UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
____________________
FORM 10
____________________
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant
to Section 12(b) or (g) of the Securities Exchange Act of
1934
____________________
VIVI HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
____________________
|
Delaware
(State
or other jurisdiction of incorporation)
|
81-3401645
(IRS
Employer Identification No.)
|
|
951 Yamato Road, Suite 101, Boca Raton, Florida
(Address
of principal executive offices)
|
33431
(Zip
Code)
|
Registrant’s
telephone number, including area code: (561) 717-4138
Securities to be
registered pursuant to Section 12(b) of the Act:
Securities to be
registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer ☐
|
Accelerated
filer ☐
|
Non-accelerated
filer ☐
|
Smaller
reporting company ☒
|
Emerging
growth company ☒
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
TABLE OF CONTENTS
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EXPLANATORY
NOTE
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i
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FORWARD-LOOKING
STATEMENTS
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i
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Item
1.
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Business.
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1
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Item
1A.
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Risk
Factors.
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17
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Item
2.
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Financial
Information.
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48
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Item
3.
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Properties.
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55
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Item
4.
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Security
Ownership of Certain Beneficial Owners and Management.
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55
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Item
5.
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Directors
and Executive Officers.
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57
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Item
6.
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Executive
Compensation.
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60
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Item
7.
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Certain
Relationships and Related Transactions, and Director
Independence.
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61
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Item
8.
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Legal
Proceedings.
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64
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Item
9.
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Market
Price of and Dividends on the Registrant’s Common Equity and
Related Stockholder Matters.
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64
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Item
10.
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Recent
Sales of Unregistered Securities.
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66
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Item
11.
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Description
of Registrant’s Securities to be Registered.
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71
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Item
12.
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Indemnification
of Directors and Officers.
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75
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Item
13.
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Financial
Statements and Supplementary Data.
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78
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Item
14.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
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78
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Item
15.
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Financial
Statements and Exhibits.
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78
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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94
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SIGNATURES
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112
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EXPLANATORY NOTE
Vivi
Holdings, Inc. is filing this General Form for Registration of
Securities on Form 10, which we refer to as the Registration
Statement, to register its common stock, par value $0.001 per
share, pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended, or the Exchange Act. Unless otherwise
mentioned or unless the context requires otherwise, when used in
this Registration Statement, the terms “ViVi,”
“Company,” “we,” “us,” and
“our” refer to Vivi Holdings, Inc.
ViVi is
an “emerging growth company” as defined under the
federal securities laws and, as such, may elect to comply with
certain reduced public company reporting requirements in future
reports that we file with the United States Securities and Exchange
Commission, or SEC.
ViVi is
also a “smaller reporting company” as defined in
Exchange Act Rule 12b-2.
FORWARD-LOOKING STATEMENTS
This
Registration Statement contains forward-looking statements that
involve substantial risks and uncertainties. Any such statements
that do not relate to historical or current facts or matters are
forward-looking statements. All statements, other than statements
of historical fact, contained in this Registration Statement,
including statements regarding our strategy, future operations,
future financial position, future revenues, projected costs,
prospects, plans and objectives of management, are forward-looking
statements. The words “anticipate,”
“believe,” “estimate,”
“expect,” “intend,” “may,”
“plan,” “predict,” “project,”
“target,” “potential,” “will,”
“would,” “could,” “should,”
“continue,” and similar expressions are intended to
identify forward-looking statements, although not all
forward-looking statements contain these identifying words. These
statements are based on ViVi’s current plans and are subject
to risks and uncertainties, and as such ViVi’s actual future
activities and results of operations may be materially different
from those set forth in the forward-looking statements. Any or all
of the forward-looking statements in this Registration Statement
may turn out to be inaccurate and as such, you should not place
undue reliance on these forward-looking statements. ViVi has based
these forward-looking statements largely on its current
expectations and projections about future events and financial
trends that it believes may affect its financial condition, results
of operations, business strategy and financial needs. The
forward-looking statements can be affected by inaccurate
assumptions or by known or unknown risks, uncertainties and
assumptions due to a number of factors, including, dependence on
key personnel, competitive factors, the operation of ViVi’s
intended business, and general economic conditions in the United
States, Brazil, Mexico, or globally. These forward-looking
statements speak only as of the date on which they are made. ViVi
assumes no obligation to update or to publicly announce the results
of any change to any of the forward-looking statements contained or
included herein to reflect actual results, future events or
developments, changes in assumptions or changes in other factors
affecting the forward-looking statements, other than where a duty
to update such information or provide further disclosure is imposed
by applicable law, including applicable United States federal
securities laws, and any applicable Brazilian laws or regulations.
In addition, ViVi cannot assess the impact of each factor on its
intended business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
i
The
forward-looking statements in this Registration Statement include,
among other things, statements about:
●
projections and
related assumptions;
●
business and
corporate strategy;
●
plans, objectives,
expectations, and intentions;
●
the anticipated
development of our technologies, products, and
operations;
●
anticipated revenue
and growth in revenue from various product offerings, including
consulting, virtual finance and payment platforms;
●
future operating
results;
●
intellectual
property portfolio;
●
projected liquidity
and capital expenditures;
●
development and
expansion of strategic relationships, collaborations, and
alliances; and
●
market opportunity,
including without limitation the potential market and regulatory
acceptance of our technologies and products and the size of the
market for information technology and virtual finance and payment
platform products.
These
forward-looking statements reflect our current views about future
events and are subject to risks, uncertainties and assumptions. We
may not actually achieve the plans, intentions or expectations
disclosed in our forward-looking statements, and you should not
place undue reliance on our forward-looking statements. Actual
results or events could differ significantly from the plans,
intentions and expectations disclosed in the forward-looking
statements we make. These forward-looking statements do not reflect
the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or investments we may make. When
considering forward-looking statements, you should keep in mind the
risk factors and other cautionary statements described under the
heading “Risk Factors”, as well as those set forth
below. Accordingly, readers should not place undue reliance on
forward-looking statements. All subsequent written and oral
forward-looking statements attributable to ViVi or persons acting
on its behalf are expressly qualified in their entirety by the
cautionary statements contained in this Registration Statement.
Important factors that you should also consider, include, but are
not limited to, the factors discussed under “Risk
Factors” in this Registration Statement.
You
should read this Registration Statement and the documents that we
have filed as exhibits to this Registration Statement with the
understanding that our actual future results may be materially
different from what we expect. The forward-looking statements
contained in this Registration Statement are made as of the date of
this Registration Statement, and we do not assume any obligation to
update any forward-looking statements except as required by
applicable law.
Industry Data
Market
data and certain industry forecasts used throughout this
Registration Statement were obtained from our internal analyses,
market research, publicly available information, and industry
publications. Industry publications generally provide that the
information contained in such publications has been obtained from
sources believed to be reliable, but that the accuracy and
completeness of such information is not guaranteed. The information
in internal analyses, market research, and industry publications
has not been independently verified by us, and we make no
representation as to the accuracy of this information. All
references in this Registration Statement to internal analyses,
market research, industry publications, and other documents are
qualified in their entirety by reference to the full text of those
documents.
ii
Item
1. Business.
Overview
ViVi
Holdings, Inc. is a technology company, incorporated in the State
of Delaware in June 2016, to provide information technology
(“IT”) consulting services and a virtual and electronic
payment processing platform in Brazil. In 2016 and 2017, we focused
on developing our ViViPay platform described below and did not have
any operations. We began generating revenues in 2018 by providing
outside IT consulting services to businesses and organizations
through our ViViTECH business (“ViviTech”). However, we
believe that our principal business and growth opportunities in the
future will arise from our virtual and electronic payment
processing platform that was developed to serve underserved
communities in Brazil, known as ViViPay (“ViviPay”).
During the past 24 months, we have invested significant capital and
internal resources in the development of ViviPay. The ViviPay
platform is centered around our proprietary ViViWALLET application
(“ViviWallet”) and helps consumers and businesses
process payment transactions and manage their payments efficiently.
We also offer prepaid cards which our users can fund using money
transfers from the ViviWallet. We launched the ViviWallet and the
associated prepaid cards in the fourth quarter 2018. Our current
ViviPay and ViviTech customers are located primarily in
Brazil.
From
our inception through September 30, 2018, we generated all of
our revenue from IT service agreements with our ViviTech customers.
However, with the launch of our initial ViviPay products in the
fourth quarter of 2018, we have slowly started earning revenues by
charging our ViviPay customers recurring monthly fees and
transaction fees associated with the use of our ViviWallet or
prepaid cards. Depending on the nature of the transaction,
transaction fees can be either fixed or based on a percentage of
the transaction. We expect that revenues from our ViviPay products
will grow and constitute a higher percentage of our consolidated
revenues moving forward.
Key Growth Strategies and Industry Trends
We
believe ViviPay provides our greatest growth opportunity. Our
ability to grow revenue associated with ViviPay is affected by,
among other things, consumer spending patterns, merchant and
consumer adoption of virtual and electronic payment methods, the
expansion of commerce channels, the growth of mobile devices and
merchant and consumer applications on those devices, the growth of
consumers globally with Internet and mobile access, the pace of
transition from cash and checks to virtual and electronic forms of
payment, our share of the virtual and electronic payments market,
and our ability to innovate new methods of payment that merchants
and consumers value. Our strategy to drive growth in ViviPay
includes the following:
●
Extending through strategic
partnerships: by building strategic
partnerships to acquire new customers and establish our role in the
virtual and electronic payment processing community;
●
Growing our userbase: through expanding
our customer base and scale, increasing our customers’ use of
our products and services by better addressing their everyday needs
related to accessing, managing and moving money and expanding the
adoption of our solutions by new merchants and
consumers;
●
Seeking new areas of growth: through
new international markets, including the U.S. and Mexico, and
focusing on innovation both in the virtual and the physical
world.
1
In
pursuing the above strategies, we intend to capitalize on certain
industry trends currently impacting our business operations,
including:
Growth of FinTech Industry
The
financial technology industry (“Fintech”), which is
built on the merging of financial services with communications
technology, is a growing industry for a variety of reasons.
Developments in technology, including big data analytics,
artificial intelligence, and mobile development, are combining to
give Fintech companies and the services they offer, also referred
to as Fintech platforms, an increasing advantage over traditional
financial platforms. Faster payment networks typically reduce the
time required to move money between accounts. Management believes
that as we accumulate customer data, we will be able to increase
product sales by combining analytics and marketing to bring new
products to market, improve service offerings, and make Fintech
processes more efficient and transparent.
Brazil
has continued to define itself as a leader in Fintech throughout
Latin America. Overall Fintech investment in Brazil has grown
dramatically through the second quarter of 2018, with investment
through the second quarter of 2018 nearly doubling the cumulative
investment in all of 2017. The Brazilian Fintech industry is also
relatively immature compared to other countries, which helps
explain this high level of investor interest. In addition, the
Fintech industry in Brazil has benefited from changes in the
competitive and regulatory landscape in the aftermath of the 2008
financial crisis. Larger, more-established financial service
providers, particularly banks, must now comply with additional
regulatory and capital requirements that are, at present, not
required for Fintech companies that earn less than 500 million
Brazilian Reais. A lack of such requirements may make it cheaper or
easier for Fintech companies to provide particular services or
reach certain market niches. In addition, millennials are more
willing to use mobile devices to effect transactions, including
financial transactions, and have become a driving force in Fintech
innovation.
For
information on risks relating to our business and industry, see
“Risk Factors- RISKS RELATED TO OUR BUSINESS AND
INDUSTRY.”
Shift to Electronic Payments in Brazil
The
ongoing migration from cash, check, and other paper methods of
payment to electronic (e.g. prepaid card) and virtual payments
continues to benefit the transaction processing industry globally.
We believe that the penetration of electronic and virtual payments
in Brazil is significantly lower relative to more mature markets.
Thus, as the Brazilian market continues to grow and financial
inclusion increases, the emergence of a larger and more
sophisticated consumer base may influence and drive an increase in
electronic and virtual payments usage.
For
information on risks relating to our business and industry, see
“Risk Factors- RISKS RELATED TO OUR BUSINESS AND
INDUSTRY.”
2
Overview of Business Lines
ViviTech
We
currently generate significantly all of our revenue from our IT
consulting services. Our ViviTech business helps our clients manage
their IT environments so that they can improve business outcomes
and transform operations. Our goal is to build high-performance
solutions for our clients, offering a diverse array of services
that include core business consulting, enterprise project
management, information technology services and outsourcing,
development and operations services, blockchain and cloud services,
advance integration services, web development and automation
services, and strategic development services, among others. Working
closely with our clients, we develop products and solutions that
are designed to help clients increase productivity, efficiency,
revenue, and profit margin.
Our
revenues from ViviTech operations are derived from our IT service
contracts with clients across the financial services and commercial
industries. We enter into contracts with clients and deploy
software engineers to carry out the ViviTech services. In 2017, we
began soliciting ViviTech customers for contracts that became
effective in 2018, and thus we did not record any revenue from
ViviTech services last year. We incurred costs from administrative
overhead, employee wages and benefits and expenses relating to the
development of ViviPay products.
ViviPay
ViviPay
is our electronic and virtual payment system. Our ViviPay platform
is centered around our proprietary ViviWallet application and helps
consumers and businesses process payment transactions and manage
their payments efficiently. We also offer prepaid cards which our
users can fund using money transfers from the ViviWallet. With its
first initial products launched in the fourth quarter of 2018,
ViviPay is our developing business line and has generated
negligible revenue to date. Our current key customer target groups
for ViviPay products are underserved consumers and small and
medium-sized enterprises located in Brazil. We have agreements with
multiple member-based organizations in order to grow our small
ViviPay consumer base and are negotiating similar agreements. These
organizations operate primarily in the business, social and
religious communities. We are also negotiating agreements with
various merchants pursuant to which merchants would recognize
payment using the ViviPay platform. However, no such merchant
agreements are currently in place.
Our
recently launched ViviPay products are the ViviWallet and the
prepaid card. We plan to launch numerous other products in the
future, including point-of-sale terminals.
3
Recently Launched ViviPay Products-
Our
recently released ViviPay products include:
●
ViviWallet
ViviWallet is a
mobile application that holds users’ cash and can be used to
process a variety of consumer transactions. Users can deposit cash
into their ViviWallet by using the application to generate a
virtual boleto bancário slip, which includes a barcode that
serves as a unique routing number. Users can bring these virtual
boletos with their cash to any location that processes boletos and
make deposits into their ViviWallet. Boletos are processed in many
locations throughout Brazil, including supermarket chains,
convenience stores, and lottery ticket vendors.
With a
funded ViviWallet, users can engage in a variety of transactions
with merchants that accept ViviPay directly through their mobile
phone. For example, users can pay their monthly rent by scanning
the barcode of boletos that relate to the rent bill directly into
the ViviWallet. Without having to go to a physical location, the
ViviWallet then transfers the funds to the appropriate account in
order to complete payment. Merchants can accept and process these
transfers from the ViviWallet. We currently have no merchant
agreements in place.
We
expect to generate revenue from the ViviWallet from fixed recurring
fees and transaction fees, which are paid by our ViviWallet
customers. We expect these revenues will be offset by
administrative overhead and the costs of our
partnerships.
4
5
●
Prepaid
Cards
Our
ViviWallet users may request prepaid cards that are accepted as
payment by any merchant that accepts MasterCard. Using the
ViviWallet, users can transfer funds to their prepaid card in order
to participate in transactions that require either a debit or
credit card. However, unlike traditional debit and credit cards,
our prepaid cardholders can qualify without a credit score and do
not need to open a formal bank account. The funds transferred from
the ViviWallet are held in an account managed by our Mastercard
licensed issuer, a regulated financial entity.
Our
prepaid cards can be used both at physical locations and online. In
addition, the cards provide consumers with additional benefits,
such as access to doctors and nutritionists via telephone, health
and wellness coaching, discount networks for doctors’
appointments, examinations, medicines, and accidental death and
permanent disability coverage. Our prepaid cards provide an
alternative way for consumers to manage their finances, avoid high
banking fees, and gain access to a wider range of
transactions.
We
expect to generate revenue from our prepaid cards by charging our
cardholders acquisition fees, fixed recurring fees, and transaction
fees, which vary depending on the type of transaction. We expect
our revenue, if any, will be offset by administrative overhead, the
costs of cardholder benefits provided by third-parties, and the
costs of our partnerships.
We are
also developing other ViviPay products, including:
●
“Point of
Sale” Solutions
We are
currently developing both physical and virtual “point of
sale” (“POS”) merchant solutions. We plan to
offer our handheld POS terminals to merchants for use in their
physical locations. We also plan to offer virtual POS capabilities
through our “Pay1” technology, which operates within
the ViviWallet. Using the “Pay1” function of the
ViviWallet, merchants will be able to process customer
transactions. The handheld POS terminal will be able to process any
card licensed by Mastercard, including the ViviPay prepaid card;
the virtual POS solution will be able to process transactions
originated by a customer using their ViviWallet. We expect to generate revenue
from our POS solutions by charging merchants transaction fees,
which will vary depending on the type of transaction.
6
Marketing and Sales Strategy
Customer Acquisition-
●
Partnerships
We are
currently developing channel partner sales strategies to acquire
end-users for our ViviPay products. We have multiple partnership
agreements that allow us to market and distribute our ViviPay
products to our partners’ membership bases. These partners
are in the commercial, health, entertainment, and religious
sectors. Pursuant to the agreements, our partners market our
ViviPay products to their existing member bases in return for a
commission or share in the revenues generated. Certain of the
agreements require that we make fixed payments in order to access
our partners’ members.
●
Direct Sales and Marketing
We have
developed a new commercial sales team to actively pursue new
customers and partners for our businesses and increase our services
with existing customers and partners. We have locations in São
Paulo, Aracaju, Blumenau, and Maceió, and each location has
its own regional sales team. Our sales teams pursue opportunities
for both ViviTech and ViviPay.
Geographic Markets
Our
ViviPay and ViviTech consumer and business customers are located
primarily in Brazil. However, we provide ViviTech services to a
small number of companies located in the United States. We plan to
expand our ViviTech presence in the United States and begin
providing our ViviPay products throughout Mexico and the United
States.
Material Customers
As of
September 30, 2018, our four largest customers have generated
98% of our total revenues in 2018, or approximately $855,700. Loss
of any of these customers could have a material adverse effect on
the results of operations of the Company. Our four largest
customers and their respective service agreements are listed below.
The agreements below are non-exclusive and we are not entitled to
any fixed payments thereunder.
●
Redecard S.A.: On
July 13, 2018, the Company entered into a service agreement
with Redecard, S.A. in which it undertakes to provide software
development and/or customization services until July 12, 2019,
when it can be renewed.
●
Itau Unibanco: On
August 1, 2018, the Company entered into a one-year service
agreement with Itau Unibanco in which it undertakes to provide
software development and/or customization services.
●
Gerdau Acos Longos
S.A.: On May 25, 2018, the Company entered into an 18-month service
agreement with Gerdau Acos Longos S.A. in which it undertakes to
provide software development and/or customization
services.
●
Advus Corporation:
Since its inception, the Company has entered into numerous service
arrangements with Advus Corporation on an as-needed basis. Please
see “Certain Relationships and Related Transactions, and
Director Independence— Certain Relationships and Related
Transactions—Other Related Party
Transactions.”
7
Competition
Our
business lines are affected by rapid change in technology in the
information services and technology industries and aggressive
competition from many domestic and foreign companies.
With
respect to our ViviTech business line, our principal competitors
are systems integrators, consulting and other professional services
firms, outsourcing providers, infrastructure services providers,
computer hardware manufacturers, and software providers. With
respect to our ViviPay business line, we expect to compete against
a wide range of businesses, including banks, credit card providers,
technology and e-commerce companies, and traditional retailers,
many of which are larger than we are, have a dominant and secure
position, or offer other products and services to consumers and
merchants which we do not offer. We compete against all forms of
payment processing companies, including companies that offer credit
and debit cards, automated clearing house and bank transfers, other
online payment services, mobile payments, and offline payment
methods, including cash and check.
We
compete primarily on the basis of service, product performance,
technological innovation, and price. We believe that our continued
focused investment in software engineering and research and
development, coupled with our partnerships and sales and marketing
capabilities, will have a favorable impact on our competitive
position.
For
information on risks relating to increased competition in our
industry, see “Risk Factors— RISKS RELATED TO OUR
BUSINESS AND INDUSTRY— Substantial and increasingly intense
competition within our industry may harm our
business.”
Intellectual Property
We have
assembled and continue to assemble a portfolio of trademarks,
service marks, and domain names covering our products and services.
We have registered and applied for the registration of Brazilian
and U.S. trademarks, service marks, and domain names and have in
place an active program to continue to secure trademarks, service
marks and domain names that correspond to our brands in markets of
interest.
We rely
on a combination of intellectual property laws, confidentiality
procedures and contractual provisions to protect our proprietary
technology and our brand. We believe our intellectual property has
value in providing our services and marketing our products. It is
our policy to protect and defend our IP rights.
We have
a Brazilian federal registration for the ViviPay trademark and
pending applications for ViViMobile and ViViCyberbank. We also have
a pending U.S. patent application for POIDS, our proprietary Prove
Online Identity System.
Research and Development
We
estimate that our total research and development expenses during
2016 and 2017 were $6 million U.S. dollars,
cumulatively.
8
Regulation
Our
business is subject to a number of laws and regulations, many of
which are still evolving and could be interpreted in ways that
could harm our business. While it is difficult to fully ascertain
the extent to which new developments in the field of law will
affect our business, there has been a trend towards increased
consumer and data privacy protection. It is possible that general
business regulations and laws, or those specifically governing
payment processing, may be interpreted and applied in a manner that
may place restrictions on the conduct of our business.
Although
we currently are not required to be licensed with the Central Bank
per applicable regulations, we have applied for licenses of
operation with the Central Bank, which licenses are currently
pending.
There
are currently no regulations for creating software or providing
software consulting services.
Below
is a summary of the most relevant laws that apply to the operations
of the Company.
Regulation of the Company in Brazil
Our
activities in Brazil are subject to Brazilian laws and regulations
relating to payment schemes and payment institutions. Law
No. 12,865/13, which was enacted on October 9, 2013,
establishes the first set of rules regulating the electronic
payments industry within the overall Brazilian Payment System (the
Sistema de Pagamentos
Brasileiro, or SPB) and creates the concepts of payment
schemes, payment scheme settlors, and payment
institutions.
In
addition, Law No. 12,865/13 gave the Central Bank, in
accordance with the guidelines set out by the National Monetary
Counsel (the Conselho
Monetário Nacional, or CMN), and the CMN authority to
regulate entities involved in the payments industry. Such authority
covers matters such as the operation of these entities, risk
management, the opening of payment accounts, and the transfer of
funds to and from payment accounts. After the enactment of Law
No. 12,865/13, the CMN and the Central Bank created a
regulatory framework regulating the operation of payment schemes
and payment institutions. The framework consists of Resolutions
4,282, Circulars 3,680, 3,681 and 3,682, as amended, all of which
were published on November 4, 2013, and Circular 3,885
published on March 26, 2018, among others.
9
Payment Schemes
A
payment scheme, for Brazilian regulatory purposes, is the
collection of rules and procedures that governs payment services
provided to the public, with direct access by its end users (i.e.
payors and receivers). In addition, such payment service must be
accepted by more than one receiver in order to qualify as a payment
scheme. The regulations applicable to payment schemes depend on
certain features, such as the number of users and the annual cash
value of transactions handled by the payment scheme:
●
Payment schemes
that exceed certain thresholds are considered to form part of the
SPB and are subject to the legal and regulatory framework
applicable to the payment industry in Brazil, including the
requirement to obtain an authorization by the Central
Bank.
●
Payment schemes
that operate below these thresholds are not considered to form part
of the SPB and are therefore not subject to the legal and
regulatory framework applicable to the payment industry in Brazil,
including the requirement to obtain an authorization from the
Central Bank, although they are required to report certain
operational information to the Central Bank on an annual
basis.
