterprises (“SME”) with over €12.5 million (approximately $14.0 million) in total crowdfunding volume since inception. As of June 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 six month period ended June 30, 2016 and 2015, approximately 87% and 81% of our revenues, respectively, were derived from Symbid Coöperatie U.A. For the six month period ended June 30, 2016 and 2015 we had net losses of $2,005,677 and $1,135,020, respectively.
26
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. Symbid Germany GmbH currently a non-operating entity. 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.
Highlights
The following is a summary of our financial performance for the three month period ended June 30, 2016:
●
Total crowdfunding volume from 11 successfully funded equity propositions has been €1.32mio ($1.5mio);
●
New investors attracted to the platform accumulate to 536;
●
Net losses accumulated to $1,335,460;
27
●
After implementation of a cost reduction program we unfortunately had to terminate employment agreements with 16 FTE, bringing the number of FTE to 9 as of period ending on June 30, 2016 compared to 25 FTE at end of prior reporting period;
Due to cash flow position of the Company, management decided at the end of the first quarter 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:
●
Closed offices in Milano (Symbid Italia) and Amsterdam (Product development);
●
Reduction in costs of office space Rotterdam HQ;
●
Terminated employment agreements with 9 FTE product development team, our CFO, 2 FTE Symbid Italia and 4 FTE Commercially operating in the Netherlands;
●
Put on hold internationalization of the Symbid services and products;
●
Put on hold the investments related to the roll-out of the monitoring services;
●
Management salaries reduction of 50% of the net salary.
Successful implementation of the cost reduction program should lead to a cost reduction of at least 50% over the second half of 2016, as compared to the costs over the first half of 2016. By focusing the Company mainly on existing products which generate already revenue we aim to maximize the results with the available resources, whereby we will focus on bringing the funds available in line with the projected budgets.
Results of Operations
The following tables set forth our condensed consolidated statements of income data:
Three months ended June 30,
Six months ended June 30,
2016
2015
2016
2015
Revenues
Crowdfunding
$ 43,549
$ 77,804
$ 129,642
$ 132,198
The Funding Network
2,249
-
14,299
-
Other
12,158
14,566
3,309
34,038
Total revenues
57,956
92,370
147,250
166,236
Operating expenses
Selling, general and administrative
401,227
429,413
916,137
838,766
Professional fees
130,554
152,794
267,589
339,464
Research and development costs
9,540
26,077
26,658
48,319
Depreciation and amortization
37,760
36,202
74,579
73,140
Bad debt expense (recoveries)
(10,145 )
-
(29,737 )
-
Impairment expense
740,073
-
740,073
-
Total operating expenses
1,309,009
644,486
1,995,299
1,299,689
Operating loss
(1,251,053 )
(552,116 )
(1,848,049 )
(1,133,453 )
Other income (expense)
Interest expense and amortization of debt discount
(81,905 )
(2,566 )
(155,171 )
(5,280 )
Other income
484
-
455
11,504
Other expense
(2,986 )
(517 )
(2,986 )
(7,791 )
Total other income (expense)
(84,407 )
(3,083 )
(157,702 )
(1,567 )
Net loss
(1,335,460 )
(555,199 )
(2,005,751 )
(1,135,020 )
Net loss attributable to noncontrolling interests
(6,317 )
(18,155 )
(13,940 )
(31,003 )
Net loss attributable to Symbid Corp. stockholders
$ (1,329,143 )
$ (537,044 )
$ (1,991,811 )
$ (1,104,017 )
Basic and diluted net loss per common share
$ (0.04 )
$ (0.02 )
$ (0.05 )
$ (0.03 )
Weighted average number of shares outstanding
Basic and diluted
37,119,510
34,705,257
37,014,491
34,394,106
28
Crowdfunding Revenues
Crowdfunding Revenues were approximately $44,000 and $130,000 for the three and six month periods ended June 30, 2016 as compared to $78,000 and $132,000 for the three and six month periods ended June 30, 2015. Revenues decreased for the three and six month periods ended June 30, 2016 by approximately $34,000 and $2,000, compared to prior year periods, respectively. The decrease compared to the prior year periods ended June 30, 2016 is primarily attributable to lower crowdfunding volumes realized in April and May due to the ongoing reorganization under the cost reduction program. We experienced in those months a significant decrease in the number of crowdfunding campaigns going live, which we could not off-set by the higher crowdfunding volumes we realized in June 2016.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased for the three month period ended June 30, 2016 by approximately $28,000 to $401,000 compared to $429,000 for the prior year period. For the six month period ended June 30, 2016 expenses increased by approximately $77,000 to $916,000 compared to $839,000 for the prior year period. The increase is primarily attributable to the hiring of new personnel by end of 2015, as well as during the beginning of 2016. However, in the three month period ended June 30, 2016 a decrease of $28,000 has been realized compared to prior year period. This decrease are the first visible results of the cost reduction program implemented in the three month period ended June 30, 2016.
