ITEM 1. DESCRIPTION OF BUSINESS
Formation and Background
We were incorporated on May 26, 2010, in the State of Delaware. Our authorized capital consists of 500,000,000 shares of our common stock (the “Common Shares”), par value of $0.0001. Our principal executive offices are currently located at the following address: 40 Wall Street, 28th Floor, New York, NY 10005-1313. Our telephone number is 1 (866) 483 - 9414. Our website is http://www.ibreedit.us
We were organized for the purpose of developing and marketing software for an online gaming platform and entering into licensing agreements with online game service providers in the United States and world-wide. Our gaming platform enabled our customers to offer games of skill using our platform as part of their member services. During our year ended December 31, 2011, we generated revenues of approximately $93,000, virtually all of which was from the sale of a single license to one customer. During our year ended December 31, 2012, our revenues declined to approximately $6,000. This decline and our inability to successfully market our online gaming platform led our management and principal shareholders to reevaluate our business plan during 2013. As part of management's reevaluation, the Company conducted discussions with certain of its principal shareholders and other persons in Israel, during which the Company was introduced to Dr. Oded Sagee, the founder of BreedIT Ltd, organized under the laws of the State of Israel ("BreedIT Israel").
Recent Corporate Developments
In our current report on Form 8-K filed August 19, 2013, we disclosed that we had entered into a preliminary agreement (the "Preliminary Agreement") with BreedIT Israel and its founder, Dr. Oded Sagee, pursuant to which we agreed to acquire 66.67% of BreedIT Israel's capital stock. Subsequently, we were issued 200 shares of BreedIT Israel’s capital stock ("Ordinary Shares") which represent 66.67% of BreedIT's outstanding Ordinary Shares with the founder, Dr. Oded Sagee owning the remaining 100 Ordinary Shares, representing 33.33% of the outstanding Ordinary Shares.
In connection with the Preliminary Agreement, we agreed with Dr. Sagee that prior to the execution of any definitive agreement, certain conditions had to be satisfied, including, but not limited to: (i) completion of due diligence reviews; (ii) obtaining requisite regulatory approvals; and (iii) the execution of the binding agreement by and between BreedIT Israel and a leading Israeli university granting BreedIT Israel the exclusive, world-wide license for a unique and highly sophisticated decision making software used for the purpose of advanced agriculture breeding (the"IDSS Software").
On October 21, 2013, we filed our Form 8-K report disclosing that the Registrant, BreedIT Israel and Dr. Sagee executed the definitive Share Purchase Agreement (the "SPA") which provided that we inject an initial investment of US$245,000 (the "Initial Investment") which the parties agreed should be sufficient to fund BreedIT Israel's operations during the ensuing twelve-month period. The Registrant and BreedIT Israel further agreed that the remaining US$755,000 of the US$1,000,000 investment amount be funded from time to time, based upon BreedIT Israel's financial needs during the twelve-month period. The closing of the SPA was subject to the execution of the binding License Agreement between BreedIT Israel and the leading Israeli academic institution (the "Licensor"), which closed on October 24, 2013.
Consideration for the purchase was paid by us through issuance of BreedIT Corp. Common Stock and Class A/B Options, the fair market value of the Tangible/Intangible Assets acquired, as of the valuation date, was determined to be $849,671 and the excess fair value of the assets over the fair value of the identifiable assets owned at closing of $630,880 was booked as goodwill. As the company is not generating income from the software sales yet and to ensure the asset is carried at no more than the recoverable amount, $630,880 or entire goodwill amount was impaired to expense during Q4 of 2013.
On November 8, 2013, our board of directors authorized the filing with the State of Delaware of a Certificate of Amendment to its Certificate of Incorporation changing our name from Progaming Platforms Corp. to BreedIT Corp. On January 14, 2014, Mr. Yoel Yogev, the Registrant's newly-appointed Chief Executive Officer, accepted his appointment to become a member of the Registrant's Board of directors. The Registrant's Board of directors is now comprised of Mr. Itschak Shrem, Chairman, Dr. Ben-Zion Weiner, director, Mr. Erez Zino, director, and Mr. Yoel Yogev, director. On February 27, 2014, the Company announced that it had successfully completed the raise of the US$1,000,000 required under its agreements with BreedIT Israel.
The Registrant and BreedIT Israel believed and continue to believe that the IDSS Software has significant commercial applications for the advancement of successful agricultural breeding programs world-wide.
Seed Development and the Breeding Process
In order to enhance agricultural production on a continuing basis, increasing yield and developing disease-resistant crops, many series of steps are taken in the modern breeding process, including the following:
· Development of functional markers: DNA components of genes are analyzed and recognized as markers that breeders can use to determine which plants should be used to breed the next generation of high-performing plants;
· Development of parental stock: With improved parental stock, an offspring plant will be more resilient against insect and disease damage, while improving growth and yield;
· Quality control: Breeders realize the process of growing crops differs between seed and food production. Therefore, they maintain the highest standards for quality and germination of their seed production; and
· Back office support: This is a critical part of the process where an inventory of a plant’s genes is created to track and log the activity of those genes.
The problem that breeders often confront is that data is created at a pace more quickly than it can be analyzed and properly utilized. As a result, seed companies have become increasingly dependent upon third-party technology and software so as to provide them with the ability to analyze, interpret and apply the significant amount of data they collect and/or is provided to them by third parties. Notwithstanding the forgoing, many of the computational tools utilized by the companies and academic institutions engaged in agricultural breeding and research often lack requisite information, industry standard design principles, scalability. In addition the information and other tools available to breeders and researchers often are not sustainable beyond the specific project they were meant to support. This results in many persons and entities engaged in the breeding industry lacking effective data, planning, reporting and intelligent decision making support systems to effectively support their breeding operations and business as well as foster their growth and profitability.
We believe that breeders and researchers need modern integrative and cost effective solutions to enable them to reduce their product development time and expense and improve their success ratio. For seed companies and public breeding programs, it is well-established that information technology can increase efficiency and success by enhancing the management and analysis of existing plant breeding data, thereby facilitating correct decision making processes.
Our IDSS Software
BreedIT's agro-breeding technology, developed at The Robert H. Smith Faculty of Agriculture, Food & Environment of the Hebrew University of Jerusalem by a team led by Professor Haim Rabinowitch, was found to be suitable for integration with the Company's current software technology. Designed by breeders and software engineers for the purpose of optimizing their breeding procedures, we believe that BreedIT's state-of-the-art Intelligent Decision Support System (IDSS) for agro-breeding is equal to the most advanced technology solutions for plant breeders and researchers available in the market today.
With our transition from being a provider of online gaming software to the developer and provider of an intelligent decision support system ("IDSS") utilized by the agriculture breeding industry, we were able to utilize our software programming expertise. Our business efforts are now being directed toward offering our IDSS Software program to a wide variety of users engaged in plant breeding, primarily within the seed industry. We plan on marketing our IDSS Software to agro-breeders, providing them with the ability to better plan, manage and analyze their breeding data and to perform research activities quickly and effectively so as to significantly increase production and plant quality.
It is well-known in the agriculture industry that breeders devote significant amounts of time and resources into developing new and improved plant breeds the process can be data intensive, time consuming, costly and complex. We firmly believe that our IDSS Software provides breeders with a cost-effective and environmentally friendly software solution for plant breeding that will facilitate the development of improved genotypes used for floriculture, forestry and medicinal plants among other uses.
BreedIT further believes that its state-of-the-art IDSS Software system will materially assist professional breeders throughout the breeding process, from the initial selection of the most suitable genetic resources to the selection of the most promising and compatible parent lines required for sophisticated and successful hybrid production of plants with increased tolerance to biotic and abiotic stress. IDSS can be customized to meet the needs of virtually any breeder according to the nature of their crop and breeding goals. IDSS is designed to reduce breeder product development efforts, time and expense by providing services from the simple review of the breeder's historical data, planning, design, field work, collection of information and data analyses by, among other things, facilitating communication between all parties involved in the breeding process, including specialists in Phytopathology, Molecular Biology, Agronomy, and field or laboratory trials in the service of the breeders.
BreedIT's proprietary IDSS Software platform has been tested and implemented at a number of international seed companies with operations in Israel. Our management believes that IDSS provides an established platform solution. IDSS a single software package providing seed breeders with the ability to manage variety and pedigree information, design trials, as well as aid in field operations, and analyze and store data eliminating time lost from transferring data between applications. This relational database allows researchers to quickly summarize variety performance across locations and time, permitting virtually instant retrieval of all data recorded for a specific genotype, rather than manually searching through hundreds or even thousands of individual files.
As a result, researchers using IDSS can be far more productive and effective by being able to devote their time and effort to the critical extraction and interpretation of data. This, in turn, should improve the likelihood of successfully developing and releasing new and/or improved breed varieties capable of generating revenues in a more expeditious manner than previously available.
The advanced features of BreedIT's IDSS Software include:
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Plant modules: Based on the BreedIT group experience, plant modules create new and improved varieties exhibiting quality traits. These varieties are being developed using our IDSS Software with both traditional and advanced breeding methods, employing techniques such as marker-assisted selections, plant physiology, biochemistry and phytopathology;
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Phytopathology - Our research team is able to identify and make available to breeders using IDSS new sources of resistance to fungal pathogens, viruses and pests, as well as develop new techniques for the efficient evaluation of plant response to inoculation by diseases and pests. Research encompasses bacterial, fungal and viral diseases, as well as nematodes and Bemisia (white fly);
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Plant Biology - IDSS assists breeders or scientists utilizing our advanced technologies to create new traits and produce new plant varieties or animal types with valuable properties, both through classical genetic methods and by marker-assisted breeding. Based on tools developed by our breeding team and breeders using IDSS, the genetic base of the product development pipeline can be increased. Our team using IDSS has developed an array of molecular markers for more rapid identification of desired traits in individual plants;
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Breeding Trials - Breeders conduct scores of trials each year to select parent and hybrid combinations that best meet the growers’ and the seed companies’ needs, with many trials taking place on-site in customers' fields in Israel, Turkey , Spain, France, Holland, Italy, Belgium and Mexico, all assisted by BreedIT's IDSS Software; and
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Breeding Projects - Future directions of the breeding team which will be added annually to the BreedIT IDSS Software include:
(i)
(ii)
Development of tomato, or other vegetable varieties displaying: increased anti-oxidative agents, improved flavor of high-yielders, heat-tolerance in greenhouses, disease-resistant and adaptation to specific regions;
Development of rootstocks for grafting;
(iii)
Breeding indeterminate hybrids: characterized by large, high quality, Roma-shaped fruit with long shelf-life; and
(iv)
Breeding of cluster (truss) tomatoes or other vegetables with tasty fruits of different sizes, shapes and colors.