●
Limited-purpose
payment schemes are not considered to form part of the SPB and,
therefore, are not subject to the legal and regulatory framework
applicable to the payment industry in Brazil, including the
requirement to obtain authorization from the Central Bank. Limited
purpose payment schemes are those whose payment orders are: (a)
accepted only at the network of merchants that clearly display the
same visual identity that of the issuer, such as franchisees and
other merchants licensed to use the issuer’s brand; or (b)
intended for payment of specific public utility services, such as
public transport and public telecommunications.
●
Certain types of
payment schemes have specific exemptions from the requirement to
obtain authorization from the Central Bank. This applies, for
example, to payment schemes set up by governmental authorities,
payment schemes set up by certain financial institutions, payment
schemes aimed at granting benefits to natural persons due to
employment relationships, and payment schemes set up by an
authorized payment institution in which financial settlement of
payment transactions are carried out exclusively using the
book-transfer method.
Payment Scheme Settlor
A
payment scheme is set up and operated by a payment scheme settlor,
which is the entity responsible for the payment scheme’s
authorization and function. Payment scheme settlors, for Brazilian
regulatory purposes, are the legal entities responsible for
managing the rules, procedures, and the use of the brand associated with a
payment scheme. Central Bank regulations require that payment
scheme settlors must be (i) incorporated in Brazil;
(ii) have a corporate purpose compatible with
its payments activities; and (iii) have the technical,
operational, organizational, administrative, and financial capacity
to meet their
obligations. They must also have clear and effective corporate
governance mechanisms that are appropriate for the needs of payment
institutions and the users of payment schemes.
10
Payment Institutions
A
payment institution is defined as the legal entity that
participates in one or more payment schemes and is dedicated to the
execution of the remittance of funds to the receivers in payment
schemes, among other activities. Specifically, based on the
Brazilian payment regulations, payment institutions are entities
that can be classified into one of the following three
categories:
●
Issuers of
electronic currency (prepaid payment instruments): these payment
institutions manage prepaid payment accounts for cardholders or
end-users. They carry out payment transactions using electronic
currency deposited into such prepaid accounts, and convert the
deposits into physical or book-entry currency or vice
versa.
●
Issuers of
post-paid payment instruments (e.g. credit cards): these payment
institutions manage payment accounts where the end-user intends to
make payment on a post-paid basis. They carry out payment
transactions using these post-paid accounts.
●
Acquirers: these
payment institutions do not manage payment accounts, but enable
merchants to accept payment instruments issued by a payment
institution or by a financial institution that participates in a
payment scheme. They participate in the settlement process for
payment transactions by receiving the payment from the card issuer
and settling with the merchant.
Payment
institutions must operate in Brazil and must have a corporate
purpose that is compatible with payments activities. As for payment
schemes, the regulations applicable to payment institutions depend
on certain features, such as the annual cash value of transactions
handled by the payment institution or the value of resources
maintained in prepaid payment accounts.
Certain
financial institutions have specific exemptions from the
requirement to obtain authorization from the Central Bank to act as
a payment institution and provide payment services. Furthermore,
certain payment institutions are not subject to the legal and
regulatory framework applicable to the payment industry in Brazil.
This applies, for example, to payment institutions that only
participate in limited-purpose payment schemes and payment
institutions that provide services in the scope of programs set up
by governmental authorities aimed at granting benefits to natural
persons due to employment relationships.
The CMN
and Central Bank regulations applicable to payment institutions
cover a wide variety of issues, including (i) penalties for
noncompliance; (ii) the promotion of financial inclusion;
(iii) the reduction of systemic, operational and credit risks;
(iv) reporting obligations; and
(v) governance.
11
The
regulations applicable to payment institutions also cover
“payment accounts” (contas
de pagamento), which are the end-user accounts, in
registered (i.e., book-entry) form, which are opened with payment
institutions that are card issuers of prepaid or post-paid
instruments and used for carrying out each payment transaction.
Circular No. 3,860/13 classifies payment accounts into two
types:
●
Prepaid payment
accounts: where the funds have been deposited into the payment
account in advance of the intended payment transaction;
and
●
Post-paid payment
accounts: where the payment transaction is intended to be performed
regardless of whether or not funds have been deposited into the
payment account in advance.
In
order to provide protection from bankruptcy, Law No. 12,865/13
requires payment institutions that issue electronic currency to
segregate the funds deposited in prepaid payment accounts from
their own assets. In addition, with respect to prepaid electronic
currency, the payment institutions must hold a portion of the funds
deposited in the prepaid payment account in certain specified
instruments: either (i) in a specific account with the Central
Bank that does not pay interest; or (ii) in federal government
bonds registered with the SELIC. The portion of the prepaid
electronic currency that must be held in this form is currently 80%
and will increase to 100% on January 1, 2019.
Our Regulatory Position in Brazil
We
perform activities that are in particular subject to Law
No. 12,865/13 and regulations from the Central Bank and the
CMN. Although we currently are not required to be licensed per
applicable regulations, we have applied for licenses of operation
with the Central Bank, which licenses are currently
pending.
In
addition, Law No. 12,865/2013 prohibits payment institutions
from performing activities that are restricted to financial
institutions, which are regulated by Law No. 4,595/1964. There
is some debate under Brazilian law as to whether providing early
payment of receivables to merchants could be characterized as
“lending,” which is an activity that is restricted to
financial institutions.
Similarly,
there is some debate as to whether the discount rates applicable to
this early payment feature should be considered as
“interest,” in which case the limits set by the
Brazilian Usury Law would apply to these rates. For transactions
that form part of the Brazilian financial system, financial
institutions may set interest rates freely, provided that they are
not excessively burdensome to consumers. For transactions that do
not form part of the Brazilian financial system, the Brazilian
Usury Law (Decree-Law No. 22,623/1933) capped interest rates
at 12% per year. Subsequently, the Brazilian Civil Code, which
replaced the Usury Law, capped interest rates at two times the
interest rates applicable to National Treasury (Fazenda Nacional), which is currently
the SELIC rate (although there is some legal debate as to whether
the Brazilian Civil Code has effectively replaced the original
Usury Law). As a result, if the discount rate that we charge
merchants for early payment of their receivables is considered to
be “interest,” it would be capped at two times the
SELIC rate.
12
If we
fail to comply with the requirements of the Brazilian legal and
regulatory frameworks, we could be prevented from carrying out our
regulated activities, we could be (i) required to pay
substantial fines (including per transaction fines) and
disgorgement of our profits, (ii) required to change our
business practices, or (iii) subjected to insolvency
procedures, such as an intervention by the Central Bank. We could
also be subject to private lawsuits. For additional information,
see “Risk Factors—RISKS RELATED TO REGULATORY
APPROVALS.”
The
Central Bank’s regulations also allow payment schemes to set
additional rules for entities that use their brands. Since we
participate in these third-party payment schemes, we must comply
with their rules in order to continue accepting payments from
payment instruments bearing their brands.
Anti-Money Laundering Rules in Brazil
Our
activities in Brazil are subject to Brazilian laws and regulations
relating to anti-money laundering, or AML, terrorism financing and
other potentially illegal activities. These rules require us to
implement policies and internal procedures to monitor and identify
suspicious transactions, which must be duly reported to the
relevant authorities. We comply with the applicable AML laws and
regulations and we have implemented required policies and internal
procedures to ensure compliance with such rules and regulations,
including procedures to report suspicious activities, suspected
terrorism financing and other potentially illegal activities to the
authorities. Our employees are aware of our policies and internal
procedures, which shall be mandatorily complied with and
supervised.
We have
employees and third-party consultants that focus on risk and fraud
prevention. The Brazilian AML law specifies the acts that may
constitute a crime and the required measures to prevent such
crimes. It also prohibits the concealment or dissimulation of the
origin, location, availability, handling or ownership of assets,
rights or financial resources directly or indirectly originated
from crimes, and subjects the agents of these illegal practices to
imprisonment, temporary disqualification from managing enterprises
up to 10 years and monetary fines.
The
Brazilian AML law also created the Financial Activities Control
Council, or COAF, which is the Brazilian financial intelligence
unit that operates under the jurisdiction of the Ministry of
Finance. COAF has a key role in the Brazilian AML and
counter-terrorism financing system, and it is legally liable for
the coordination of the mechanisms for international cooperation
and information exchange.
We have
adopted the internal controls and procedures required by the
Brazilian AML rules, which are focused on:
●
identifying and
knowing our clients;
●
checking the
compatibility between the volume of funds of a client and such
client’s economic and financial capacity;
●
checking the origin
of funds;
●
carrying out a
prior analysis of new products and services, under the perspective
of money laundering prevention;
13
●
keeping records of
all transactions;
●
reporting to COAF,
within one business day and without informing the involved person
or any third party, (i) any transaction exceeding the limit
set by the competent authority and as required under applicable
regulations; (ii) any transaction deemed to be suspicious, as
required under applicable regulations; and (iii) at least once
a year, whether or not suspicious transactions are verified, in
order to certify the non-occurrence of transactions subject to
reporting to COAF (negative report);
●
applying special
attention to (i) unusual transactions or proposed transactions
with no apparent economic or legal bases; (ii) clients and
transactions for which the ultimate beneficial owner cannot be
identified; and (iii) situations in which it is not possible
to keep the clients’ identification records duly
updated;
●
offering anti-money
laundering training for employees;
●
monitoring
transactions and situations which could be considered suspicious
for anti-money laundering purposes; and
●
ensuring that
policies, procedures and internal controls are commensurate with
the size and volume of transactions.
E-Commerce, Data Protection, Consumer Protection and
Taxes
In
addition to regulations affecting digital payment schemes, we are
also subject to laws relating to internet activities and
e-commerce, as well as banking secrecy laws, consumer protection
laws, tax laws, and other regulations applicable to Brazilian
companies generally. Internet activities in Brazil are regulated by
Law No. 12,965/14, known as the Brazilian Civil Rights
Framework for the internet, which embodies a substantial set of
rights and obligations relating to internet service providers. This
law exempts intermediary platforms such as ViviPay from liability
for activities carried out by their users. Since the Brazilian
Civil Rights Framework for the internet is a new legislation and,
therefore, there are few court decisions in this area, it is still
possible that we may be subject to joint civil liability for
activities carried out by our users.
Law
No. 8,078/90, known as the Consumer Protection Code, regulates
consumer relations in Brazil, including matters such as: commercial
practices; product and service liability; areas where suppliers of
products or services are subject to strict liability; the reversal
of the burden of proof so as to benefit consumers; the joint and
several liability of all companies within a supply chain; unfair
contract terms; advertising; and information on products and
services that are offered to the public. Consumers have the right
to receive clear and accurate information regarding retail products
and services, with correct specification of characteristics,
structure, quality, price, risks, and consumers’ rights to
access and amend personal information collected about them and
stored in private databases.
Customer
accounts on our digital platform are subject to data protection
under the Brazilian Civil Rights Framework for the internet and
bank secrecy laws (Complementary Law 105/01 c/c/ Article 17 of the
CMN’s Resolution No. 4,282/13). We are also subject to
trademark protection rules, and to tax laws and related
obligations, such as the rules governing the sharing of customer
information with tax and financial authorities. It is unclear
whether the tax and regulatory authorities would seek to obtain
information regarding our customers. Any such request could come
into conflict with the data protection rules, which could create
risks for our business.
14
The
laws and regulations applicable to the Brazilian digital payments
industry are subject to ongoing interpretation and change, and our
digital payments business may become subject to regulation by other
authorities. For further information on the risks relating to
regulation of business, please see “Risk Factors—RISKS
RELATED TO REGULATORY APPROVALS.”
Consumer Protection Laws
Brazil’s
Consumer Protection Code (Código de Defesa do Consumidor)
sets forth the legal principles and requirements applicable to
consumer relations in Brazil. This law regulates, among other
things, commercial practices, product and service liability, strict
liability of the supplier of products or services, reversal of the
burden of proof to the benefit of consumers, the joint and several
liability of all companies within the supply chain, abuse of rights
in contractual clauses, advertising, and information on products
and services offered to the public. Specifically, we are subject to
several laws and regulations designed to protect consumer
rights—most importantly, Law No. 8,078 of
September 11, 1990—known as the Consumer Protection
Code. The Consumer Protection Code establishes the legal framework
for the protection of consumers, setting out certain basic rights,
and the consumers’ rights to access and modify personal
information collected about them and stored in private databases.
These consumer protection laws could result in substantial
compliance costs.
Data Privacy and Protection
The
Brazilian Civil Rights Framework for the internet establishes
principles, guarantees, rights, and duties for the use of the
internet in Brazil, including regulation about data privacy for
internet users. Under Brazilian law, personal data may only be
treated (i.e., collected, used, transferred, etc.) upon
users’ prior and express consent. Privacy policies of any
company must be clear and detailed and include information
regarding all contemplated uses for such users’ data and
excessively ample or vague consent for data treatment may be deemed
invalid in Brazil. Furthermore, consent from users must be obtained
separately and contractual clauses relating to consent must be
specifically highlighted. Brazilian courts have applied joint and
several liability among all entities that shared and/or used
personal data subject to a breach. See “Risk Factors—
RISKS RELATED TO REGULATORY APPROVALS.”
On
August 14, 2018, the Brazilian President signed Law
No. 13,709 (Lei Geral de
Proteção de Dados), or the LGPD, a comprehensive
data protection law establishing general principles and obligations
that apply across multiple economic sectors and contractual
relationships. The LGPD establishes detailed rules for the
collection, use, processing and storage of personal data and is
expected to affect all economic sectors, including the relationship
between customers and suppliers of goods and services, employees
and employers and other relationships in which personal data is
collected, whether in a digital or physical environment. The
obligations established by the LGPD will become effective within 18
months from the date of publication of the law, by which date all
legal entities will be required to conform their data processing
activities to these new rules. A comprehensive understanding of
personal data flows and, as a consequence, the review of internal
documents and procedures, as well as the negotiation of contractual
amendments are examples of adaptations required for compliance with
the LGPD.
The
foregoing list of laws and regulations to which we are subject is
not exhaustive and the regulatory framework governing our
operations changes continuously. Although we do not believe that
compliance with future laws and regulations related to the payment
processing industry and our business will have a material adverse
effect on our business, financial condition or results of
operations, the enactment of new laws and regulations may
increasingly affect the operation of our business, directly and
indirectly, which could result in substantial regulatory compliance
costs, litigation expense, adverse publicity, the loss of revenue
and decreased profitability.
15
Employees
As of
November 30, 2018, we had approximately 200 full-time employees
located throughout Brazil, the United States, and Mexico.
Approximately 150 of our employees are software
engineers.
Emerging Growth Company
We are
and we will remain an “emerging growth company” as
defined under The Jumpstart Our Business Startups Act, or the JOBS
Act, until the earliest to occur of (i) the last day of the
fiscal year during which our total annual revenues equal or exceed
$1.07 billion, (ii) the last day of the fiscal year following
the fifth anniversary of our initial public offering,
(iii) the date on which we have, during the previous
three-year period, issued more than $1 billion in non-convertible
debt securities, or (iv) the date on which we are deemed a
“large accelerated filer” (with at least $700 million
in public float) under the Securities and Exchange Act of 1934, as
amended (the “Exchange Act”).
As an
“emerging growth company”, we may take advantage of
specified reduced disclosure and other requirements that are
otherwise applicable generally to public companies. These
provisions include:
●
only two years of
audited financial statements in addition to any required unaudited
interim financial statements with correspondingly reduced
“Management’s Discussion and Analysis”
disclosure;
●
reduced disclosure
about our executive compensation arrangements;
●
no requirement that
we hold non-binding advisory votes on executive compensation or
golden parachute arrangements; and
●
exemption from the
auditor attestation requirement in the assessment of our internal
control over financial reporting.
We have
taken advantage of some of these reduced burdens, and thus the
information we provide stockholders may be different from what you
might receive from other public companies in which you hold
shares.
In
addition, Section 107 of the JOBS Act also provides that an
emerging growth company can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the
Securities Act for complying with new or revised accounting
standards. In other words, an emerging growth company can delay the
adoption of certain accounting standards until those standards
would otherwise apply to private companies.
Notwithstanding the
above, we are also currently a “smaller reporting
company,” meaning that we are not an investment company, an
asset-backed issuer, or a majority-owned subsidiary of a parent
company that is not a smaller reporting company and that had a
public float of less than $250 million or annual revenues of less
than $100 million during the most recently completed fiscal year.
In the event that we are still considered a smaller reporting
company, at such time as we cease being an emerging growth company,
the disclosure we will be required to provide in our SEC filings
will increase, but will still be less than it would be if we were
not considered either an emerging growth company or a smaller
reporting company. Specifically, similar to emerging growth
companies, smaller reporting companies are able to provide
simplified executive compensation disclosures in their filings; are
exempt from the provisions of Section 404(b) of the
Sarbanes-Oxley Act requiring that independent registered public
accounting firms provide an attestation report on the effectiveness
of internal control over financial reporting; and have certain
other decreased disclosure obligations in their SEC filings,
including, among other things, only being required to provide two
years of audited financial statements in annual
reports.
16
Item
1A. Risk
Factors.
An investment in our common stock involves a high degree of risk.
The risks described below are those that we currently believe may
harm our business or the trading price of our Common Stock. In
general, investing in the securities of issuers whose main
operations are located in emerging market countries such as Brazil
involves a higher degree of risk than investing in the securities
of U.S. companies and companies located in other countries with
more developed capital markets.
We routinely encounter and address risks in conducting our
business. Some of these risks may cause our future results to be
different – sometimes materially different – than we
presently anticipate. Below are material risks we have identified
that could adversely affect our business. How we react to material
future developments, as well as how our competitors and customers
react to those developments, could also affect our future
results.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Our business has generated losses, and we intend to continue to
make significant investments in our business. Our results of
operations and operating metrics may fluctuate and we may continue
to generate losses in the future.
We
generated losses of $76,925,165 and $50,680,774 in the years ended
December 31, 2017 and 2016, respectively. We intend to
continue to make significant investments in our business, including
with respect to our employee base, sales, and marketing, including
expenses relating to the development of new products, services, and
features; expansion of office space, data centers and other
infrastructure; development of international operations; and
general administration, including legal, finance, and other
compliance expenses related to being a public company. If the costs
associated with acquiring and supporting new or larger customers
and merchants materially rise in the future, including the fees we
pay to strategic partners and third parties, our expenses may rise
significantly. In addition, increases in our client base could
cause us to incur increased losses, because costs associated with
new clients are generally incurred up front, while revenue is
recognized thereafter as merchants utilize our services. If we are
unable to generate adequate revenue growth and manage our expenses,
our results of operations and operating metrics may fluctuate and
we may continue to incur significant losses.
We
intend to invest in developing products or services that we believe
will improve the experiences of our clients and therefore improve
our long-term results of operations. However, these improvements
often cause us to incur significant up-front costs and
may not result in the long-term benefits that we expect, which may
materially and adversely affect our business. For example, our
growth strategy contemplates an expansion in the number of
customers we service and an expansion to countries outside of
Brazil such as the United States and Mexico. Successful
implementation of our growth strategy will require significant
expenditures before any substantial associated revenue is
generated. Since our business operations, partnerships and
customers are still relatively new, we cannot assure you that we
will generate revenue and cash flow.
17
Because we have a limited operating history, you may not be able to
accurately evaluate our operations.
We are
a start-up company and have limited operations to date. Potential
investors should be aware of the difficulties normally encountered
by new companies and the high rate of failure of such enterprises.
Our likelihood of success must be considered in light of the
problems, expenses, difficulties, complications and delays
encountered in connection with the operations that we plan to
undertake. These potential problems include, but are not limited
to, unanticipated problems relating to the ability to generate
sufficient cash flow to operate our business, and additional costs
and expenses that may exceed current estimates. We expect to incur
significant losses into the foreseeable future. If our business
plan is not effective, we will not be able to continue business
operations. Our assumptions are not based on our operating history
and we may not generate any operating revenues or ever achieve
profitable operations. If we are unsuccessful in addressing these
risks, our business may fail.
We are dependent on management, certain stockholders, and investors
for future development.
We are
dependent upon our management, certain stockholders and investors
for fundraising. We expect additional operating losses will occur
until revenues are sufficient to offset our costs for marketing,
sales, general and administrative, and product and services
development.
We are a start-up company operating under a new business model and
have no assurance of market acceptance.
We have
a relatively new business model in an emerging and rapidly evolving
market. Accordingly, this makes it difficult to evaluate our future
prospects and may increase the risk that we will not continue or be
successful. We will encounter risks and difficulties by operating
in a new and rapidly evolving market. We may not be able to
successfully address these risks and difficulties, which could
materially harm our business and operating results.
Even if
we are successful in our ViviPay business, there can be no
assurance that the market reception will be positive for us or our
ventures.
As with
any new technology, there is a substantial risk that potential
customers may not accept the potential benefits of our products.
Market acceptance of our products will depend, in large part, upon
our ability to demonstrate the performance advantages and
cost-effectiveness of our products over competing products. There
can be no assurance that we will be able to market our technology
successfully on a widespread basis or that any of our current or
future products or services will be accepted in the marketplace.
Furthermore, we intend to develop products and systems and sell
them at a price assumed by us as sufficient to generate a profit.
Even if our products and services are accepted in the industry, the
market for our products may not be able to support our
operations.
18
Reliance on third-party agreements and relationships is necessary
for development of our business.
We will
need to pursue and maintain strong third-party relationships and
partnerships in order to develop and grow our business. We will be
substantially dependent on these strategic partners and third-party
relationships to commercialize our business.
If we cannot keep pace with rapid technological developments to
provide new and innovative products and services, and address the
rapidly evolving market for transactions on mobile devices, the use
of our product and services and, consequently, our revenues could
decline.
Rapid,
significant, and disruptive technological changes continue to
impact the industries in which we operate, including developments
in the IT consulting industry and with respect to payment
processors, innovations in payment card tokenization, mobile
payments, e-commerce through social networks, authentication,
virtual currencies, distributed ledger or blockchain technologies,
near field communication, and other proximity or contactless
payment methods, virtual reality, machine learning, and artificial
intelligence.
For
instance, our customers will be using mobile devices for their
transactions and payments. We may lose customers if we are not able
to continue to meet our customers’ mobile and multi-screen
experience expectations.
We
cannot predict the effects of technological changes on our
business. We expect that new services and technologies applicable
to the industries in which we operate will continue to emerge and
may be superior to, or render obsolete, the technologies we
currently use in our products and services. Developing and
incorporating new technologies into our products and services may
require substantial expenditures, take considerable time, and
ultimately may not be successful. In addition, our ability to adopt
new products and services and develop new technologies may be
inhibited by industry-wide standards, payment networks, changes to
laws and regulations, resistance to change from consumers or
merchants, third-party intellectual property rights, or other
factors. Our success will depend on our ability to develop and
incorporate new technologies, address the challenges posed by the
rapidly evolving market for mobile transactions through our
platforms and adapt to technological changes and evolving industry
standards. If we are unable to do so in a timely or cost-effective
manner, our business could be harmed.
The development and operation of our payment processing systems
depends on our ability to raise capital. Our operations may require
more capital than we are able to raise, and in the future, we may
not be able to obtain additional capital on favorable or even
acceptable terms. We may also have to incur additional debt, which
may adversely affect our liquidity and operating
performance.
Our
ability to successfully grow our business and implement our growth
and expansion strategy depends in large part on the availability of
adequate capital to finance operations. We can give no assurance
that the funds we have previously will provide sufficient capital
to support the continued operations of our company. Changes in our
growth and expansion strategy, lower than anticipated revenue for
our IT consulting business and payment processing business,
unanticipated and/or uncontrollable events in the credit or equity
markets, changes to our liquidity, increased expenses, and other
events may cause us to seek additional debt or equity financing.
Financing may not be available on favorable or acceptable terms, or
at all, and our failure to raise capital could adversely
affect our operations and financial condition.
