Item 1 Business
Description of Business
Introduction
Consolidated Gems, Inc. ("Consolidated Gems” or the “Company", “we,” “our” or “us”), formerly Electrum International, Inc. is a Delaware corporation that was originally incorporated in Florida as We Sell for U Corp. (“We Sell for U”) on November 12, 2007. The principal stockholder of Consolidated Gems is Power Developments Pty Ltd., an Australian corporation (“Power”), an entity majority owned by the Company’s president, which owned 94.46% of Consolidated Gems as of December 31, 2015.
In December 2008, Power acquired a 96% interest in Consolidated Gems from Edward T. Farmer and certain other stockholders. Mr. Farmer resigned as Sole Director and Officer of Electrum, Joseph Gutnick was appointed President, Chief Executive Officer and a Director and Peter Lee was appointed Chief Financial Officer and Secretary. Commencing in fiscal 2009, the Company decided to focus its business on energy opportunities.
On January 29, 2009 the Company’s Board of Directors declared a 6-for-1 stock split in the form of a stock dividend that was payable in February 2009 to stockholders of record as of February 14, 2009. The Company has accounted for this bonus issue as a stock split and accordingly, all share and per share data has been retroactively restated. An aggregate of 72,000,000 shares of common stock were issued in connection with this dividend.
On March 31, 2009, the Company’s Board of Directors declared a 2-for-1 stock split in the form of a stock dividend that was payable in August 2009 to stockholders of record as of August 12, 2009. The Company has accounted for this bonus issue as a stock split and accordingly, all share and per share data has been retroactively restated. An aggregate of 86,400,000 shares of common stock were issued in connection with this dividend.
Effective on August 12, 2009, the Company completed the reincorporation from a Florida corporation to a Delaware corporation through a merger with and into its wholly-owned subsidiary, Consolidated Gems. Each issued and outstanding share of common stock, par value US$0.0001 per share, of We Sell For U Corp., a Florida-incorporated company, was automatically converted into one issued and outstanding share of common stock, par value US$0.0001 per share, of Consolidated Gems, a Delaware-incorporated company. The number of authorized shares of capital stock was increased to five hundred twenty million (520,000,000) shares, of which five hundred million (500,000,000) shares shall be Common Stock and twenty million (20,000,000) shares shall be Preferred Stock, each with a par value of US$.0001 per share. For purposes of the Company’s reporting status with the Securities and Exchange Commission, Consolidated Gems is deemed a successor to We Sell for U.
On June 30, 2011, the Company issued 2,515,350 shares of common stock at an issue price of US$0.60, being the closing price on the date of issue, to AXIS Consultants Pty Ltd (“AXIS”) in satisfaction of a loan balance of US$1,509,210.
Description of Current Business Plans and Activities
The following is a description of the Company’s current business plans and activities.
On March 8, 2016, the Company announced it had entered into a Term Sheet with Noam Levavi and Eran Galil (the “Vendors”) for the acquisition of all of the issued shares of Byondata (“Byondata”), a company incorporated under the laws of Israel. The Company had a 90 day period to conduct due diligence and negotiate a formal share sale agreement. Headquartered in Herzliya, Israel, Byondata has developed unique platform as a service to create content-rich, immersive Virtual Reality (VR) experiences. Following initial due diligence and by mutual agreement, the proposed acquisition was terminated.
In January 2017, the Company announced it was looking for gold opportunities in Myanmar.
Employees
We use temporary employees in our activities. The services of our President, Chief Executive Officer and Director, Mordechai Gutnick, and Chief Financial Officer and Secretary, Peter Lee, as well as clerical employees are provided to us on a part-time as needed basis pursuant to a Service Agreement (the “Service Agreement”) between us and AXIS effective from January 1, 2009. AXIS also provides us with office facilities, equipment, administration and clerical services in Melbourne Australia pursuant to the Service Agreement. The Service Agreement may be terminated by written notice by either party.
Other than this, we rely primarily upon consultants to accomplish our activities. We are not subject to a union labour contract or collective bargaining agreement.
SEC Reports
We file annual, quarterly, current and other reports and information with the SEC. These filings can be viewed and downloaded from the Internet at the SEC’s website at www.sec.gov. In addition, these SEC filings are available at no cost as soon as reasonably practicable after the filing thereof on our website at electrumint.com these reports are also available to be read and copied at the SEC’s public reference room located at Judiciary Plaza, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operations of the public reference room by calling the SEC at 1-800-SEC-0330.
Item 1A
Item 1A Risk Factors
You should carefully consider each of the following risk factors and all of the other information provided in this Annual Report before purchasing our common stock. An investment in our common stock involves a high degree of risk, and should be considered only by persons who can afford the loss of their entire investment. The risks and uncertainties described below are not the only ones we face. There may be additional risks and uncertainties that are not known to us or that we do not consider to be material at this time. If the events described in these risks occur, our business, financial condition and results of operations would likely suffer. Additionally, this Annual Report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. This section discusses the risk factors that might cause those differences.
Risks of Our Business
We Lack an Operating History And Have Losses Which We Expect To Continue Into the Future.
To date we have no source of revenue and have not identified any mineral exploration properties. We have no operating history as an exploration and mining company upon which an evaluation of our future success or failure can be made. Our ability to achieve and maintain profitability and positive cash flow is dependent upon:
-
our ability to identify suitable exploration and mining opportunities
-
our ability to raise sufficient capital to turn such opportunities into economically viable business units
There can be no assurance that we will be able to identify profitable business opportunities in the exploration and mining industry or, if we do, that we will be able to obtain sufficient financing to develop such opportunities.
Our Proposed Areas of Operations may be located in locations that are subject to Changes in political conditions and regulations in those regions.
Our proposed areas of operations may be located in locations that are subject to changes in political conditions and regulations. In the past some countries in regions such as Asia have been subject to political and social instability, changes and uncertainties which may cause changes to existing government regulations affecting resource exploration and mining activities. Civil or political unrest could disrupt our operations at any time. Our planned resource exploration and activities may be adversely affected in varying degrees by changing governmental regulations relating to the mining industry or shifts in political conditions that increase the costs related to our activities or maintaining our future properties. Finally, some countries’ status as developing regions may make it more difficult for us to obtain required financing for our planned exploration activities.
We May Engage in Acquisitions, Strategic Investments, Strategic Partnerships or Alliances or Other Ventures that may or may not be Successful.
We may acquire or make strategic investments in businesses, technologies, services or products, or enter into strategic partnerships or alliances with third parties in order to enhance our business. It is possible that we may not be able to identify suitable acquisitions targets and candidates for strategic investments or partnerships, or if we do identify such targets or candidates, we may not be able to complete those transactions on terms commercially acceptable to us, or at all. The inability to identify suitable acquisition targets or investments or the inability to complete such transactions may affect our competitiveness and our growth prospects.
We may make strategic investments in early-stage exploration and mining start-up companies in order to gain experience in or exploit niche technologies. However, our investments may not be successful. The lack of profitability of any of our investments could have a material adverse effect on our operating results.
World Economic Conditions Could Adversely Affect Our Results of Operations and Financial Condition
The effects of world economic conditions are difficult to accurately predict. As a result, conditions in the credit markets may become uncertain and risk averse. These adverse conditions may make it harder for the Company to raise additional funds to finance the development of its business. Continued adverse economic conditions could adversely affect our liquidity, results of operations and financial condition.
The Report Of Our Independent Registered Public Accounting Firm Contains An Explanatory Paragraph Questioning Our Ability To Continue As A Going Concern.
The report of our independent registered public accounting firm on our financial statements as of December 31, 2015 and 2014, and for the years ended December 31, 2015 and 2014, includes an emphasis of matter paragraph questioning our ability to continue as a going concern. This paragraph indicates that we have not yet commenced revenue producing operations, have incurred net losses from inception, and have an accumulated (deficit) of A$2,835,947 which conditions raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We Are A Small Operation And Do Not Have Significant Capital
Because we will have limited working capital, we must limit our activities. If we are unable to raise the capital required to undertake adequate activities, including identifying suitable exploration and mining opportunities, we may miss opportunities to establish or acquire suitable economically viable business units. If we do not find suitable economically viable business units, we may be forced to cease operations and you may lose your entire investment.