We anticipate that selling, general, and administrative expenses will continue to decrease as a percentage of revenue 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 six month periods ended June 30, 2016 by approximately $22,000 and $72,000 to $131,000 and $268,000 compared to $153,000 and $339,000 for the prior year periods. The decrease is primarily attributable to the Company having made less use of professional services in the first quarter of 2016.
29
We anticipate professional fees will decrease further in the last six months of 2016, due to less professional services will be required whilst focusing on our core online funding activities.
Research and Development
Research and development costs decreased for the three and six month periods ended June 30, 2016 by approximately $16,000 and $21,000 to $10,000 and $27,000 compared to $26,000 and $48,000 for the prior year periods. The decrease is primarily attributable to the outsourcing costs for research and development being decreased as a result of strategic decisions in the first half of this year. We anticipate research and development costs will remain at a same level in the second half of 2016, as compared to the first half of 2016.
Impairment Expense
During the three and six month period ended June 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 nihil residual value, due to the strategic decisions impacting significantly the cash flow generating ability of the asset going forward.
Other Income and Expenses
During the three month period ended June 30, 2016, total other expense increased by approximately $81,000 from $3,000 in other expense to $84,000. During the six months ended June 30, 2016, total other expense increased by approximately $156,000 from an income of $2,000 in other expense to an expense of $158,000. The increase is primarily attributable to an increase of the interest expense after the convertible notes issued in the second six months of 2015, as well as the first six months of 2016.
Loss from Operations Before Noncontrolling Interests
We incurred net losses from operations of approximately $1,335,000 and $2,006,000 and $555,000 and $1,135,000, respectively, for the three and six months ended June 30, 2016 and June 30, 2015. The increase in comparable losses was primarily due to an increase in Selling, General and Administrative costs, as well as an increase in the interest expenses and the one-time impairment expense during the three month period ended June 30, 2016.
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.
30
Our principal sources of liquidity have been cash generated from sales of our equity and debt securities and cash generated from operations.
At June 30, 2016, cash on hand was approximately $35,000, other current assets excluding cash were $150,000 and we had a working capital deficit of $313,000. At the same time, we had current liabilities of approximately $499,000, which consisted principally of accounts payable, accrued expenses and current maturities of debt of $157,000, 234,000 and $108,000, 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 June 30, 2016 compared to December 31, 2015 is primarily attributable to cash used as working capital in operating activities.
Net Cash Used in Operating Activities
Net cash used in operating activities was approximately $1,014,000 for the six months ended June 30, 2016, as compared to net cash used of $747,000 for the six months ended June 30, 2015. The increase in net cash used in operations was primarily due to an increase in salary costs. During the three month period ended June 30, 2016 we have implemented measures to decrease the cash outflows to salaries by reducing the number of full-time employees of the company from 25 to 9.
Net Cash Used in Investing Activities
During the six months ended June 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 $44,000 in deconsolidation. In the prior year period ended June 30, 2015, we earned $20,000 of cash in investing activities. The cash used in investing activities in the six months ended June 30, 2016 was primarily on new equipment of new personnel in the three month period ended March 31, 2016.
Net Cash Provided by Financing Activities
During the six months ended June 30, 2016 and 2015, cash flows from financing activities totaled $542,000 and $782,000, respectively. Cash flows from financing activities for the six months ended June 30, 2016 primarily relate to the proceeds from the issuance of additional convertible notes to three investors.
31
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 $8,986,000 as of June 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.
32
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 June 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 June 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 June 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.
33
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 June 1, 2016, we closed on the sale of $550,000 in principal amount of 8% unsecured convertible promissory notes (the “Notes”) to three persons. Subject to earlier prepayment or conversion, the Notes mature three years from issuance. Interest is payable on the first, second and third anniversaries of the issuance date. We can prepay the Notes upon mutual agreement with the holders on terms to be negotiated. If, during the term of the Notes, we complete an 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 Notes into shares of our common stock at a price per share equal to 50% of the price at which our common stock is sold in the Qualified Offering. The Notes are subject to customary events of default. Subject to limited exceptions, while the Notes remain outstanding, we cannot incur any indebtedness that ranks senior in priority to the Notes. The Notes rank pari passu with the notes issued by us in an offering completed in September 2015.
Effective July 1, 2016, we issued an aggregate of 34,458 restricted stock units (“RSUs”) under our 2013 Equity Incentive Plan to two employees. The RSUs vest on June 30, 2017 and are subject to forfeiture in the event that the employee does not remain in our continuous employ through the vesting date.
Effective June 30, 2016, we terminated an aggregate of 72,481 RSUs under our 2013 Equity Incentive Plan held by four persons due to the termination of their respective employments by us.