19
Additional equity
financing may result in a dilution of the pro rata ownership stake
of the holders of our common stock. Further, we may be required to
offer subsequent investors investment terms, such as preferred
distributions and voting rights, that are superior to the rights of
the holders of our common stock, which could have an adverse effect
on the value of your investment.
Additional debt
financing, if available, may involve significant cash payment
obligations, covenants and financial ratios that restrict our
ability to operate and grow our business, and would cause us to
incur additional interest expense and financing costs. As a
consequence, our operating performance may be materially adversely
affected.
Substantial and increasingly intense competition within our
industry may harm our business.
We
compete against a wide range of businesses, most of which are
larger than we are, have a dominant and secure position in the
market, or offer other products and services to customers that we
do not offer.
In the
IT consulting industry, we compete against business with comparable
software, platforms and services which may have longer operating
histories, greater revenue and resources and a larger customer
base, which could negatively affect our business and results of
operations.
The
payments industry is rapidly changing, highly innovative and
subject to substantial regulatory oversight. Our competitors offer
a wide range of payment services, some of which are the same or
similar to our business, including businesses that provide
customers with other means of payments, including:
●
Paper-based
transactions;
●
Providers of
traditional electronic payment methods, including credit and debit
cards;
●
Payment networks
which facilitate payments for credit card users;
●
Providers of
“digital wallets” which offer customers the ability to
pay online and/or in store through a variety of payment methods,
including with mobile applications, through contactless payments,
and with a variety of payment cards;
●
Providers of mobile
payments solutions that use tokenized card data approaches and
contactless payments (e.g. near field communication
“NFC”) or host card emulation functionality to
eliminate the need to swipe or insert a card or enter a personal
identification number or password;
●
Providers of
“person-to-person” payments that facilitate individuals
sending money with an email address or mobile phone
number;
●
Money
remitters;
●
Providers of card
readers for mobile devices and of other point of sale and
multi-channel technologies; and
●
Providers of
virtual currencies and distributed ledger
technologies.
20
We
expect competition to intensify in the future as existing and new
competitors introduce new services or enhance existing services. We
compete against many companies to attract customers, and most of
these companies have greater financial resources and substantially
larger bases of customers than we do, which may provide them with
significant competitive advantages. These companies may devote
greater resources than we do to the development, promotion and sale
of products and services, and they may be more effective in
introducing innovative, less expensive products and services that
hinder our growth. Competing services that have partnered with, or
are tied to established banks and other financial institutions, may
offer greater liquidity and create greater consumer confidence in
the safety and efficiency of their services than we do. We expect
that there will be continued mergers and acquisitions by or among
these companies, which will lead to even larger competitors with
more resources. We also expect to continue to see new entrants to
our field, which offer competitive products and services. For
example, traditional banks and other financial institutions
currently offer online payments for their customers. These factors
may make it difficult or cost prohibitive for us to do business. If
we are unable to gain market acceptance, differentiate ourselves
from, and successfully compete with our competitors, our business
will be adversely affected.
Our ability to further develop our business depends on our ability
to build a strong and trusted brand.
Although we have
built a brand through our IT consulting business, we cannot be
assured that our reputation and brand will be recognized or
extended to our payments business. Building, maintaining,
protecting and enhancing our brand are critical to expanding our
customer base, as well as increasing strategic partnerships and
developing new products. Harm to our brand can arise from many
sources, including failure by us or our partners to satisfy
expectations of service and quality; inadequate protection of
sensitive information; compliance failures and claims; litigation
and other claims; employee misconduct; and misconduct by our
partners, service providers or other counterparties. If we do not
successfully maintain a strong and trusted brand, our business
could be harmed.
Customer complaints or negative publicity about our customer
service could reduce usage of our products and, as a result, our
business could suffer.
Our
ability to successfully address customer complaints or negative
publicity about our IT consulting business or customer service in
the payments industry could severely diminish consumer confidence
in and use of our product. Breaches of our customers’ privacy
and our security measures could have the same effect. We expect to
take certain measures to combat risks of fraud and breaches of
privacy and security, such as freezing customer funds, can damage
relations with our customers. These measures heighten the need for
prompt and accurate customer service to resolve irregularities.
Effective customer service requires significant expenses, which, if
not managed properly, could impact our profitability significantly.
Any inability by us to manage or train our customer service
representatives properly could compromise our ability to handle
customer complaints effectively. If we do not handle customer
complaints effectively, our reputation may suffer and we may lose
our customers’ confidence.
21
We may face challenges in expanding into new geographic regions
outside of Brazil.
We may
expand into new geographic regions outside of Brazil, and we will
face challenges associated with entering markets in which we have
limited or no experience and in which we may not be well-known.
Offering our services in new geographic regions requires
substantial expenditures and takes considerable time, and we may
not recover our investments in new markets in a timely manner or at
all. For example, we may be unable to attract a sufficient number
of merchants, anticipate competitive conditions or adapt to and
tailor our services to different markets. The development of our
products and services globally exposes us to risks relating to
staffing and managing cross-border operations; increased costs and
difficulty protecting intellectual property and sensitive data;
tariffs and other trade barriers; differing and potentially adverse
tax consequences; increased and conflicting regulatory compliance
requirements, including with respect to privacy and security; lack
of acceptance of our products and services; challenges caused by
distance, language, and cultural differences; exchange rate risk;
and political instability. We currently plan to expand our ViviPay
business to Mexico and the United States. Our efforts to develop
and expand the geographic footprint of our operations may not be
successful, which could limit our ability to grow our
business.
Failure to attract customers, customer attrition or a decline in
our customers’ growth rate could cause our revenues to
decline.
As we
expand our ViviPay business, we will need customers to join our
payment platform. We may not be able to get customers to join, or
if we do, we may experience attrition in customer credit and debit
card processing volume resulting from several factors, including
business closures, transfers of customer accounts to our
competitors, and account closures that we may initiate due to
heightened credit risks relating to contract breaches by customers
or a reduction in same-store sales. We cannot predict the level of
acceptance or attrition in the future and our revenues could
decline as a result of higher than expected attrition, which could
have a material adverse effect on our business, financial
condition, and results of operations.
Any acquisitions, partnerships or joint ventures that we make or
enter into could disrupt our business and harm our financial
condition.
Acquisitions,
partnerships and joint ventures are part of our growth strategy. We
evaluate, and expect in the future to evaluate, potential
acquisitions of, and partnerships or joint ventures with,
complementary businesses, services or technologies. We may not be
successful in identifying acquisition, partnership, and joint
venture targets. In addition, we may not be able to successfully
finance or integrate any businesses, services, or technologies that
we acquire or with which we form a partnership or joint venture,
and we may lose merchants and customers as a result of any
acquisition, partnership, or joint venture. Furthermore, the
integration of any acquisition, partnership, or joint venture may
divert management’s time and resources from our core business
and disrupt our operations. Certain acquisitions, partnerships, and
joint ventures we make may prevent us from competing for certain
clients or in certain lines of business, and may lead to a loss of
clients. We may spend time and money on projects that do not
increase our revenue.
22
We rely on third parties in many aspects of our business, which
creates additional risk.
We rely
on third parties in many aspects of our business,
including:
●
Networks, banks,
payment processors, and payment gateways that link us to the
payment card and bank clearing networks to process
transactions;
●
Third parties that
provide certain outsourced customer support and product development
functions, which are critical to our operations; and
●
Third parties that
provide facilities, infrastructure, components and services,
including data center facilities and cloud computing.
The
third parties that we rely on to process transactions may fail or
refuse to process transactions adequately. Any of the third parties
we use may breach their agreements with us, refuse to renew these
agreements on commercially reasonable terms, take actions that
degrade the functionality of our services, impose additional costs
or requirements on us, or give preferential treatment to competing
services. Financial or regulatory issues, labor issues, or other
problems that prevent these third parties from providing services
to us or our customers could harm our business. If our service
providers do not perform satisfactorily, our operations could be
disrupted, which could result in customer dissatisfaction, damage
our reputation, and harm our business.
Our failure to manage our customer funds properly could harm our
business.
We hold
a substantial amount of funds belonging to our customers, namely
deposits in our customers’ ViviWallets. Our ability to manage
and account accurately for the assets underlying our customer funds
and comply with applicable regulatory requirements requires a high
level of internal controls. As our business continues to grow and
we expand our product offerings, we must continue to strengthen our
associated internal controls. Our success requires significant
public confidence in our ability to properly manage our
customers’ balances and handle large and growing transaction
volumes and amounts of customer funds. Any failure to maintain the
necessary controls or to manage our customer funds and the assets
underlying our customer funds accurately and in compliance with
applicable regulatory requirements could result in reputational
harm, lead customers to discontinue or reduce their use of our
products and result in significant penalties and fines, which could
materially harm our business.
Our quarterly results of operations and operating metrics may
fluctuate and are unpredictable and subject to seasonality, which
could result in the price of our common shares being unpredictable
or declining.
Our
quarterly results of operations for our payments business may vary
significantly and are not necessarily an indication of future
performance. These fluctuations may be due to a variety of factors,
some of which are outside of our control and may not fully reflect
the underlying performance of our business. In addition, we operate
in a somewhat seasonal industry, in which we expect to experience
relatively fewer transactions in the first quarters of the year,
increased activity as the year-end holiday shopping season
initiates, and fewer transactions after the year-end
holidays.
23
Factors
that may cause fluctuations in our quarterly results of operations
will include our ability to attract and retain customers; the
timing, effectiveness, and costs of expansion and upgrades of our
systems and infrastructure, as well as the success of those
expansions and upgrades; the outcomes of any legal proceedings and
claims; our ability to maintain or increase revenue, gross margins
and operating margins; our ability to continue introducing our
payment platform and any new services; increases in and timing of
expenses that we may incur to grow and expand our operations and to
remain competitive; period-to-period volatility related to fraud
and risk losses; system failures resulting in the inaccessibility
of our products and services; changes in the regulatory
environment, including with respect to security, privacy or
enforcement of laws and regulations by regulators, including fines,
orders, or consent decrees; changes in global business or
macroeconomic enforcement of laws and regulations by regulators,
including fines, orders, or consent decrees; changes in global
business conditions; general retail buying patterns; and the other
risks described in this prospectus. Future fluctuations in
quarterly results may mean that our business is less
predictable.
Our IT consulting business has significant fixed operating costs,
which may be difficult to adjust in response to unanticipated
fluctuations in revenue.
A high
percentage of our operating expenses, particularly salary expense
and rent is fixed in advance of any particular period. As a result,
an unanticipated decrease in the number or average size of, or
unanticipated delay in the scheduling for, our IT consulting
projects may cause significant variations in operating results in
any particular quarter and could have a material adverse effect on
operations for that quarter. An unanticipated termination or
decrease in size or scope of a significant IT consulting project, a
customer’s decision not to proceed as anticipated or the
completion during the quarter of several significant IT consulting
projects could require us to retain underutilized employees and
could have an adverse effect on our business, financial condition,
and results of operations.
Our business could be harmed if we are unable to forecast demand
for our products accurately or to manage our product inventory
adequately.
Our IT
consulting business creates and markets IT services, including
cloud technology systems to commercial customers as well as our
existing customer base. If we are unable to accurately forecast
demand for our IT consulting products, our business will be harmed.
Additionally, as our payments business develops, our IT consulting
business will be responsible for the IT integrations and synergies.
Any misalignment between our expected and actual growth could
increase costs, delay integration, and ultimately harm our
business.
With
the goal of increasing our transaction business and POS device
implementation, we invest broadly in our POS unit technology. An
inability to forecast the success of a particular product correctly
could harm our business. We must forecast inventory needs and
expenses and place orders sufficiently in advance with our
third-party suppliers and contract manufacturers based on our
estimates of future demand for particular products. Our ability to
forecast demand for our products accurately could be affected by
many factors, including an increase or decrease in demand for our
products or for our competitors’ products, unanticipated
changes in general market conditions, and the change in economic
conditions.
24
If we fail to implement and maintain an effective system of
internal controls, we may be unable to accurately report our
results of operations or prevent fraud, and investor confidence and
the market price of our common stock may be materially and
adversely affected.
During
the preparation of our annual financial statements for the fiscal
periods ending December 31, 2017 and 2016, our management
completed an assessment of the effectiveness of our internal
control over financial reporting under Section 404(a), and did
not identify any material weaknesses. However, as a small reporting
company, we currently do not need our independent registered public
accounting firm to attest to and report on the effectiveness of our
internal control over financial reporting.
However, we are
required to retain an independent registered public accounting firm
to attest to and report on the effectiveness of our internal
control over financial reporting if we become an accelerated filer.
At that time, our management may conclude that our internal control
over financial reporting is not effective. Even if our management
concludes that our internal control over financial reporting is
effective, our independent registered public accounting firm, after
conducting its own independent testing, may disagree with our
assessment or may issue a report that is qualified if it is not
satisfied with our internal controls or the level at which our
controls are documented, designed, operated or reviewed, or if it
interprets the relevant requirements differently from us. In
addition, our public company reporting obligations may place a
significant strain on our management, operational and financial
resources and systems for the foreseeable future. We may be unable
to timely complete our evaluation testing and any required
remediation.
During
the course of documenting and testing our internal control
procedures, in order to satisfy the requirements of
Section 404 of the Sarbanes-Oxley Act of 2002, we may identify
other weaknesses and deficiencies in our internal control over
financial reporting. In addition, if we fail to maintain the
adequacy of our internal control over financial reporting, as these
standards are modified, supplemented or amended from time to time,
we may not be able to conclude on an ongoing basis that we have
effective internal control over financial reporting in accordance
with Section 404 of the Sarbanes-Oxley Act of 2002. If we fail
to achieve and maintain an effective internal control environment,
we could suffer material misstatements in our financial statements,
fail to meet our reporting obligations or fail to prevent fraud,
which would likely cause investors to lose confidence in our
reported financial information. This could, in turn, limit our
access to capital markets, harm our results of operations, and lead
to a decline in the trading price of our common stock.
Additionally, ineffective internal control over financial reporting
could expose us to increased risk of fraud or misuse of corporate
assets and prevent us from listing on the Nasdaq stock market
(“Nasdaq”), and subject us to regulatory investigations
and civil or criminal sanctions.
25
Our success largely depends on our executives and other key
personnel. In order for our business to grow, we must be able to
recruit, retain and develop qualified personnel. The loss of key
personnel could harm our business.
Our
ability to grow and our future performance depends substantially on
the continued service of our executives and other key personnel. If
we lose the service of any member of management or any key
personnel, we may not be able to locate a suitable or qualified
replacement, and we may incur additional expenses to recruit and
train a replacement, which could severely disrupt our business and
growth.
To
maintain, grow, and expand our business, we will need to identify,
hire, develop, motivate, and retain highly skilled employees.
Identifying, recruiting, training, integrating, and retaining
qualified individuals requires significant time, expense, and
attention. Our IT consulting business is operated by highly-trained
employees who we may not be able to recruit or retain. There may be
changes in our management team that is disruptive to our business.
If our management team fails to work together effectively and to
execute our plans and strategies on a timely basis, our business
could be harmed. There is competition for highly skilled personnel.
We may need to invest significant amounts of cash and equity to
attract and retain new employees, and we may never realize returns
on these investments. If we are not able to add and retain
employees effectively, our ability to achieve our strategic
objectives will be adversely affected, and our business and growth
prospects will be harmed.
RISKS RELATED TO OUR INFORMATION TECHNOLOGY
Interruption or failure of our information technology and
communications systems could impair our operations, which could
damage our reputation and harm our results of
operations.
Our
success and ability to process payments and provide high quality
customer service depend on the efficient and uninterrupted
operation of our computer server and information technology
systems. The failure of our computer systems and information
technology to operate effectively or to integrate with other
systems, performance inadequacy, or breach in security may cause
interruptions in the availability of our sites, delays in product
fulfillment, and reduced efficiency of our operations as well as
reputational harm. Any failures, problems, or security breaches may
mean that fewer customers are willing to use and purchase the
services and products we offer. Factors that could occur and
significantly disrupt our operations include: system failures and
outages caused by fire, floods, earthquakes, power loss,
telecommunications failure sabotage, terrorist attacks and similar
events, software errors, computer viruses, physical or electronic
break-ins, and breaches of our customers’ personal
information such as credit card numbers, passwords, or other
personal information. Also, if too many customers access our sites
within a short period of time due to any reason, we may experience
system interruptions that make our programs unavailable or prevent
us from efficiently completing payment transactions, which will
harm our reputation and adversely affect our
operations.
26
Any
disruptions or service interruptions that affect our sites could
damage our reputation, require us to spend significant capital and
other resources and expose us to a risk of loss or litigation and
possible liability. Any of the above disruptions could harm our
results of operations.
Unauthorized disclosure, destruction or modification of data,
through cybersecurity breaches, computer viruses or otherwise or
disruption of our services could expose us to liability, protracted
and costly litigation and damage our reputation.
Our
business involves the collection, storage, processing, and
transmission of customers’ personal data, including names,
addresses, identification numbers, credit or debit card numbers,
expiration dates, and bank account numbers. An increasing number of
organizations, including large merchants and businesses, other
large technology companies, financial institutions and government
institutions, have disclosed breaches of their information
technology systems, some of which have involved sophisticated and
highly targeted attacks, including on portions of their websites or
infrastructure. We could also be subject to breaches of security by
hackers. Threats may occur by human error, fraud, or malice on the
part of employees or third parties, or may result from accidental
technological failure. Concerns about security are increased when
we transmit information. Electronic transmissions can be subject to
attack, interception or loss. Also, computer viruses and malware
can be distributed and spread rapidly over the internet and could
infiltrate our systems or those of our associated participants,
which can impact the confidentiality, integrity and availability of
information, and the integrity and availability of our products,
services and systems, among other effects. Denial of service or
other attacks could be launched against us for a variety of
purposes, including interfering with our services or creating a
diversion for other malicious activities. These types of actions
and attacks could disrupt our delivery of products and services or
make them unavailable, which could damage our reputation, force us
to incur significant expenses in remediating the resulting impacts,
expose us to uninsured liability, subject us to lawsuits, fines or
sanctions, distract our management, or increase our costs of doing
business.
In the
scope of both our IT consulting and payment processing activities,
we share information with third parties, including commercial
partners, third-party service providers and other agents, who
collect, process, store, and transmit sensitive data. Given the
rules established by the payment scheme settlors, (with respect to
our ViviPay Pre-Paid Card), and applicable regulations, we may be
held responsible for any failure or cybersecurity breaches
attributed to these third parties insofar as they relate to the
information we share with them. The loss, destruction, or
unauthorized modification of data of the end users of payment
services (e.g., payers, receivers, cardholders, merchants, and
those who may hold funds and balance in their accounts) by us or
our third-party service providers and other agents or through
systems we provide could result in significant fines, sanctions,
and proceedings or actions against us by the payment systems,
governmental bodies or third parties, which could have a material
adverse effect on our business, financial condition, and results of
operations. Any such proceeding or action, and any related
indemnification obligation, could damage our reputation, force us
to incur significant expenses in defense of these proceedings,
distract our management, increase our costs of doing business, or
result in the imposition of financial liability.
27
Our
encryption of data and other protective measures may not prevent
unauthorized access or use of sensitive data. A breach of our
system or that of one of our associated participants may subject us
to material losses or liability, including payment scheme fines,
assessments and claims for unauthorized purchases with
misappropriated credit, debit or card information, impersonation,
or other similar fraud claims. A misuse of such data or a
cybersecurity breach could harm our reputation and deter merchants
from using electronic payments generally and our products and
services specifically, thus reducing our revenue. In addition, any
such misuse or breach could cause us to incur costs to correct the
breaches or failures, expose us to uninsured liability, increase
our risk of regulatory scrutiny, subject us to lawsuits, result in
the imposition of material penalties and fines under state and
federal laws or regulations or by the payment systems. In addition,
a significant cybersecurity breach of our systems or communications
could result in payment systems prohibiting us from processing
transactions on their systems or the loss of Central Bank
authorization to operate as a payment institution (instituição de pagamento) in
Brazil, which could materially impede our ability to conduct
business. We do not maintain insurance policies specifically for
cyber-attacks.
We
cannot assure that there are written agreements in place with every
associated participant or that such written agreements will prevent
the unauthorized use, modification, destruction or disclosure of
data or enable us to obtain reimbursement from associated
participants in the event we should suffer incidents resulting in
unauthorized use, modification, destruction or disclosure of data.
In addition, many of our associated participants are small- and
medium-sized agents that have limited competency regarding data
security and handling requirements and may thus experience data
losses. Any unauthorized use, modification, destruction or
disclosure of data could result in protracted and costly
litigation, which could have a material adverse effect on our
business, financial condition and results of
operations.
Cybersecurity
incidents are increasing in frequency and evolving in nature and
include, but are not limited to, installation of malicious
software, unauthorized access to data and other electronic security
breaches that could lead to disruptions in systems, unauthorized
release of confidential or otherwise protected information and the
corruption of data. Given the unpredictability of the timing,
nature and scope of information technology disruptions, there can
be no assurance that the procedures and controls we employ will be
sufficient to prevent security breaches from occurring and we could
be subject to manipulation or improper use of our systems and
networks or financial losses from remedial actions, any of which
could have a material adverse effect on our business, financial
condition and results of operations.
Unauthorized disclosure of sensitive or confidential customer
information or our failure or the perception by our customers that
we failed to comply with privacy laws or properly address privacy
concerns could harm our business and standing with our
customers.
We
collect, store, process, and use certain personal information and
other user data in our IT consulting and payment processing
businesses. The non-disclosure agreements that we enter into in our
IT consulting business may not fully protect our customers from the
disclosure of sensitive or confidential information related to
their business. A significant risk associated with payment
processing, e-commerce and communications is the secure
transmission of confidential information over public networks. The
perception of privacy concerns, whether or not valid, may harm our
business and results of operations. We must ensure that all
processing, collection, use, storage, dissemination, transfer and
disposal of data for which we are responsible comply with relevant
data protection and privacy laws. The protection of our customer,
employee and our data is critical to us. Currently, a number of our
users authorize us to bill their credit card accounts directly. We
rely on commercially available systems, software, tools and
monitoring to provide secure processing, transmission and storage
of confidential customer information, such as credit card and other
personal information. Despite the security measures we have in
place, our facilities and systems, and those of our third-party
service providers, may be vulnerable to security breaches, acts of
vandalism, computer viruses, misplaced or lost data, programming or
human errors, or other similar events. Any security breach, or any
perceived failure involving the misappropriation, loss or other
unauthorized disclosure of confidential information, as well as any
failure or perceived failure to comply with laws, policies, legal
obligations or industry standards regarding data privacy and
protection, whether by us or our vendors, could damage our
reputation, expose us to litigation risk and liability, subject us
to negative publicity, disrupt our operations and harm our
business. Our security measures may fail to prevent security
breaches, which could harm our business.
28
Our programs must integrate with a variety of operating systems and
networks, and the hardware that enables merchants to accept payment
cards must operate with mobile networks and mobile devices. If we
are unable to ensure that our programs or hardware interoperate
with such networks, operating systems and devices, our business may
be seriously harmed.
Our
businesses are dependent on the ability of our products and
services to integrate with a variety of operating systems and
networks, as well as web browsers that we do not control. Any
changes in these systems or networks that degrade the functionality
of our products and services, impose additional costs or
requirements on us, or give preferential treatment to competitive
services, including their own services, could seriously harm the
levels of usage of our products and services. We also rely on bank
platforms to process some of our transactions. If there are any
issues with or service interruptions in these bank platforms, users
may be unable to have their transactions completed, which would
seriously harm our business.
In
addition, while our POS systems are manufactured by a third party,
they operate with our software. Any changes in the functionality of
the POS systems may limit the compatibility of our software with
such networks and devices and require modifications to our
software. If we are unable to ensure that our software is
compatible with such devices, or if doing so is costly, our
business may be harmed.
We have business systems that do not have full
redundancy.