Approximately 83% Of Our Common Stock Is Controlled By Our President Who Has The Ability To Appoint Our Board Of Directors And Determine Other Matters Submitted To Stockholders
Mr. Mordechai Gutnick, our Executive Chairman and President, beneficially owned 165.6 million shares of our common stock, which represented approximately 82.85% of our shares outstanding as of September 18, 2017. As a result, Mr. Gutnick has and is expected to continue to have the ability to appoint our Board of Directors and to determine the outcome of all other issues submitted to our stockholders. The interests of Mr. Gutnick may not always coincide with our interests or the interests of other stockholders, and subject to his fiduciary duties as a director, he may act in a manner that advances his best interests and not necessarily those of other stockholders. One consequence to this substantial influence or control is that it may not be possible for investors to remove management of the Company. It could also deter unsolicited takeover, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices.
We are substantially dependent upon AXIS To Carry Out Our Activities
We are substantially dependent upon AXIS for our senior management, financial and accounting, corporate legal and other corporate headquarters functions. For example, each of our officers is employed by AXIS and, as such, is required by AXIS to devote substantial amounts of time to the business and affairs of the other shareholders of AXIS.
Pursuant to a services agreement, AXIS provides us with office facilities, and some administrative personnel and services, management staff and services. No fixed fee is set in the agreement and we are required to reimburse AXIS for any direct costs incurred by AXIS for us. In addition, we pay a proportion of AXIS indirect costs based on a measure of our utilization of the facilities and activities of AXIS plus a service fee of not more than 15% of the direct and indirect costs. AXIS has not charged a service fee for this fiscal year. This service agreement may be terminated by us or AXIS on 60 days’ notice. See Item 13 “Certain Relationships and Related Party Transactions and Director Independence.” AXIS billed Consolidated Gems, Inc as per the services agreement and incurred direct costs on our behalf, for 2015 a total of A$21,833 (2014: A$53,072). Since December 31, 2015, the Company has repaid A$786,600 to AXIS.
We are one of seven affiliated companies. Each of the companies has some common Directors, officers and shareholders. In addition, each of the companies is substantially dependent upon AXIS for its senior management and certain mining and exploration staff. A number of arrangements and transactions have been entered into from time to time between such companies. Currently, there are no material arrangements or planned transactions between the Company and any of the other affiliated companies other than AXIS. However, it is possible we may enter into such transactions in the future which could present conflicts of interest. In addition, there may be conflicts among the Company and the other companies that AXIS provides services to with respect to access to executive and administrative personnel and other resources.
Historically, AXIS has allocated corporate opportunities to each of the companies engaged in the exploration and mining industry after considering the location of each of the companies’ operations and the type of commodity for which each company explores within its geographic region. At present, there are no conflicts among the Company and the other companies with respect to the principal geographic areas in which they operate and/or the principal commodities that they are searching for.
The Company has received advances from AXIS in connection with the ongoing business relationship between the two parties, which have been disclosed in the Company’s SEC reports, but which are not specifically provided for in the AXIS Services Agreement. Historically, the shortfall in our cash receipts has been covered by cash advances from AXIS. The purpose of such advances is to assist us in meeting our ongoing cash flow requirements. See Item 13 “Certain Relationships and Related Transactions, and Director Independence.”
Future Sales of Common Stock Could Depress The Price Of Our Common Stock
Future sales of substantial amounts of common stock pursuant to Rule 144 under the Securities Act of 1933 or otherwise by certain stockholders could have a material adverse impact on the market price for the common stock at the time. As September 18, 2017there were 168,115,350 outstanding shares of common stock which are deemed “restricted securities” as defined by Rule 144 under the Securities Act or control securities. Under certain circumstances, these shares may be sold without registration pursuant to the provisions of Rule 144 following the expiration of one year after the Company ceases to be a shell company. In general, under rule 144, a person (or persons whose shares are aggregated) who has satisfied a six-month holding period and who is not an affiliate of the Company may sell restricted securities without limitation as long as the Company is current in its SEC reports. A person who is an affiliate of the Company may sell within any three-month period a number of restricted securities and/or control securities which does not exceed the greater of one (1%) percent of the shares outstanding or the average weekly trading volume during the four calendar weeks preceding the notice of sale required by Rule 144. In addition, Rule 144 permits, under certain circumstances, the sale of restricted securities by a non-affiliate without any limitations after a one-year holding period. Any sales of shares by stockholders pursuant to Rule 144 may have a depressive effect on the price of our Common stock.
Our Common Stock Is Traded Over the Counter, Which May Deprive Stockholders Of The Full Value Of Their Shares
Our common stock is quoted via the Over The Counter Bulletin Board (OTCBB). As such, our common stock may have fewer market makers, lower trading volumes and larger spreads between bid and asked prices than securities listed on an exchange such as the New York Stock Exchange or the NASDAQ Stock Market. These factors may result in higher price volatility and less market liquidity for the common stock.
A Low Market Price May Severely Limit The Potential Market For Our Common Stock
Our common stock is currently trading at a price substantially below US$5.00 per share, subjecting trading in the stock to certain SEC rules requiring additional disclosures by broker-dealers. These rules generally apply to any equity security that has a market price of less than US$5.00 per share, subject to certain exceptions (a “penny stock”). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and institutional or wealthy investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock. The additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock.
Item 1B
Item 1B Unresolved Staff Comments
Not applicable.
Item 2
Item 2 Properties
The Company occupies certain executive and office facilities in Melbourne, Victoria, Australia which are provided to it pursuant to the Service Agreement with AXIS. See “Item 1 - Business- Employees” and “Item 13 - Certain Relationships and Related Transactions and Director Independence”. The Company believes that its administrative space is adequate for its current needs.
Item 3
Item 3 Legal Proceedings
There are no pending legal proceedings to which the Company is a party, or to which any of its property is the subject, which the Company considers material.
Item 4
Item 4 Mine Safety Disclosures
Not applicable.
PART II
Item 5
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded in the over-the-counter market and quoted on the OTC-Bulletin Board under the symbol “CGEM”, which became effective on October 1, 2012.
The following table sets out the high and low bid information for the common stock as reported by the OTC Bulletin Board for each period/quarter indicated in US$:
(1) The quotations set out herein reflect inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.
As of December 31, 2015, there were 175,315,350 shares of common stock issued and outstanding. As at September 18, 2017 there were 199,873,683 shares of common stock issued and outstanding.
Dividends
To date we have not paid any cash dividends on our common stock and we do not expect to declare or pay any cash dividends on our common stock in the foreseeable future. Payment of any dividends will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by the Board of Directors.
On January 29, 2009 the Company’s Board of Directors declared a 6-for-1 stock split in the form of a stock dividend that was payable in February 2009 to stockholders of record as of February 14, 2009. An aggregate of 72,000,000 shares of common stock were issued in connection with this dividend.
On March 31, 2009, the Company’s Board of Directors declared a 2-for-1 stock split in the form of a stock dividend that was payable in August 2009 to stockholders of record as of August 12, 2009. An aggregate of 86,400,000 shares of common stock were issued in connection with this dividend.
Shareholders
As of December 31, 2015, the Company had 12 shareholders of record. Within the holders of record of the Company's Common Stock are depositories such as Cede & Co., a nominee for The Depository Trust Company (or DTC), that hold shares of stock for brokerage firms which, in turn, hold shares of stock for one or more beneficial owners. Accordingly, the Company believes there are many more beneficial owners of its Common Stock whose shares are held in "street name", not in the name of the individual shareholder
Transfer Agent
Our United States Transfer Agent and Registrar is Continental Stock Transfer & Trust Company.
Item 6
Item 6
Selected Financial Data
Our selected financial data presented below for the years ended December 31, 2015 and December 31, 2014 and the balance sheet data at December 31, 2015 and 2014 have been derived from financial statements, which have been audited by PKF O’Connor Davies LLP (PKF O’Connor Davies). The selected financial data should be read in conjunction with our financial statements for the years ended December 31, 2015 and 2014, and Notes thereto, which are included elsewhere in this Annual Report.