Our Target Markets
We seek to become a worldwide leading provider of a state-of-the-art software program for breeders, providing agro-breeding information technologies and decision support in an integrated system. We believe our IDSS Software provides a complete solution for seed or breeding companies with ongoing knowledge and support using the following IDSS features and capabilities:
- Knowhow- Breeding based on the information and technology developed by Rabinowitch Group and our Licensor;
- IDSS IT Software;
- IDSS Software support and system maintenance;
- Preliminary analysis consisting of IDSS configuration, system installation and training;
- Breeding support consisting of agriculture consultation, software adaptation;
- Marketers who assist in selling, testing, analyzing, statistics and consulting services;
- Professional courses; and
- Remote learning services
We intend to sell our IDSS Software to seed breeders, government agencies and researchers, together with o ongoing enhancement, maintenance and knowledge support including cloud capabilities and pay-per-use availability. Based on our experiences in selling our IDSS Software in Israel, we expect that our IDSS Software solution will permit us to penetrate significant markets world-wide, providing users with an additional module for their existing software.
Alliances: BreedIT plans to enter into agreements with breeders to facilitate the cultivation of new and improved seed breeds and participate through royalties from the sale of seeds. We also plan to establish national and international alliances with major seed companies providing them with access to knowledge and proprietary technology developed by our Licensor, for which we have exclusive, world-wide rights.
BreedIT Learning Center (CITLC): We plan to offer our clients/customers with a total customer support package which will include, among other services, the following:
- Consultation support for our breeder and researcher customers - Our CITLC service group is designed to maintain close and continuing support with our customers, enhancing our ability to identify and resolve their requirements/needs and provide appropriate remedial computerized solutions that are practical for our customers to apply to satisfy their respective needs.
- Academic courses: CITLC will offer courses on "Plant Varieties Breeding Information Technologies" utilizing our BreedIT Software as a model for our customers breeding programs, management by taking into consideration both theoretical and practical issues related to breeding program management. - Workshops and lectures: We plan on offering on a periodic basis workshops and lectures to our customers and prospective customers for the purpose of updating customers/users, which shall primarily include breeders and researchers, providing new and emerging technical advancements in breeding programs generally and in our IDSS Software specifically. Our workshops and lectures will address database management and handling and the advanced computer-based technology system offered by IDSS to support both basic genetic research and applied plant breeding.
Medical cannabis: BreedIT will expand its capabilities to include medical plants, initially commencing with improved breeding of Medical cannabis. Medical cannabis traits that can be developed using our IDSS Software include:
Marketing/Advertising Strategy
We plan to market our IDSS Software and services through a sophisticated sales and marketing strategy designed to identify key potential customers that meet our specific customer profile. Following initial review and approval by our sales and marketing team, we intend to make direct contact with the appropriate departments and personnel at said prospective customers, we also plan to attend industry trade shows in Israel and world-wide, presenting our IDSS Software in order to generate new customers and potential customers. Part of our sales and marketing plan is to enter into license agreements with established seed companies, as sub-licensees having sufficient resources and professional commitment to be able to successfully implement and apply our IDSS Software.
Competition
Competition in the seed monitoring software industry in the US and internationally is intense. We face direct competition from other seed companies, specialized software companies as well as subsidiaries or other affiliates of chemical, pharmaceutical and biotechnology companies. Virtually all of our competitors have far longer operating histories with far greater resources, both financial and personnel, and established customer bases. There can be no assurance that we will be able to successfully establish and maintain a significant customer base, if at all.
At present, there are six large multinational corporations, Monsanto, DuPont, Bayer, Dow, Syngenta and BASF that dominate the seed market applying their proprietary seed breeding monitoring software solutions which are tailored for their specific needs. While we believe that our competitors proprietary breeding monitoring software solutions are out-dated, are not suitable to be marketed to third- party use and lack the advanced features of our IDSS Software, their can be no assurance that we will be able to successfully compete with these six large multinational corporations.
Other than the major multi-nationals, and to a lesser extent our other competitors are represented by a few software companies including: Doriane, Agronomix, Agriconnection and Phenome, as well as breeding monitoring software solutions offered by various academic institutions. We believe that none of these competitors offer comprehensive integrated solutions represented by IDSS that includes solutions that can be delivered on an online and interactive basis with the ability to transfer specifically designed solutions with our breeding know-how and ongoing customer support.
Our Competitive Advantage
Our IDSS Software technology is based on 30 years of research conducted in one of the world’s leading academic institutions, the Robert H. Smith Faculty of Agriculture, Food & Environment of the Hebrew University of Jerusalem by a team led by Professor Haim Rabinowitch, an agriculture department that has is recognized for having generated some of the world's finest and best sold seeds used in breeding tomatoes.
We believe that our unique IDSS Software system will allow small breeders to compete with much larger corporations through access to a cloud-based breeding monitor system. Our system should significantly improve the efficiencies and productive capabilities of smaller breeders and allow them to compete more effectively with the dominant entities presently dominating the market of breeding seeds.
We provide software for the management of plant breeding that includes the management of seed related information of companies and institutions working with many seed varieties. This horticultural-specialized management software performs maintenance, evaluation and characterization of genetic material for plant breeding processes. We believe that our IDSS Software provides an efficient, advanced and expert data-management tool for dispensing specifically designed breeding information and knowledge to our customers.
Our IDSS Software product includes the following competitive components and features:
(i) Software Modules with the following features: Parent’s Pool, Field Outlay, Genetic Markers, Breeding Planning, Introductions, Hybrids, Resistances, Gene Pool, Report; and (ii) Modules under development such as: Statistics, Images, Barcodes, Genetically Modified Genes, Additional Input Devices Interfaces.
Dependence on One or a Few Major Customers
Due to the nature of our IDSS Software system and the size of its potential market, we do not anticipate that we will become dependent on one or a few major customers. We expect that our IDSS platform will be used by a wide variety of breeders across the agriculture breeding industry.
Employees
Other than our current directors and officers, we employ consultants to provide technical R&D and software development services.
ITEM 1A.
ITEM 1A. RISK FACTORS
Risks Relating to Our Lack of Operating History and Industry
Our business is at an early stage of development and we may not be able to successfully commercialize our IDSS Software.
The success of our business is dependent on our ability to continue to develop and successfully market our IDSS Software, and to secure and maintain licensing agreements with customers in the US and internationally. Our ability to achieve these goals is unproven, and the lack of operating history makes it difficult to validate our business plan. In addition, the success of our business plan is dependent upon acceptance of our platform by the seed industry. Should the target markets not be as responsive as we anticipate, we will not have in place alternate services or products that we can offer to ensure our continuing as a going concern.
Management believes that it currently has sufficient funds to continue our planned activities at least through the first half of 2014, evidenced by our ability to raise capital from private investors to fund our acquisition of 66.67% of BreedIT Israel. We also expect to continue to incur operating losses in future periods. These losses will occur because we do not yet have revenues to offset the expenses associated with the continuing development and marketing of our software and the administrative costs associated with being a public company with reporting obligations under the Exchange Act. There can be no assurance that we will ever be successful in generating significant revenues in the future. We recognize that if we are unable to generate significant revenues, we will not be able to earn profits or continue operations.
We have only a limited operating history which includes operating losses; we may not ever achieve revenues or operating profits.
We have a limited operating history and have only generating operating losses from inception to date. We anticipate generating losses until we are able to generate significant revenues from the sale or license of our IDSS Software. We do not anticipate generating significant revenues before the second half of 2014 or early 2015. Therefore, we may be unable to continue operations in the future as a going concern. No adjustment has been made in the accompanying financial statements to the amounts and classification of assets and liabilities which could result should we be unable to continue as a going concern. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.
We have a going concern note indicating the possibility that we may not be able to continue to operate.
Our audited financial statements for the year-ended December 31, 2013 contained in this Annual Report include a going concern note, which raises a substantial doubt about the Company’s ability to continue as a going concern. As a result, notwithstanding our ability to raise capital to fund the purchase of our interest in BreedIT Israel, we may nevertheless face difficulty in obtaining additional funding, if and when necessary, at terms satisfactory to the Company, if at all. There can be no assurance that we will ever achieve any significant revenues or profitability. The revenue and income potential of our proposed business and operations are unproven, and the lack of operating history makes it difficult to evaluate the future prospects of our business.
We have a limited operating history on which investors may evaluate our operations and prospects for profitable operations.
We were incorporated on May 26, 2010 and completed our acquisition of 66.67% of our operating subsidiary, BreedIT Israel on October 24, 2013. We currently have no agreements to sell our IDSS Software in order to generate revenues. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide investors with no assurance that we will generate any significant operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
Our business plan may be unsuccessful.
The success of our business plan is dependent on our ability to develop successfully and market our IDSS Software as well as securing licensing agreements with seed breeding companies. Our ability to develop software for this market is unproven, and the lack of operating history makes it difficult to validate our business plan. In addition, the success of our business plan is dependent upon acceptance of our software by seed breeders. Should the target market not be as responsive as we anticipate, we will not have in place alternate services or products that we can offer to ensure our continuing as a going concern.
Our revenues may be sensitive to fluctuations in demand for our products.
Our revenues earnings can be negatively impacted by declining demand brought on by varying factors, many of which are out of our control. In addition, demand for our software could be influenced by supply and quality issues or for any other reason, including products of competitors that might be considered superior by end users.
Because our potential clients operate in the seed business which is highly seasonal, our revenues, cash flows from operations and operating results may fluctuate on a seasonal and quarterly basis.
We expect that the majority of our revenues will be generated from clients who operate in the seed business. The seed business is highly seasonal. Our business may therefore be considered seasonal in nature which may result in significant fluctuations in our working capital during the growing and selling cycles. We expect to experience, significant variability in net sales, operating cash flows and net income on a quarterly basis.
We face intense competition, and our inability to compete effectively for any reason could adversely affect our business.
The seed market is highly competitive, and our IDSS Software program may face competition from a number of small companies, as well as large agricultural and biotechnology companies. We compete primarily on the basis of the advanced features that we believe are incorporated in our IDSS Software as well as online and interactive customer service and price advantages. Many of our competitors are, or are affiliated with, large diversified companies that have substantially greater marketing and financial resources than we have. These resources give our competitors greater operating flexibility that, in certain cases, may permit them to respond better or more quickly to changes in the industry or to introduce new products more quickly and with greater marketing support. Increased competition could result in lower profit margins, substantial pricing pressure, and lower operating cash flows. Price competition, together with other forms of competition, could have a material adverse effect on our business, financial position, results of operations and operating cash flows.
We may depend on third-party distributors who may not effectively distribute our IDSS Software products.