While
much of our processing infrastructure is located in multiple,
redundant data centers, we have some core business systems that are
located in only one facility and do not have redundancy. An adverse
event, such as damage or interruption from natural disasters, power
or telecommunications failures, cybersecurity breaches, criminal
acts and similar events, with respect to such systems or the
facilities in which they are located could impact our ability to
conduct business and perform critical functions, which could
negatively impact our financial condition and results of
operations.
We partially rely on card issuers or card systems to process our
transactions. Changes to credit card scheme fees, rules or
practices may harm our business.
We
partially rely on card issuers or card systems to process our
transactions, and must pay a fee for this service. From time to
time, card systems may increase the interchange fees that they
charge for each transaction using one of their cards. Credit card
processors have the right to pass any increases in interchange fees
on to us as well as increase their own fees for processing. In
addition, card systems may impose special assessments for
transactions that are executed through a “digital
wallet,” and these fees could particularly affect us and
significantly increase our costs. These increased fees increase our
operating costs and reduce our profit margins.
We are
also required by credit card systems to comply with their operating
rules. The credit card systems and their member banks set and
interpret these rules. The bank accounts offered by those member
banks compete with our digital account services. Credit card
companies that we partner with could adopt new operating rules or
reinterpret existing rules that we or our processors might find
difficult or even impossible to follow. As a result, we could lose
our ability to provide our customers the option of using credit
cards to fund their payments and our users the option to pay their
fees using a credit card. If we were unable to accept credit cards,
our business would be seriously harmed.
29
We
could lose the right to accept credit cards or could be required to
pay fines if credit card systems determine that users are using our
platform to engage in illegal or “high risk”
activities, or if users generate a large volume of chargebacks
related to fraudulent transactions. Additionally, we may be unable
to access financing in the credit and capital markets at reasonable
rates to fund our operations and for that reason our profitability
and total transaction business could decline
significantly.
We will incur increased costs as a result of operating as a public
reporting company, and our management will be required to devote
substantial time to new compliance initiatives.
As a
public reporting company, we will incur significant legal,
accounting and other expenses that we did not incur as a
non-reporting company. In addition, the Sarbanes-Oxley Act of 2002
and rules subsequently implemented by the SEC, have imposed various
requirements on public companies, including establishment and
maintenance of effective disclosure and financial controls and
corporate governance practices. Our management and other personnel
will need to devote a substantial amount of time to these
compliance initiatives. Moreover, these rules and regulations will
increase our legal and financial compliance costs and will make
some activities more time consuming and costly.
If we fail to manage our growth effectively, our business could be
harmed.
In
order to manage our growth effectively, we must continue to
strengthen our existing infrastructure, develop and improve our
internal controls, create and improve our reporting systems, and
timely address issues as they arise. These efforts may require
substantial financial expenditures, commitments of resources,
developments of our processes, and other investments and
innovations. Furthermore, we encourage employees to quickly develop
and launch new features for our products and services. As we grow,
we may not be able to execute as quickly as smaller, more efficient
organizations. If we do not successfully manage our growth, our
business will suffer.
We are susceptible to illegal or improper uses of our payment
platforms, which could expose us to additional liability and harm
our business.
Our
payment platforms will be susceptible to potentially illegal or
improper uses. This may include illegal online gambling, fraudulent
sales of goods or services, illicit sales of prescription
medications or controlled substances, software and other
intellectual property piracy, money laundering, bank fraud,
terrorist financing, prohibited sales of alcoholic beverages and
tobacco products and online securities fraud. The owners of
intellectual property rights or government authorities may seek to
bring legal action against us if our platform is used for the sale
of infringing items. These claims could result in reputational harm
and any resulting liabilities, loss of transaction volume or
increased costs could harm our business.
In
addition, our future payment processing services could be subject
to unauthorized card use, identity theft, employee fraud or other
internal security breaches. We may incur significant costs to
protect against the threat of information security breaches or to
respond to or alleviate problems caused by any breaches. Laws may
require us to notify regulators, customers or employees of security
breaches and we may be required to reimburse customers or banks for
any funds stolen as a result of any breaches or to provide credit
monitoring or identity theft protection in the event of a privacy
breach. These requirements, as well as any additional restrictions
that may be imposed by credit card companies, could raise our costs
significantly and reduce our attractiveness.
30
In
addition to the direct costs of such losses, if they are related to
credit card transactions and become excessive they could result in
us losing the right to accept credit cards for payment. Since
credit cards are the most widely used method for our customers to
pay for the products we sell, our business will be harmed if we are
unable to accept credit cards.
We have only a limited ability to protect our intellectual property
rights, which are important to our success.
The
protection of our intellectual property, including our trademarks,
patents, copyrights, domain names, trade dress, and trade secrets,
is critical to our success. We seek to protect our intellectual
property rights by relying on applicable laws and regulations, as
well as a variety of administrative procedures. We also rely on
contractual restrictions to protect our proprietary rights when
offering or procuring products and services, including
confidentiality agreements with parties with whom we conduct
business.
However,
contractual arrangements and other steps we have taken to protect
our intellectual property may not prevent third parties from
infringing or misappropriating our intellectual property or deter
independent development of equivalent or superior intellectual
property rights by others. Trademark, copyright, patent, domain
name, trade dress and trade secret protection is expensive to
maintain and may require litigation. Protecting our intellectual
property rights and other proprietary rights is expensive and
time-consuming and may not be successful in every jurisdiction.
Also, we may not be able to discover or determine the extent of any
unauthorized use of our proprietary rights. We have licensed
certain of our proprietary rights, such as trademarks or
copyrighted material, to others in the past, and expect to do so in
the future. These licensees may take actions that diminish the
value of our proprietary rights or harm our reputation. Any failure
to protect or enforce our intellectual property rights adequately,
or significant costs incurred in doing so, could materially harm
our business.
As the
number of products in the software industry increases and the
functionalities of these products further overlap, and as we
acquire technology through acquisitions or licenses, we may become
increasingly subject to infringement claims, including patent,
copyright, and trademark infringement claims. We may be required to
enter into litigation to determine the validity and scope of the
patents or other intellectual property rights of others. The
ultimate outcome of any allegation is uncertain and, regardless of
the outcome, any such claim, with or without merit, may be
time-consuming, result in costly litigation, divert
management’s time and attention from our business, require us
to stop selling, delay shipping, or redesign our products, or
require us to pay substantial amounts to satisfy judgments or
settle claims or lawsuits or to pay substantial royalty or
licensing fees, or to satisfy indemnification obligations that we
have with some of our customers. Our failure to obtain necessary
license or other rights, or litigation or claims arising out of
intellectual property matters, may harm our business.
31
If we continue to grow, we may not be able to appropriately manage
the increased size of our business.
We
anticipate that further expansion will be required to address
potential growth in our customer base and market
opportunities.
We must
constantly add updated software and add and train new engineers and
other personnel to accommodate the increased use of our platforms
and the new products and features we regularly introduce. This
upgrade process is expensive, and the increasing complexity and
enhancement of our platform results in higher costs. Failure to
upgrade our technology, features, transaction processing systems,
security infrastructure, or network infrastructure to accommodate
increased traffic or transaction volume could harm our business.
Adverse consequences could include unanticipated system
disruptions, slower response times, degradation in levels of
customer support, impaired quality of users’ experiences of
our services and delays in reporting accurate financial
information.
Our
revenues depend on effective IT consulting services as well as
prompt and accurate transaction processes. Our failure to grow our
transaction-processing capabilities to accommodate the increasing
number of transactions that must be billed on our platform would
harm our business and our ability to collect revenue. Furthermore,
we may need to enter into relationships with various strategic
partners, websites and other online service providers and other
third parties necessary to our business. The increased complexity
of managing multiple commercial relationships could lead to
execution problems that can affect current and future revenues, and
operating margins.
We
cannot assure you that our current and planned systems, procedures
and controls, personnel and third-party relationships will be
adequate to support our future operations. In addition, our current
expansion has placed a significant strain on management and on our
operational and financial resources, and this strain is expected to
continue. Our failure to manage growth effectively could seriously
harm our business, results of operations and financial
condition.
We partially rely on card issuers or payment systems to process our
transactions. If we fail to comply with the applicable requirements
of our payment systems, they could seek to fine us, suspend us or
terminate our registrations, which could have a material adverse
effect on our business, financial condition or results of
operations.
Our
payment processing business model relies on card issuers or payment
systems to process our transactions, and we must pay a fee for
these services. From time to time, such card issuers or payment
systems may increase the interchange fees that they charge for each
transaction using one of their cards. A significant source of our
revenue comes from processing transactions through payment systems.
The payment systems routinely update and modify their requirements.
Changes in the requirements may impact our ongoing cost of doing
business and we may not, in every circumstance, be able to pass
through such costs to our clients or associated participants.
Furthermore, if we do not comply with the payment scheme
requirements (e.g., their rules, bylaws and charter documentation),
the payment systems could seek to fine us, suspend us or terminate
our registrations that allow us to process transactions on their
systems. On occasion, we have received notices of non-compliance
and fines, which have typically related to transactional or
messaging requisites, as well as excessive chargebacks by a
merchant or data security failures on the part of a merchant. If we
are unable to recover amounts relating to fines from or pass
through costs to our merchants or other associated participants, we
would experience a financial loss.
32
We are subject to economic and political risk, the business cycles
and credit risk of our clients and issuing banks and volatility in
the overall level of consumer, business and government spending,
which could negatively impact our business, financial condition and
results of operations.
The
electronic payments industry depends heavily on the overall level
of consumer, business and government spending. Our payment
processing business is exposed to general economic conditions that
affect consumer confidence, consumer spending, consumer
discretionary income or changes in consumer purchasing habits. A
sustained deterioration in general economic conditions, including a
rise in unemployment rates, particularly in Brazil, or increases in
interest rates may adversely affect our financial performance by
reducing the number or average purchase amount of transactions made
using electronic payments. A reduction in the amount of consumer
spending could result in a decrease in our revenue and profits. If
cardholders make fewer transactions with their cards, our merchants
make fewer sales of their products and services using electronic
payments or people spend less money per transaction, we will have
fewer transactions to process at lower amounts, resulting in lower
revenue.
In
addition, a recessionary economic environment could affect our
merchants through a higher rate of bankruptcy filings, resulting in
lower revenues and earnings for us. Our merchants are liable for
any charges properly reversed by the card issuer on behalf of the
cardholder. Our associated participants are also liable for any
fines, or penalties, that may be assessed by any payment systems.
In the event that we are not able to collect such amounts from the
associated participants, whether due to fraud, breach of contract,
insolvency, bankruptcy or any other reason, we may be liable for
any such charges. Furthermore, in the event of a closure of a
merchant, we are unlikely to receive our fees for any services
rendered to that merchant in its final months of operation,
including subscription revenue owed to us from such
merchant’s equipment rental obligations. In turn, we also
face a default risk from issuing banks that are counterparty to our
receivables pursuant to our credit card payment arrangements.
Accordingly, a default by an issuing bank, due to insolvency,
bankruptcy, intervention, operational error or otherwise could
negatively impact our cash flows as we are required to make
payments to merchants independently of the issuing banks’
payments owed to us. Any of the foregoing risks would negatively
impact our business, financial condition and results of
operations.
A decline in the use of credit, debit or prepaid cards as a payment
mechanism for consumers or adverse developments with respect to the
payment processing industry in general could have a materially
adverse effect on our business, financial condition and results of
operations.
If
consumers do not continue to use credit, debit or prepaid cards as
a payment mechanism for their transactions or if there is a change
in the mix of payments between cash, credit, debit and prepaid
cards that is adverse to us, it could have a material adverse
effect on our business, financial condition and results of
operations. While we plan to offer a digital wallet to our
customers, the future growth in the use of credit, debit and
prepaid cards will be driven by the cost, ease-of-use, and quality
of services offered to consumers and businesses. In order to
consistently increase and maintain our profitability, consumers and
businesses must continue to use credit, debit and prepaid cards.
Moreover, if there is an adverse development in the payments
industry or Brazilian market in general, such as new legislation or
regulation that makes it more difficult for our clients to do
business or utilize such payment mechanisms, our business,
financial condition and results of operations may be adversely
affected.
33
Our risk management policies and procedures may not be fully
effective in mitigating our risk exposure in all market
environments or against all types of risks, which could expose us
to losses and liability and otherwise harm our
business.
We
operate in a rapidly changing industry, and we have experienced
significant change in recent years. Accordingly, our risk
management policies and procedures may not be fully effective in
identifying, monitoring and managing our risks. Some of our risk
evaluation methods depend upon information provided by others and
public information regarding markets, clients or other matters that
are otherwise inaccessible by us. In some cases, however, that
information may not be accurate, complete or up-to-date. If our
policies and procedures are not fully effective or we are not
always successful in capturing all risks to which we are or may be
exposed, we may suffer harm to our reputation or be subject to
litigation or regulatory actions that could have a material adverse
effect on our business, financial condition and results of
operations. We offer IT consulting, payments services and other
products and services to a large number of clients, and we are
responsible for vetting and monitoring these clients and
determining whether the transactions we process for them are lawful
and legitimate.
If our
products and services are used to process illegitimate
transactions, and we anticipate that we would settle those funds to
merchants and if we are unable to recover them, we suffer losses
and liability. These types of illegitimate, as well as unlawful,
transactions can also expose us to governmental and regulatory
sanctions, including outside of Brazil (e.g., U.S. anti-money
laundering and economic sanctions violations). The highly automated
nature of, and liquidity offered by, our payments services make us
a target for illegal or improper uses, including fraudulent or
illegal sales of goods or services, money laundering, and terrorist
financing. Identity thieves and those committing fraud using stolen
or fabricated credit card or bank account numbers, or other
deceptive or malicious practices, can potentially steal significant
amounts of money from businesses like ours. In configuring our
payments services, we face an inherent trade-off between security
and client convenience. Our risk management policies, procedures,
techniques, and processes may not be sufficient to identify all of
the risks to which we are exposed, to enable us to mitigate the
risks we have identified, or to identify additional risks to which
we may become subject in the future. As a greater number of larger
merchants use our services, we expect our exposure to material
losses from a single merchant, or from a small number of merchants,
to increase. In addition, when we introduce new services, focus on
new business types, or begin to operate in markets in which we have
a limited history of fraud loss, we may be less able to forecast
and reserve accurately for those losses. Furthermore, if our risk
management policies and processes contain errors or are otherwise
ineffective, we may suffer large financial losses, we may be
subject to civil and criminal liability, and our business may be
materially and adversely affected.
34
RISKS RELATED TO REGULATORY APPROVALS
Our business is subject to extensive government regulation and
oversight as well as complex and overlapping rules that frequently
change.
Our
business is subject to laws, regulations, policies and legal
interpretations in the markets in which we operate, including, but
not limited to, those governing banking, credit, deposit taking,
cross-border and domestic money transmission, foreign exchange,
privacy, data protection, cybersecurity, banking secrecy, payment
services, consumer protection, economic and trade sanctions,
anti-money laundering, and counter-terrorist financing. The legal
and regulatory requirements which we are subject to involve
extensive, complex and frequently changing.
As we
expand into international markets, we must comply with the laws of
countries or markets in which we operate. We have implemented
policies and procedures designed to help ensure compliance with
applicable laws, and regulations, but there can be no assurance
that our employees, contractors, or agents will not violate such
laws and regulations.
Our business is subject to extensive government regulation and
oversight in Brazil and our status under these regulations may
change. Violation of or compliance with present or future
regulation could be costly, expose us to substantial liability and
force us to change our business practices, any of which could
seriously harm our business and results of operations.
As a
payment institution (instituição de pagamento) and
payment scheme settlor (instituidor de arranjo de pagamento) in
Brazil, our business is subject to Brazilian laws and regulations
relating to electronic payments in Brazil, comprised of Brazilian
Federal Law No. 12,865/13 and related rules and regulations.
If we fail to comply with the requirements of the Brazilian legal
and regulatory framework, we could be prevented from carrying out
our regulated activities, and we could be (i) required to pay
substantial fines (including per transaction fines) and
disgorgement of our profits, (ii) required to change our
business practices or (iii) subjected to insolvency
proceedings such as an intervention by the Central Bank.
We have applied to the
Central Bank to be licensed as a payment institution, and are
awaiting such Central Bank approval. While we are permitted to continue
operations as a payment institution pending the outcome of the
approval process, the failure to eventually obtain such approval
would have material adverse effects on our business. In addition,
we currently operate
as a payment scheme settlor pursuant to Central Bank license
exemption, and depending on its growth in volumes processed, will
be subject to the applicable regulations to operate as a payment
scheme settlor. Any disciplinary or punitive action by our
regulators or failure to obtain required operating licenses could
seriously harm our business and results of operations. The working
capital solutions that we offer merchants make up a significant
portion of our activities. Law No. 12,865/13 prohibits payment
institutions like us from performing activities that are restricted
to financial institutions. There is some debate under Brazilian law
as to whether providing early payment of receivables to merchants
could be characterized as “lending,” which is an
activity that is restricted to financial institutions. Similarly,
there is some debate as to whether the discount rates applicable to
this early payment feature should be considered as
“interest” under Brazilian law, in which case the
limits set by Decree No. 22,623, of April 7, 1933 (the
Brazilian Usury Law) would apply to these rates. If new laws are
enacted or the courts’ interpretation of this activity
changes, either preventing us from providing this feature or
limiting the fees we usually charge, our financial performance
could be negatively affected. For further information regarding
these regulatory matters, see "Business –
Regulation."
35
Certain ongoing legislative and regulatory initiatives under
discussion by the Brazilian Congress, the Central Bank and the
broader payments industry may result in changes to the regulatory
framework of the Brazilian payments and financial industries and
may have an adverse effect on us.
During
the course of 2018, the Central Bank issued several regulations
related to the Brazilian payments market, aiming to increase the
use of electronic payments, increase competitiveness in the sector,
strengthen governance and risk management practices in the
industry, encourage the development of new solutions and the
differentiation of products to consumers, and promote the increased
use of electronic payment means. Such measures include the
following recently-enacted Central Bank regulations:
(i) Circular 3,886/18, which defines and classifies
sub-acquirers and determines conditions that require sub-acquirers
to use centralized settlement via the Brazilian Interbank Payments
Clearinghouse (CIP) system; and (ii) Circular 3,887/18, which
establishes that interchange fees on debit cards will be subject to
a cap of up to 0.8% on debit transactions, and that debit card
issuers must maintain a maximum average interchange fee of 0.5% on
their total transaction volume, with each cap effective
October 2018.
In
addition to such recently enacted regulations, there are
legislative and regulatory initiatives currently being discussed by
the Brazilian Congress, Central Bank and the broader payments
industry which may modify the regulatory framework of the Brazilian
payments and financial industries. For instance, there has been
discussion in the Brazilian Congress about the payment cycle
currently in place in the Brazilian payments market. Should these
discussions lead the Central Bank, as the competent authority over
the market, to implement a reduction in existing payment cycles,
this could adversely affect prepayment services relating to credit
card installment receivables that are commonly used by merchants in
Brazil. Any reduction in payment cycles could significantly
negatively impact our working capital solutions business, which
could adversely affect our business, revenues and financial
condition. These discussions are in various phases of development,
whether as part of legislative, regulatory or private initiatives
in the industry and the overall impact of any such reform proposals
is difficult to estimate. Any such changes in laws, regulations or
market practices have the potential to alter the type or volume of
the card-based transactions we process and our payment services and
could adversely affect our business, revenues and financial
condition.
We are subject to costs and risks associated with increased or
changing laws and regulations affecting our business, including
those relating to the sale of consumer products. Specifically,
developments in data protection and privacy laws could harm our
business, financial condition or results or
operations.
We
operate in a complex regulatory and legal environment that exposes
us to compliance and litigation risks that could materially affect
our results of operations. These laws may change, sometimes
significantly, as a result of political, economic or social events.
Some of the federal, state or local laws and regulations in Brazil
that affect us include: those relating to consumer products,
product liability or consumer protection; those relating to the
manner in which we advertise, market or sell products; labor and
employment laws, including wage and hour laws; tax laws or
interpretations thereof; bank secrecy laws, data protection and
privacy laws and regulations; and securities and exchange laws and
regulations. For instance, data protection and privacy laws are
developing to take into account the changes in cultural and
consumer attitudes towards the protection of personal data. There
can be no guarantee that we will have sufficient financial
resources to comply with any new regulations or successfully
compete in the context of a shifting regulatory
environment.
36
On
August 14, 2018, the President of Brazil approved Law
No. 13,709/2018, a comprehensive data protection law
establishing general principles and obligations that apply across
multiple economic sectors and contractual relationships
(Lei Geral de Proteção
de Dados) or the LGPD. The LGPD establishes detailed rules
for the collection, use, processing and storage of personal data
and will affect all economic sectors, including the relationship
between customers and suppliers of goods and services, employees
and employers and other relationships in which personal data is
collected, whether in a digital or physical environment. The
obligations established by LGPD will become effective within 18
months from the date of publication of the law, by which date all
legal entities will be required to adapt their data processing
activities to these new rules. Any additional privacy laws or
regulations enacted or approved in Brazil or in other jurisdictions
in which we operate could seriously harm our business, financial
condition or results of operations.
On
August 16, 2018, the Central Bank approved Circular 3,909,
which establishes requirements for the engaging of data processing,
storage and cloud computing services by payment institutions
authorized to operate by the Central Bank and determines the
mandatory implementation of a cybersecurity policy. In this regard,
Circular 3,909 requires payment institutions to draw up an internal
cybersecurity policy and to include specific mandatory clauses in
contracts regarding data processing, storage and cloud computing
services. Circular 3,909 will become effective on September 1,
2019. All payment institutions will be required to adapt their
activities and agreements to these new rules in accordance with the
timeline for adequacy established by Circular 3,909.
In
particular, as we seek to build a trusted and secure platform for
commerce, and as we expand our network of sellers and buyers and
facilitate their transactions and interactions with one another, we
will increasingly be subject to laws and regulations relating to
the collection, use, retention, security, and transfer of
information, including the personally identifiable information of
our employees and our merchants and their customers. As with the
other laws and regulations noted above, these laws and regulations
may be interpreted and applied differently over time and from
jurisdiction to jurisdiction, and it is possible they will be
interpreted and applied in ways that will materially and adversely
affect our business. Any failure, real or perceived, by us to
comply with our posted privacy policies or with any regulatory
requirements or orders or other local, state, federal, or
international privacy or consumer protection-related laws and
regulations could cause sellers or their customers to reduce their
use of our products and services and could materially and adversely
affect our business.
We are subject to costs and risks associated with increased or
changing laws and regulations affecting our business, including
developments in data protection and privacy laws could harm our
business, financial condition or results or
operations.
We
operate in a complex regulatory and legal environment that exposes
us to legal and regulatory risks that could materially affect our
results of operations. These laws may change, sometimes
significantly, as a result of political, economic or social events.
Some of the federal, state or local laws and regulations that
affect us include: those relating to consumer products, product
liability or consumer protection; those relating to the manner in
which we advertise, market or sell products; labor and employment
laws, including wage and hour laws; tax laws or interpretations
thereof; data protection and privacy laws and regulations; and
securities and exchange laws and regulations. For instance, data
protection and privacy laws are developing to take into account the
changes in cultural and consumer attitudes towards the protection
of personal data. There can be no guarantee that we will have
sufficient financial resources to comply with any new regulations
or successfully compete in the context of a shifting regulatory
environment. Any additional privacy laws or regulations could
seriously harm our business, financial condition or results of
operations.
37
Changes in tax laws, tax incentives, benefits or differing
interpretations of tax laws may harm our results of
operations.
Changes
in tax laws, regulations, related interpretations and tax
accounting standards in Brazil, may result in a higher tax rate on
our earnings, which may significantly reduce our profits and cash
flows from operations. For example, in 2015 the Brazilian
government increased the rate of PIS/COFINS tax (which is a social
contribution on gross revenues) from 0% to 4.65% on financial
income realized by Brazilian companies that are taxed under the
non-cumulative regime (which is the tax regime that applies to us).