Statement of Operations Data
A$
A$
Revenues
-
-
Costs and expenses
95,438
128,794
(Loss) from operations
(95,438)
(128,794)
Foreign currency exchange (loss)
(14,072)
(1,743)
Other income - interest
-
-
(Loss) before income tax
(109,510)
(130,537)
Provision for income tax
-
-
Net (loss)
(109,510)
(130,537)
A$
A$
Net (loss) per share per common equivalent share
(0.00)
(0.00)
Weighted average number of common equivalent shares outstanding (000’s)
175,315
175,315
Balance Sheet Data
A$
A$
Total assets
16,342
Total liabilities
(1,244,917)
(1,151,631)
Stockholders’ (deficit)
(1,244,799)
(1,135,289)
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
General
The following discussion and analysis of our financial condition and plan of operation should be read in conjunction with the Financial Statements and accompanying notes and the other financial information appearing elsewhere in this report. This report contains numerous forward-looking statements relating to our business. Such forward-looking statements are identified by the use of words such as believes, intends, expects, hopes, may, should, plan, projected, contemplates, anticipates or similar words. Actual operating schedules, results of operations, ore grades and mineral deposit estimates and other projections and estimates could differ materially from those projected in the forward-looking statements. The functional and reporting currency of the Company is the Australian Dollar.
Foreign Currency Translation
The majority of our administrative operations are in Australia and, as a result, our accounts are reported in Australian dollars. Foreign income and expenses are translated into Australian dollars at the average exchange rate prevailing during the period. Assets and liabilities of the foreign operations are translated into Australian dollars at the period-end exchange rate. The following table shows the period-end rates of exchange of the Australian and US dollar compared with the US dollar during the periods indicated.
Year ended
December 31
2014 A$1.00 = US$0.8157
2015 A$1.00 = US$0.7299
The exchange rate between the A$ and US$ has moved by 11% between December 31, 2014 and 2015. Accordingly, a direct comparison of costs between fiscal 2014 and 2015 may not necessarily be a true comparison.
Overview
Consolidated Gems, Inc. (“Consolidated Gems” or the “Company”), is a Delaware corporation originally incorporated in Florida as We Sell For U Corp. (“We Sell For U”). Consolidated Gems was originally established with the intention to develop and provide service offerings to facilitate auctions on eBay for individuals and companies who lack the eBay expertise and/or time to list/sell and ship items they wish to sell. In December 2008, Power Developments Pty Ltd, an Australian corporation (“Power”) acquired a 96% interest in Consolidated Gems from Edward T. Farmer and certain other stockholders. Mr. Farmer resigned as Sole Director and Officer of Consolidated Gems, Joseph Gutnick was appointed President, Chief Executive Officer and a Director and Peter Lee was appointed Chief Financial Officer and Secretary.
On August 12, 2009, the Company re-incorporated in the State of Delaware (the “Reincorporation”) through a merger involving We Sell for U Corp. and Consolidated Gems, a Delaware Corporation that was a wholly owned subsidiary of We Sell for U. The Reincorporation was effected by merging We Sell for U with Consolidated Gems, with Consolidated Gems being the surviving entity. For purposes of the Company’s reporting status with the Securities and Exchange Commission, Consolidated Gems is deemed a successor to We Sell for U.
We have incurred net losses since our inception and may continue to incur substantial and increasing losses for the next several years. Since inception we have incurred accumulated deficit of A$2,835,947 which was funded primarily by advances from affiliates and by the sale of equity securities.
In order to take advantage of management’s substantial experience in the location and development of mineral exploration properties, the Company plans to look for opportunities in the resources industry.
As a result of management’s decision to refocus its efforts from energy opportunities to explore opportunities in the resources industry, effective March 31, 2013, the Company ceased reporting as a development stage company. Since April 1, 2013, the Company had been evaluating potential gem related projects and had been granted an exploration tenement in New South Wales, Australia. Accordingly, from April 1, 2013 the Company had been classified as an exploration stage company. In March 2015, following a review of the results of exploration on the gem tenement, the Company decided to relinquish the exploration licence.
On March 8, 2016, the Company announced it had entered into a Term Sheet with Noam Levavi and Eran Galil (the “Vendors”) for the acquisition of all of the issued shares of Byondata (“Byondata”), a company incorporated under the laws of Israel. The Company had a 90 day period to conduct due diligence and negotiate a formal share sale agreement. Headquartered in Herzliya, Israel, Byondata has developed unique platform as a service to create content-rich, immersive Virtual Reality (VR) experiences. Following initial due diligence and by mutual agreement, the proposed acquisition was terminated.
On July 24, 2017, the Company entered into a Term Sheet with Lior Barash, Erez Glazer, Lior Wayn, and Lior Dolfin, (collectively, the ‘’Sellers”) for the acquisition of all of the issued shares of the Cyber Security technology business “Attofensive”, a company incorporated under the laws of Israel. The Company has a 120 day period to conduct due diligence and negotiate a formal share sale agreement.
The purchase price is up to USD$20,000,000 which is to be satisfied as follows:
a)
The sum of USD$25,000 payable to the Sellers for due diligence expenses, 30 business days from the execution of the Term Sheet;
b)
A further USD$25,000 each month after the date in a) above for due diligence expenses, for 3 months, payable to the Sellers for working capital purposes;
c)
An issue of fully paid ordinary shares of common stock of the Company to the value of USD$5,000,000 (less any payments made to The Sellers under (a) and (b) above) to the Sellers at an issue price of USD$0.10 per share of common stock (Consideration Shares);
d)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$100,000 within twelve months after the first anniversary of Completion;
e)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$1,000,000 within twelve months after the first anniversary of Completion; and
f)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$2,500,000 within twelve months after the first anniversary of Completion.
If the Transaction is terminated or is in the reasonable opinion of the Company unable to proceed at any point, the Vendors and the Sellers have agreed to convert any monies paid to the Sellers under (a) and (b) above into convertible securities in the Sellers.
As part of the agreement and as a condition to completion, the Company will raise USD$5,000,000.
Pending completion, the Sellers are required to carry on business in the ordinary course.
Prior to completion the Sellers is discharge all encumbrances, mortgages, liens bank loans and other security holdings other than no more than $200,000 from past working capital.
In January 2009, the Company entered into an agreement with AXIS Consultants Pty Ltd (“AXIS”) to provide geological, management and administration services to the Company. AXIS has some common management and is incorporated in Australia. AXIS is paid by each company it manages for the costs incurred by it in carrying out the administration function for each such company. Pursuant to the Service Agreement, AXIS performs such functions as payroll, maintaining employee records required by law and by usual accounting procedures, providing insurance, legal, human resources, company secretarial, land management, certain exploration and mining support, financial, accounting advice and services. AXIS procures items of equipment necessary in the conduct of the business of the Company. AXIS also provides for the Company various services, including but not limited to the making available of office supplies, office facilities and any other services as may be required from time to time by the Company as and when requested by the Company. We are required to reimburse AXIS for any direct costs incurred by AXIS for the Company. In addition, we are required to pay a proportion of AXIS’s overhead cost based on AXIS’s management estimate of our utilization of the facilities and activities of AXIS plus a service fee of not more than 15% of the direct and overhead costs. Amounts invoiced by AXIS are required to be paid by us. Under the agreement, we are not permitted to obtain from sources other than AXIS, and we are not permitted to perform or provide ourselves, the services contemplated by the Service Agreement, unless we first request AXIS to provide the service and AXIS fails to provide the service within one month. As our arrangements with AXIS have evolved, the arrangements have changed, which have verbally been agreed to by AXIS, as a result of the requirements of certain suppliers to be able to deal directly with us. In these cases, AXIS does not charge us a management or service fee in respect to these arrangements with suppliers who deal with us directly. The types of services that are provided directly to us include audit and tax services, legal services, stock transfer services and Delaware franchise tax.
Results of Operations
As set out in Management’s Discussion and Analysis of Financial Condition and Results of Operation - Overview, the Company is managed by AXIS. Certain costs and expenses are incurred by the Company and certain costs and expenses are incurred by AXIS on behalf of the Company and billed to the Company by AXIS. The total amount of expenses billed to the Company and incurred on its behalf by AXIS in fiscal 2015 was A$21,833 (2014: A$53,072). The discussion in the next paragraphs relates to costs and expenses of the Company, incurred by both the Company; and by AXIS that are billed to the Company.