We may depend, in part on, third-party distributors and strategic relationships for the marketing and selling of our IDSS product. We may depend on these distributors' efforts to market our product, yet we are unable to control their efforts completely. In addition, we are unable to ensure that our distributors comply with all applicable laws regarding the sale of our product. If our distributors fail to effectively market and sell our product, and in full compliance with applicable laws, our operating results and business may suffer.
The demand for our IDSS Software may not develop as we anticipate, and therefore our continued research and development activities with respect to our software may be adversely affected.
There are a number of challenges to market acceptance of our IDSS Software. Demand for our software might never materialize and we may not be able to profit from our continued research and development activities relating to our software or any commercial applications that we expect to derive therefrom. Even if our IDSS Software conforms to applicable quality standards, potential sales could be adversely affected if customers in our target markets lose confidence in the safety, efficacy and quality of our software. Adverse publicity, if any, about our software may discourage seed breeders from utilizing our unproven software. Any of these developments could adversely impact the future amount of our revenues, which would adversely impact our results of operations.
The loss of key employees or the failure to attract qualified personnel could have a material adverse effect on our ability to run our business.
The loss of any of our current executives, key employees or key advisors, or the failure to attract, integrate, motivate and retain additional key employees, could have a material adverse effect on our business. Any employee could leave our employ at any time if he chose to do so. We do not carry "key person" insurance on the lives of any of our management team. As we develop additional capabilities, we may require more skilled personnel who must be highly skilled and have a sound understanding of our industry, business or processing requirements. Recruiting skilled personnel is highly competitive. Although to date we have been successful in recruiting and retaining qualified personnel, there can be no assurance that we will continue to attract and retain the personnel needed for our business. The failure to attract or retain qualified personnel could have a material adverse effect on our business.
We may not be able to manage expansion of our operations effectively.
We expect our operations to grow rapidly in the future because of our belief in the advantages of our IDSS Software, of which there can be no assurance. We may also be required to expand our business through acquisition of synergistic companies and technologies. These efforts, to the extent necessary, will, in all likelihood, require the addition of employees, expansion of facilities and greater oversight, perhaps in diverse locations. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute on our business strategies or respond to competitive pressures, and we may have difficulties maintaining and updating the internal procedures and the controls necessary to meet the planned expansion of our overall business.
Our management will also be required to maintain and expand our relationships with customers as well as attract new customers. We expect that our sales and marketing costs will increase as we grow and increase our sales efforts in new and existing markets. Our current and planned operations, personnel, systems and internal procedures and controls may not be adequate to support our future growth.
We may need to raise additional capital in the future.
We believe our current cash and cash equivalents on hand will be sufficient to finance anticipated capital, financing and operating requirements for the next twelve months. However, if we elect to aggressively pursue our growth strategies, whether through acquisitions or organic growth, we may need additional capital to fund these strategies.
If we are required to raise additional capital in the future, such additional financing may not be available on favorable terms, or available at all, may be dilutive to our existing stockholders if such funding is in the form of equity financing or, if in the form of debt financing, may contain restrictions on the operation of our business or conversion features that are also dilutive to our existing stockholders. If we fail to obtain additional capital as and when required, such failure could have a material adverse impact on our business, results of operations and financial condition.
Changes in government policies and laws could adversely affect US and international sales and therefore our financial results.
Our financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non-U.S. governments, agencies and similar organizations. These conditions include but are not limited to changes in a country's or region's economic or political conditions, trade regulations affecting production, pricing and marketing of agriculture products generally and medical cannabis in particular, changing climate conditions, local labor conditions and regulations, reduced protection of intellectual property rights in some countries, changes in the regulatory or legal environment, burdensome taxes and tariffs and other trade barriers. International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities and war, which could lead to reduced distribution of our IDSS Software or reduced demand from customers and potential customers in such affected areas, resulting in reduced profitability or losses associated with such sales.
We are subject to risks associated with doing business globally.
Our operations, both inside and outside the United States, are subject to risks inherent in conducting business globally and under the laws, regulations and customs of various jurisdictions and geographies. Although we intent to sell our software to various regions of the world. Our operations are subject to special risks and restrictions, including: fluctuations in currency values and foreign-currency exchange rates; exchange control regulations; changes in local political or economic conditions; governmental pricing directives; import and trade restrictions; import or export licensing requirements and trade policy; restrictions on the ability to repatriate funds; and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad, including the Foreign Corrupt Practices Act and the trade sanctions laws and regulations administered by the U.S. Department of the Treasury's Office of Foreign Assets Control. Acts of terror or war may impair our ability to operate in particular countries or regions, and may impede the flow of goods and services between countries. Customers in weakened economies may be unable to purchase our products, or it could become more expensive for them to purchase imported products in their local currency, or sell their commodity at prevailing international prices, and we may be unable to collect receivables from such customers. Further, changes in exchange rates may affect our net income, the book value of our assets outside the United States, and our shareholders' equity. Failure to comply with the laws and regulations that affect our global operations could have an adverse effect on our business, financial condition or results of operations.
Environmental regulation could negatively impact our business.
As a Company providing software solutions almost exclusively to agricultural breeders, we may be indirectly subject to evolving environmental laws and regulations by federal and state governments in the US and governments internationally. As a software company, we do not believe that we are or will become subject to environmental laws and regulations, the following federal laws and regulations applicable to the agriculture industry include, among others, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Federal Seed Act, and current and potentially new regulations of the FDA.
Risks Relating to Our Business
Our executive officers and directors have significant voting power and may take actions that may be different than actions sought by our other stockholders.
Our officers and directors own approximately 18% of the outstanding shares of our common stock. These stockholders will be able to exercise significant influence over all matters requiring stockholder approval. This influence over our affairs might be adverse to the interest of our other stockholders. In addition, this concentration of ownership could delay or prevent a change in control and might have an adverse effect on the market price of our common stock.
Our officers and directors are located in Israel and our assets may also be held from time to time outside of the United States.
Since all of our officers and directors are currently located in and/or are residents of Israel, any attempt to enforce liabilities upon such individuals under the U.S. federal securities and bankruptcy laws may be difficult. In accordance with the Israeli Law on Enforcement of Foreign Judgments, 5718-1958, and subject to certain time limitations (the application to enforce the judgment must be made within five years of the date of judgment or such other period as might be agreed between Israel and the United States), an Israeli court may declare a foreign civil judgment enforceable if it finds that:
- the judgment was rendered by a court which was, according to the laws of the State in which the court is located, competent to render the judgment;
- the judgment may no longer be appealed;
- the obligation imposed by the judgment is enforceable according to the rules relating to the enforceability of judgments in Israel and the substance of the judgment is not contrary to public policy; and
- the judgment is executory in the State in which it was given.
An Israeli court will not declare a foreign judgment enforceable if:
- the judgment was obtained by fraud;
- there is a finding of lack of due process;
- the judgment was rendered by a court not competent to render it according to the laws of private international law in Israel;
- the judgment is in conflict with another judgment that was given in the same matter between the same parties and that is still valid; or
- the time the action was instituted in the foreign court, a suit in the same matter and between the same parties was pending before a court or tribunal in Israel.
Furthermore, Israeli courts may not adjudicate a claim based on a violation of U.S. securities laws if the court determines that Israel is not the most appropriate forum in which to bring such a claim. Even if an Israeli court agrees to hear such a claim, it may determine that Israeli law, not U.S. law, is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact, which can be a time-consuming and costly process.
Our assets may also be held from time to time outside of the United States. Since our directors and executive officers are foreign citizens and do not reside in the United States, it may be difficult for courts in the United States to obtain jurisdiction over our foreign assets or persons, and as a result, it may be difficult or impossible for you to enforce judgments rendered against us or our directors or executive officers in United States courts. Thus, investing in us may pose a greater risk because should any situation arise in the future in which you would have a cause of action against these persons or against us, you may face potential difficulties in bringing lawsuits or, if successful, in collecting judgments against these persons or against the Company.
We may not be able to raise the required capital to conduct our operations and develop and commercialize our IDSS Software product.
We were incorporated on May 26, 2010. We have not generated any significant revenues. Although we have commenced our new business plan to sell our IDSS Software, we may not be able to execute our business plan. If we do not generate any significant revenues during the remainder of 2014 and into 2015, we will undoubtedly require additional financing in order to establish and maintain profitable operations. Such additional financing, if required, may not be forthcoming. Even if additional financing is available, it may not be available on terms we find favorable. Failure to secure any needed additional financing may have a serious effect on our company's ability to survive. At this time, there are no anticipated additional sources of funds in place.
If we continue to suffer losses, investors may not receive any return on their investment and may lose their entire investment. Our prospects must be considered speculative in light of the risks, expenses, and difficulties frequently encountered by companies in their early stages of development, particularly in light of the uncertainties relating to the new, competitive and rapidly evolving markets in which we anticipate we will operate. To attempt to address these risks, we must, among other things, further develop our technology and product, successfully implement our development, marketing and commercialization strategies, respond to competitive developments, and attract, retain, and motivate qualified personnel. A substantial risk is involved in investing in us because, as an early stage company we have fewer resources than an established company, our management may be more likely to make mistakes at such an early stage, and we may be more vulnerable operationally and financially to any mistakes that may be made as well as to external factors beyond our control.
We expect to continue to incur operating losses in future periods. These losses will occur because we do not yet have any significant revenues to offset the expenses associated with the development and promotion of our platform. We cannot guarantee that we will ever be successful in generating significant revenues in the future. We recognize that if we are unable to generate significant revenues, we will not be able to earn profits or continue operations.
Our lack of business diversification could result in the loss of your investment if revenues from our primary product decrease.
Currently, our business is focused on the development and marketing of our IDSS Software. We do not have any other lines of business or other sources of revenue if we are unable to successfully implement our business plan. Our lack of business diversification could cause you to lose all or some of your investment if we are unable to generate revenues by the operation of the gaming platform since we do not have any other lines of business or alternative revenue sources.
We need to retain key personnel to support our activities and ongoing operations, and a loss of certain key personnel could significantly hinder our ability to move forward with our business plan.
The development, promotion, and operation of our online gaming platform will continue to place a significant strain on our limited personnel, management, and other resources. Our future success depends upon the continued services of our executive officers and other needed key employees and contractors who have critical industry experience and relationships that we will rely on to implement our business plan. The loss of the services of any of our officers or the lack of availability of other skilled personnel would negatively impact our ability to market and sell our product, which could adversely affect our financial results and impair our growth.
Since our officers and directors may work or consult for other companies, their other activities could slow down our operations.
Our officers and directors are not required to work exclusively for us and do not devote all of their time to our operations. Presently, our officers and directors allocate only a portion of their time to the operation of our business. Since our officers and directors are currently employed full-time elsewhere, they are each able to commit to us only up to 20-25 hours a week. Therefore, it is possible that their pursuit of other activities may slow our operations and reduce our financial results because of the slow-down in operations.