In addition, our results of operations and financial condition may
decline if certain tax incentives are not retained or renewed. For
example, Brazilian Law No. 11,196 currently grants tax
benefits to companies that invest in research and development,
which significantly reduces our annual income tax expense. If the
taxes applicable to our business increase or any tax benefits are
revoked and we cannot alter our cost structure to pass our tax
increases on to customers, our financial condition, results of
operations and cash flows could be seriously harmed. Our payment
processing activities are also subject to a Municipal Tax on
Services (“Imposto Sobre
Serviços,” or “ISS”). Any increases
in ISS rates would also harm our profitability.
In
addition, Brazilian government authorities at the federal, state
and local levels are considering changes in tax laws in order to
cover budgetary shortfalls resulting from the recent economic
downturn in Brazil. If these proposals are enacted they may harm
our profitability by increasing our tax burden, increasing our tax
compliance costs, or otherwise affecting our financial condition,
results of operations and cash flows. Tax rules in Brazil,
particularly at the local level, can change without notice. We may
not always be aware of all such changes that affect our business
and we may therefore fail to pay the applicable taxes or otherwise
comply with tax regulations, which may result in additional tax
assessments and penalties for our business.
Failure to deal effectively with fraud, fictitious transactions,
bad transactions or negative customer experiences would increase
our loss rate and harm our business, and could severely diminish
customer confidence in and use of our programs and
platform.
We
expect to incur losses and expenses due to claims from consumers
that merchants have not performed or that their goods or services
do not match the merchant’s description. We seek to recover
these losses and expenses from the merchant, but may not be able to
recover them in full when the merchant is unwilling or unable to
pay. We also may incur losses and expenses from claims that the
consumer did not authorize the purchase, from consumer fraud and
from erroneous transmissions. In addition, if losses related to
card transactions become excessive, they could potentially result
in a loss of our right to accept cards for payment. In the event
that we were unable to accept cards, the number of transactions
processed through our platform would decrease substantially and our
business would be harmed. We are also subject to the risk of
fraudulent activity by merchants, consumers of products purchased
through our platform, or third parties handling our user
information. We take measures to detect and reduce the risk of
fraud, but these measures need to be continually improved and may
not be effective against new and continually evolving forms of
fraud or in connection with new product offerings. If these
measures do not succeed, our business could be harmed.
38
We are subject to anticorruption, anti-bribery and anti-money
laundering laws and regulations.
We are
subject to various anticorruption, anti-bribery and anti-money
laundering laws and regulations that prohibit, among other things,
our involvement in improper payments to certain public officials
for the purpose of obtaining advantages or in transferring the
proceeds of criminal activities. We have programs designed to
comply with new and existing legal and regulatory requirements.
However, any errors, failures, or delays in complying with
anticorruption, anti-bribery and anti-money laundering laws and
regulations could result in significant criminal and civil
lawsuits, penalties, forfeiture of significant assets, or other
enforcement actions, as well as reputational harm.
Regulators may
increase enforcement of these obligations, which may require us to
further revise or expand our compliance program, including the
procedures we use to verify the identity of our customers and to
monitor our transactions. Regulators regularly reexamine the
transaction volume thresholds at which we must obtain and keep
applicable records or verify identities of customers and any change
in such thresholds could result in greater costs for compliance.
Costs associated with fines or enforcement actions, changes in
compliance requirements, or limitations on our ability to grow
could harm our business and any new requirements or changes to
existing requirements could impose significant costs, result in
delays to planned product improvements, make it more difficult for
new customers to join our network and reduce the attractiveness of
our products and services.
The costs and effects of pending and future litigation,
investigations or similar matters, or adverse facts and
developments related thereto, could materially affect our business,
financial position and results of operations.
We are,
and may be in the future, party to legal, arbitration and
administrative investigations, inspections and proceedings arising
in the ordinary course of our business or from extraordinary
corporate, tax or regulatory events, involving our clients,
suppliers, customers, as well as competition, government agencies,
tax and environmental authorities, particularly with respect to
civil, tax and labor claims. Our indemnities may not cover all
claims that may be asserted against us, and any claims asserted
against us, regardless of merit or eventual outcome, may harm our
reputation. Furthermore, there is no guarantee that we will be
successful in defending ourselves in pending or future litigation
or similar matters under various laws. Should the ultimate
judgments or settlements in any pending litigation or future
litigation or investigation significantly exceed our indemnity
rights, they could have a material adverse effect on our business,
financial condition and results of operations. Further, even if we
adequately address issues raised by an inspection conducted by an
agency or successfully defend our case in an administrative
proceeding or court action, we may have to set aside significant
financial and management resources to settle issues raised by such
proceedings or to those lawsuits or claims, which could adversely
affect our business.
39
RISKS RELATING TO BRAZIL
The e-commerce market in Brazil is developing, and the expansion of
our business depends on the continued growth of e-commerce, as well
as increased availability, quality and usage of the Internet in
Brazil.
Our
future revenues from digital payments depend substantially on
consumers’ widespread acceptance and use of the Internet as a
way to conduct commerce. Rapid growth in the use of the Internet
(particularly as a way to provide and purchase products and
services) is a relatively recent phenomenon in Brazil and we cannot
assure you that this acceptance and usage will continue or
increase. Furthermore, if the penetration of Internet access in
Brazil does not increase quickly, it may limit our potential
growth, particularly in regions with low levels of Internet quality
and access and/or low levels of income.
Internet usage in
Brazil may never reach the levels seen in more developed countries
for reasons that are beyond our control, including the lack of
necessary network infrastructure or delayed development of enabling
technologies, performance improvements and security measures. The
infrastructure for the Internet in Brazil may not be able to
support continued growth in the number of users, their frequency of
use or their bandwidth requirements. Delays in telecommunication
and infrastructure development or other technology shortfalls may
impede improvements in Internet reliability in Brazil. If
telecommunications services are not sufficiently available to
support the growth of the Internet in Brazil, response times could
be slower, which would reduce Internet usage and harm our services.
In addition, even if Internet penetration in Brazil increases, this
may not lead to growth in e-commerce due to a number of factors,
including lack of confidence by users in online
security.
Furthermore, the
price of Internet access and Internet-connected devices, such as
personal computers, tablets, mobile phones and other portable
devices, may limit our growth, particularly in parts of Brazil with
low levels of income. Income levels in Brazil are significantly
lower than in the United States and other more developed countries,
while prices of both portable devices and Internet access in Brazil
are higher than in those countries. Income levels in Brazil may
decline and device and access prices may increase in the
future.
Any of
these factors could limit our ability to generate revenues in
future.
The Brazilian federal government has exercised, and continues to
exercise, significant influence over the Brazilian economy. This
involvement as well as Brazil’s political and economic
conditions could harm us.
The
Brazilian federal government frequently exercises significant
influence over the Brazilian economy and occasionally makes
significant changes in policy and regulations. The Brazilian
government’s actions to control inflation and other policies
and regulations have often involved, among other measures,
increases in interest rates, changes in tax policies, price
controls, foreign exchange rate controls, currency devaluations,
capital controls and limits on imports. We have no control over and
cannot predict what measures or policies the Brazilian government
may take in the future. We and the market price of our securities
may be harmed by changes in Brazilian government policies, as well
as general economic factors, including, without
limitation:
40
●
growth or downturn
of the Brazilian economy;
●
interest rates and
monetary policies;
●
exchange rates and
currency fluctuations;
●
inflation;
●
liquidity of the
domestic capital and lending markets;
●
import and export
controls;
●
exchange controls
and restrictions on remittances abroad;
●
modifications to
laws and regulations according to political, social and economic
interests;
●
fiscal policy and
changes in tax laws;
●
economic, political
and social instability;
●
labor and social
security regulations;
●
energy and water
shortages and rationing; and
●
other political,
social and economic developments in or affecting
Brazil.
In
addition, Brazil is currently experiencing a recession and weak
macroeconomic conditions are expected to continue for an
indeterminate time. We cannot predict what measures the Brazilian
federal government will take in the face of mounting macroeconomic
pressures or otherwise.
Uncertainty over
whether the Brazilian federal government will implement changes in
policy or regulation affecting these or other factors in the future
may affect economic performance and contribute to economic
uncertainty in Brazil, which may have an adverse effect on us and
our Common Stock. Recent economic and political instability has led
to a negative perception of the Brazilian economy and higher
volatility in the Brazilian securities markets, which also may
adversely affect us and our common shares.
The ongoing economic uncertainty and political instability in
Brazil may harm us.
Brazil’s
political environment has historically influenced, and continues to
influence, the performance of the country’s economy.
Political crises have affected and continue to affect the
confidence of investors and the general public, which have
historically resulted in economic deceleration and heightened
volatility in the securities issued by Brazilian
companies.
The
recent economic instability in Brazil has contributed to a decline
in market confidence in the Brazilian economy as well as to a
deteriorating political environment. Weak macroeconomic conditions
in Brazil are expected for an indeterminate time. In addition,
various ongoing investigations into allegations of money laundering
and corruption being conducted by the Office of the Brazilian
Federal Prosecutor, including the largest such investigation, known
as “Operação Lava
Jato”, have negatively impacted the Brazilian economy
and political environment. Members of the Brazilian government as
well as senior officers of large state-owned companies have faced
or are currently facing allegations of corruption and money
laundering as a result of these investigations. These individuals
are alleged to have accepted bribes by means of kickbacks on
contracts granted by the government to several infrastructure, oil
and gas and construction companies. The profits of these kickbacks
allegedly financed the political campaigns of political parties
forming the previous government’s coalition that was led by
former President Dilma Rousseff, which funds were unaccounted for
or not publicly disclosed. These funds were also allegedly destined
toward the personal enrichment of certain individuals. A number of
senior politicians, including members of Congress, and high-ranking
executive officers of major corporations and state-owned companies
in Brazil have been arrested, convicted of various charges relating
to corruption, entered into plea agreements with federal
prosecutors and/or have resigned or been removed from their
positions. The potential outcome of Operação Lava Jato as well as
other ongoing corruption-related investigations is uncertain, but
they have already hurt the image and reputation of those companies
that have been implicated as well as the general market perception
of the Brazilian economy, political environment and the Brazilian
capital markets. We have no control over, and cannot predict,
whether such investigations or allegations will lead to further
political and economic instability or whether new allegations
against government officials will arise in the future.
41
President Dilma
Rousseff was suspended from office on May 12, 2016, when the
Brazilian Senate voted to hold a trial on impeachment charges
against her. President Rousseff was replaced by Vice-President
Michel Temer, who served as acting President until
Ms. Rousseff was permanently removed from office by the Senate
on August 31, 2016 for infringing budgetary laws. Michel Temer
then became President for the remainder of the presidential term,
which is due to end in October 2018. In June 2017, the
Brazilian Higher Electoral Court (Tribunal Superior Eleitoral) cleared
the electoral alliance formed by Ms. Rousseff and
Mr. Temer of charges that it had violated campaign finance
laws in the 2014 election. President Temer remains the subject of
investigations by the Brazilian Federal Police and the Office of
the Brazilian Federal Prosecutor relating to allegations of
corruption, however, and may ultimately be subject to impeachment
proceedings before his presidential term ends. We cannot predict
how the ongoing investigations and proceedings will affect us or
the price of our Common Stock. Furthermore, uncertainty over
whether the acting Brazilian government will implement changes in
policy or regulation in the future may contribute to economic
uncertainty in Brazil and to heightened volatility in the
securities issued abroad by Brazilian companies.
In
addition, political demonstrations in Brazil over the last few
years have affected the development of the Brazilian economy and
investors’ perceptions of Brazil. For example, street
protests, which started in mid-2013 and continued through 2016,
demonstrated the public’s dissatisfaction with the worsening
Brazilian economic condition (including an increase in inflation
and fuel prices as well as rising unemployment), the perception of
widespread corruption, as well as the potential for severe water
and electricity rationing following a decrease in rainfall and
water reservoir levels throughout Brazil in early
2016.
Any of
the above factors may create additional political uncertainty,
which could harm the Brazilian economy and, consequently, our
business.
Inflation and certain measures by the Brazilian government to curb
inflation have historically harmed the Brazilian economy and
Brazilian capital markets, and high levels of inflation in the
future would harm us.
In the
past, Brazil has experienced extremely high rates of inflation.
Inflation and some of the measures taken by the Brazilian
government in an attempt to curb inflation have had significant
negative effects on the Brazilian economy generally. Inflation,
policies adopted to curb inflationary pressures and uncertainties
regarding possible future governmental intervention have
contributed to economic uncertainty and heightened volatility in
the Brazilian capital markets.
According to the
National Consumer Price Index (Índice Nacional de Preços ao
Consumidor Amplo), or IPCA, Brazilian inflation rates were
6.3%, 10.7% and 6.4% in 2016, 2015 and 2014, respectively. Brazil
may experience high levels of inflation in the future and
inflationary pressures may lead to the Brazilian government’s
intervening in the economy and introducing policies that could harm
our business. In the past, the Brazilian government’s
interventions included the maintenance of a restrictive monetary
policy with high interest rates that restricted credit availability
and reduced economic growth, causing volatility in interest rates.
For example, the SELIC (Sistema
Especial de Liquidação e de Custódia), the
Central Bank’s overnight rate, as established by the Monetary
Policy Committee (Comitê de
Pol’tica Monetária do Banco Central do
Brasil—COPOM), increased from 10.00% at the beginning
of 2014 to a high point of 14.25% in 2016 before a series of rate
reductions in 2017, bringing the SELIC rate down to 7.00% as of
December 7, 2017. Conversely, more lenient government and
Central Bank policies and interest rate decreases have triggered
and may continue to trigger increases in inflation, and,
consequently, growth volatility and the need for sudden and
significant interest rate increases, which could negatively affect
us and increase our indebtedness.
42
Exchange rate instability may have adverse effects on the Brazilian
economy and our business.
The
Brazilian currency has been historically volatile and has been
devalued frequently over the past three decades. Throughout this
period, the Brazilian government has implemented various economic
plans and used various exchange rate policies, including sudden
devaluations, periodic mini-devaluations (during which the
frequency of adjustments has ranged from daily to monthly),
exchange controls, dual exchange rate markets and a floating
exchange rate system. Although long-term depreciation of the
real is generally linked to
the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of
time has resulted in significant variations in the exchange rate
between the real, the U.S.
dollar and other currencies. The real depreciated against the U.S.
dollar by 32.0% at year-end 2015 as compared to year-end 2014, and
by 11.8% at year-end 2014 as compared to year-end 2013. The
real/U.S. dollar exchange
rate reported by the Central Bank was R$3.9048 per U.S. dollar on
December 31, 2015 and R$3.2591 per U.S. dollar on
December 31, 2016, which reflected a 19.8% appreciation in the
real against the U.S.
dollar during 2016. The real/U.S. dollar exchange rate reported
by the Central Bank was R$3.1680 per U.S. dollar on
September 30, 2017, remaining relatively stable as compared to
the rate at year-end 2016. There can be no assurance that the
real will not again
depreciate against the U.S. dollar or other currencies in the
future.
A
devaluation of the real
relative to the U.S. dollar could create inflationary pressures in
Brazil and cause the Brazilian government to, among other measures,
increase interest rates. Any depreciation of the real may generally restrict access to
the international capital markets. It would also reduce the U.S.
dollar value of our results. Restrictive macroeconomic policies
could reduce the stability of the Brazilian economy and harm our
results of operations and profitability. In addition, domestic and
international reactions to restrictive economic policies could have
a negative impact on the Brazilian economy. These policies and any
reactions to them may harm us by curtailing access to foreign
financial markets and prompting further government intervention. A
devaluation of the real
relative to the U.S. dollar may also, as in the context of the
current economic slowdown, decrease consumer spending, increase
deflationary pressures and reduce economic growth.
On the
other hand, an appreciation of the real relative to the U.S. dollar and
other foreign currencies may deteriorate the Brazilian foreign
exchange current accounts. Depending on the circumstances, either
devaluation or appreciation of the real relative to the U.S. dollar and
other foreign currencies could restrict the growth of the Brazilian
economy, as well as our business, results of operations and
profitability.
Infrastructure and workforce deficiency in Brazil may impact
economic growth and have a material adverse effect on
us.
Our
performance depends on the overall health and growth of the
Brazilian economy. Brazilian GDP growth has fluctuated over the
past few years, with growth of 3.0% in 2013 but decreasing to 0.5%
in 2014, a contraction of 3.8% in 2015 and a contraction of 3.6% in
2016. Growth is limited by inadequate infrastructure, including
potential energy shortages and deficient transportation, logistics
and telecommunication sectors, the lack of a qualified labor force,
and the lack of private and public investments in these areas,
which limit productivity and efficiency. Any of these factors could
lead to labor market volatility and generally impact income,
purchasing power and consumption levels, which could limit growth
and ultimately have a material adverse effect on us.
43
Internet regulation in Brazil is recent and still limited and
several legal issues related to the Internet are
uncertain.
In
2014, Brazil enacted a law, which we refer to as the Internet Act,
setting forth principles, guarantees, rights and duties for the use
of the Internet in Brazil, including provisions about Internet
service provider liability, Internet user privacy and Internet
neutrality. In May 2016, further regulations were passed in
connection with the Internet Act. However, unlike in the United
States, little case law exists around the Internet Act and existing
jurisprudence has not been consistent. Legal uncertainty arising
from the limited guidance provided by current laws in force allows
for different judges or courts to decide very similar claims in
different ways and establish contradictory jurisprudence. This
legal uncertainty allows for rulings against us and could set
adverse precedents, which individually or in the aggregate could
seriously harm our business, results of operations and financial
condition. In addition, legal uncertainty may harm our
customers’ perception and use of our service.
We may face restrictions and penalties under the Brazilian Consumer
Protection Code.
Brazil
has a series of strict consumer protection laws, referred to
together as the Consumer Protection Code (Código de Defesa do Consumidor).
These laws apply to all companies in Brazil that supply products or
services to Brazilian consumers. They include protection against
misleading and deceptive advertising, protection against coercive
or unfair business practices and protection in the formation and
interpretation of contracts, usually in the form of civil
liabilities and administrative penalties for violations. These
penalties are often levied by the Brazilian Consumer Protection
Agencies (Fundação de
Proteção e Defesa do Consumidor, or PROCONs),
which oversee consumer issues on a district-by-district basis.
Companies that operate across Brazil may face penalties from
multiple PROCONs, as well as from the National Secretariat for
Consumers (Secretaria Nacional do
Consumidor, or SENACON). Companies may settle claims made by
consumers via PROCONs by paying compensation for violations
directly to consumers and through a mechanism that allows them to
adjust their conduct, called a conduct adjustment agreement
(Termo de Ajustamento de
Conduta, or TAC). Brazilian Public Prosecutors may also
commence investigations of alleged violations of consumer rights,
and the TAC mechanism is also available as a sanction in those
proceedings. Companies that violate TACs face potential automatic
fines. Brazilian Public Prosecutors may also file public civil
actions against companies who violate consumer rights, seeking
strict observation of the consumer protection laws and compensation
for any damages to consumers.
Any changes in macroeconomic conditions may reduce the volume and
prices of transactions on our payments platforms and harm our
growth strategies and business prospects.
Our
operating results are affected by the condition of the economy. Our
business and financial performance may be harmed by current and
future economic conditions that cause a decline in business and
consumer spending, including a reduction in the availability of
credit, increased unemployment levels, higher energy and fuel
costs, rising interest rates, financial market volatility and
recession. Additionally, we may experience difficulties in
operating and growing our operations as a result of economic
pressures.
44
As a
business that depends on consumer discretionary spending, we may
suffer harm if businesses no longer require our IT consulting
services or if our customers reduce their purchases due to
continued job losses, foreclosures, bankruptcies, higher consumer
debt and interest rates, reduced access to credit, lower consumer
confidence, uncertainty or changes in tax policies and tax rates.
Decreases in customer traffic or average value per transaction
negatively affect our financial performance, and a prolonged period
of depressed consumer spending could seriously harm our business.
Promotional activities and decreased demand for consumer products,
particularly higher-end products, could affect our profitability.
The potential effects of the ongoing economic crisis in Brazil are
difficult to forecast and mitigate. Any of the foregoing could
seriously harm our business, results of operations and financial
condition and could cause the trading price of our Common Stock to
decline.
RISKS RELATING TO OUR COMMON STOCK
Although we plan to apply to list our shares
on Nasdaq, we may not be successful in doing so. The
lack of any established trading market may significantly restrict
our shareholders’ ability to sell shares of our common
stock.
There
is no established trading market for our common stock. The absence
of an active trading market may significantly restrict our
shareholders’ ability to transfer shares of our common stock.
We cannot predict the extent to which investor interest in our
company will lead to the development of an active trading market or
how liquid that market might become. Although we plan to apply to
list our shares of common stock on Nasdaq, Nasdaq has its own
listing criteria, including criteria related to minimum bid price,
public float, market makers, minimum number of round lot holders
and board independence requirements, that we may not
meet.
Our founder owns 100% of our outstanding Series A and Series B
preferred stock and has super voting rights, which allows our
largest stockholder to control corporate actions, which may benefit
him more than our other stockholders and could also impact
anti-takeover and change-in-control attempts.
Our
founder holds all outstanding Series A preferred stock, which
entitles him to have voting rights equal to 100,000 shares of
common stock for each share of Series A preferred stock, and 100%
of all outstanding Series B preferred stock, which entitles him to
voting rights on an as converted basis equal to 10% of total issued
and outstanding Common Stock. This means our founder will be able
to cast 63% of the vote on any matter that gets submitted to our
stockholders. Our founder will thus be able to control and elect
the board of directors, and discourage, delay or prevent any
potential anti-takeover or change in control attempt.
We do not expect to pay dividends for the foreseeable
future.
We have
never paid dividends and do not expect to pay dividends on our
common stock for the foreseeable future. Accordingly, there is no
guarantee that the price of our common stock will ever exceed the
price that you pay.
45
We may raise additional capital in the future by issuing equity
securities, which may result in a potential dilution of your equity
interest.
We may
issue additional equity securities to raise capital, make
acquisitions, or for a variety of other purposes. Any strategic
partnership, issuance or placement of shares and/or securities
convertible into or exchangeable for shares may affect the market
price of our shares and could result in dilution of your equity
interest.
Judgments of Brazilian courts to enforce our obligations with
respect to our common stock may be payable only in
reals.
Most of
our assets are located in Brazil. If proceedings are brought in the
courts of Brazil seeking to enforce our obligations in respect of
our common stock, we may not be required to discharge our
obligations in a currency other than the real. Under Brazilian exchange control
laws, an obligation in Brazil to pay amounts denominated in a
currency other than the real may only be satisfied in Brazilian
currency at the exchange rate in effect on the date the judgment is
obtained as determined by the Central Bank. These amounts are then
adjusted to reflect exchange rate variations through the effective
payment date. The exchange rate at that time may not afford
non-Brazilian investors with full compensation for any claim
arising out of or related to our obligations under the common
stock.
Our common stock may not be a suitable investment for all
investors, as investment in our common stock presents risks and the
possibility of financial losses.
The
investment in our common stock is subject to risks. Investors who
wish to invest in our common stock are thus subject to asset
losses, including loss of the entire value of their investment, as
well as other risks, including those related to our common stock,
the sector in which we operate, our shareholders and the general
macroeconomic environment in Brazil, among other
risks.
Each
potential investor in our common stock must therefore determine the
suitability of that investment in light of its own circumstances.
In particular, each potential investor should:
●
have sufficient
knowledge and experience to make a meaningful evaluation of our
common stock, the merits and risks of investing in our common stock
and the information contained in this prospectus;
●
have access to, and
knowledge of, appropriate analytical tools to evaluate, in the
context of its particular financial situation, an investment in our
Common Stock and the impact our common stock will have on its
overall investment portfolio;
●
have sufficient
financial resources and liquidity to bear all of the risks of an
investment in our common stock;
●
understand
thoroughly the terms of our common stock and be familiar with the
behavior of any relevant indices and financial markets;
and
46
●
be able to evaluate
(either alone or with the help of a financial adviser) possible
scenarios for economic, interest rate and other factors that may
affect its investment and its ability to bear the applicable
risks.