Year ended December 31, 2015 versus Year ended December 31, 2014
Total costs and expenses have decreased from A$128,794 for the year ended December 31, 2014 to A$95,438 for the year ended December 31, 2015. The decrease was a net result of:
i)
An increase in legal, accounting and professional costs from A$60,365 for the year ended December 31, 2014 to A$76,748 for the year ended December 31, 2015. Included within legal, accounting and professional costs for the year ended December 31, 2015 is A$10,032 for stock transfer agent fees for management of the share register (2014: A$8,943), A$338 for legal expenses (2014: A$784), A$nil for professional consultant fees (2014: A$516), and A$66,377 (2014: A$50,122) for audit and tax fees and professional services in relation to financial statements in the quarterly reports on Form 10-Q and annual reports on Form 10-K and taxation matters.
ii)
A decrease in administration expenses from A$57,796 for the year ended December 31, 2014 to A$18,690 for the year ended December 31, 2015. Included with administrative expenses for the year ended December 31, 2015 is an amount of A$4,351 for salaries incurred on behalf of the Company which relate to amounts paid to the President and Chief Executive Officer, Secretary and Chief Financial Officer and other staff of AXIS who provide services to the Company offset by credit of A$21,271 from AXIS for charges relating to 2014, (2014: A$30,121 billed to us); A$285 for information systems costs (2014: A$(67)); A$8,058 for lodgement of company filings with the SEC (2014: A$19,577); insurance costs of A$13,804 (2014: A$6,388); storage costs of A$530 (2014: A$928); bank charges of A$777 (2014: A$833); consultants fees of A$11,000 (2014: A$nil); franchise tax of A$1,871 (2014: A$nil) and administration fees of A$3,636 (2014: A$16). The decrease is primarily as a result of a decrease in the cost of services provided by AXIS in accordance with the service agreement. The total administrative expenses include AXIS billings of credit for $(4,251) for 2015 (2014: $53,071).
iii)
A decrease in exploration expenditure expense from A$10,633 for the year ended December 31, 2014 to A$nil for the year ended December 31, 2015, as the Company relinquished its mining interests in early fiscal 2015.
Accordingly, the loss from operations decreased from A$128,794 for the year ended December 31, 2014 to A$95,438 for the year ended December 31, 2015.
Foreign currency exchange loss increased from A$1,743 for the year ended December 31, 2014 to A$14,072 for the year ended December 31, 2015 as a result of the movement in the US dollar versus the Australian dollar.
The net loss for the year ended December 31, 2014 was A$130,537 compared to a net loss for the year ended December 31, 2015 of A$109,510.
Liquidity and Capital Resources
For fiscal 2015, net cash used in operating activities was A$24,030 (2014: A$91,716) primarily consisting of the net loss of A$109,510 (2014: A$130,537), offset by a non-cash charge for foreign currency exchange loss of A$14,072 (2014: A$1,743), a decrease in prepayments of A$2,660 (2014: A$2,392), an decrease in receivables and deposits of A$11,510 (2014: A$3,912) and an increase in accounts payable and accrued expenses of A$57,238 (2014: A$30,774). Financing activities in 2015 consisted of an advance of A$21,976 (2014: A$93,361) from AXIS. All of the Company’s operations since inception have been funded by AXIS and sale of equity securities
As of December 31, 2015, the Company has short term obligations of A$156,742 comprising accounts payable and accrued expenses, and had long term obligations of A$1,088,175 comprising advances payable to an affiliate.
During the year ended December 31, 2015, AXIS provided services in accordance with the Services Agreement, incurred direct costs and provided funding on behalf of the Company of A$21,833 (2014: A$53,072), and advanced the Company A$143 (2014: A$40,290). At December 31, 2015, the amount owed to AXIS was A$1,088,175 (2014: A$1,066,199).
In early 2016, the Company commenced a private placement and received subscriptions for 24,558,333 shares of common stock at a price of A$0.04 for A$986,652.
On March 8, 2016, the Company announced it had entered into a Term Sheet with Noam Levavi and Eran Galil (the “Vendors”) for the acquisition of all of the issued shares of Byondata (“Byondata”), a company incorporated under the laws of Israel. The Company had a 90 day period to conduct due diligence and negotiate a formal share sale agreement. Headquartered in Herzliya, Israel, Byondata has developed unique platform as a service to create content-rich, immersive Virtual Reality (VR) experiences. Following initial due diligence and by mutual agreement, the proposed acquisition was terminated.
On July 24, 2017, the Company entered into a Term Sheet with Lior Barash, Erez Glazer, Lior Wayn, and Lior Dolfin, (collectively, the ‘’Sellers”) for the acquisition of all of the issued shares of the Cyber Security technology business “Attofensive”, a company incorporated under the laws of Israel. The Company has a 120 day period to conduct due diligence and negotiate a formal share sale agreement.
The purchase price is up to USD$20,000,000 which is to be satisfied as follows:
g)
The sum of USD$25,000 payable to the Sellers for due diligence expenses, 30 business days from the execution of the Term Sheet;
h)
A further USD$25,000 each month after the date in a) above for due diligence expenses, for 3 months, payable to the Sellers for working capital purposes;
i)
An issue of fully paid ordinary shares of common stock of the Company to the value of USD$5,000,000 (less any payments made to The Sellers under (a) and (b) above) to the Sellers at an issue price of USD$0.10 per share of common stock (Consideration Shares);
j)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$100,000 within twelve months after the first anniversary of Completion;
k)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$1,000,000 within twelve months after the first anniversary of Completion; and
l)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$2,500,000 within twelve months after the first anniversary of Completion.
If the Transaction is terminated or is in the reasonable opinion of the Company unable to proceed at any point, the Vendors and the Sellers have agreed to convert any monies paid to the Sellers under (a) and (b) above into convertible securities in the Sellers.
As part of the agreement and as a condition to completion, the Company will raise USD$5,000,000.
Pending completion, the Sellers are required to carry on business in the ordinary course.
Prior to completion the Sellers is discharge all encumbrances, mortgages, liens bank loans and other security holdings other than no more than $200,000 from past working capital.
The Company has funded operations since inception through advances from affiliated entities. The Company’s ability to continue operations through 2018 is dependent upon future funding from affiliated entities, capital raisings, or its ability to commence revenue producing operations and positive cash flows, of which there can be no assurance. AXIS has advised it does not currently intend to require repayment of these advances prior to December 31, 2016, accordingly the Company has decided to classify the amounts payable as non-current in the accompanying balance sheets.
The Company continues to search for additional sources of capital, as and when needed; however, there can be no assurance funding will; be successfully obtained. Even if it is obtained, there is no assurance that it will not be secured on terms that are highly dilutive to existing shareholders.
In order to take advantage of management’s substantial experience in the location and development of mineral exploration properties, the Company plans to look for opportunities in the resources industry.
The Company had decided to expand its focus to include precious gems in order to generate value for shareholders and was assessing several gem opportunities. In March 2015, following a review of the results of exploration on the gem tenement, the Company decided to relinquish the exploration licence.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of Consolidated Gems as a going concern. However, Consolidated Gems has limited assets, has not yet commenced revenue producing operations and has sustained recurring losses since inception.
Our budget for general and administration and for professional expenses for fiscal 2016 is A$0.25 million. Once we have identified a specific exploration or mining project we will also need to prepare a budget for these activities. We are currently investigating capital raising opportunities which may be in the form of either equity or debt, to provide funding for working capital purposes. There can be no assurance that such a capital raising will be successful, or that even if an offer of financing is received by the Company, it is on terms acceptable to the Company.
Impact of Australian Tax Law
On December 28, 2008 the management and control of Consolidated Gems was effectively transferred to Australia making the Company an Australian resident corporation under Australian law. Australian resident corporations are subject to Australian income tax on their non-exempt worldwide assessable income (which includes capital gains), less allowable deductions, at the rate of 30%. Foreign tax credits are allowed where tax has been paid on foreign source income, provided the tax credit does not exceed 30% of the foreign source income.
Under the U.S./Australia tax treaty, a U.S. resident corporation such as us is subject to Australian income tax on net profits attributable to the carrying on of a business in Australia through a “permanent establishment” in Australia. A “permanent establishment” is a fixed place of business through which the business of an enterprise is carried on. The treaty limits the Australian tax on interest and royalties paid by an Australian business to a U.S. resident to 10% of the gross interest or royalty income unless it relates to a permanent establishment. Although we consider that the Company does not have a permanent establishment in Australia, it may be deemed to have such an establishment due to the location of its administrative offices in Melbourne. In addition we may receive interest or dividends from time to time.