The commercialization of our IDSS Software will be delayed if third parties fail to enter into sales and/or licensing agreements with us.
We intend to enter into sales and/or licensing agreements for our IDSS Software. We have not yet entered into any sales or licensing agreements. We may not be successful in entering into any sales and/or licensing agreement. If we are unable to enter into sales and/or licensing agreements, we may not be able to commercialize our IDSS Software product and therefore not generate any revenues.
We depend on market acceptance of our IDSS Software product. If our platform does not gain market acceptance, our ability to compete will be adversely affected.
Our success will depend in large part on our ability to successfully market our IDSS Software. Although we intend to highlight the distinction between our software and that of our competitors, no assurances can be given that we will be able successfully to promote our software or achieve acceptance from the seed breeders that are our target market. Moreover, failure successfully to commercialize our software on a timely and cost-effective basis will have a material adverse effect on our ability to compete in our targeted market.
We are a small company with limited resources compared to some of our current and potential competitors and we may not be able to compete effectively and increase market share.
Most of our competitors have longer operating histories, significantly greater resources, name recognition and a larger base of customers than we have. As a result, these competitors have greater credibility with our potential customers. They also may be able to adopt more aggressive licensing policies and devote greater resources to the development, enhancement, promotion, and sale of their products and services than we can to ours.
Failure to meet customers’ expectations or deliver expected performance could result in losses and negative publicity, which would harm our business.
If our software fails to perform in the manner expected by our licensees, then our revenues may be delayed or lost due to adverse customer reaction. In addition, negative publicity about us and our software product could adversely affect our ability to attract or retain licensees. Furthermore, disappointed customers may initiate claims for damages against our licensees and us, regardless of our responsibility for their disappointment.
Regulatory Risks
We face risks related to compliance with corporate governance laws and financial reporting standards.
The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the Securities and Exchange Commission and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting, have materially increased the legal and financial compliance costs of small companies and have made some activities more time-consuming and more burdensome.
We may not have effective internal controls.
In connection with Section 404 of the Sarbanes-Oxley Act of 2002, we need to assess the adequacy of our internal control, remedy any weaknesses that may be identified, validate that controls are functioning as documented and implement a continuous reporting and improvement process for internal controls. We may discover deficiencies that require us to improve our procedures, processes and systems in order to ensure that our internal controls are adequate and effective and that we are in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. If the deficiencies are not adequately addressed, or if we are unable to complete all of our testing and any remediation in time for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the SEC rules under it, we would be unable to conclude that our internal controls over financial reporting are designed and operating effectively, which could adversely affect investor confidence in our internal controls over financial reporting.
Risks Relating to Operating in Israel
We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel or the Middle East.
Our subsidiary offices and our officers and directors are located in Israel. Accordingly, political, economic and military conditions in Israel and the Middle East may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and could make it more difficult for us to raise capital. Since September 2000, terrorist violence in Israel has increased significantly and negotiations between Israel and Palestinian representatives have not achieved a peaceful resolution of the conflict. The establishment in 2006 of a government in Gaza by representatives of the Hamas militant group has created additional unrest and uncertainty in the region.
Further, Israel is currently engaged in an armed conflict with Hamas, which until Operation Cast Lead in January 2009 had involved thousands of missile strikes and had disrupted most day-to-day civilian activity in southern Israel. The missile attacks by Hamas did not target Tel Aviv, the location of our principal executive offices; however, any armed conflict, terrorist activity or political instability in the region may negatively affect business conditions and could significantly harm our results of operations.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
Our Principal Executive Offices
We do not own any real property. We currently maintain our corporate office at 40 Wall Street, 28th Floor New York, NY 10005-1313. We do not pay monthly rent for use of this space. This space is sufficient until we actively commence our sales and marketing efforts. At such time, we believe that adequate facilities we be available at terms satisfactory to the Company.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against our Company, nor of any proceedings that a governmental authority is contemplating against us. We know of no material proceedings to which any of our directors, officers, affiliates, owner of record or beneficially of more than 5 percent of our voting securities or security holders is an adverse party or has a material interest adverse to our interest.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTER
Market Information
Our Common Shares are traded on the over-the-counter market and quoted on the OTCQB under the symbol “BRDT.” On March 25, 2014, the closing price for our shares of common stock as reported on the OTCQB was $0.67. The high and the low bid prices for our shares of common stock are based on inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions. The table below sets forth the range of high and low bid information for our shares of common shares as quoted on the OTCQB for each of the quarters during the fiscal year ended December 31, 2013, 2012 and 2011. This information has been adjusted to reflect the 10-for-1 forward stock split that was effective March 2, 2012.
Holders of our Common Shares
As of March 28, 2014, there were 62 registered stockholders holding 85,987,583 common shares.
Dividends
Since our inception, we have not declared nor paid any cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future. Our current policy is to retain any earnings in order to finance our operations. Our Board of directors will determine future declarations and payments of dividends, if any, in light of the then-current conditions it deems relevant and in accordance with applicable corporate law.
Securities Authorized for Issuance under Equity Compensation Plans
As of year-end, we did not have an equity compensation plan. The company intends to adopt a plan during the first quarter of 2014.
Recent Sales of Unregistered Securities; Use of Proceeds from Sale of Registered Securities
During fiscal year 2011, the Company issued a total of 400,000 restricted shares as follows:
In April 2011, the Company sold 150,000 restricted shares to Guy Levinson and 250,000 restricted shares to Shlomo Sharbat, both are non-US private investor, for $40,000.
During fiscal year 2012, the Company issued a total of 1,797,055 restricted shares as follows:
On March 18, 2012, the Company issued 25,000 restricted shares of common stock in consideration for financial advisory services provided to the Company. The shares were valued at $7,950 based on the closing price of the Company's common stock on the date of grant.
On March 13, 2012, the Company issued 30,000 restricted shares of common stock in consideration for investor relations (IR) services provided to the Company. The shares were valued at $7,500 based on the closing price of the Company's common stock on the date of grant.
On May 6, 2012, the Company issued 15,000 restricted shares of common stock in consideration for professional services provided to the Company. The shares were valued at $5,250 based on the closing price of the Company's common stock on the date of grant.
On July 2, September 3 and September 19, 2012, the Company issued a total of 498,000 restricted shares of common stock in consideration for professional services provided to the Company. The shares were valued at $82,170 based on the closing price of the Company's common stock on the date of grant.
On December 29, 2012, the Company issued 1,229,055 restricted shares of common stock in consideration for share exchange between the company and Gefen Biomed Investments, a publicly traded company. The shares were valued at $190,504 based on the closing price of the Company's common stock on the date of grant.
During fiscal year 2013, the Company issued restricted shares and warrants as follows:
From October 16, 2013 through December 30, 2013, the Company sold to 22 non-US private accredited investors, a total of 15,750,260 units for cash consideration of $787,513 at a price of $0.05 (the "Units"), each unit comprised of one share of common stock, one class A warrant with 18 months term and one class B warrant with 24 month term, exercisable at a price of $0.055 and $0.065 respectively; of this total 4,500,000 units were sold to directors and officers. The relative fair value of the stock with embedded warrants was $246,084 for the common stock, $266,967 for class A warrants and $274,462 for class B warrants.
On November 1, 2013 the Company issued 300,000 restricted shares of common stock in consideration for investor relations (IR) services provided to the Company. The shares were valued at $19,500 based on the closing price of the Company's common stock on the date of grant.
On November 18, 2013 the Company issued 1,000,000 restricted shares of common stock and 1,000,000 warrants with a term of 18 months, exercisable at $0.05 per share in consideration for investor relations (IR) services provided to the Company. The shares were valued at $112,000 based on the closing price of the Company's common stock on the date of grant. The warrants were valued using the Black-Scholes model with 117% volatility and 0.22% discount rate for a total of $78,861.
On November 19, 2013 the Company issued 1,600,000 restricted shares of common stock and 600,000 warrants with a term of 18 months, exercisable at $0.05 per share in consideration for investor relations (IR) services provided to the Company. The shares were valued at $182,400 based on the closing price of the Company's common stock on the date of grant. The warrants were valued using the Black-Scholes model with 117% volatility and 0.22% discount rate for a total of $47,316.
On December 10, 2013 the Company issued 350,000 restricted shares of common stock in consideration for investor relations (IR) services provided to the Company. The shares were valued at $42,000 based on the closing price of the Company's common stock on the date of grant.
On November 18, 2013 the Company issued 375,000 warrants with a term of 18 months, exercisable at $0.05 per share in consideration for investor relations (IR) services provided to the Company. The warrants were valued using the Black-Scholes model with 117% volatility and 0.22% discount rate for a total of $29,573.
During 2013 three shareholders converted $18,200 of debt and $2,972 of accrued interest to 1,058,602 shares at a conversion price of $0.02 per share. The conversion occurred within the terms of the convertible note agreements with no gain or loss recorded.
The Company believes that the issuances and sale of the restricted shares were exempt from registration pursuant to Section 4(2) of the Act as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. The recipients in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate restrictive legends are affixed to the stock certificates issued in such transactions. All recipients of restricted shares either received adequate information about the Company or had access, through employment, relation and/or business relationships with the Company to such information.
Purchases of Equity Securities by the Issuer and Affiliated Purchases
During the fourth quarter of the fiscal year ended December 31, 2013, neither we nor any “affiliated purchaser,” as that term is defined in Rule 10b-18(a)(3) under the Exchange Act, repurchased any of our common stock or other securities.
During the year ended December 31, 2013, the Company issued the following restricted securities to “affiliated purchasers:"
On October 16, 2013 the Company sold to Yoel Yogev, CEO, a total of 2,000,000 units for cash consideration of $100,000 at a price of $0.05 (the "Units"), each unit comprised of one share of common stock, one class A warrant and one class B warrant, exercisable at a price of $0.055 and $0.065 respectively. The relative fair value of the stock with embedded warrants was $44,394 for the common stock, $27,128 for class A warrants and $28,478 for class B warrants.
On December 5, 2013 the Company sold to Oded Gilboa, CFO, a total of 500,000 units for cash consideration of $25,000 at a price of $0.05 (the "Units"), each unit comprised of one share of common stock, one class A warrant and one class B warrant, exercisable at a price of $0.055 and $0.065 respectively. The relative fair value of the stock with embedded warrants was $7,119 for the common stock, $8,838 for class A warrants and $9,043 for class B warrants.
On November 10 and December 29, 2013 the Company sold to Itschak Shrem, Chairman, a total of 2,000,000 units for cash consideration of $100,000 at a price of $0.05 (the "Units"), each unit comprised of one share of common stock, one class A warrant and one class B warrant, exercisable at a price of $0.055 and $0.065 respectively. The relative fair value of the stock with embedded warrants was $19,768 for the common stock, $39,928 for class A warrants and $40,305 for class B warrants.