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
We are 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”). None of the holders of the Notes have requested payment of such interest or made other demands and we have commenced negotiations with them to extend the due date for the initial interest payment. We expect the holders of the Notes to agree to an extension but no assurance can be given that this will prove to be the case. Our failure to resolve this matter could have a material adverse effect on our financial condition. Until resolved, the holders can elect to declare the full principal amount of the Notes together with interest immediately due and payable. We do not presently have the funds available to pay the principal amount due on the Notes.
34
ITEM 4.   MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.   OTHER INFORMATION
On April 4, 2016, Dick Kooij resigned as Chief Financial Officer and Treasurer as he had reached his retirement age. On April 5, 2016, Hendrik Kasteel, Michiel Buitelaar and Vincent Lui resigned as directors reducing our board from six to three members. On April 8, 2016, Jérôme Koelewijn resigned as a director reducing our board to two members. Messrs. Kasteel, Lui and Koelewijn resigned due to differences with remaining management concerning the Company’s strategic direction and Michiel Buitelaar resigned without further reasons. We are currently in discussions with replacement directors for the board.
On May 6, 2016, we appointed Maarten van der Sanden, on an interim basis, as Chief Financial Officer and Treasurer on an interim basis, to fill the vacancies created by the recent resignation of Dick Kooij. Mr. van der Sanden continues to also serve as our Chief Operating Officer and Secretary.
Our 50.1% owned subsidiary, Symbid Italia S.P.A.(“Symbid Italia”), formed on February 20, 2015, to develop the business of equity crowdfunding in Italy incurred operating losses during the year ended December 31, 2015, in the approximate amount of €107,000. 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. Notwithstanding the foregoing, we maintain a positive medium term outlook on the equity crowdfunding market.
On June 1, 2016, we closed on the sale of $550,000 in principal amount of 8% unsecured convertible promissory notes (the “Notes”) to three persons. Subject to earlier prepayment or conversion, the Notes mature three years from issuance. Interest is payable on the first, second and third anniversaries of the issuance date. We can prepay the Notes upon mutual agreement with the holders on terms to be negotiated. If, during the term of the Notes, we complete an 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 Notes into shares of our common stock at a price per share equal to 50% of the price at which our common stock is sold in the Qualified Offering.
35
The Notes are subject to customary events of default. Subject to limited exceptions, while the Notes remain outstanding, we cannot incur any indebtedness that ranks senior in priority to the Notes. The Notes rank pari passu with the notes issued by us in an offering completed in September 2015.
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.
During the development of our crowdfunding platform in 2010, we were in close contact with the Authority Financial Markets in The Netherlands (the “AFM”) to discuss our crowdfunding model, the structure of our crowdfunding platform and its relationship to the Dutch regulatory framework. In our correspondence with the AFM, we primarily focused on the equity based crowdfunding model rather than the pledge or donation based models which do not involve securities law considerations. In an email communication to us, the AFM acknowledged that, although it is our responsibility to identify activities requiring government authorization, as described to the AFM by us, the AFM saw, on the basis of the information provided, no indication that our crowdfunding activities would require permission under the Dutch Act on Financial Supervision. Although we did not specifically address our partnering/affiliate programs in our correspondence with the AFM, it is our understanding and belief that the same AFM considerations would apply to these activities to the extent that they make use of our legal structure and model.
During the expansion of our product offerings to include debt based crowdfunding, we have been in discussions with AFM regarding the classification of our activities. In agreement with the AFM, we applied for an exemption for our debt based crowdfunding activities under the Dutch financial regulatory framework at the AFM, which was provided in the second quarter of 2015.
Although our activities have not materially changed in comparison with the information provided to the AFM in 2010, the AFM has communicated on August 9, 2016 they have revised their earlier assessment with regard to our equity based crowdfunding activities. The AFM publicly stated an overall policy to regulate equity based crowdfunding activities under the Markets in Financial Instruments Directive (the “MiFID”). In force since November 2007, this directive of the European Commission governs the provision of investment services in financial instruments by banks and investment firms and the operation of traditional stock exchanges and alternative trading venues.
With respect to our equity based crowdfunding activities this does imply we will have to apply for a license as investment firm under the MiFID to continue our equity based crowdfunding activities. We will assess the requirements for such an Investment Firm license, but no guarantees can be given we will be able to comply with such requirements. Also we are currently in discussion with the AFM on what the timelines will be for the new policy to be in full effect.
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:
36
●
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
●
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
●
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
●
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
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
4.1*
Form of 2016 8% Convertible Promissory Note
Certification of Principal Executive Officer and Pursuant to Rule 13a-14
Certification of Principal Financial Officer Pursuant to Rule 13a-14
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
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
*Filed herewith
**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
37
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.
August 15, 2016
By:
/s/ Korstiaan Zandvliet
Korstiaan Zandvliet, Chief Executive Officer
SYMBID CORP.
August 15, 2016
By:
/s/ Maarten van der Sanden
Maarten van der Sanden, Chief Financial Officer

38

TABLE OF CONTENTS