Impact of Australian Governmental, Economic, Monetary or Fiscal Policies
Although Australian taxpayers are subject to substantial regulation, we believe that our operations are not materially impacted by such regulations nor is it subject to any broader regulations or governmental policies than most Australian taxpayers.
Impact of Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements on the Company’s financial statements, see Note 4 to the Company’s Financial Statements which are included elsewhere in this Annual Report.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
At December 31, 2015, the Company had no outstanding borrowings under Loan Facilities.
Item 8.
Item 8. Financial Statements
See F Pages
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A
Item 9A Controls and Procedures
(a)
Evaluation of disclosure controls and procedures.
Our principal executive officer and our principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as amended) as of the end of the period covered by this report. Based on that evaluation, such principal executive officer and principal financial officer concluded that, the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonable level of assurance.
(b)
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d - 15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision of management and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013 Framework). Based on our evaluation of internal control over financial reporting, our management concluded that our internal control over financial reporting was effective as of December 31, 2015.
(c)
Attestation report of the Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
(d)
Change in Internal Control over Financial Reporting.
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
(e)
Other.
We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Therefore, 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. Our disclosure controls and procedures are designed to provide such reasonable assurance of achieving our desired control objectives, and our principal executive officer and principal financial officer have concluded, as of December 31, 2015, that our disclosure controls and procedures were effective in achieving that level of reasonable assurance.
Item 9B
Item 9B Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth our director and officer, their ages and all offices and positions with our company. Officers and other employees serve at the will of the Board of Directors.
Name
Age
Position(s) Held
Mordechai Gutnick
President and Chief Executive Officer
Peter Lee
Secretary, Chief Financial Officer and Principal Accounting Officer
Director Qualifications
The following paragraphs provide information as of the date of this report about our sole director as well as about each executive officer. The information presented includes information such director has given us about his age, all positions he holds, his principal occupation and business experience for the past five years, and the names of other publicly-held companies of which he currently serves as a director or has served as a director during the past five years which we believe demonstrates our sole director’s qualifications to serve on our Board of Directors.
Mordechai Gutnick
Mr. Gutnick is a businessman who invests in public listed companies. He was appointed President and as a Director on September 30, 2015. Mr. Gutnick is a Director of Merlin Diamonds Limited, Top End Minerals Limited, Golden River Resources Corporation and was formerly a director of Legend International Holdings Inc. and Quantum Resources Limited.
Peter Lee
Mr. Lee has been Chief Financial Officer and Principal Accounting Officer since December 2008. Mr. Lee is a Member of the Institute of Chartered Accountants in Australia, a Fellow of the Governance Institute in Australia, a Member of the Australian Institute of Company Directors and holds a Bachelor of Business (Accounting) from Royal Melbourne Institute of Technology. He has over 30 years commercial experience and is currently CFO and Secretary of Aurum, Inc. (since 2009), Director, CFO and Secretary of Golden River Resources Corporation (for more than 10 years), which are US corporations listed on the OTC market in the USA; CFO and Secretary of Northern Capital Resources Corporation and Great Central Resources Corporation, US Corporations; and CFO and Secretary of Merlin Diamonds Limited, and Director, CFO and Secretary of Top End Minerals Limited, both listed on the Australian Securities Exchange. He was a Director of Acadian Mining Corporation, which was listed on the Toronto Stock Exchange until October 2013 and Quantum Resources Limited which was listed on the ASX until May 2015 and CFO and Secretary of Legend International Holdings Inc. which was previously listed on OTCBB
Mr. Joseph Gutnick resigned as a director on September 30, 2015.
Involvement on Certain Material Legal Proceedings During the Last Ten Years
No director, officer, significant employee or consultant has been convicted in a criminal proceeding, exclusive of traffic violations. No director, officer, significant employee or consultant has been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities or banking activities. No director, officer or significant employee has been convicted of violating a federal or state securities or commodities law.
Mr. Lee was formerly Company Secretary of Centaur Mining & Exploration Ltd., an Australian corporation, which commenced an insolvency proceeding in Australia in March 2001 and Legend International Holdings Inc. which commenced insolvency proceedings in May 2016.
Board, Audit Committee and Remuneration Committee Meetings
Our Board of Directors consists of one director. During fiscal 2015, our Board of Directors met once.
Directors are elected for an annual term and generally hold office until the next Directors have been duly elected and qualified. Directors may receive compensation for their services as determined by the Board of Directors. A vacancy on the Board may be filled by the remaining Directors even though less than a quorum remains. A Director appointed to fill a vacancy remains a Director until his successor is elected by the Stockholders at the next annual meeting of Shareholder or until a special meeting is called to elect Directors.
We do not have a nominating committee. Historically our entire Board has selected nominees for election as directors. The Board believes this process has worked well thus far particularly since it has been the Board's practice to require unanimity of Board members with respect to the selection of director nominees. In determining whether to elect a director or to nominate any person for election by our stockholders, the Board assesses the appropriate size of the Board of Directors, consistent with our bylaws, and whether any vacancies on the Board are expected due to retirement or otherwise. If vacancies are anticipated, or otherwise arise, the Board will consider various potential candidates to fill each vacancy. Candidates may come to the attention of the Board through a variety of sources, including from current members of the Board, stockholders, or other persons. The Board of Directors has not yet had the occasion to, but will, consider properly submitted proposed nominations by stockholders who are not directors, officers, or employees of Consolidated Gems on the same basis as candidates proposed by any other person. We do not have a policy with respect to the use of diversity as a criteria for Board membership and do not consider diversity in the selection of our Directors.
Audit Committee
At December 31, 2015, the Company had not formed an audit committee or adopted an audit committee charter. In lieu of an audit committee, the Company's Board of Directors assumes the responsibilities that would normally be those of an audit committee. Given the limited scope of the Company’s operations to date, the Board of Directors does not at present have a director that would qualify as an audit committee financial expert under the applicable federal securities law regulations.
Remuneration Committee
At December 31, 2015, the Company had not formed a remuneration committee or adopted a remuneration committee charter. In lieu of a remuneration committee, the Company's Board of Directors assumes the responsibilities that would normally be those of an remuneration committee.
Code of Ethics
We have adopted a Code of Conduct and Ethics and it applies to all Directors, Officers and employees. A copy of the Code of Conduct and Ethics is posted on our website at www.electrumint.com and we will provide a copy to any person without charge. If you require a copy, you can download it from our website or alternatively, contact us by facsimile or email and we will send you a copy.
Stockholder Communications with the Board
Stockholders who wish to communicate with the Board of Directors should send their communications to the Chairman of the Board at the address listed below. The Chairman of the Board is responsible for forwarding communications to the appropriate Board members.
Mr. Mordechai Gutnick
Consolidated Gems, Inc.
Level 1A, 42 Moray Street
Southbank, Victoria 3006 Australia
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, our Directors, executive officers and beneficial owners of more than 10% of the outstanding Common Stock are required to file reports with the Securities and Exchange Commission concerning their ownership of and transactions in our Common Stock and are also required to provide to us copies of such reports. Based solely on such reports and related information furnished to us, we believe that in fiscal 2015, all such filing requirements were complied with in a timely manner by all Directors and executive officers and 10% stockholders.
Item 11.
Item 11. Executive Compensation.
The following table sets forth the annual salary, bonuses and all other compensation awards and pay outs on account of our Chief Executive Officer for services rendered to us during the fiscal years ended December 31, 2015 and 2014. No other executive officer received more than US$100,000 per annum during this period.
Summary Compensation Table
Name and
Principal
Position
Year
Salary
Bonus
Stock Awards
Option
Awards
Non-Equity
Incentive
Plan
Compensation
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
All Other
Compensation
Total
Mordechai Gutnick,
Chairman of the Board,
President and CEO (1)
-
-
-
-
-
-
-
-
Joseph Gutnick,
Chairman of the Board,
President and CEO (2)
-
US$617
-
-
-
-
-
-
-
-
-
-
-
-
-
US$617
(1)
Appointed September 30, 2015
(2)
Resigned September 30, 2015
We have a policy that we will not enter into any transaction with an officer, Director or affiliate of the Company or any member of their families unless the terms of the transaction are no less favourable to us than the terms available from non-affiliated third parties or are otherwise deemed to be fair to the Company at the time authorised.