On December 30, 2013 the Company sold to Ben Zion Weiner, Director a total of 1,000,000 units for cash consideration of $50,000 at a price of $0.05 (the "Units"), each unit comprised of one share of common stock, one class A warrant and one class B warrant, exercisable at a price of $0.055 and $0.065 respectively. The relative fair value of the stock with embedded warrants was $10,258 for the common stock, $19,781 for class A warrants and $19,961 for class B warrants.
On November 24, 2013 the Company sold to Yahali Sherman, CTO of BreedIT Ltd. a total of 1,400,000 units for cash consideration of $70,000 at a price of $0.05 (the "Units"), each unit comprised of one share of common stock, one class A warrant and one class B warrant, exercisable at a price of $0.055 and $0.065 respectively. The relative fair value of the stock with embedded warrants was $16,822 for the common stock, $26,395 for class A warrants and $26,784 for class B warrants.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
None.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our historical results of operations during the periods presented and our financial condition. This MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes to consolidated financial statements, and contains forward-looking statements that involve risks and uncertainties. See section entitled “Forward-Looking Statements” above.
Executive Overview
We are a development stage company with limited operations and no significant revenues from our business operations. There is substantial doubt that we can continue as an on-going business for the next twelve months. We do not anticipate that we will generate significant revenues until we enter into licensing agreements with additional online gaming servers, or web advertisers, to permit them to offer games of skill on our platform as part of their member services, or as part of their advertising campaign. Accordingly, we must raise cash from sources other than our operations in order to implement our marketing plan.
In our management’s opinion, there is a potential demand for our technology which will enable online game service providers, and websites engaged in marketing efforts designed to increase traffic, to provide a platform offering financial rewards to winners of online competitive games of skill.
On July 10, 2011, we executed a license agreement with GT-SAT International S.A.R.L ("GT-SAT"), a corporation organized under the laws of Luxemburg. Such license agreement granted GT-SAT a non-exclusive right to develop websites and offer online games based on our proprietary gaming platform in Europe, with an exclusive license to develop websites and offer online games based on our proprietary gaming platform in Luxembourg, Belgium, and Holland. In consideration of such license, GT-SAT made an upfront, non-refundable, payment of $90,000 and has agreed to pay us royalties on future revenues. On December 26, 2011, GT-SAT terminated this agreement. The stated reason for termination was the economic situation in Europe.
On July 1, 2011, we executed a license agreement with Yanir Levin Ltd., an Israeli corporation. Such license agreement granted the licensee a non-exclusive right to develop websites and offer online games based on our proprietary gaming platform in Asia, with an exclusive license to develop websites and offer online games based on our proprietary gaming platform in Israel. In consideration of the license granted to the licensee, the licensee made an upfront, non refundable, payment of $29,000 and has agreed to pay us royalties on future revenues.
In April 2011, we raised $40,000 and issued 400,000 shares of our common stock to two non-US investors. These transactions did not involve any underwriters, underwriting discounts or commissions, nor any public offering. We believe these transactions were exempt from registration pursuant to Regulation S of the Securities Act.
On August 19, 2013, we disclosed that we had entered into a preliminary agreement (the "Preliminary Agreement") with BreedIT Israel and its founder, Dr. Oded Sagee, pursuant to which we agreed to acquire 66.67% of BreedIT Israel's capital stock. Subsequently, we were issued 200 shares of BreedIT Israel’s capital stock ("Ordinary Shares") which represent 66.67% of BreedIT's outstanding Ordinary Shares with the founder, Dr. Oded Sagee owning the remaining 100 Ordinary Shares, representing 33.33% of the outstanding Ordinary Shares.
In connection with the Preliminary Agreement, we agreed with Dr. Sagee that prior to the execution of any definitive agreement, certain conditions had to be satisfied, including, but not limited to: (i) completion of due diligence reviews; (ii) obtaining requisite regulatory approvals; and (iii) the execution of the binding agreement by and between BreedIT Israel and a leading Israeli university granting BreedIT Israel the exclusive, world-wide license for a unique and highly sophisticated decision making software used for the purpose of advanced agriculture breeding (the"IDSS Software").
On October 21, 2013, we filed our Form 8-K report disclosing that the Registrant, BreedIT Israel and Dr. Sagee executed the definitive Share Purchase Agreement (the "SPA") which provided that we inject an initial investment of US$245,000 (the "Initial Investment") which the parties agreed should be sufficient to fund BreedIT Israel's operations during the ensuing twelve-month period. The Registrant and BreedIT Israel further agreed that the remaining US$755,000 of the US$1,000,000 investment amount be funded from time to time, based upon BreedIT Israel's financial needs during the twelve-month period. The closing of the SPA was subject to the execution of the binding License Agreement between BreedIT Israel and the leading Israeli academic institution (the "Licensor"), which closed on October 24, 2013.
Consideration for the purchase was paid by us through issuance of BreedIT Corp. Common Stock and Class A/B Options, the fair market value of the Tangible/Intangible Assets acquired, as of the valuation date, was determined to be $849,671 and the excess fair value of the assets over the fair value of the identifiable assets owned at closing of $630,880 was booked as goodwill. As the company is not generating income from the software sales and to ensure the asset is carried at no more than the recoverable amount, $630,880 or entire goodwill amount was impaired to expense during Q4 of 2013.
We believe that we have sufficient cash on hand to allow us to market our IDSS Software to potential clients and remain in business throughout 2014. If after that we are unable to generate significant revenues for any reason, or if we are unable to make a reasonable profit, we may have to suspend or cease operations.
Over the next twelve months, we plan to sell and/or license our IDSS Software to potential customers in the seed breeding market. We initially intend to sign agreements and to establish alliances with national and international major seed companies by providing them with access to knowledge and proprietary technology developed by researchers of various Universities.
Results of Operations during the year ended December 31, 2013 as compared to the year ended December 31, 2012
During 2013, we generated revenues of $5,800 compared to revenues of $5,816. Our research and development expenses decreased to $21,087 during 2013 compared to $29,007 during the same period in the prior year. The decrease was due to winding down gaming development and shifting focus to closing the BreedIT Ltd. acquisition. Our general and administrative expenses during 2013 were $1,483,140 as compared to $276,448 during 2012. The significant increase was due to impairment of goodwill relating to acquisition of our subsidiary, BreedIT Israel, and increased non-cash compensation. We incurred a net loss of $1,445,529 attributable to BreedIT Corp during 2013 compared to a net loss of $349,145 in 2012.
Purchase or Sale of Equipment
Other than the purchase of servers, work stations and relevant literature, we do not expect to purchase or sell any plant or significant equipment.
Liquidity and Capital Resources
Our balance sheet as of December 31, 2013 reflects assets of $656,278 consisting of cash and cash equivalents of $656,067 and restricted cash of $43. As of December 31, 2012, we had total assets of $200,149 consisting of cash and cash equivalents of $21,392, restricted cash of $4,034 and $174,234 in investment in trading securities.
As of December 31, 2013, we had total current liabilities of $160,052 consisting of $59,574 in accounts payable and accrued liabilities, $2,305 due to related parties, $5,800 in deferred revenues and $92,373 in convertible notes payable, net of discount. As of December 31, 2013, we had $8,676 in long-term deferred revenues.
As of December 31, 2012, we had total current liabilities of $123,059 consisting of $31,941 in accounts payable and accrued liabilities, $52,090 due to related parties, $5,800 in deferred revenues and $33,228 in convertible notes payable, net of discount. As of December 31, 2012, we had $14,476 in long-term deferred revenues.
We had positive working capital of $496,058 as of December 31, 2013 compared to positive working capital $76,601 at December 31, 2012. Such working capital has been sufficient to sustain our operations to date. Our total liabilities as of December 31, 2013 were $168,728 compared to $137,535 at December 31, 2012.
During 2013, we used $352,942 in our operating activities. This resulted from a net loss of $1,681,230, increase in accounts payable of $14,312, increase in current assets of $4,063, decrease in deferred revenues of $5,800 and offset principally by impairment of goodwill of $630,880, loss on trading securities of $114,752, amortization expenses related to debt discount of $62,244, decrease in other assets of $3,991 and $511,651 related to non-cash compensation.
During 2012, we used $175,755 in our operating activities. This resulted from a net loss of $349,145, decrease in deferred revenues of $5,816 and offset principally by $16,270 in unrealized trading loss, increase in accounts payable of $12,164, increase in related parties payables of $19,090, $28,365 in amortization expenses related to debt discount and $102,870 related to non-cash compensation.
During the year ended December 31, 2013, we produced $63,545 from investing activities which resulted from sale of trading securities as compared to no investing activities during 2012.
During the year ended December 31, 2013, we financed our negative cash flow from operations through the issuance of convertible debt in the amount of $146,920 and from sale of common stock in the amount of $787,512 offset by principal payment on debt in the amount of $10,020. During the year ended December 31, 2012, we financed our negative cash flow from operations through the issuance of convertible debt in the amount of $86,300 and cash on hand.
While management of the Company believes that the Company will be successful in its current and planned operating activities, there can be no assurance that the Company will be successful in the achievement of sales of its products that will generate sufficient revenues to earn a profit and sustain the operations of the Company. The Company intends to conduct additional capital formation activities through the issuance of its common stock in 2014 unless and until we begin to generate revenues from our IDSS Software.
Our ability to create sufficient working capital to sustain us over the next twelve month period, and beyond, is dependent on our entering into additional licensing agreement and on our success in issuing additional debt or equity, or entering into strategic arrangement with a third party. There can be no assurance that sufficient capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
Going Concern Consideration
There is substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures with respect to this matter.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
Basis of Presentation and Organization
BreedIt Corp. (“BreedIt” or the “Company”) is a Delaware corporation in the development stage and has not commenced operations. The Company was incorporated under the laws of the State of Delaware on May 26, 2010. The business plan of the Company is to develop and provide an intelligent decision support system ("IDSS") utilized by the agriculture breeding industry.
The accompanying financial statements of the Company were prepared from the accounts of the Company under the accrual basis of accounting.
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents. As of December 31, 2013 and 2012, we had cash and cash equivalents of $656,067 and $21,392, respectively.
Restricted cash
Cash and cash items which are restricted as to withdrawal or usage. Restricted cash includes legally restricted deposits held as compensating balances against credit cards. As of December 31, 2013 and 2012, we had restricted cash of $43 and $4,034 respectively.