Future sales and issuances of our common stock or rights to
purchase common stock could result in additional dilution of the
percentage ownership of our stockholders and could cause our share
price to fall.
We
expect that significant additional capital will be needed in the
future to continue our planned operations, including expanding
research and development, funding operations, hiring new personnel,
commercializing our products, and continuing activities as an
operating public company. To the extent we raise additional capital
by issuing equity securities, our stockholders may experience
substantial dilution. We may sell common stock, convertible
securities or other equity securities in one or more transactions
at prices and in a manner we determine from time to time. If we
sell common stock, convertible securities or other equity
securities in more than one transaction, investors may be
materially diluted by subsequent sales. Such sales may also result
in material dilution to our existing stockholders, and new
investors could gain rights superior to our existing
stockholders.
We are an “emerging growth company” and as a result of
our reduced disclosure requirements applicable to emerging growth
companies, our common stock may be less attractive to
investors.
We are
an “emerging growth company,” as defined in the
Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and
we intend to take advantage of certain exemptions from various
reporting requirements that are applicable to other public
companies that are not “emerging growth companies”
including, but not limited to, not being required to comply with
the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy
statements, and exemptions from the requirements of holding a
nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved.
We could remain an “emerging growth our” until the
earlier of (1) the last day of the fiscal year (a) following the
fifth anniversary of the completion of our initial public offering
in February 2014, (b) in which we have total annual gross
revenue of at least $1.0 billion, or (c) in which we are
deemed to be a large accelerated filer, which means the market
value of our common stock that is held by non-affiliates exceeded
$700.0 million as of the prior December 31st, and (2) the date
on which we have issued more than $1.0 billion in non-convertible
debt during the prior three-year period. We cannot predict whether
investors will find our common stock less attractive because we
will rely on these exemptions. If some investors find our common
stock less attractive as a result, there may be a less active
trading market for our common stock and our stock price may be more
volatile.
47
If securities or industry analysts do not publish research or
reports about our business, or if they change their recommendations
regarding our stock adversely, our stock price and trading volume
could decline.
The
trading market for our common stock will be influenced by the
research and reports that industry or securities analysts publish
about us or our business. We do not currently have and may never
obtain research coverage by industry or financial analysts. If no
or few analysts commence coverage of us, the trading price of our
stock would likely decrease. Even if we do obtain analyst coverage,
if one or more of the analysts who cover us downgrade our stock,
our stock price would likely decline. If one or more of these
analysts cease coverage of or fail to regularly publish reports on
us, we could lose visibility in the financial markets, which in
turn could cause our stock price or trading volume to
decline.
Item
2. Financial
Information.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
You should read the following discussion and analysis of our
financial condition and results of operations together with our
financial statements and related notes appearing at the end of this
Registration Statement. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Registration
Statement, including information with respect to our plans and
strategy for our business and related financing, includes
forward-looking statements that involve risks and uncertainties.
You should read the “Risk Factors” section of this
Registration Statement for a discussion of important factors that
could cause actual results to differ materially from the results
described in or implied by the forward-looking statements contained
in the following discussion and analysis.
Overview
In 2016
and 2017, we invested significant capital and internal resources in
the development of ViviPay and did not have any revenue generating
operations. We began generating revenues in 2018 by providing
outside IT consulting services to businesses and organizations
through our ViviTech business. However, we believe that our
principal business and growth opportunities in the future will
arise from our ViviPay platform. We launched our initial ViviPay
products in the fourth quarter 2018. We expect that revenues from
our ViviPay products will grow and constitute a higher percentage
of our consolidated revenues moving forward.
We
currently provide services and products to customers located
primarily in Brazil.
Operating Metrics
The
Company began its revenue generating operations in 2018 and thus
has no operating history to compare annual or periodic
metrics.
48
Factors Affecting Comparability
The
Company issued $118,614,810 in common stock as compensation in the
nine months ended September 30, 2018. The Company does not
expect stock based compensation to be significant for the remainder
of 2018 or in 2019.
Results of Operations
This
discussion is based on the amounts which were prepared in
accordance with U.S. GAAP.
The
following tables show the changes in the items comprising our
statements of operations:
Results of Operations for the Nine Months Ended September 30,
2018 and 2017
Consolidated Statements of Operations
For
the Nine Months Ended September 30, 2018 and 2017
Unaudited
|
|
Nine Months
Ended
Sept 30,
2018
|
Nine Months
Ended
Sept 30,
2017
|
|
Revenues
|
$873,153
|
$-
|
|
Cost of
revenues
|
666,484
|
-
|
|
Gross
Profit
|
206,668
|
-
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
Depreciation and
amortization
|
41,097
|
36,215
|
|
Rent
|
186,733
|
144,112
|
|
Personnel,
consulting and labor costs
|
1,564,349
|
900,690
|
|
Sponsor
fees
|
554,693
|
-
|
|
Stock Issued for
Services
|
118,614,810
|
29,550,000
|
|
General and
Administrative
|
752,252
|
2,438,154
|
|
Total Operating
Expenses
|
121,713,934
|
33,069,171
|
|
|
|
|
|
Total Operating
Income (Loss)
|
(121,507,266)
|
(33,069,171)
|
|
|
|
|
|
Other Income
(Expense)
|
|
|
|
Other
Income
|
915
|
-
|
|
Interest
Expense
|
(2,027)
|
-
|
|
Impairment of
Assets
|
(12,775,005)
|
(9,278,244)
|
|
Total Other Income
(Expense)
|
(12,776,117)
|
(9,278,244)
|
|
NET INCOME (LOSS)
BEFORE INCOME TAX
|
(134,283,383)
|
(42,797,415)
|
|
|
|
|
|
NET INCOME
(LOSS)
|
$(134,283,383)
|
$(42,797,415)
|
|
|
|
|
|
OTHER COMPREHENSIVE
INCOME:
|
|
|
|
Net Income per
Above
|
(134,283,383)
|
(42,797,415)
|
|
|
|
|
|
Foreign Currency
Translation
|
108,379
|
-
|
|
TOTAL OTHER
COMPREHENSIVE INCOME
|
$108,379
|
$-
|
|
|
|
|
|
TOTAL COMPREHENSIVE
INCOME
|
$(134,175,004)
|
$(42,797,415)
|
|
|
|
|
|
BASIC and DILUTED:
|
|
|
|
Weighted Average
Shares Outstanding
|
84,713,564
|
71,290,314
|
|
Earnings (Loss) per
Share
|
$(1.59)
|
$(0.48)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
49
Revenues
The
Company generated $873,153 in revenue during the nine months ended
September 30, 2018, as compared to $0 during the prior year,
which revenue was generated entirely from our ViviTech business in
Brazil. We did not have any revenue generating operations in
2017.
Cost of Revenues
The
Company had $666,484 in Cost of revenues for the nine months ended
September 30, 2018 compared to $0 during the prior year. Cost
of revenues represent the direct costs of labor for work performed
for our ViviTech clients.
Operating Expenses
Total
operating expenses increased from $33,069,171 in the nine months
ended September 30, 2017 to $121,713,934 in 2018. Total
operating expenses, exclusive of Stock issued for services,
decreased from $3,519,171 in the nine months ended
September 30, 2017 to $3,099,124 in 2018, due primarily to a
decrease in General and Administrative costs of $1,685,902 driven
primarily by a reduction in professional fees, travel and research,
and development expenses. This decrease was partially offset by an
increase in Personnel, consulting and labor costs of $663,659
related to the increased labor inputs necessary for the
Company’s launch of its products in the fourth quarter of
2018. We also incurred sponsor fees of approximately $554,693 for
the nine months ended September 30, 2018, while there were no
such fees in 2017. All of our sponsor fees through
September 30, 2018 related to the payment of a one-time
upfront fee to one of our partner organizations. Stock issued for
services increased from $29,550,000 in the nine months ended
September 30, 2017 to $118,614,810 in 2018. This increase
reflected the Company’s increased activity and its use of
common stock to pay for and/or incentivize employees and
consultants in the nine months ended September 30,
2018.
Other Income (Expenses)
Total
other expenses increased to $12,776,117 in the nine months ended
September 30, 2018 compared to $9,278,244 in 2017, which
expenses are the result of impairment charges relating to the
acquisition of certain technology licenses and assets that the
Company incorporated into its technology platform.
50
Results of Operations for the Fiscal Year Ended December 31,
2017 and December 31, 2016
Consolidated Statements of Operations
For
the Period June 24, 2016 (Date of Inception) to December 31, 2016,
and
Twelve Months Ended
December 31, 2017
|
|
Twelve Months
Ended
Dec 31,
2017
|
June 24,
2016
(Date of
Inception) to
Dec 31,
2016
|
|
Revenues
|
$-
|
$-
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
Depreciation and
Amortization
|
48,558
|
5,872
|
|
Stock Issued for
Services
|
85,050,000
|
50,144,340
|
|
General and
Administrative
|
2,335,704
|
530,562
|
|
Total Operating
Expenses
|
87,434,262
|
50,680,774
|
|
|
|
|
|
Total Operating
Income (Loss)
|
(87,434,262)
|
(50,680,774)
|
|
|
|
|
|
Other Income
(Expense)
|
|
|
|
Other
Income
|
15,320
|
-
|
|
Interest
Expense
|
(418)
|
-
|
|
Impairment of
Assets
|
(5,250,000)
|
-
|
|
Total Other Income
(Expense)
|
(5,235,098)
|
-
|
|
NET INCOME
(LOSS) BEFORE INCOME TAX
|
(92,669,360)
|
(50,680,774)
|
|
|
|
|
|
Currency
Translation Loss
|
(5,805)
|
-
|
|
|
|
|
|
NET INCOME
(LOSS)
|
$(92,675,165)
|
$(50,680,774)
|
|
|
|
|
|
BASIC and
DILUTED:
|
|
|
|
Weighted Average
Shares Outstanding
|
80,134,726
|
35,948,527
|
|
Earnings (Loss) per
Share
|
$(1.16)
|
$(1.41)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Revenues
The
Company did not earn any revenue in 2017 or 2016. In 2017, the
Company started soliciting third party ViviTech customers for
contracts that became effective in 2018, and thus did not record
any revenue from ViviTech services last year.
Operating Expenses
Total
operating expenses in 2017 increased $36,753,488 when compared with
the prior year. The increase in operating expenses is primarily
related to increases in Depreciation and Amortization, Stock Issued
for Services, and General and Administrative expense. Our General
and Administrative expense increased from $530,562 in 2016 to
$2,335,704 in 2017 due to our increased investment in the
development of ViviPay. Stock Issued for Services increased from
$50,144,340 in 2016 to $85,050,000 in 2017, reflecting the
Company’s increase in its use of common stock to pay for
and/or incentivize employees and consultants in 2017.
51
Other Income (Expenses)
Total
other expenses in 2017 increased to $5,235,098 compared to $0 in
2016, primarily as a result of an impairment relating to the
acquisition of certain technology licenses and assets that the
Company incorporated into its technology platform.
Liquidity and Capital Resources
To date
we have financed our development stage activities primarily through
private placements of our common stock and securities convertible
into our common stock. The Company sold common stock in order to
fund the development of ViviPay and has historically used its
common stock to compensate its employees and consultants. We have
used, and may in the future use, our liquidity to purchase assets
or technology, to repurchase our common shares, or to fund our
investing activities.
Management may seek
to meet all or some of our operating cash flow requirements through
financing activities, such as the private placement of our common
stock, preferred stock offerings and offerings of debt and
convertible debt instruments as well as through merger or
acquisition opportunities. In addition, management is actively
pursuing financial and strategic alternatives, including strategic
investments and divestitures, industry collaboration activities,
and potential strategic partners.
At
September 30, 2018, the Company had approximately $9.7 million
cash and cash equivalents on hand, which came from the sale of
common and preferred stock, and working capital of $8.4 million.
Based on current operations, we estimate our liquidity requirements
to be approximately $5 million annually. Based on our current level
of operations and available cash, we believe our cash flow from
operations will provide sufficient liquidity to fund our current
obligations and capital spending over the next twelve
months.
For the Nine Months Ended September 30, 2018 and 2017
Operating Activities
Cash
used by operating activities was $1,582,703 during the nine months
ended September 30, 2018, compared to $1,528,407 in 2017. In
both years we had large non-cash expenses relating to stock issued
for services of $118,614,810 and $29,550,000 in the nine months
ended September 30, 2018 and 2017, respectively, and charges for
impairment of technology assets of $12,775,005 and $9,728,244 in
the nine months ended September 30, 2018 and 2017, respectively. In
the nine months ended September 30, 2018, the main factors
negatively affecting our cash position were an increase in accounts
receivable of $235,973, an increase in prepaid expenses of $58,335;
the main items positively affecting our cash position were an
increase in accounts payable from $24,466 in 2017 to $71,620 in
2018 and an increase in accrued expenses from $166,565 in 2017 to
$1,394,438 in 2018. These increases in accounts receivable, prepaid
expenses, accounts payable and accrued expenses are related to the
increase in our activity as a Company, the generation of revenue
through software consulting agreements, and the increase in
expenses leading up to the launch of our ViviPay products in the
fourth quarter of 2018.
52
Investing Activities
Cash
used in investing activities was $11,261 for the nine months ended
September 30, 2018, compared to $0 during the same period in
the prior year. The change in investing activities was due to the
purchase of office and computer equipment.
Financing Activities
Cash
provided by financing activities was $9,340,000 for the nine months
ended September 30, 2018, compared to cash provided by
financing activities of $2,552,400 during the same period in the
prior year. In 2018, our increase in cash provided by financing
activities was due to proceeds from the sale of our common stock of
$10,000,000, offset by our common stock repurchases of $660,000.
This compares to collections on accounts receivables in 2017 from
sales of common stock issued in 2016 of $3,022,700, offset by our
common stock repurchases of $470,300.
For the Fiscal Year Ended December 31, 2017 and
December 31, 2016
Operating Activities
Cash
used by operating activities increased to $2,175,917 for the twelve
months ended December 31, 2017, compared to cash used of $569,870
in 2016. Our net loss in 2017 was $2,375,165 after adjustment for
non-cash items of common stock issued for services of $85,050,000
and impairment expense of $5,250,000. The other major adjustments
that affected our cash used in operating activities in 2017 were
the positive impacts of increased depreciation and amortization of
$48,548, accounts payable of $58,786 and accrued expenses of
$69,882. That compares with a net loss in 2016 of $546,374 after
adjustment for stock issued for services of $50,134,340. The other
major adjustments affecting cash used in operations in 2016 were
the negative impact of increases in other assets, or deposits, of
$30,059 and other current assets of $20,000. The increase in our
net loss and our cash used by operating activities detailed by the
items above reflect our increased expenditures in 2017 relating to
the development of our products and platform.
Investing Activities
Cash
used in investing activities was $33,328 for the twelve months
ended December 31, 2017, compared to $160,244 in 2016. Investing
activities in 2017 related to the Company’s purchase of
additional office and computer equipment and 2016 activities
related to the Company’s completion of its corporate
office.
Financing Activities
Cash
provided by financing activities increased to $2,553,999 in the
twelve months ended December 31, 2017, compared to $2,347,600
during 2016. Cash provided in 2016 was driven by proceeds from the
sale of common stock. Cash provided in 2017 was driven by the
collection of a common stock receivable issued in 2016, partially
offset by $470,300 in repurchases of common stock.
53
Off-Balance Sheet Arrangements
We did
not have during the periods presented, and we do not currently
have, any off-balance sheet arrangements, as defined under SEC
rules.
Recently Adopted Accounting Standards
Presentation of an Unrecognized Tax
Benefit: In July 2013, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standard
Update (“ASU”) 2013-11 related to the presentation of
an unrecognized tax benefit when a net operating loss carryforward,
a similar tax loss or a tax credit carryforward exists. The updated
guidance requires an entity to net its unrecognized tax benefits
against the deferred tax assets for the same jurisdiction’s
net operating loss carryforward, a similar tax loss, or tax credit
carryforwards. A gross presentation will be required only if such
carryforwards are not available or would not be used by the entity
to settle any additional income taxes resulting from disallowance
of the uncertain tax position. The update was effective
prospectively for the Company’s fiscal year beginning
January 1, 2016. The new guidance affects disclosures only and
the adoption had no impact on the Company’s consolidated
financial position, results of operations or cash
flows.
Foreign Currency Matters: In March
2013, the FASB issued ASU 2013-05 related to Foreign Currency
Matters to clarify the treatment of cumulative translation
adjustments when a parent sells a part or all of its investment in
a foreign entity or no longer holds a controlling financial
interest in a subsidiary or group of assets that is a business
within a foreign entity. The updated guidance also resolves the
diversity in practice for the treatment of business combinations
achieved in stages in a foreign entity. The update was effective
prospectively for the Company’s fiscal year beginning
January 1, 2016. The updated guidance had no impact on the
Company’s consolidated financial position, results of
operations or cash flows.
Presentation of Financial
Statements—Going Concern—Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going
Concern: In August 2016, ASC 205-40 guidance was
amended to provide guidance about management’s responsibility
to evaluate whether there is substantial doubt about an
entity’s ability to continue as a going concern and to
provide related footnote disclosures. The amendments require
management to assess an entity’s ability to continue as a
going concern by incorporating and expanding upon certain
principles that are currently in U.S. auditing standards.
Specifically, the amendments (1) provide a definition of the
term substantial doubt, (2) require an evaluation every
reporting period including interim periods, (3) provide
principles for considering the mitigating effect of
management’s plans, (4) require certain disclosures when
substantial doubt is alleviated as a result of consideration of
management’s plans, (5) require an express statement and
other disclosures when substantial doubt is not alleviated, and
(6) require an assessment for a period of one year after the
date that the financial statements are issued (or available to be
issued). The amendments in this update are effective for the
Company’s fiscal year ending December 31, 2016, with
early application permitted. The amended guidance had no impact on
the Company’s consolidated financial statements.
54
Presentation of Financial Statements and
Property, Plant and Equipment—Reporting Discontinued
Operations and Disclosures of Components of an Entity: In
April 2016, ASC 205 and ASC 360 guidance was
amended to change the requirements for reporting discontinued
operations in ASC 205-20. A disposal of a component of an
entity or a group of components of an entity is required to be
reported in discontinued operations only if the disposal represents
a strategic shift that has, or will have, a major effect on an
entity’s operations and financial results when any of the
following occurs: (1) the component of an entity or group of
components of an entity meets the criteria in ASC 205-20-45-1E
to be classified as held for sale; (2) the component of an
entity or group of components of an entity is disposed of by sale;
or (3) the component of an entity or group of components of an
entity is disposed of other than by sale. The update is effective
prospectively for the Company’s fiscal year beginning
January 1, 2016. The amended guidance had no impact on the
Company’s consolidated financial statements.
Revenue from Contracts with Customers:
In May 2016, ASC 606 was issued related to revenue from
contracts with customers. Under this guidance, revenue is
recognized when promised goods or services are transferred to
customers in an amount that reflects the consideration that is
expected to be received for those goods or services. The updated
standard will replace most existing revenue recognition guidance
under GAAP when it becomes effective and permits the use of either
the retrospective or cumulative effect transition method. Early
adoption is not permitted. The standard will be effective for the
Company’s fiscal year beginning January 1, 2017,
including interim reporting periods within that year. The updated
guidance had no impact on the Company’s consolidated
financial statements.
We have
not recently adopted any new accounting standards. There are no
recently issued accounting standards that have a material impact on
us.
Item
3. Properties.
The
Company leases an office in Boca Raton, Florida and four offices
throughout Brazil.
Item
4. Security
Ownership of Certain Beneficial Owners and Management.
The
following table sets forth, as of November 30, 2018, certain
information concerning the beneficial ownership of our capital
stock, including our common stock, Series A preferred stock, and
Series B preferred stock by:
●
each stockholder
known by us to own beneficially 5% or more of any class of our
outstanding stock;
●
each
director;
●
each named
executive officer;
●
all of our
executive officers and directors as a group; and
●
each person, or
group of affiliated persons, who is known by us to beneficially own
more than 5% of any class of our outstanding stock.
The
column entitled “Percentage of Common Stock” is based
on 93,471,977 shares of common stock outstanding; the column
entitled “Percentage of Series A Preferred” is based on
1,000 shares of Series A preferred stock issued and
outstanding; and the column entitled “Percentage of Series B
Preferred” is based on 10,000 shares of Series B preferred
stock issued and outstanding. The column entitled “Percentage
of Total Voting Percentage” is based on the combined voting
rights of our common stock, Series A preferred stock, and Series B
preferred stock.
Beneficial
ownership is determined in accordance with the rules and
regulations of the SEC and includes voting or investment power with
respect to our capital stock. Except as otherwise noted, we believe
the persons in this table have sole voting and investing power with
respect to all of the shares of our capital stock beneficially
owned by them, subject to community property laws, where
applicable.
55
|
Name and Address of Beneficial
Owner
|
Common
Stock
|
Percentage of
Common Stock
|
Series A
Preferred
|
Percentage of
Series A Preferred
|
Series B
Preferred
|
Percentage of
Series B Preferred
|
Series A
Preferred Voting Power
|
Series B
Preferred Voting Power
|
Total Voting
Power
|
Percentage of
Total Voting Power
|
|
Directors and named executive
officers
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Marcelo Sant’Anna
(1)
|
2,000,000
|
2.14%
|
-
|
-
|
-
|
-
|
-
|
-
|
2,000,000
|
*
|
|
José
Ferreira
|
800,000
|
*
|
-
|
-
|
-
|
-
|
-
|
-
|
800,000
|
*
|
|
Lucas
Sodré
|
1,000,000
|
1.07%
|
-
|
-
|
-
|
-
|
-
|
-
|
1,000,000
|
*
|
|
Alejandro
Villicana
|
300,000
|
*
|
-
|
-
|
-
|
-
|
-
|
-
|
300,000
|
*
|
|
All directors and executive
officers as a group (6 persons)
|
4,741,667
|
5.07%
|
-
|
-
|
-
|
-
|
-
|
-
|
4,741,667
|
2.33%
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
Eugenio Santos (2)
|
18,850,000
|
20.17%
|
1,000
|
100.00%
|
10,000
|
100.00%
|
100,000,000
|
10,385,775
|
129,235,775
|
63.40%
|
|
Guy Clum
|
18,333,335
|
19.61%
|
-
|
-
|
-
|
-
|
-
|
-
|
18,333,335
|
8.99%
|
* Less
than 1% of outstanding shares.
56
Unless
otherwise indicated, the address of each individual is c/o Vivi
Holdings, Inc. 951 Yamato Road, Suite 101, Boca Raton,
Florida.
(1)
These shares are held by Advus Corporation, an entity controlled by
Dr. Marcelo Sant’Anna.
(2)
These shares are held by MasterCom Group, LLC, an entity controlled
by Mr. Eugenio Santos.
Item
5. Directors
and Executive Officers.
Directors
Our
bylaws provide that the number of directors constituting our board
of directors shall be 7. The term of office of each director will
be one year and each director will continue in office until his or
her earlier death, resignation or removal or until a successor has
been elected and qualified.
The
following table sets forth certain information about our directors.
A summary of the background and experience of each director is set
forth in the paragraphs following the table.
|
Name
|
|
Age
|
|
Position
|
|
Dr.
Marcelo Sant’Anna
|
|
48
|
|
Chairman
|
|
José
Ferreira
|
|
46
|
|
Director;
Chief Executive Officer
|
|
Lucas
Sodré
|
|
27
|
|
Director;
Chief Technology Officer
|
Dr. Marcelo Sant’Anna. Dr.