Outstanding Equity Awards at Fiscal Year-End
The Company does not currently have any equity or stock option plans.
Principal Officers Contracts
The principal officers do not have any employment contracts.
Compensation of Directors
The Company’s directors who are also executive officers of the Company did not receive any separate compensation during fiscal 2015 for serving as directors of the Company.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information regarding the beneficial ownership of our common stock by each person or entity known by us to be the beneficial owner of more than 5% of the outstanding shares of common stock, each of our directors and named executive officers, and all of our directors and executive officers as a group as of September 18, 2017.
Title of
Class
Name and Address
of Beneficial Owner*
Amount and nature of
Beneficial Owner
Percentage
of class (1)
Shares of common stock
Shares of common stock
Mordechai Gutnick
Peter J. Lee
165,600,000(2)
-
82.85
-
All officers and Directors
as a group
165,600,000
82.85
*
Unless otherwise indicated, the address of each person is c/o Consolidated Gems, Inc., Level 1A, 42 Moray Street, Southbank, Victoria, 3006 Australia
Notes:
(1)
Based on 199,873,683 shares outstanding as of September 18, 2017.
(2)
Includes 165,600,000 shares owned by Power Developments Pty Ltd, of which Mr. Mordechai Gutnick is a Director and the sole stockholder.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
In January 2009, the Company entered into an agreement with AXIS to provide geological, management and administration services to the Company. AXIS has some common management and is incorporated in Australia. Mr. Peter Lee is Chief Financial Officer and Company Secretary of AXIS and owes a fiduciary duty to both parties. AXIS’ principal business is to provide geological, management and administration services to companies. We are one of seven affiliated companies that AXIS provides services to, namely, Merlin Diamonds Ltd, Top End Minerals Ltd, Northern Capital Resources Corp, Golden River Resources Corp, Great Central Resources Corp., Aurum Inc, and Consolidated Gems Inc.
Each of the companies has some common Directors, officers and shareholders. In addition, each of the companies is substantially dependent upon AXIS for its senior management and certain mining and exploration staff. A number of arrangements and transactions have been entered into from time to time between such companies. It has been the intention of the affiliated companies and respective Boards of Directors that each of such arrangements or transactions should accommodate the respective interest of the relevant affiliated companies in a manner which is fair to all parties and equitable to the shareholders of each. Currently, there are no material arrangements or planned transactions between the Company and any of the other affiliated companies other than AXIS.
AXIS is paid by each company it manages for the costs incurred by it in carrying out the administration function for each such company. Pursuant to the Service Agreement, AXIS performs such functions as payroll, maintaining employee records required by law and by usual accounting procedures, providing insurance, legal, human resources, company secretarial, land management, certain exploration and mining support including provision of exploration managers and geologists, financial, accounting advice and services. AXIS also provides for the Company various services, including but not limited to the making available of office supplies, office facilities and any other services as may be required from time to time by the Company as and when requested by the Company.
We are required to reimburse AXIS for any direct costs incurred by AXIS for the Company. In addition, we are required to pay a proportion of AXIS’s overhead cost based on AXIS’s management estimate of our utilization of the facilities and activities of AXIS plus a service fee of not more than 15% of the direct and overhead costs. Amounts invoiced by AXIS are required to be paid by us. We are also not permitted to obtain from sources other than AXIS, and we are not permitted to perform or provide ourselves, the services contemplated by the Service Agreement, unless we first request AXIS to provide the service and AXIS fails to provide the service within one month.
The Service Agreement may be terminated by AXIS or us upon 60 days prior notice. If the Service Agreement is terminated by AXIS, we would be required to independently provide, or to seek an alternative source of providing, the services currently provided by AXIS. There can be no assurance that we could independently provide or find a third party to provide these services on a cost-effective basis or that any transition from receiving services under the Service Agreement will not have a material adverse effect on us. Our inability to provide such services or to find a third party to provide such services may have a material adverse effect on our operations.
The arrangement with AXIS has changed since it was originally entered into as the relationship has evolved as a result of the requirements of certain suppliers to be able to deal directly with us. In these cases, AXIS does not charge us a management or service fee in respect to these arrangements with suppliers who deal with us directly. The types of services that are provided directly to us include audit and tax services, legal services, stock transfer services, and Delaware franchise tax.
In accordance with the Service Agreement, AXIS provides the Company with the services of our Chief Executive Officer, Chief Financial Officer and clerical employees, as well as office facilities, equipment, administrative and clerical services. We pay AXIS for the actual costs of such facilities. AXIS has not charged a service fee for this fiscal year.
During the year ended December 31, 2015, AXIS provided services in accordance with the Services Agreement, incurred direct costs and provided funding on behalf of the Company of A$21,833 (2014: A$53,072), and advanced the Company A$143 (2014: A$40,290). At December 31, 2015, the amount owed to AXIS was A$1,088,175 (2014: A$1,066,199).
The Company has received advances from AXIS in connection with the ongoing business relationship between the two parties, which have been disclosed in the Company’s SEC reports, but which are not specifically provided for in the AXIS Services Agreement. Historically, the shortfall in our cash receipts has been covered by cash advances from AXIS. The purpose of such advances is to assist us in meeting our ongoing cash flow requirements. Since December 31, 2015, the Company has repaid A$786,000 to AXIS.
Transactions with Management.
We have a written policy that we will not enter into any transaction with an Officer, Director or Affiliate of us or any member of their families unless the transaction is approved by a majority of our disinterested non-employee Directors and the disinterested majority determines that the terms of the transaction are no less favourable to us than the terms available from non-affiliated third parties or are otherwise deemed to be fair to us at the time authorised.
Item 14.
Item 14. Principal Accounting Fees and Services
The following table shows the fees incurred for fiscal 2015 and 2014.
A$
A$
Audit fees
48,215
40,928
Audit related fees
-
-
Tax fees
12,542
9,194
Total
60,757
50,122
Audit fees were for the audit of our annual financial statements, review of financial statements included in our 10-Q quarterly reports, and services that are normally provided by independent auditors in connection with our other filings with the SEC. This category also includes advice on accounting matters that arose during, or as a result of, the audit or review of our interim financial statements.
Tax fees relate to the preparation of the Company’s income tax returns and other tax compliance filings.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a)
Financial Statements and Notes thereto.
The Financial Statements and Notes thereto listed on the Index at page 26 of this Annual Report on Form 10-K are filed as a part of this Annual Report.
(b)
Exhibits
The Exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index at page 26 of this Annual Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorised.
Dated: September 24, 2017.
FORM 10-K Signature Page
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the dates indicated.
EXHIBIT INDEX
*Filed herewith
(1)
Incorporated by reference to the Company’s Form 8-K filed on July 16, 2009.
(2)
Incorporated by reference to the Company’s Form 10-K filed on March 30, 2011.
(3)
Incorporated by reference to the Company’s Form 10-K filed on March 26, 2010.
(4)
Incorporated by reference to the Company’s Form 8-K filed on January 29, 2009.
Financial Statements as of December 31, 2015 and 2014 and for the years ended December 31, 2015 and 2014.
Consolidated Gems, Inc.
Audited Financial Statements for the Company for the years ended December 31, 2015 and 2014.
CONSOLIDATED GEMS, INC.
Consolidated Financial Statements
December 31, 2015 and 2014
(with Report of Independent Registered Public Accounting Firm)
CONTENTS
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Financial Statements to
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Consolidated Gems, Inc.
We have audited the accompanying balance sheets of Consolidated Gems, Inc. as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Consolidated Gems, Inc. at December 31, 2015 and 2014 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As described in Note 3, at December 31, 2015 the Company has negative working capital, has not yet commenced revenue producing operations, has incurred net losses from inception, and has an accumulated (deficit) of a $2,835,947. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management’s plans in regard to these matters are also discussed in note 3.
/s/ PKF O’Connor Davies LLP
New York, NY
September 23, 2017
CONSOLIDATED GEMS, INC.
Balance Sheets
December 31, 2015 and 2014
CONSOLIDATED GEMS, INC.