Revenue Recognition
The Company recognizes revenue from licensing its software to customers for contractually defined periods of time. The Company recognizes revenue ratably over the term of the contract in accordance with ASC 605 (1) when the price is fixed and determinable, (2) persuasive evidence of an arrangement exists, (3) delivery has occurred or services have been provided, and (4) collectability is assured.
Loss per Common Share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Fair Value of Financial Instruments
The Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts the Company could realize in a current market exchange. As of December 31, 2013 and 2012, the carrying value of accounts payable and accrued liabilities approximated fair value due to the short-term nature and maturity of these instruments.
Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets. The annual depreciation rates are as follows:
Deferred Offering Costs
The Company defers as other assets the direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the offering, the costs are charged against the capital raised. Should the offering be terminated, deferred offering costs are charged to operations during the period in which the offering is terminated.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets and the related estimated remaining lives when events or circumstances lead management to believe that the carrying value of an asset may not be recoverable. As of December 31, 2013, no events or circumstances occurred for which an evaluation of the recoverability of long-lived assets was required.
Estimates
The financial statements are prepared on the basis of accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of December 31, 2013 and 2012, and expenses for the year ended December 31, 2012,and the periods from inception to December 31, 2012. Actual results could differ from those estimates made by management.
Fair value measurements:
As defined in ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), fair value is based on the price that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820-10 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Other inputs that are observable, directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs.
Level 3: Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about how market participants would value the assets or liabilities. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques in its assessment that maximize the use of observable inputs and minimize the use of unobservable inputs.
The following table presents the Company’s financial assets and liabilities that are carried at fair value, classified according to the three categories described above:
Impact of recently issued accounting standards:
In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
●
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
●
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
Goodwill and Intangible Assets
Goodwill is tested for impairment at a minimum on an annual basis. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit's carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit. We conducted our annual impairment tests of goodwill as of December 31, 2013. As a result of these tests, we recorded impairment charges to our goodwill during the year ended December 31, 2013 of $630,880.
Intangible assets consist of patents and trademarks, purchased customer contracts, purchased customer and merchant relationships, purchased trade names, purchased technology, and non-compete agreements. Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from two to twenty years. No significant residual value is estimated for intangible assets.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FOR BREEDIT CORP. (formerly Progaming Platforms Corp.)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
BreedIt Corp. (A Development Stage Company)
Tel Aviv, Israel
We have audited the accompanying balance sheets of BreedIt Corp. (A Development Stage Company) as of December 31, 2013 and 2012 and the related statements of operations, stockholders’ deficit and cash flows for the years then ended and for the period from inception (May 26, 2010) to December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BreedIt Corp. as of December 31, 2013 and 2012 and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
March 31, 2014
BREEDIT CORP. (formerly Progaming Platforms Corp.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF DECEMBER 31, 2013 AND 2012
The accompanying notes are an integral part of these financial statements
The accompanying notes are an integral part of these financial statements.
BREEDIT CORP. (formerly Progaming Platforms Corp.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION MAY 26, 2010 THROUGH DECEMBER 31, 2013
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
BREEDIT CORP. (formerly Progaming Platforms Corp.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Basis of Presentation and Organization
BreedIt Corp. (“BreedIt” or the “Company”) is a Delaware corporation in the development stage and has not commenced operations. The Company was incorporated under the laws of the State of Delaware on May 26, 2010. On October 24, 2013 we entered into an agreement to acquire 66.67% of BreedIT Israel's capital stock. Subsequently, we were issued 200 shares of BreedIT Israel’s capital stock ("Ordinary Shares") which represent 66.67% of BreedIT's outstanding Ordinary Shares with the founder, Dr. Oded Sagee owning the remaining 100 Ordinary Shares, representing 33.33% of the outstanding Ordinary Shares.
BreedIT Ltd. signed a binding agreement with a leading Israeli university granting BreedIT Ltd. the exclusive, world-wide license for a unique and highly sophisticated decision making software used for the purpose of advanced agriculture breeding (the "IDSS Software"). The business plan of the Company through its BreedIT Ltd subsidiary is to further develop and market the IDSS Software system globally to the agricultural breeding industry.
The accompanying financial statements of the Company were prepared from the accounts of the Company under the accrual basis of accounting.
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents. As of December 31, 2013 and 2012, we had cash and cash equivalents of $656,067 and $21,392, respectively.
Restricted cash
Cash and cash items which are restricted as to withdrawal or usage. Restricted cash includes legally restricted deposits held as compensating balances against credit cards. As of December 31, 2013 and 2012, we had restricted cash of $43 and $4,034 respectively.
Revenue Recognition
The Company recognizes revenue from licensing its software to customers for contractually defined periods of time. The Company recognizes revenue ratably over the term of the contract in accordance with ASC 605 (1) when the price is fixed and determinable, (2) persuasive evidence of an arrangement exists, (3) delivery has occurred or services have been provided, and (4) collectability is assured.
Loss per Common Share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Fair Value of Financial Instruments
The Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts the Company could realize in a current market exchange. As of December 31, 2013 and 2012, the carrying value of accounts payable and accrued liabilities approximated fair value due to the short-term nature and maturity of these instruments.
Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets. The annual depreciation rates are as follows:
Deferred Offering Costs
The Company defers as other assets the direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the offering, the costs are charged against the capital raised. Should the offering be terminated, deferred offering costs are charged to operations during the period in which the offering is terminated.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets and the related estimated remaining lives when events or circumstances lead management to believe that the carrying value of an asset may not be recoverable. As of December 31, 2013, no events or circumstances occurred for which an evaluation of the recoverability of long-lived assets was required.
Estimates
The financial statements are prepared on the basis of accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of December 31, 2013 and 2012, and expenses for the year ended December 31, 2012,and the periods from inception to December 31, 2012. Actual results could differ from those estimates made by management.
Fair value measurements:
As defined in ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), fair value is based on the price that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820-10 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Other inputs that are observable, directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs.
Level 3: Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about how market participants would value the assets or liabilities. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques in its assessment that maximize the use of observable inputs and minimize the use of unobservable inputs.
The following table presents the Company’s financial assets and liabilities that are carried at fair value, classified according to the three categories described above:
Impact of recently issued accounting standards:
In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
-
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
-
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
Goodwill and Intangible Assets
Goodwill is tested for impairment at a minimum on an annual basis. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit's carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit. We conducted our annual impairment tests of goodwill as of December 31, 2013. As a result of these tests, we recorded impairment charges to our goodwill during the year ended December 31, 2013 of $630,880.
Intangible assets consist of patents and trademarks, purchased customer contracts, purchased customer and merchant relationships, purchased trade names, purchased technology, and non-compete agreements. Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from two to twenty years. No significant residual value is estimated for intangible assets.
(2) Development Stage Activities and Going Concern
The Company is currently in the development stage, and has limited operations. The business plan of the Company transitioned from being a provider of online gaming software to the developer and provider of an intelligent decision support system ("IDSS") utilized by the agriculture breeding industry, we were able to utilize our software programming expertise. Our business efforts are now being directed toward offering our IDSS Software program to a wide variety of users engaged in plant breeding, primarily within the seed industry. We plan on marketing our IDSS Software to agro-breeders, providing them with the ability to better plan, manage and analyze their breeding data and to perform research activities quickly and effectively so as to significantly increase production and plant quality.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established any source of revenue to cover its operating costs, and as such, has incurred an operating loss since inception. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
(3) Common Stock
On June 7, 2010, the Company issued 15,250,000 shares of its common stock to individuals who are directors and officers of the company for $153 subscriptions receivable.
On June 7, 2010, the Company issued 14,750,000 shares of its common stock to individuals who are founders of the company for $147 subscriptions receivable.
On December 21, 2010, the Company issued 20,000,000 shares of its common stock to various individuals, for $100,000 in cash. Such funds were raised through public offering, in accordance with the terms and conditions of the Registration Statement.
In April 2011, the Company sold 150,000 restricted shares to Guy Levinson and 250,000 restricted shares to Shlomo Sharbat, both are non-US private investor, for $40,000.
On March 18, 2012, the Company issued 25,000 restricted shares of common stock in consideration for financial advisory services provided to the Company. The shares were valued at $7,950 based on the closing price of the Company's common stock on the date of grant.
On March 13, 2012, the Company issued 30,000 restricted shares of common stock in consideration for investor relations (IR) services provided to the Company. The shares were valued at $7,500 based on the closing price of the Company's common stock on the date of grant.
On May 6, 2012, the Company issued 15,000 restricted shares of common stock in consideration for professional services provided to the Company. The shares were valued at $5,250 based on the closing price of the Company's common stock on the date of grant.
On July 2, September 3 and September 19, 2012, the Company issued a total of 498,000 restricted shares of common stock in consideration for professional services provided to the Company. The shares were valued at $82,170 based on the closing price of the Company's common stock on the date of grant.
On December 29, 2012, the Company issued 1,229,055 restricted shares of common stock in consideration for share exchange between the company and Gefen Biomed Investments, a publicly traded company. The shares were valued at $190,504 based on the closing price of the Company's common stock on the date of grant.
From October 16, 2013 through December 30, 2013, the Company sold to 22 non-US private accredited investors, a total of 15,750,260 units for cash consideration of $787,513 at a price of $0.05 (the "Units"), each unit comprised of one share of common stock, one class A warrant with 18 months term and one class B warrant with 24 month term, exercisable at a price of $0.055 and $0.065 respectively; of this total 4,500,000 units were sold to directors and officers. The relative fair value of the stock with embedded warrants was $246,084 for the common stock, $266,967 for class A warrants and $274,462 for class B warrants.
On November 1, 2013 the Company issued 300,000 restricted shares of common stock in consideration for investor relations (IR) services provided to the Company. The shares were valued at $19,500 based on the closing price of the Company's common stock on the date of grant.
On November 18, 2013 the Company issued 1,000,000 restricted shares of common stock and 1,000,000 warrants with a term of 18 months, exercisable at $0.05 per share in consideration for investor relations (IR) services provided to the Company. The shares were valued at $112,000 based on the closing price of the Company's common stock on the date of grant. The warrants were valued using the Black-Scholes model with 117% volatility and 0.22% discount rate for a total of $78,861.
On November 19, 2013 the Company issued 1,600,000 restricted shares of common stock and 600,000 warrants with a term of 18 months, exercisable at $0.05 per share in consideration for investor relations (IR) services provided to the Company. The shares were valued at $182,400 based on the closing price of the Company's common stock on the date of grant. The warrants were valued using the Black-Scholes model with 117% volatility and 0.22% discount rate for a total of $47,316.
On December 10, 2013 the Company issued 350,000 restricted shares of common stock in consideration for investor relations (IR) services provided to the Company. The shares were valued at $42,000 based on the closing price of the Company's common stock on the date of grant.