Sant’Anna has served as our Chairman and as a director since
October 2018. From October 2014 to May 2016, he was the
managing director of Dominick & Dickerman, an investment
banking company. He also founded Advus Corporation, a business and
technology consulting firm that engages in ongoing business with
the Company, in 2002 and remains its principal. Dr. Sant’Anna
has also served since 2016 as a registered representative (FINRA
24) with Planner Securities, an investment banking firm, and as
managing partner of Castlight Capital, an investment company. He
also founded and is the principal of PowerDrones, a drone
technology company established in 2013.
Throughout his
career, Dr. Sant’Anna has served at several global banks and
industrial conglomerates, where he has successfully used financial
and technological innovation to streamline and reimagine key
business processes. As an entrepreneur, investment partner, and
inventor, Dr. Sant’Anna has also worked in diverse fields
such as algorithmic trading, machine learning and computer vision.
Dr. Sant’Anna holds a PhD (Summa Cum Laude) in software
engineering from the Catholic University of Rio and has completed
executive studies in economics at the MIT Sloan School of
Management. Dr. Sant’Anna is also an Association for
Computing Machinery research awardee.
The
board of directors selected Dr. Sant’Anna to serve as a
director because of his extensive senior executive and management
experience and his experiences using analytics and continuous
improvement programs to transform organizations.
57
José Ferreira. Mr. Ferreira has
served as our Chief Executive Officer and as a director since
October 2018, and he served as our Chief Operating Officer
from May to September 2018. From February 2002 to
December 2017, he served as chief executive officer of JFJ
Consultoria e Negocios Ltda., a consulting and business development
company. From January 2004 to December 2017, he was also
a partner at RGnet Administração de Negócios Ltda.,
a business facilities and business development company. From
June 2012 to December 2013, Mr. Ferreira served as the
president and country manager of Asiatelco Technologies Co., a
manufacturer and developer of telephone and technology
equipment.
Mr.
Ferreira has been an executive in multinational companies across
the telecommunications, industrial and services sectors. Acting in
conjunction with governmental institutions, he played a role in the
creation of the virtualization system process that is used in the
Brazilian judiciary system. As an executive in a private investment
fund, he was responsible for the operation of companies acquired
abroad, managing all phases of their development until new
executives were selected to take over their operations. He studied
economics at Mackenzie Institute, specializing in human behavior
and is a coach at ICI - Professional Association Coaching
Institute. In 2011, Sociedade
Brasileira de Integração e Educação
named him the title of Commander for his services to
society.
The
board of directors selected Mr. Ferreira to serve as a director
because of his extensive senior executive and management experience
and his expertise in structuring new businesses and developing
procedures and controls.
Lucas Sodré. Mr. Sodré has
served as our Chief Technology Officer since August 2017 and
as a director since January 2018. In addition, Mr. Sodré
has served as a director and president of our subsidiaries, ViViPay
Brazil and ViViTECH Brazil, since January 2018. From
January 2015 to July 2017, he served as an architect
engineer at Advus Corporation, a business and technology consulting
firm that engages in ongoing business with the Company. From
June 2013 to January 2015, Mr. Sodré served as a
tech lead at IBM Canada’s subsidiary, Big Data University. As
an application programming interface specialist, Mr. Sodré has
built omnichannels and POS software for banks. He also has
extensive experience as a blockchain engineer of ethereum smart
contracts and private blockchains with multichain. He has built
integration systems between POS and blockchain that use innovative
point reward systems. He has helped develop our POIDS system, which
has a U.S. patent pending.
Mr.
Sodré graduated from the University of São Paulo and the
University of Toronto with a bachelor’s degree in computer
science. The board of directors selected Mr. Sodré to serve as
a director because of his extensive knowledge and experience in the
technology field, having built integrated systems across various
platforms.
Executive Officers
The
following table sets forth certain information about our executive
officers. A summary of the background and experience of Messrs.
Bello, Junior and Villacana are set forth in the paragraphs
following the table. The background and experience of Dr.
Sant’Anna and Messrs. Ferreira and Sodré are described
above in the section titled “Directors.”
58
|
Name
|
|
Age
|
|
Position
|
|
José
Ferreira
|
|
46
|
|
Chief
Executive Officer; Director
|
|
Lester
Bello
|
|
46
|
|
Chief
Operating Officer
|
|
Lupercio
Junior
|
|
50
|
|
Chief
Information Officer
|
|
Lucas
Sodré
|
|
27
|
|
Chief
Technology Officer; Director
|
|
Alejandro
Villicana
|
|
41
|
|
Chief
Controller Officer
|
Lester Bello. Mr. Bello has served as
our Chief Operating Officer since October 2018. Previously, he
was the founder and chief executive officer of Bello Group
International Consulting Agency, a private media communications
company, from January 2004 through September 2018, where
he was responsible for recruiting, training, and staffing and for
developing workflow and processes for international
companies.
Lupercio Junior. Mr. Junior has served
as our Chief Information Officer since April 2018. Previously,
he served as chief executive officer at TechGroup 1 LLC, an
information technology company, from January 2016 through
April 2018, where he was responsible for leading the
development of the company’s short- and long-term strategies.
He has strong experience in strategic planning, with a special
focus on start-up companies. At Rede Mundial de Computadores
Internet Ltda, an information technology company, he helped partner
with Yahoo! Inc. to develop internet search websites that could
generate revenue by monetizing site access and content portals. Mr.
Junior also has extensive experience in the security and banking
fields. From October 2014 to January 2016, Mr. Junior
served as chief executive officer of GoWork Inc., a company that
developed security systems for technology companies, where he was
responsible for setting the company’s strategic goals. He
previously worked in the Outsourcing of Corporate Networks division
of Intelig/TIM, a telecommunications company, from 2004 to 2012,
where he gained experience with IT and datacenter services. He also
has years of experience in the development of systems and cellphone
applications for Android and IOS platforms. Mr. Junior received his
bachelor’s degree in computer science and received his MBA in
bank management and business.
Alejandro Villicana. Mr. Villacana has
served as our Chief Controller Officer since August 2017.
Previously, he served as a senior finance executive at Grupo
Telvista, S.A. de C.V. (America Movil Subsidiary) from
September 2001 through August 2017, where he served as
the finance and revenue manager and was responsible for financial
control, planning and analysis. Grupo Telvista S.A. de C.V.
(America Movil Subsidiary) provides contact center outsourcing and
offers customer services, telemarketing, technical support, sales
and order management, and social media services and consulting.
From January 2014 to the present, Mr. Villicana also has
served as business administrator and co-founder of Asertik Conekt,
a data analysis company. In addition, Mr. Villicana has served in
senior executive positions with one of Mexico’s largest
telecommunications companies, Telefonica Movistar, where he served
as a financial executive from 1998 to 2001. With nearly 20 years of
organizational leadership management experience, Mr. Villicana has
also been a part of senior management teams in both the
administration and finance areas. He has served a global network of
clients that benefit from his skills in strategic planning,
financial analysis, and staff development. Mr. Villicana has a
bachelor’s degree in business administration and is
completing a master’s degree in corporate
finance.
59
Item
6. Executive
Compensation.
Summary Compensation Table
The
following named executive officers received the following
compensation for the year ended December 31,
2017.
|
Name
and principal position
|
Year
|
Salary
|
Stock
Awards(1)(2)
|
All
other
compensation
|
Total
|
|
José
Ferreria
|
|
|
|
|
|
|
Chief
Executive Officer
|
2017
|
-
|
-
|
-
|
-
|
|
Eugenio
Santos
|
|
|
|
|
|
|
Former
Chief Executive Officer
|
2017
|
$275,000
|
-
|
-
|
$275,000
|
|
Alejandro
Villicana
|
|
|
|
|
|
|
Chief
Financial Officer
|
2017
|
$28,200
|
$2,250,000
|
-
|
$2,278,200
|
|
Lucas
Sodré
|
|
|
|
|
|
|
Chief
Technology Officer
|
2017
|
$25,020
|
$7,500,000
|
-
|
$7,525,020
|
(1)
The amounts in
these columns do not reflect compensation actually received by the
named executive officer nor do they reflect the actual value that
will be recognized by the named executive officer. Instead the
amounts reflect the aggregate grant date fair value of awards
computed in accordance with FASB ASC Topic 718. For additional
information on the valuation assumptions regarding the restricted
stock awards, refer to Note 1 to our financial statements for the
year ended December 31, 2017.
(2)
The stock awards
reflect grants of unrestricted shares of the Company’s common
stock.
Employment Agreements
We have
entered into employment agreements with Messrs. Ferreria,
Villicana, and Sodré in order to further our ability to retain
their services as executive officers of the Company.
Material Terms of Employment Agreements with Messrs. Ferreria,
Villicana, and Sodré
Effective
October 1, 2018, we entered into our employment agreements
with Messrs. Ferreria, Villicana, and Sodré. These employment
agreements provide for each of Messrs. Ferreria, Villicana, and
Sodré to continue to serve in their present positions for one
year.
The
employment agreements with each of Messrs. Ferreria, Villicana, and
Sodré provide that the executive is entitled to receive a
minimum base salary, and that each executive officer will be
eligible to participate in a bonus program and/or equity incentive
plan should the board of directors implement such program or plan.
In addition, each of the employment agreements provides for a
noncompetition covenant.
Pension Benefits
We do
not maintain any defined benefit pension plans.
60
Nonqualified Deferred Compensation
We do
not maintain any nonqualified deferred compensation
plans.
2017 Director Compensation
We
currently do not have a formal non-employee director compensation
policy. However, we do reimburse our non-employee directors for
their reasonable expenses incurred in connection with attending our
board of directors and committee meetings, and we may in the future
grant stock options and pay cash compensation to some or all of our
non-employee directors. Other than reimbursement of out-of-pocket
expenses as described above, we did not provide any cash or equity
compensation to our non-employee directors during the year ended
December 31, 2017.
Item
7. Certain
Relationships and Related Transactions, and Director
Independence.
Policies and Procedures for Related Person
Transactions
On
September 30, 2018, our board of directors adopted a written
related person transaction policy to set forth the policies and
procedures for the review and approval or ratification of related
person transactions. Current SEC rules define transactions with
related persons to include any transaction, arrangement or
relationship (i) in which the company is a participant,
(ii) in which the amount involved exceeds the lesser of
$120,000 or one percent of the average of a smaller reporting
company’s total assets at year-end for the last two completed
fiscal years, and (iii) in which any executive officer,
director, director nominee, beneficial owner of more than 5% of our
common stock, or any immediate family member of such persons has or
will have a direct or indirect material interest. Related person
transactions include, without limitation, purchases of goods or
services by or from the related person or entities in which the
related person has a material interest, indebtedness, guarantees of
indebtedness, and employment by us of a related person, in each
case subject to certain exceptions set forth under the Securities
Act.
Under
the policy, all related party transactions must be approved by our
board of directors, general counsel, and/or chief executive
officer, as applicable. Pursuant to the policy, the reviewing
persons or body will consider all of the available material facts
and circumstances of the transaction, including the nature of the
Company and the related person’s relationship and their
interests in the transaction, the approximate dollar value of the
transaction, the approximate dollar value of the related
person’s interest in the transaction, the purpose and timing
of the transaction, and any other information regarding the
transaction or the related person that could be material to
investors in light of the circumstances. After considering all such
facts and circumstances, our board of directors, general counsel,
and/or chief executive officer, as applicable, will determine
whether approval or ratification of the related person transaction
is in our best interests.
61
Each
transaction described in “Certain Relationships and Related
Transactions” was entered into prior to the adoption of the
foregoing policy.
Certain Relationships and Related Transactions
Since
our incorporation on June 24, 2016, we have engaged in the
following transactions with our directors, executive officers,
holders of more than 5% of our voting securities, and affiliates or
immediate family members of our directors, executive officers and
holders of more than 5% of our voting securities, and our
co-founders. We believe that all of these transactions were on
terms as favorable as could have been obtained from unrelated third
parties.
Common Stock to Founder
On June
27, 2016, we issued 31,700,000 shares of common stock valued at
$63,400 for services to MasterCom Group Holding USA, Inc.
(“MasterCom”), a company controlled by Mr. Eugenio
Santos, our principal shareholder, founder and former CEO. On
October 29, 2016, Mr. Guy Clum, a large shareholder, assigned a
$50,000,000 receivable owed to him by Mr. Marcos Oliveira, a former
director, and certain of his controlled entities to the Company in
exchange for 6,666,667 shares of our common stock. Subsequently, on
April 12, 2017, the Company deemed the receivable uncollectible and
MasterCom, on behalf of Mr. Oliveira, transferred to the Company
15,000,000 common shares in satisfaction of the receivable, which
shares were then retired.
In
September 19, 2018, the Company repurchased 200,000 shares of
common stock from MasterCom. The shares were valued at
$600,000.
Series A Preferred Stock to Founder
The
Company has designated 1,000 shares of its preferred stock as
Series A, having a par value of $0.001 per share. On June
25, 2016, the Company issued 1,000 shares of Series A
preferred stock to MasterCom, LLC, which is solely owned by Mr.
Eugenio Santos, the principal stockholder, founder and former CEO
of the Company, for his services in forming the Company. Holders of
the Series A preferred stock have the right to elect a majority of
the board of directors and have voting rights equal to 100,000 to
one. The shares were issued upon formation of the Company and
valued at $10,000, cumulative. At November 30, 2018, there were
1,000 shares of Series A preferred stock outstanding.
Series B Preferred Stock to Founder
The
Company has designated 10,000 shares of its preferred stock as
Series B, having a par value of $0.001 per share. Holders of the
Series B preferred stock have the right to convert into what would
equal ten percent of the outstanding common stock of the company.
On April 10, 2018, the Company authorized the issuance 10,000
shares of Series B preferred stock to Eugenio Santos, the principal
shareholder, founder and former CEO of the Company, and the shares
were formally issued on October 8, 2018, the date the
designation was filed with the State of Delaware. The shares were
valued at $77,893,314. At November 30, 2018, there were 10,000
shares of Series B preferred stock outstanding.
62
Other Related Party Transactions
On
March 31, 2017, we entered into an Asset Purchase Agreement with
Advus Corporation (“Advus”), in which Advus sold
certain assets and provided certain services to the Company in
return for 2,000,000 shares of common stock of the Company, which
was valued at $15,000,000. Dr. Marcelo Sant’Anna, our
Chairman, has served as the founder and principal of Advus since
2002. The Company performs software consulting for Advus on behalf
of a number of Advus’ clients. In the nine months ended
September 30, 2018, Advus paid the Company $2,271,935 for its
services.
On
April 12, 2017, we entered into a Stock Repurchase Agreement with
Marcos Oliveira, our former director, pursuant to which we
purchased 247,168 of our common shares from Mr. Oliveira for
$400,000, to be paid to Mr. Oliveira and Nilton Ribeiro, another
former director.
On
April 2, 2018, we entered into an Asset Purchase Agreement with
Techgroup 1 LLC to purchase their “Pay 1” system
technology for 270,000 shares of common stock, pursuant to which
Mr. Lupercio Junior, our Chief Intelligence Officer, received
135,000 shares, which were valued at $1,012,500.
On
April 2, 2018, we entered into an Asset Purchase Agreement with
Infodev Comercio Electronico E Sistemas to purchase certain
products and technology for 13,334 shares of common stock. Pursuant
to that agreement, Mr. Lupercio Junior, our Chief Intelligence
Officer, received 6,667 shares, which were valued at
$50,002.
On
April 2, 2018, we issued 500,000 shares of common stock, which were
valued at $3,750,000, to Mr. Lupercio Junior as an incentive to
attract him to enter into an employment agreement with the
Company.
On July
26, 2018, the Company issued 2,150,000 shares of common stock,
which was valued at $16,125,000, to MasterCom Group Holding USA,
Inc., a company controlled by Mr. Eugenio Santos, our principal
shareholder, founder and former CEO.
On
September 30, 2018, the Company issued 800,000 shares valued at
$6,000,000, to Mr. José Ferreira, our CEO, as an incentive to
attract him to enter into an employment agreement with the
Company.
Controlled Company Status
Our
founder holds a majority of the voting power for the election of
directors. As a result, we would be a “controlled
company” under the Nasdaq corporate governance standards if
our shares were listed on Nasdaq. As a controlled company,
exemptions under the Nasdaq listing standards would exempt us from
certain corporate governance requirements, including the
requirements that:
●
a majority of our
board of directors consists of “independent directors,”
as defined under Nasdaq rules;
63
●
the compensation of
our executive officers be determined, or recommended to the board
of directors for determination, by majority vote of the independent
directors or by a compensation committee comprised solely of
independent directors; and
●
director nominees
be selected, or recommended to the board of directors for
selection, by majority vote of the independent directors or by a
nomination committee comprised solely of independent
directors.
These
exemptions do not modify the Nasdaq requirements for an audit
committee. Thus, we would be required to form an audit committee
comprised entirely of independent directors if we listed our shares
on Nasdaq.
Director Independence
We are
not listed on a national securities exchange. However, we have
elected to use the definition of independence under the Nasdaq
listing standards in determining the independence of our directors.
At this time, none of our directors are independent under the
Nasdaq listing standards, however we expect to elect independent
directors in the event that we list our shares on Nasdaq in the
future.
Board Committees
As we
are not currently listed on an exchange, we are not required to
have any standing committees. However, if we were to list our
shares on the Nasdaq exchange, we would be required to form an
audit committee. Under Nasdaq rules, the membership of the audit
committee would be required to consist entirely of independent
directors. The audit committee would operate under a written
charter adopted by our board of directors.
Our
founder holds a majority of the voting power for the election of
directors. As a result, we would be a controlled company under the
Nasdaq corporate governance standards if our shares were listed on
Nasdaq. As a controlled company, we would not be required to have
compensation or nominating and corporate governance
committees.
Item
8. Legal
Proceedings.
We are
not party to any material legal proceedings.
Item
9. Market
Price of and Dividends on the Registrant’s Common Equity and
Related Stockholder Matters.
Market Information
There
is no established public trading market in our common stock. Our
securities are not listed for trading on any national securities
exchange nor are bid or asked quotations reported in any
over-the-counter quotation service.
64
Securities Authorized for Issuance under Equity Compensation
Plans
As of
December 31, 2017, the Company issued 85,176,667 unrestricted
shares of common stock to employees and consultants pursuant to
written individual compensation agreements, which agreements were
not approved by our security holders.
Holders
As of
November 30, 2018, there were 93,471,977 shares of common stock
outstanding, which were held by approximately 200 record holders.
In addition, there were 1,000 shares of our Series A preferred
stock outstanding, which were held by one record holder and there
were 10,000 shares of our Series B preferred stock
outstanding, which were held by one record holder. As of
November 30, 2018 each share of Series A preferred stock was
convertible into common stock on a one for one basis and each share
of Series B preferred stock was convertible into common stock
into what would equal ten percent of the outstanding common stock
of the Company. For more information, please see “Item 11.
Description of Registrant’s Securities to be Registered
— Series A and Series B Preferred Stock.”
As of
the date of this Registration Statement, we have no present
commitments to issue shares of our capital stock to any 5% holder,
director or nominee.
Dividends
We have
never paid cash dividends on any of our capital stock and we
currently intend to retain our future earnings, if any, to fund the
development and growth of our business. We do not intend to pay
cash dividends to holders of our common stock in the foreseeable
future.
Stock Not Registered under the Securities Act; Rule 144
Eligibility
Our
common stock and preferred stock have not been registered under the
Securities Act. Accordingly, the shares of common stock and
preferred stock issued and outstanding may not be resold absent
registration under the Securities Act and applicable state
securities laws or an available exemption thereunder.
Rule 144
Shares
of our common stock that are restricted securities will be eligible
for resale in compliance with Rule 144 or Rule 701 of the
Securities Act, subject to the requirements described below.
“Restricted securities,” as defined under
Rule 144, were issued and sold by us in reliance on exemptions
from the registration requirements of the Securities Act. These
shares may be sold in the public market only if registered or if
they qualify for an exemption from registration, such as
Rule 144 or Rule 701. Below is a summary of the
requirements for sales of our common stock pursuant to
Rule 144, after the effectiveness of this Registration
Statement.
65
For a
person who has not been deemed to have been one of our affiliates
at any time during the 90 days preceding a sale, sales of our
shares of common stock held longer than six months, but less than
one year, will be subject only to the current public information
requirement and can be sold under Rule 144 beginning
90 days after the effectiveness of this Registration Statement
without restriction. A person who is not deemed to have been one of
our affiliates at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold
for at least one year, is entitled to sell his or her shares
without complying with the manner of sale, public information,
volume limitation or notice provisions of
Rule 144.
Beginning
90 days after the effectiveness of this Registration
Statement, a person who is our affiliate or who was our affiliate
at any time during the preceding three months and who has
beneficially owned restricted securities for at least six months,
will generally be entitled to sell within any three-month period a
number of shares that does not exceed one percent of the number of
shares of our common stock then outstanding. Sales under
Rule 144 by our affiliates are also subject to manner of sale
provisions and notice requirements and to the availability of
current public information about us. Persons who may be deemed to
be our affiliates generally include individuals or entities that
control, or are controlled by, or are under common control with, us
and may include our directors and officers, as well as our
significant stockholders.
We
expect approximately 89,471,977 shares of our common stock will be
eligible for sale under Rule 144 90 days following the
effective date of this Registration Statement. In
November 2019, 4,000,000 additional shares will become
eligible for sale under Rule 144, subject to applicable volume
limitations. We cannot estimate the number of shares of our common
stock that our existing stockholders will elect to sell under
Rule 144.
Rule 701
Rule 701 under
the Securities Act permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions of
Rule 144, including the holding period requirement and the
volume and public information requirements. Any of our employees,
consultants or advisors, other than our affiliates, who purchased
shares from us under a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, but all
holders of Rule 701 shares are required to wait until
90 days after the effective date of this Registration
Statement before selling their shares under Rule 701. None of
our currently outstanding shares, other than the 89,471,977 shares
that will otherwise become eligible for resale under Rule 144,
will become eligible for sale pursuant to Rule 701
90 days following the effective date of this Registration
Statement.
Item
10. Recent
Sales of Unregistered Securities.
Set
forth below is information regarding shares of common stock and
preferred stock issued, and options granted, by us since
June 24, 2016, our inception, that were not registered under
the Securities Act. Also included is the consideration, if any,
received by us, for such shares and information relating to the
Securities Act, or rule of the SEC, under which exemption from
registration was claimed.
66
2016 Activity
On June
25, 2016, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 1,000 shares of Series A preferred stock for
consulting services to Eugenio Santos, the principal stockholder,
founder, and CEO of the Company at that time, and subsequently
transferred to Master Com Group Holding USA, Inc., and then to
MasterCom Group, LLC, both companies owned and controlled by
Eugenio Santos.
On June
27, 2016, the Company, relying upon Regulation S, issued 14,410,000
common shares to eleven foreign employees and one foreign
consultant of the Company in connection with services provided
related to the Company’s formation.
On June
27, 2016, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 49,660,000 common shares to five U.S.
persons and one U.S. entity for employment related services related
to the Company’s formation.
On June
27, 2016, the Company, relying upon Rule 701 of the Securities Act,
issued 3,100,000 common shares to four U.S. persons for employment
related services related to the Company’s
formation
On June
27, 2016, the Company, relying on Regulation S, issued 1,075,000
common shares to nine foreign persons for services provided to the
Company, and the Company, relying on Section 4(a)(2) of the
Securities Act, issued 3,000,000 common shares to three vendors who
were U.S. persons, all in connection with the formation and
commencement of operations of the Company.
On
September 14, 2016, the Company, relying upon Regulation S, issued
346,036 common shares to three foreign persons for total cash
consideration of $370,300 at a purchase price of $1.07 per
share.
On
October 31, 2016, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 2,266,667 common shares to one U.S. person
and issued 4,400,000 common shares to one U.S. entity in exchange
for accounts receivables with a face amount of
$50,000,000.
On
October 31, 2016, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 2,666,667 common shares to one U.S. person
for total cash consideration of $5,000,000 and $15,000,000 in
common stock receivables.