Statements of Operations
Year
Ended
December 31,
Year
Ended
December 31,
A$
A$
Revenues
-
-
Costs and expenses
Legal, accounting and professional
76,748
60,365
Administration expenses
18,690
57,796
Exploration expenses
-
10,633
95,438
128,794
(Loss) from operations
(95,438)
(128,794)
Foreign currency exchange (loss)
(14,072)
(1,743)
Interest - other
-
-
(Loss) before income tax
(109,510)
(130,537)
Provision for income tax
-
-
Net (Loss)
(109,510)
(130,537)
Basic net (loss) per common equivalent shares
(0.00)
(0.00)
Weighted number of common equivalent shares (000’s)
175,315
175,315
See notes to financial statements
CONSOLIDATED GEMS, INC.
Statement of Stockholders’ Equity (Deficit)
CONSOLIDATED GEMS, INC.
Statements of Cash Flows
Year
Ended
December 31,
Year
Ended
December 31,
A$
A$
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss)
(109,510)
(130,537)
Adjustments to reconcile net (loss) to net cash (used)
in operating activities
Foreign currency exchange loss
14,072
1,743
Net change receivables and deposits
11,510
3,912
Net change in prepayments
2,660
2,392
Net change in accounts payable and accrued expenses
57,238
30,774
Net Cash (used) in Operating Activities
(24,030)
(91,716)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from affiliate
21,976
93,361
Net Cash provided by Financing Activities
21,976
93,361
Effects of exchange rate on cash
-
(1,743)
Net (decrease) in Cash
(2,054)
(98)
Cash at Beginning of Year
2,172
2,270
Cash at End of Year
2,172
See notes to financial statements
CONSOLIDATED GEMS, INC.
Notes to Financial Statements
December 31, 2015 and 2014
(1)
ORGANIZATION AND BUSINESS
Consolidated Gems, Inc. ("Consolidated Gems” or the “Company"), is a Delaware corporation originally incorporated in Florida as We Sell for U Corp. The principal stockholder of Consolidated Gems is Power Developments Pty Ltd., an Australian corporation (“Power”), an entity majority owned by the Company’s president, which owned 94.46% of Consolidated Gems as of December 31, 2015.
In order to take advantage of management’s substantial experience in the location and development of mineral exploration properties, the Company plans to look for opportunities in the resources industry.
The Company had decided to expand its focus to include precious gems in order to generate value for shareholders and was assessing several gem opportunities. In March 2015, following a review of the results of exploration on the gem tenement, the Company decided to relinquish the exploration licence.
On March 8, 2016, the Company announced it had entered into a Term Sheet with Noam Levavi and Eran Galil (the “Vendors”) for the acquisition of all of the issued shares of Byondata (“Byondata”), a company incorporated under the laws of Israel. The Company had a 90 day period to conduct due diligence and negotiate a formal share sale agreement. Headquartered in Herzliya, Israel, Byondata has developed unique platform as a service to create content-rich, immersive Virtual Reality (VR) experiences. Following initial due diligence and by mutual agreement, the proposed acquisition was terminated.
On July 24, 2017, the Company entered into a Term Sheet with Lior Barash, Erez Glazer, Lior Wayn, and Lior Dolfin, (collectively, the ‘’Sellers”) for the acquisition of all of the issued shares of the Cyber Security technology business “Attofensive”, a company incorporated under the laws of Israel. The Company has a 120 day period to conduct due diligence and negotiate a formal share sale agreement.
The purchase price is up to USD$20,000,000 which is to be satisfied as follows:
m)
The sum of USD$25,000 payable to the Sellers for due diligence expenses, 30 business days from the execution of the Term Sheet;
n)
A further USD$25,000 each month after the date in a) above for due diligence expenses, for 3 months, payable to the Sellers for working capital purposes;
o)
An issue of fully paid ordinary shares of common stock of the Company to the value of USD$5,000,000 (less any payments made to The Sellers under (a) and (b) above) to the Sellers at an issue price of USD$0.10 per share of common stock (Consideration Shares);
p)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$100,000 within twelve months after the first anniversary of Completion;
q)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$1,000,000 within twelve months after the first anniversary of Completion; and
r)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$2,500,000 within twelve months after the first anniversary of Completion.
If the Transaction is terminated or is in the reasonable opinion of the Company unable to proceed at any point, the Vendors and the Sellers have agreed to convert any monies paid to the Sellers under (a) and (b) above into convertible securities in the Sellers.
As part of the agreement and as a condition to completion, the Company will raise USD$5,000,000.
Pending completion, the Sellers are required to carry on business in the ordinary course.
Prior to completion the Sellers is discharge all encumbrances, mortgages, liens bank loans and other security holdings other than no more than $200,000 from past working capital.
(2)
ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed in connection with the preparation of the financial statements.
(a)
Basis of presentation and use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
The functional and reporting currency is the Australian dollar.
Foreign Currency Translation
Effective April 1, 2013, the Company’s functional and reporting currency is the Australian dollar. Revenue and expenses incurred in a currency other than Australian dollars are translated at the date incurred or invoiced. Assets and liabilities are re-valued at the period end exchange rate where appropriate. Gains or losses from foreign currency transactions are included in the results of operations.
Prior to April 1, 2013, the Company’s functional currency was the US dollar. However, as a result of Australian based activities in the second quarter of 2013 relating to potential gem projects, the Company’s revenue and expenses are now primarily denominated in Australian dollars (A$). ASC 830 Foreign Currency Translation, states that the functional currency of an entity is the currency of the primary economic environment in which the entity operates. Accordingly the Company determined that from April 1, 2013 the functional currency of the Company is the Australian dollar. Assets, liabilities and equity were translated at the rate of exchange at April 1, 2013. Revenue and expenses were translated at rates at date of transaction. Translation gains and losses, if material, are included as part of accumulated other comprehensive income. The resulting translation at April 1, 2013 was not material.
(b)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. For the periods presented there were no cash equivalents.
(c)
Federal Income Tax
ASC Topic 740 prescribes how a company should recognise, measure, present and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. Additionally for tax positions to qualify for deferred tax benefit recognition under ASC 740, the position must have at least “more than likely not” chance of being sustained upon challenge by the respective taxing authorities, and whether or not it meets that criteria is a matter of significant judgement. The Company believes that it does not have any uncertain tax positions that would require the recording or disclosure of a potential tax liability.
The Company follows the asset and liability approach which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. For the periods presented, there was no taxable income. There are no deferred income taxes resulting from temporary differences in reporting certain income and expense items for income tax and financial accounting purposes. The Company, at this time, is not aware of any net operating losses which are expected to be realized.
(d)
Australian Tax Law
The Company is not an Australian resident corporation under Australian law. If the Company became an Australian resident corporation, it would be subject to Australian income tax on its non-exempt worldwide assessable income (which includes capital gains), less allowable deductions, at the rate of 30%. Foreign tax credits are allowed where tax has been paid on foreign source income provided the tax credit does not exceed 30% of the foreign source income.
Under the U.S./Australia tax treaty, a U.S. resident corporation such as us is subject to Australian income tax on net profits attributable to the carrying on of a business in Australia through a “permanent establishment” in Australia. A “permanent establishment” is a fixed place of business through which the business of an enterprise is carried on. The treaty limits the Australian tax on interest and royalties paid by an Australian business to a U.S. resident to 10% of the gross interest or royalty income unless it relates to a permanent establishment. Although we consider that the Company does not have a permanent establishment in Australia, it may be deemed to have such an establishment due to the location of its administrative offices in Melbourne. In addition we may receive interest or dividends from time to time.
(e)
Goods and Services Tax (“GST”)
Revenues, expenses and assets generated in Australia are subject to Australian GST which requires the supplier to add a 10% GST to predominately all expenses and the cost of assets and for the Company to include a 10% GST to the selling price of a product. Revenues, expenses and assets are recognized net of the amount of GST except where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the assets or as part of the expense item as applicable, and receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the cash flow statement on a gross basis and the GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority
(f)
Loss per share
The Company calculates loss per share in accordance with FASB ASC Topic 260, “Earnings per Share”.
Basic (loss) per share is computed based on the weighted average number of common shares outstanding during the period. Dilutive loss per share has not been presented as there are no common stock equivalents.