On November 18, 2013 the Company issued 375,000 warrants with a term of 18 months, exercisable at $0.05 per share in consideration for investor relations (IR) services provided to the Company. The warrants were valued using the Black-Scholes model with 117% volatility and 0.22% discount rate for a total of $29,573.
During 2013 three shareholders converted $18,200 of debt and $2,972 of accrued interest to 1,058,602 shares at a conversion price of $0.02 per share. The conversion occurred within the terms of the convertible note agreements with no gain or loss recorded.
Share based payment transactions were accounted for in accordance with the requirements of ASC 505-50 Equity Based Payments to Non Employees. Paragraph 505-50-30-6 establishes that share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Company measured share-based payment transactions at the fair value of the shares issued at date of grant, the Company believes that the value of the shares is more reliably measurable.
On March 1, 2012, the Company filed a Certificate of Amendment to its Certificate of Incorporation effecting a forward stock split of the Company’s issued and outstanding shares of Common Stock at a ratio of ten-to-one (the “Forward Split”). The Certificate of Amendment provides that each outstanding share of the Company's Common Stock, par value $0.0001 per share, will be split and converted, automatically, without further action, into ten (10) shares of Common Stock of $0.00001 par value per share. The Forward Split has been reflected in the Company's financial statements for year ended December 31, 2013 and 2012.
(4) Revenue Recognition
On July 1 2011 and on July 10, 2011, the Company signed license agreements with two separate corporations in Israel and Luxemburg (the "Licensees"). Subject to the terms and condition of each agreement the Company granted each Licensee a license to use the Company's proprietary online gaming platform in certain parts of the world. Each license is, in general, non-exclusive, except for certain countries specified within each agreement. The agreements grant each Licensee the right to develop and operate websites offering online games based on the Company's proprietary technology for a period of 5 years as of the respective agreement's effective date. In the event that by the eighteenth-month anniversary of the each agreement's effective date the respective Licensee fails to have at least one active website in each of the countries that comprise the exclusive territory of the agreement, the Company shall be entitled to either terminate exclusivity for these countries or terminate the entire agreement. In consideration of these agreements, and of support services to be provided by the Company through the license period, the Licensees have paid the Company non-refundable, one-time license fees totaling $119,000. In addition to such license fees, once each Licensee realizes revenues at a certain level specified in its respective agreement from its use of the Company's platform, it shall pay the Company a royalty in the amount of 50% of gross revenues realized from its use of this platform.
On December 26, 2011, the corporation from Luxemburg announced the termination of the agreement due to the economic situation in Europe. As a result, the entire license fee in the amount of $90,000 was recognized immediately as revenues.
As of December 31, 2013 and 2012, the Company recognized a total sum of $5,800 and $5,816, respectively, in revenues out of the total $119,000 license fees paid for both of the aforementioned agreements. The contract in the amount of $90,000 was canceled by the client; therefore we recognized the whole sum as revenues according to the terms of the agreement. The second contract grants the client licenses for a period of 5 years, accordingly, $5,816 were recorded as revenues in 2012 and $5,800 in 2013; the remaining sum of $14,476 was deferred on the Company's balance sheet, $5,800 as current and $8,676 as long term liabilities, and is expected to be recognized over the remaining period of the agreements.
As of December 31, 2013 and 2012, no royalties have been paid by or recognized in connection with the aforementioned agreements.
One of the aforementioned Licensees is beneficially owned by an individual who holds 25,000 shares of the Company's common stock.
(5) Acquisitions during Fiscal Year Ended December 31, 2013
We completed the acquisition of 66.6% of BreedIT Ltd. in furtherance of our strategy to acquire small, privately owned enterprises in the software sector through asset purchase structures. We made the acquisitions to expand our market presence and product offerings in areas that complement our experience in software platforms.
The purchase consideration for the acquisition was allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated consideration recorded as goodwill. An independent valuation expert assisted us in determining these fair values.
We have included the financial results of these acquisitions in our consolidated financial statements from the date of acquisition.
BreedIT Ltd.
We acquired 66.67% of BreedIT Ltd, in October 2013 pursuant to an asset purchase agreement. The assets acquired consisted of all application software, licensing agreement with academic institution for marketing the software and brands. We assumed some liabilities in the transaction as described below. BreedIT Ltd. was established in July 2013 by Dr. Oded Sagee. BreedIT Ltd. was established in July 2013 by Dr. Oded Sagee.
The purchase consideration for 66.67% totaling $566,447 consisted of: (1) $245,000 in cash; (2) 2,200,000 shares of our common stock valued based on the closing market price on the acquisition date at $151,800; (3) 2,200,000 Class A options for the purchase of 2,200,000 shares of our common stock at $0.055 per share valued using the black-scholes model with volatility of 122% and a discount rate of 0.23% for a total value of $84,967; and (4) 2,200,000 Class B options for the purchase of 2,200,000 shares of our common stock at $0.065 per share valued using the black-scholes model with volatility of 122% and a discount rate of 0.23% for a total value of $84,680. The total net assets of the company including the non controlling interest was $849,671 on the date of acquisition.
The allocation of the purchase consideration to the assets and liabilities acquired was as follows:
(6) Goodwill and Intangible Assets
Goodwill
The following table presents goodwill and impairment for the years ended December 31, 2013 and 2012:
We conducted our annual impairment test of goodwill as of December 31, 2013, which resulted in impairment charges of $630,880.
(7) Income Taxes
The provision (benefit) for income taxes for the year ended December 31, 2013 and 2012, was as follows (assuming a 35% effective tax rate):
The Company had deferred income tax assets as of December 31, 2013 and 2012, as follows:
The Company provided a valuation allowance equal to the deferred income tax assets for the year ended December 31, 2013 and 2012, because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards.
As of December 31, 2013 and 2012, the Company had approximately 633,943 and $272,240, respectively, in tax loss carryforwards that can be utilized in future periods to reduce taxable income, and expire by the year 2030.
The Company did not identify any material uncertain tax positions that will be filed. The Company did not recognize any interest or penalties for unrecognized tax benefits during the year ended December 31, 2013 and 2012.
The Company will file income tax returns in the United States. All tax years are closed by expiration of the statute of limitations. The year ended December 31, 2013 and 2012.
(8) Related Party Transactions
As described in Note 3, on June 7, 2010, the Company issued 15,250,000 shares of its common stock to directors and officers for $153 subscriptions receivable.
In addition as described in Note 3, From October 16, 2013 through December 30, 2013, the Company sold to 22 non-US private investor, a total of 15,750,260 million units for cash consideration of $787,513 at a price of $0.05 (the "Units"), each unit comprised of one share of common stock, one class A warrant and one class B warrant, exercisable at a price of $0.055 and $0.065 respectively; of this total 4,500,000 units were sold to directors and officers for $225,000 subscriptions receivable. The relative fair value of the stock with embedded warrants was $246,084 for the common stock, $266,967 for class A warrants and $274,462 for class B warrants.
During 2013 forgiveness of Accrued Debt by related parties was recorded in the amount of $49,000.
In 2013 $2,305 accrued liability was recorded for consulting fees due to a related party.
(9) Convertible and non-convertible notes payable,
During the year ended December 31, 2013, we received $6,900 through the issuance of two convertible notes, bearing interest at the rate of 15% per annum, have a maturity date of 12 months and are convertible into common stock at $0.02 per share. The $6,900 of debt along with $729 of accrued interest was converted to 381,453 shares of common stock at $0.02 per share. The conversion occurred within the terms of the convertible note agreements with no gain or loss recorded on the conversion.
During the year ended December 31, 2013, a convertible note of $11,300 along with $2,243 of accrued interest was converted to 677,149 shares of common stock at $0.02 per share. The conversion occurred within the terms of the convertible note agreement with no gain or loss recorded on the conversion.
During the year ended December 31, 2013, we received $130,000 through the issuance of two convertible notes, bearing interest at the rate of 10% per annum, have a maturity date of 12 months and are convertible into common stock at $0.05 per share.
The Company recorded amortization expenses related to the beneficial conversion features of $62,244 during the year ended December 31, 2013.
The Company recorded interest expense in the amount of $13,674 during the year ended December 31, 2013.
During the year ended December 31, 2013, we received $10,020 through the issuance of non-convertible notes bearing interest at a rate of one (1%) per annum and which have maturity date of 12 months.
During the year ended December 31, 2012, the Company received a total of $86,300 through the issuance of six convertible notes. These notes bear interest at the rate of 15% per annum, have a maturity date of 12 months and are convertible into common stock $0.02 per share.
(10) Investments
Investments in Trading Securities as of December 31, 2013 and 2012 are summarized below:
As of December 31, 2013 the company owns no shares of Gefen Biomed Investments, a publicly traded company. During the year ended December 31, 2013, the Company recorded a realized loss of $114,752 due to their decreased market value as compared to December 31, 2012.
(11) Subsequent Events
As defined in FASB ASC 855-10, “Subsequent Events”, subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued.
In Q1 2014 the company issued an additional 13,731,666 company shares for consideration and for services provided to the company.
During Q1 2014 the company adopted an executive stock option plan and has granted options to officers and directors.
The Company evaluated all other events and transactions that occurred subsequent to the balance sheet date and prior to the date on which the financial statements contained in this report were issued, and the Company determined that no such events or transactions necessitated disclosure.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9 A.
ITEM 9 A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2013, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer/chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the fiscal year 2012.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of those internal controls. As defined by the SEC, internal control over financial reporting is a process designed by our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, we have concluded that our internal control over financial reporting had material weaknesses including lack of sufficient internal accounting personnel in order to ensure complete documentation of complex transactions and adequate financial reporting during the year ended December 31, 2013. Management has identified corrective actions for the weakness and has begun implementation during the first quarter of 2014.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE
Our directors hold office until the next annual general meeting of the stockholders or until their successors are elected and qualified. Our officers are appointed by our Board of Directors and hold office until the earlier of their death, retirement, resignation, or removal.
Our officers and directors and their ages and positions are as follows:
Yoel Yogev, 61, was appointed to the Registrant's board of directors on January 7, 2014 and became the Company's CEO on January 14, 2014. Mr. Yogev has been Chairman of the board of directors of BreedIT Ltd, an entity organized under the laws of Israel that is a sixty-seven (67%) percent owned subsidiary of the Registrant. From 1987 to the present, Mr. Yogev has served as Chairman and CEO of El-Gev Electronics Ltd., a leading Israeli sales representative/distributor for OEMs of Electronics, Fiber-Optics and RF/Microwave components/modules as well as T&M systems and Embedded Computer Solutions. Mr. Yogev has also been an investor in many private "start-up" companies in Israel, principally in the technology sector. Mr. Yogev is a graduate of The Technion Israel Institute of Technology with a Bsc.E.E. Degree.