(g)
Fair value of Financial Instruments
The Company’s financial instruments consist of cash, receivables, accounts payable and accrued expenses, and advances from affiliate. The carrying amounts of cash, receivables, accounts payable and accrued expenses approximate their respective fair values because of the short term nature of those instruments. The fair value of the advances from affiliate is not determinable as it is due to an affiliated entity, no market exists for similar instruments and settlement date is uncertain.
(h)
Comparative Figures
Where necessary, comparative figures have been reclassified to be consistent with current year presentation with no effect on operations.
(3)
GOING CONCERN
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has not yet commenced revenue producing operations and had an accumulated deficit of A$2,835,947 as of December 31, 2015. In early 2016, the Company commenced a private placement and received subscriptions for 24,558,333 shares of common stock at a price of A$0.04 for A$986,652. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company will require additional funding for operations and this additional funding may be raised through debt or equity offerings. The Company has a debt due to AXIS Consultants Pty Ltd (AXIS). AXIS provides management services to the Company and the cost of these services increases the amount of the debt. In addition, the Company has historically relied on loans and advances from corporations affiliated with the President of Consolidated Gems. Based on discussions with these affiliate companies, the Company believes this source of funding will continue to be available. Other than the arrangements noted above, the Company has not confirmed any other arrangement for ongoing funding. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
(4)
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (ASU) 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires all deferred income tax assets and liabilities to be classified as noncurrent on the balance sheet. The new standard is effective for interim and annual reporting periods beginning after December 15, 2016 with early adoption permitted. Additionally, this guidance may be applied either prospectively or retrospectively to all periods presented. The Company does not expect this standard to have a material impact on its financial statements.
In August 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-15 ("ASU 2014-15"), Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The objective of the amendments in this Update is to provide guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if "conditions or events raise substantial doubt about the entity's ability to continue as a going concern." The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is evaluating the impact of ASU 2014-15 on its financial condition, results of operations and cash flows.
Other Recently Issued, but not Yet Effective Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
(5)
AFFILIATE TRANSACTIONS
In January 2009, the Company entered into an agreement with AXIS to provide geological, management and administration services to the Company, (the “Service Agreement”). AXIS has some common management and is incorporated in Australia. Mr. Peter Lee is Chief Financial Officer and Company Secretary of AXIS and owes a fiduciary duty to both parties. AXIS’s principal business is to provide geological, management and administration services to companies. We are one of seven companies that AXIS provides services to, namely, Merlin Diamonds Limited, Top End Minerals Limited, Northern Capital Resources Corp, Golden River Resources Corporation, Great Central Resources Corp, Aurum Inc., and Consolidated Gems, Inc.
Each of the companies has some common Directors, officers and shareholders. In addition, each of the companies is substantially dependent upon AXIS for its senior management and certain mining and exploration staff. A number of arrangements and transactions have been entered into from time to time between such companies. It has been the intention of the companies and respective Boards of Directors that each of such arrangements or transactions should accommodate the respective interest of the relevant companies in a manner which is fair to all parties and equitable to the shareholders of each. Currently, there are no material arrangements or planned transactions between the Company and any of the other companies other than AXIS.
AXIS is paid by each company for the costs incurred by it in carrying out the administration function for each such company. Pursuant to the Service Agreement, AXIS performs such functions as payroll, maintaining employee records required by law and usual accounting procedures, providing insurance, human resources, company secretarial, land management, certain exploration and mining support including provision of exploration managers and geologists, financial, accounting advice and services. AXIS also provides for the Company various services, including but not limited to the making available of office supplies, office facilities and any other services as may be required from time to time by the Company as and when requested by the Company.
The Company is required to reimburse AXIS for any direct costs incurred by AXIS for the Company. In addition, we are required to pay a proportion of AXIS’s overhead cost based on AXIS’s management estimate of our utilisation of the facilities and activities of AXIS plus a service fee of not more than 15% of the direct and overhead costs. Amounts invoiced by AXIS are required to be paid by us. We are also not permitted to obtain from sources other than AXIS, and we are not permitted to perform or provide ourselves, the services contemplated by the Service Agreement, unless we first request AXIS to provide the service and AXIS fails to provide the service within one month.
The Service Agreement may be terminated by AXIS or ourselves upon 60 days prior notice. If the Service Agreement is terminated by AXIS, we would be required to independently provide, or to seek an alternative source of providing, the services currently provided by AXIS. There can be no assurance that we could independently provide or find a third party to provide these services on a cost-effective basis or that any transition from receiving services under the Service Agreement will not have a material adverse effect on us. Our inability to provide such services or to find a third party to provide such services may have a material adverse effect on our operations.
During the year ended December 31, 2015, AXIS provided services in accordance with the Services Agreement, incurred direct costs and provided funding on behalf of the Company of A$21,833 (2014: A$53,072), and advanced the Company A$143 (2014: A$40,290). At December 31, 2015, the amount owed to AXIS was A$1,088,175 (2014: A$1,066,199).
(6)
INCOME TAXES
Consolidated Gems files its income tax returns on an accrual basis.
The Company files tax returns in the United States. Consolidated Gems has carry-forward losses of approximately US$1,703,000 as of December 31, 2015 which expire in years 2028 through 2034. Due to the uncertainty of the availability and future utilization of those operating loss carry-forwards, management has provided a full valuation against the related tax benefit.
The Company’s tax returns for all years since December 31, 2011 remain open to examination by the respective tax authorities. There are currently no tax examinations in progress.
(7)
SUBSEQUENT EVENTS
The Company has evaluated events and transactions after the balance sheet date and, through the date the financial statements were issued and believes that all relevant disclosures have been included herein and there are no other which requires recognition or disclosure in the accompanying financial statements.
In early 2016, the Company commenced a private placement and received subscriptions for 24,558,333 shares of common stock at a price of A$0.04 for A$986,652.
On March 8, 2016, the Company announced it had entered into a Term Sheet with Noam Levavi and Eran Galil (the “Vendors”) for the acquisition of all of the issued shares of Byondata (“Byondata”), a company incorporated under the laws of Israel. The Company had a 90 day period to conduct due diligence and negotiate a formal share sale agreement. Headquartered in Herzliya, Israel, Byondata has developed unique platform as a service to create content-rich, immersive Virtual Reality (VR) experiences. Following initial due diligence and by mutual agreement, the proposed acquisition was terminated.
In January 2017, the Company announced it was looking for gold opportunities in Myanmar.
On July 24, 2017, the Company entered into a Term Sheet with Lior Barash, Erez Glazer, Lior Wayn, and Lior Dolfin, (collectively, the ‘’Sellers”) for the acquisition of all of the issued shares of the Cyber Security technology business “Attofensive”, a company incorporated under the laws of Israel. The Company has a 120 day period to conduct due diligence and negotiate a formal share sale agreement.
The purchase price is up to USD$20,000,000 which is to be satisfied as follows:
a)
The sum of USD$25,000 payable to the Sellers for due diligence expenses, 30 business days from the execution of the Term Sheet;
b)
A further USD$25,000 each month after the date in a) above for due diligence expenses, for 3 months, payable to the Sellers for working capital purposes;
c)
An issue of fully paid ordinary shares of common stock of the Company to the value of USD$5,000,000 (less any payments made to The Sellers under (a) and (b) above) to the Sellers at an issue price of USD$0.10 per share of common stock (Consideration Shares);
d)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$100,000 within twelve months after the first anniversary of Completion;
e)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$1,000,000 within twelve months after the first anniversary of Completion; and
f)
The issue to the Sellers of shares of common stock to the equivalent to USD$5,000,000 at the issue price of USD$0.20, subject to the Sellers achieving sales revenue of USD$2,500,000 within twelve months after the first anniversary of Completion.
If the Transaction is terminated or is in the reasonable opinion of the Company unable to proceed at any point, the Company and the Sellers have agreed to convert any monies paid to the Sellers under (a) and (b) above into convertible securities in Attofensive.
As part of the agreement and as a condition to completion, the Company will raise USD$5,000,000.
Pending completion, the Sellers are required to carry on business in the ordinary course.
Prior to completion the Sellers are to discharge all encumbrances, mortgages, liens, bank loans and other security holdings except the business may have liabilities of no more than $200,000 from past activities.