Oded Gilboa, 40, was appointed to be the Company's CFO on December 4, 2013. He is a licensed CPA in the United States and Israel. Prior to his appointment as CFO, Mr. Gilboa served as the Registrant's finance and accounting consultant. Mr. Gilboa has over 16 years of experience in finance and public accounting, having served as a senior finance executive in the technology and biotech industries with responsibilities in corporate finance, accounting, strategic planning and operational and financial management. From 2010 through 2012, Mr. Gilboa served as the Revenue Accounting and Finance Manager of Mylan Specialty, a subsidiary of Mylan Inc. (NASDAQ: MYL), a global company focused on the development, manufacturing and marketing of prescription drug products. From 2007 through 2009, Mr. Gilboa was the Executive director of Finance and US Controller of Taro Pharmaceuticals (NASDAQ:TAROF), a global pharmaceutical company. From 1998 through 2007 Mr. Gilboa held various financial positions with IDT Corporation (NYSE:IDT), a world-wide provider of telecommunications and media services, where in his most recent role he served as director of Finance. Mr. Gilboa Mr. Gilboa began his career in public accounting, auditing both public and private companies and holds a B.A in Economics and Accounting from Tel-Aviv University and an M.B.A. from Recanati Business School at Tel-Aviv University.
Itschak Shrem, 66, was appointed to the board and became Chairman of the board on December 31, 2013, Mr. Shrem, is an entrepreneur with over twenty-five years of professional business experience in the fields of investment banking, venture capital, finance, insurance and technology, among others, involving both public and private entities.
From 1995 to the present, Mr. Shrem has served as Managing director of Yaad Consulting 1995 Ltd., which was organized in 1995 and provides business development, marketing and investment banking services to a wide variety of Israeli companies. Mr. Shrem has held several positions with S R Accord Ltd. (formerly, The Shrem Fudim Group Ltd): from April 1991 until December 1999, Mr. Shrem served as Vice Chairman; from December 1999 until June 2013 Mr. Shrem served as a chairman of the board; and from June 2013 to present, he as served as a member of the board of directors. S R Accord was founded by Mr. Shrem in 1991, is listed on the Tel-Aviv Stock Exchange ("TASE") and is engaged in investment banking in Israel. From 1991 to 2010, Mr. Shrem served as the Chairman of Leader Holdings and Investments Ltd. and Polar Communications Ltd., both TASE-listed companies engaged in investment banking and venture capital, the latter of which specializes in the media and telecommunications industries. From 2007 until 2012, Mr. Shrem served as a director of Retalix, (NASDAQ:RTLX). In 1993, Mr. Shrem founded Pitango Venture Capital Fund, which has investments in over 120 companies, principally in the technology industry and presently has approximately $1.5 billion under management. Mr. Shrem presently holds positions as partner in the GP of Pitango I, II and III. Since October 2010, Mr. Shrem has served as an independent director of Eden Springs Ltd, TASE-listed Company and a leading Israeli mineral water company with operations, through a subsidiary, in 16 countries throughout Europe. Mr. Shrem spent over 15 years with Clal Israel Ltd, serving in various capacities including Chief Operating Officer, responsible for Clal's capital markets and insurance businesses until March, 1991. Mr. Shrem holds a B.A. in Economics from Bar-Ilan University, Israel, and an M.B.A. from Tel-Aviv University, Israel.
Dr. Ben-Zion Weiner, 69, was appointed to the Registrant's board of directors on January 7, 2014. From 1975 to 2012, Dr. Weiner has held executive positions with Teva Pharmaceutical Industries Ltd (NYSE:TEVA) and its subsidiaries ("Teva"), as follows: , Dr. Weiner was Vice President, Global Products of Teva; from 2005 until 2011, Dr. Weiner served as Group Vice President, Global Products of Teva, responsible for Global Generic Research and Development, Global Innovative Research and Development. Dr. Weiner was also a Member of the Teva Core Management Committee. From 2012 until the present, Dr. Weiner has served as an independent non-executive director of Mesoblast Limited, (MSB.AX), an Australian company publicly-traded on the Melbourne Stock Exchange that is engaged in the research and development of its propriety stem cell technologies for use in the treatment of multiple major disease states and other medical conditions. Dr. Wiener presently serves as a lecturer in Tel Aviv University School for business administration.
In 1968, Dr. Weiner received a B.Sc. Degree in General Chemistry and Biochemistry, graduating with distinction at the Hebrew University, Jerusalem. In 1970 Dr. Weiner received a M.Sc. Degree in Organic Chemistry, graduating with distinction at the Hebrew University of Jerusalem. Thesis: "Synthesis of Polymers with Potential Biological Activity" under the supervision of Prof. A. Zilkha. In 1974 Dr. Weiner received his Ph.D. Degree at the Hebrew University, Jerusalem. Thesis: "Synthesis of Polymers with Potential Biological Activity" under the supervision of Prof. A. Zilkha and from 1974 to 1975, Dr. Weiner did Post-Doctorate studies at Schering Plough Corporation, Bloomfield, New Jersey, on: "Exploratory work of new drugs, research in organic chemistry, and pharmacology."
Dr. Weiner received the Rothschild Prize for Innovation/Export for the development of Copaxone(R) for Multiple Sclerosis. Previously, in 1989, Dr. Weiner received the Rothschild Prize for Innovation/Export for the development of alpha D3 for Dialysis and Osteoporosis.
Erez Zino, 41, a founder the principal stockholder of the Company, became our CEO in May 2012 and became our acting CFO in January 2013. In connection with our acquisition of 66.67% of BreedIT Israel, Mr. Zino resigned as an executive officer of the Company but continues to serve as a director. During the past five years, Mr. Zino has been the owner and managing director of Ozicom Communication Ltd., a private company that provides internet marketing support. Mr. Zino is a trained computer programmer and specializes in internet marketing.
Committees of the Board of directors
We do not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committees of our Board of directors. As such, our entire Board of directors acts as our audit committee.
Involvement in Legal Proceedings
None of our directors, nominees for directors, or officers has appeared as a party during the past ten years in any legal proceedings that may bear on his ability or integrity to serve as a director or officer of the Company.
Code of Ethics
We do not currently have a Code of Ethics applicable to our principal executive, financial and accounting officers. However, we intend to adopt such a code in or about the second quarter of 2014.
Potential Conflict of Interest
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our Board of directors. Thus, there is a potential conflict of interest in that our directors have the authority to determine issues concerning management compensation, in essence their own, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executives or directors.
Board’s Role in Risk Oversight
The Board assesses on an ongoing basis the risks faced by the Company. These risks include financial, technological, competitive, and operational risks. The Board dedicates time at each of its meetings to review and consider the relevant risks faced by the Company at that time. In addition, since the Company does not have an Audit Committee, the Board is also responsible for the assessment and oversight of the Company’s financial risk exposures.
Section 16(a) Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the Registrant's directors and executive officers, and persons who own beneficially more than ten percent (10%) of the Registrant's Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to the Registrant pursuant to Section 16(a). Based solely on the reports received by the Registrant and on written representations from reporting persons, the Registrant was informed that its officers and directors and ten percent (10%) shareholders have not filed reports required to be filed under Section 16(a).
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the total compensation that we have paid or that has accrued on behalf of our chief executive officer and other executive officers with annual compensation exceeding $100,000 during the fiscal years ending December 31, 2013, 2012 and 2011.
(1) Mr. Yogev was appointed to the board on January 7, 2014 and became the Company's CEO on January 14, 2014.
(2) Mr. Gilboa was appointed to be CFO of the Company on December 4, 2013.
(3) Mr. Zino became our CEO in July 2012 and acting CFO in January 2013. He resigned as CFO on December 4, 2013 and as CEO on January 7, 2014 and remains a director.
(4) Mr. Levinas was our CEO and a director from May 26, 2010 until his resignation on May 3, 2012.
(5) Mr. Zwebner was our CFO from July 5, 2010 until his resignation on December 31, 2012.
(6) Mr. Uziel was our CFO from May 26, 2010 until his resignation on July 5, 2012.
Option/SAR Grants
We do not currently have a stock option plan. No individual grants of stock options, whether or not in tandem with stock appreciation rights known as SARs or freestanding SARs have been made to any executive officer or any director since our inception; accordingly, no stock options have been granted or exercised by any of the officers or directors since we were founded.
Long-Term Incentive Plans and Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. No individual grants or agreements regarding future payouts under non-stock price-based plans have been made to any executive officer or any director or any employee or consultant since our inception; accordingly, no future payouts under non-stock price-based plans or agreements have been granted or entered into or exercised by any of the officers or directors or employees or consultants since we were founded.
Compensation of directors
There are no current arrangements pursuant to which directors are or will be compensated in the future for any services provided as a director.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
There are no employment contracts in place, no employees were terminated and no change in control arrangements have been signed with the company.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The following table sets forth information regarding the beneficial ownership of our common stock as of March 28, 2014. The information in this table provides the ownership information for: each person known by us to be the beneficial owner of more than 5% of our common stock; each of our directors; each of our executive officers; and our executive officers and directors as a group. Beneficial ownership has been determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to the shares. Unless otherwise indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them.
(1) Applicable percentage ownership is based on 85,987,583 shares of common stock outstanding as of March 25, 2014. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of March 28, 2014 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION S AND DIRECTORS INDEPENDENCE
During the last two fiscal years the Company had the following related party transactions:
During 2013, the company received a total of $16,900 as convertible notes from two shareholders. The notes are convertible into common stock par value $0.001 per share. The notes were converted on December 26, 2013. Company recorded interest expense on the amount of $13,674 during 2013 and interest expense on the amount of $4,863 during 2012.
During 2012, the Company issued six convertible notes for a total of $86,300 to six shareholders who are considered related parties. The notes bear interest at the rate of 15% per annum and having a maturity date of 12 months. The notes are convertible into common stock par value $0.001 per share. The Company recorded interest expense on the amount of $4,863 during 2012.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Independent Public Accountants
The Registrant's Board of directors has appointed M&K CPAS, PLLC (“MK") as independent public accountant for the fiscal year ended December 31, 2013 and 2012.
Principal Accounting Fees
The following table presents the fees for professional audit services rendered by MK for the audit of the Registrant's annual financial statements for the years ended December 31, 2013 and 2012, and fees billed for other services rendered by McConnell & Jones, LLP during those periods.
(1) Audit fees consist of audit and review services, consents and review of documents filed with the SEC.
(2) Audit-related fees consist of assistance and discussion concerning financial accounting and reporting standards and other accounting issues.
(3) Tax fees consist of preparation of federal and state tax returns, review of quarterly estimated tax payments, and consultation concerning tax compliance issues.
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as exhibits to this report on Form 10-K or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.