On
October 31, 2016, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 6,666,667 common shares to one U.S. person
for services provided to the Company.
Options and Warrants
The
Company has no options or warrants outstanding.
67
2017 Activity
On
January 3, 2017, the Company, relying upon Rule 701 of the
Securities Act, issued 500,000 common shares for employment related
services to one U.S. person for services provided to the
Company.
On
January 20, 2017, the Company issued 400,000 common shares to two
foreign persons in reliance upon Regulation S, and 200,000
common
shares to one U.S.
entity in reliance on Section 4(2) of the Securities
Act.
On
January 26, 2017, the Company, relying on Regulation S, issued
500,000 common
shares to two foreign persons, and in reliance on Section
4(2) of the Securities Act, issued 500,000 common
shares to one U.S. person.
On
February 16, 2017, the Company, relying upon Regulation S, issued
300,000 common shares for employment related services to two
foreign persons and, relying on Section 4(a)(2) of the Securities
Act, issued 200,000 common
shares to one U.S. person for services provided to the
Company.
On
March 31, 2017, the Company, relying upon Regulation S, issued
2,000,000 common shares for services to one foreign consulting
entity for services provided to the Company.
On
April 7, 2017, the Company, relying upon Regulation S, issued
1,340,000 common shares for services to four foreign persons for
employment services provided to the Company.
On
October 12, 2017, the Company, relying upon Regulation S, issued
700,000 common shares for employment related services to three
foreign employees for services provided to the
Company.
On
December 2, 2017, the Company, relying upon Regulation S, issued
500,000 common shares for consulting related services to one
foreign person for services provided to the Company.
On December 29, 2017, the Company, relying on
Regulation S, issued 500,000 common
shares to one foreign person for services provided to the
Company.
Options and Warrants
The
Company has no options or warrants outstanding.
2018 Activity
On
March 31, 2018, the Company, relying upon Regulation S, issued
1,582,200 common shares for employment related services to
forty-six foreign employees for services provided to the
Company.
68
On
April 2, 2018, the Company, relying upon Regulation S, issued
500,000 common shares for employment related services to one
foreign employee for services provided to the Company.
On
April 2, 2018, the Company, relying upon Regulation S, issued
403,334 common shares to four foreign persons as consideration for
the receipt of technology assets to integrate into the
Company’s digital platform to two foreign
persons.
On
April 30, 2018, the Company, relying upon Regulation S, issued
200,000 common shares to one foreign person as consideration for
the receipt of technology assets to integrate into the
Company’s digital platform.
On
April 30, 2018, the Company, relying upon Rule 701 of the
Securities Act, issued 100,000 common shares for employment related
services to one U.S. person for services to the
Company.
On
April 30, 2018, the Company, relying upon Regulation S, issued
240,000 common shares for employment related services to fifteen
foreign employees for services provided to the
Company.
On
April 30, 2018, relying upon Regulation S, the Company issued
30,000 common shares for services to three foreign persons provided
to the Company.
On May
10, 2018, the Company, relying upon Regulation S, issued 500,000
common shares for employment related services to one foreign
employee for services provided to the Company.
On May
15, 2018, the Company, relying upon Regulation S, issued 1,080,000
common shares for employment related services to five foreign
employees for services provided to the Company.
On June
1, 2018, the Company, relying upon Regulation S, issued 1,100,000
common shares to one foreign person as consideration for receipt of
technology assets to integrate into the Company’s digital
platform.
On June
1, 2018, the Company, relying upon Regulation S, issued 755,800
common shares for employment related services to three foreign
employees for services provided to the Company.
On June
1, 2018, relying upon Regulation S, the Company issued 500,000
common shares for services to two foreign persons for services
provided to the Company.
On June
1, 2018, relying upon Regulation S, the Company issued 15,000
common shares for services to two foreign persons for services
provided to the Company.
69
On June
1, 2018, relying upon Regulation S, the Company issued 500,000
common
shares for services to two foreign persons for services
provided to the Company.
On June
21, 2018, the Company, relying upon Regulation S, issued 1,000,000
common shares for employment related services to one foreign person
for services provided to the Company.
On June
21, 2018, the Company, relying upon Section 4(2), issued 100,000
common shares for services to one U.S. entity for services provided
to the Company.
On July
12, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 400,000 common shares for consulting related
services to two U.S. entities for consulting services provided to
the Company.
On July
16, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 666,667 common shares to one U.S. person for
total cash consideration of $5,000,000.
On July
26, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 750,000 common shares for consulting related
services to one U.S. entity for services provided to the Company,
and, relying on Regulation S issued 300,000 common shares to one
foreign person for services provided to the Company, and relying on
Regulation 701, issued 50,000 common
shares to one U.S. person for services provided to the
Company.
On July
26, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 500,000 common shares for consulting related
services to one U.S. person for services provided to the
Company.
On
August 23, 2018, the Company, relying upon Rule 701 of the
Securities Act, issued 500,000 common shares for consulting related
services to one U.S. person for services provided to the
Company.
On
August 30, 2018, the Company, relying upon Regulation S, issued
500,000 common shares for services to eleven foreign persons for
services provided to the Company.
On
September 13, 2018, the Company, relying upon Rule 701 of the
Securities Act, issued 500,000 common shares for consulting related
services to one U.S. person for services provided to the
Company.
On
September 13, 2018, the Company, relying upon Section 4(a)(2) of
the Securities Act, issued 666,667 common shares to one U.S.
investor for total cash consideration of $5,000,000.
On
September 14, 2018, the Company, relying upon Regulation S, issued
100,000 common shares for employment related services to one
foreign employee and relying on Rule 701 of the Securities Act,
issued 520,000 common shares to two U.S. persons for services
provided to the Company.
70
On
September 14, 2018, the Company, relying upon Regulation S, issued
300,000 common shares for employment related services to one
foreign employee.
On
September 30, 2018, the Company, relying upon Section 4(a)(2) of
the Securities Act, issued 180,000 common shares for consulting
related services to three U.S. persons for services provided to the
Company.
On
September 30, 2018, the Company, relying upon Regulation S, issued
1,692,308 common shares for employment and consulting related
services to three foreign employees, and, relying on Rule 701 of
the Securities Act, issued 100,000 common shares to one U.S. person
for employment services provided to the Company and relying on
Section 4(a)(2) of the Securities Act, issued 1,000,000 common
shares for consulting related services to one U.S. entity for
services provided to the Company.
Item
11. Description
of Registrant’s Securities to be Registered.
We are
registering on this Registration Statement only our common stock,
the terms of which are described below. However, because our
preferred stock will remain outstanding following the effectiveness
of this Registration Statement, we also describe below the terms of
our preferred stock to the extent such terms qualify the rights of
our common stock.
As of
November 31, 2018, we had 480,000,000 authorized shares of common
stock, par value $0.001 per share. As of November 30, 2018, we had
20,011,000 authorized shares of preferred stock, par value $0.001
per share, of which 1,000 were designated Series A preferred
stock and 10,000 were designated Series B preferred
stock.
Preferred Stock
The
Company’s Certificate of Incorporation authorize it to issue
up to 20,011,000 shares of preferred stock, par value $0.001 per
share. Our board is authorized to issue shares of preferred stock
in such series and to fix from time to time before issuance the
number of shares to be included in any such series and the
designation, powers, preferences and relative participating,
optional or other rights, if any, and the qualifications,
limitations or restrictions thereof.
Prior
to the issuance of a series of shares of preferred stock, our board
may, under the Certificate of Incorporation and Delaware law,
fix:
●
the number of
shares of any series and the designation to distinguish the shares
of such series from the shares of all other series;
●
the voting powers,
if any, and whether such voting powers are full or
limited;
●
whether dividends,
if any, will be cumulative or noncumulative, the dividend rate of
the series, and the dates and preferences of
dividends;
●
redemption rights
and prices, if any, for shares of such series;
●
the terms and
amounts of the sinking fund, if any, for the purchase or redemption
of such series;
71
●
whether the shares
of the series will be convertible into common shares or shares of
any other class;
●
if the shares are
convertible, the conversion rate(s) or price(s), any adjustments to
the rate or price and all other terms and conditions upon which
such conversion may be made;
●
restrictions on the
issuance of shares of the same or any other series;
and
●
such other terms
powers, preferences and relative, participating, optional and other
special rights, and any qualifications, limitations and
restrictions, thereof.
Series A and Series B Preferred Stock
Series A Preferred Stock
Voting
The
holders of Series A preferred stock shall have voting rights
equal to 100,000 common shares for each share of Series A preferred
stock, meaning, that the Series A preferred stockholder(s), will be
casting 100,000,000 votes at each stockholder meeting.
Dividends
The
holders of the Series A preferred stock shall not be entitled to
receive dividends.
Liquidation
Preference
In the
event of any liquidation, dissolution or winding up of the affairs
of the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the
Company, the holders of the Series A preferred stock shall
automatically convert their shares of Series A preferred stock into
common stock on a one-for-one basis without any additional
consideration by the holder to effectuate the conversion and shall
be entitled to receive any of the remaining net assets of the
Company at the same rate as all of the other shares of common stock
then outstanding.
Conversion
The
Series A preferred stock, in the aggregate, shall be convertible
into shares of the common stock in the event that the Company shall
be consolidated with or merged into any other corporation, the sale
of substantially all of the assets of the Company or upon any other
liquidation event. The total shares of Series A preferred stock
shall be convertible on a one-for-one basis into shares of common
stock without any additional consideration by the holder to
effectuate the conversion
Ranking
& Anti-Dilution
As long
as any shares of the Series A preferred stock remain outstanding,
the Company shall not, without obtaining the prior written consent
of the holders of at least two-thirds in number of the shares of
the Series A preferred stock then outstanding, create, authorize or
issue any other class or series of capital stock of the Company,
the terms of which provide that such class or series shall rank
prior to the Series A preferred stock in respect to rights upon
dissolution, liquidation or winding up of the Company; provided,
however, the Company may at any time create, authorize or issue,
without the consent of any of the holders of the Series A preferred
stock, other classes or series of capital stock which rank junior
to, or on parity with, the Series A preferred stock in respect to
dissolution, liquidation or winding up of the Company.
72
Series B Preferred Stock
Voting
The
holders of Series B preferred stock shall have voting rights
on an as converted basis equal to 10% of total issued and
outstanding capital stock, upon the conversion of the Series A and
Series B preferred stock.
Dividends
The
holders of the Series B preferred stock shall be entitled to
receive dividends paid on the Company’s common
stock.
Liquidation
Preference
The
holders of the Series B preferred stock shall not have any
liquidation preference.
Conversion
The
Series B preferred stock, in the aggregate, shall be convertible
into shares of the common stock in the event that the Company shall
be consolidated with or merged into any other corporation, the sale
of substantially all of the assets of the Company or upon any other
liquidation event. The total shares of Series B preferred stock
shall be convertible into common stock so that after the
conversion, the Series B preferred stockholders will own ten
percent (10%) of the total issued and outstanding shares of common
stock without any additional consideration by the holder to
effectuate the conversion.
Protective
Provisions
As long
as any shares of the Series B preferred stock remain outstanding,
the Company shall not, without obtaining the prior written consent
of the holders of at least two-thirds of the holders of the then
outstanding Series B preferred stockholders, voting together as a
class, (i) increase or decrease the total number of authorized
Series B preferred stock; (ii) effect an exchange,
reclassification or cancellation of all or a part of the Series B
preferred stock; (iii) effect an exchange, or create a right
of exchange, of all or part of the shares of another class of
shares into shares of Series B preferred stock; or alter or change
the rights, preferences or privileges of the shares of Series B
preferred stock so as to affect adversely the shares of such
series; provided, however, the Company may at any time create,
authorize or issue, without the consent of any of the holders of
the Series B preferred stock, other classes or series of capital
stock which rank junior to, or on parity with, the Series B
preferred stock in respect to dissolution, liquidation or winding
up of the Company.
73
Common Stock
General
The
Company has one class of common stock. All holders of our common
stock are entitled to the same rights and privileges, as described
below. As of the date of this Registration Statement, there is no
public market for our common stock.
Voting
Holders
of the Company’s common shares possess ordinary voting
rights, with each share entitling the holder to one vote, except as
the right to exercise such vote may be limited by the of any class
or series of preferred stock.
Dividends
Subject
to the prior rights of holders of preferred stock, holders of our
common stock will be entitled to receive dividends, if any, as may
be declared from time to time by our board.
Liquidation
Preference
Subject
to the prior rights of our creditors and the satisfaction of and
remaining after the payment to holders of preferred stock of the
amounts (if any) to which they are entitled, in the event of our
liquidation, dissolution or winding up, holders of our common stock
will be entitled to share ratably in the net assets legally
available for distribution to stockholders.
Other
Rights
Holders
of our common stock will have no preemptive, subscription,
redemption or conversion rights. All of the Company’s
outstanding shares of common stock are, and the shares of common
stock to be issued will be, fully paid and
non-assessable.
Anti-Takeover Provisions
Delaware
Law
We are
subject to Section 203 of the Delaware General Corporation
Law, as amended (the “DGCL”). Subject to certain
exceptions, Section 203 prevents a publicly held Delaware
corporation from engaging in a “business combination”
with any “interested stockholder” for three years
following the date that the person became an interested
stockholder, unless the interested stockholder attained such status
with the approval of our board of directors or unless the business
combination is approved in a prescribed manner. A “business
combination” includes, among other things, a merger or
consolidation involving us and the “interested
stockholder” and the sale of more than 10% of our assets. In
general, an “interested stockholder” is any entity or
person beneficially owning 15% or more of our outstanding voting
stock and any entity or person affiliated with or controlling or
controlled by such entity or person.
74
Authorized
but Unissued Shares
The
authorized but unissued shares of common stock and preferred stock
are available for future issuance without stockholder approval,
subject to any limitations imposed by the listing standards of any
exchange on which our shares may be listed. These additional shares
may be used for a variety of corporate finance transactions,
acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved common stock and preferred
stock could make more difficult or discourage an attempt to obtain
control of us by means of a proxy contest, tender offer, merger or
otherwise.
Item
12. Indemnification
of Directors and Officers.
Delaware Law
Section 102 of
the DGCL permits a corporation to eliminate the personal liability
of directors of a corporation to the corporation or its
stockholders for monetary damages for a breach of fiduciary duty as
a director, except where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or
approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit.
Section 145 of
the DGCL provides that a corporation has the power to indemnify a
director, officer, employee, or agent of the corporation, or a
person serving at the request of the corporation for another
corporation, partnership, joint venture, trust or other enterprise
in related capacities against expenses, including attorneys’
fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with an action,
suit or proceeding to which he was or is a party or is threatened
to be made a party to any threatened, ending or completed action,
suit or proceeding by reason of such position, if such person acted
in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, in any
criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful, except that, in the case of actions
brought by or in the right of the corporation, no indemnification
shall be made with respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of
Chancery or other adjudicating court determines that, despite the
adjudication of liability but in view of all of the circumstances
of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Amended and Restated Certificate of Incorporation
Our
certificate of incorporation provides that we are authorized to
provide indemnification and advancement of expenses to our
directors, officers and certain other covered persons to the
fullest extent permitted by the DGCL. Our certificate of
incorporation limits the personal liability of directors for breach
of fiduciary duty to the maximum extent permitted by the DGCL and
provides that no director will have personal liability to us or to
our stockholders for monetary damages for breach of fiduciary duty
or other duty as a director. However, these provisions do not
eliminate or limit the liability of any of our directors
for:
75
●
for any breach of
the director’s duty of loyalty to us or our
stockholders;
●
for acts or
omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
●
for voting for or
assenting to unlawful payments of dividends, stock repurchases or
other distributions; or
●
for any transaction
from which the director derived an improper personal
benefit.
In
addition, our certificate of incorporation also provide that we
will indemnify each person who was or is a party or threatened to
be made a party to any threatened, pending or completed action,
suit or proceeding, other than an action by or in the right of us,
by reason of the fact that such person is or was a director or
officer of the Company or is or was serving at the request of the
Company as a director, officer, employee, general partner, agent or
fiduciary of another corporation, partnership, joint venture, trust
or other enterprise (all such persons being referred to as an
“Indemnitee”), against all expenses, including
attorneys’ fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such
action, suit or proceeding, if such Indemnitee acted in good faith
and in a manner he or she reasonably believed to be in, or not
opposed to, our best interests, and, with respect to any criminal
action or proceeding, he or she had no reasonable cause to believe
his or her conduct was unlawful.
Limitation of Liability and Indemnification
The
Company’s Certificate of Incorporation and bylaws provide
that the corporation shall indemnify, defend and hold harmless its
directors and officers to the fullest extent not prohibited by
Delaware law or any other applicable law; provided, however, that the Company may
modify the extent of such indemnification by individual contracts
with its directors and officers; and, provided, further, that the Company
shall not be required to indemnify any director or officer in
connection with any proceeding (or part thereof) initiated by such
person unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such
indemnification is provided by the Company, in its sole discretion,
pursuant to the powers vested in the Company under Delaware law or
any other applicable law.
The
Company shall advance to any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such
person is or was a director or officer of the Company, or is or was
serving at the request of the Company as a director or officer of
another corporation, partnership, joint venture, trust or other
enterprise, prior to the final disposition of the proceeding,
promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding,
provided, however, that, if
the DGCL requires an advancement of expenses incurred by a director
or officer in his or her capacity as a director or officer (and not
in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee
benefit plan) shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
that such indemnitee is not entitled to be indemnified for such
expenses.
76
Notwithstanding the
foregoing, unless otherwise determined, no advance shall be made by
the Company to an officer of the Company (except by reason of the
fact that such officer is or was a director of the Company, in
which event this paragraph shall not apply) in any action, suit or
proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made
(i) by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, even if not a quorum, or
(ii) by a committee of such directors designated by a majority
of such directors, even though less than a quorum, or (iii) if
there are no such directors, or such directors so direct, by
independent legal counsel in a written opinion, that the facts
known to the decision-making party at the time such determination
is made demonstrate clearly and convincingly that such person acted
in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the
corporation.
No
indemnification or advancement or reimbursement of expenses shall
be provided to a director or officer (i) with respect to
expenses or the payment of profits arising from the purchase or
sale of securities of the Company in violation of
Section 16(b) of the Securities Exchange Act of 1934, as
amended; (ii) if a final unappealable judgment or award
establishes that such director or officer engaged in intentional
misconduct or a transaction from which the member, director or
officer derived an improper personal benefit; (iii) for
expenses or liabilities of any type whatsoever (including, but not
limited to, judgments, fines, and amounts paid in settlement) which
have been paid directly to, or for the benefit of, such person by
an insurance carrier under a policy of officers’ and
directors’ liability insurance paid for or maintained by the
Company or other person or entity; or (iv) for amounts paid in
settlement of any threatened, pending or completed action, suit or
proceeding without the written consent of the Company, which
written consent shall not be unreasonably withheld. The Board of
Directors is authorized, at any time by resolution and without
stockholder approval, to add to the above list of exceptions from
the right of indemnification or advancement or reimbursement of
expenses. Any such additional exception may, at any time after its
adoption, be amended, supplemented, waived or terminated by further
resolution of the Board of Directors.
Without
the necessity of entering into an express contract, all rights to
indemnification and advances to directors and officers are deemed
to be contractual rights and be effective to the same extent and as
if provided for in a contract between the Company and the director
or officer. Any right to indemnification or advances to a director
or officer shall be enforceable by or on behalf of the person
holding such right in any court of competent jurisdiction if
(i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made
within 90 days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be
entitled to be paid also the expense of prosecuting the claim. In
connection with any claim for indemnification, the Company shall be
entitled to raise as a defense to any such action that the claimant
has not met the standards of conduct that make it permissible under
Delaware law or any other applicable law for the Company to
indemnify the claimant for the amount claimed. In connection with
any claim by an officer of the Company (except in any action, suit
or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such officer is or was a
director of the Company) for advances, the Company shall be
entitled to raise as a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a
manner that such person did not believe to be in or not opposed to
the best interests of the corporation, or with respect to any
criminal action or proceeding that such person acted without
reasonable cause to believe that his or her conduct was lawful.
Neither the failure of the Company (including its Board of
Directors, independent legal counsel or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in
the DGCL or any other applicable law, nor an actual determination
by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the
action or create a presumption that claimant has not met the
applicable standard of conduct. In any suit brought by a director
or officer to enforce a right to indemnification or to an
advancement of expenses hereunder, the burden of proving that the
director or officer is not entitled to be indemnified, or to such
advancement of expenses, shall be on the Company.
77
Indemnification Agreements
We have
entered into indemnification agreements with each of our directors
and officers. These indemnification agreements may require us,
among other things, to indemnify our directors and officers for
some expenses, including attorneys’ fees, judgments, fines
and settlement amounts incurred by a director or officer in any
action or proceeding arising out of his or her service as one of
our directors or officers, or any of our subsidiaries or any other
company or enterprise to which the person provides services at our
request.
We
intend to apply for a general liability insurance policy that
covers certain liabilities of our directors and officers arising
out of claims based on their acts or omissions committed in their
capacities as directors or officers.
Item
13. Financial
Statements and Supplementary Data.
The
information required by this item may be found beginning on
page F-1 of this Registration Statement.
Item
14. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item
15. Financial
Statements and Exhibits.
(a)
Financial
Statements filed as part of this Registration
Statement:
78
Financial Statements:
For the Nine Months Ended September 30, 2018 and
2017
Consolidated Balance Sheet
September 30, 2018 and December 31, 2017
ASSETS
|
|
Sept 30,
2018
|
Dec 31,
2017
|
|
|
Unaudited
|
Audited
|
|
Current
Assets:
|
|
|
|
Cash and Cash
Equivalents
|
$9,708,276
|
$1,962,241
|
|
Accounts
Receivable
|
235,973
|
-
|
|
Prepaid
Expenses
|
63,665
|
5,330
|
|
Other Current
Assets
|
7,315
|
906
|
|
Total Current
Assets
|
10,015,233
|
1,968,476
|
|
|
|
|
|
Property, Plant and
Equipment (Net)
|
109,485
|
139,152
|
|
|
|
|
|
Other
Assets:
|
|
|
|
Other
Assets
|
1,244
|
1,479
|
|
Deposits
|
31,726
|
30,059
|
|
Total Other
Assets
|
32,969
|
31,538
|
|
|
|
|
|
TOTAL
ASSETS
|
$10,157,687
|
$2,139,166
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
Current
Liabilities:
|
|
|
|
Accounts Payable
and Accrued Expenses
|
$1,604,727
|
$138,668
|
|
Accrued Expenses
– Related Party
|
-
|
2,347
|
|
|
|
|
|
TOTAL
LIABILITIES
|
1,604,727
|
141,015
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
Preferred Stock,
Series A, $0.001 par value, 1,000 shares authorized, 1,000 shares
issued and outstanding
|
1
|
1
|
|
Preferred Stock,
Series B $0.001 par value, 10,000 shares authorized, no shares
issued and outstanding
|
-
|
-
|
|
Preferred Stock,
$0.001 par value, 20,000,000 shares authorized, no shares issued
and outstanding
|
-
|
-
|
|
Common Stock,
$0.001 par value, 480,000,000 shares authorized, 93,471,977 and
80,185,000 shares issued and outstanding
|
93,472
|
80,185
|
|
Additional Paid In
Capital
|
287,118,565
|
145,742,258
|
|
Other Comprehensive
Income
|
1,599
|
1,599
|
|
Treasury
Stock
|
(1,129,734)
|
(469,954)
|
|
Retained
Deficit
|
(277,530,943)
|
(143,355,939)
|
|
TOTAL
SHAREHOLDERS’ EQUITY
|
8,552,960
|
1,998,150
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$10,157,687
|
$2,139,166
|
The
accompanying notes are an integral part of these consolidated
financial statements.
79
Consolidated Statements of Operations
For
the Nine Months Ended September 30, 2018 and 2017
(Unaudited)
|
|
Nine Months
Ended
Sept 30,
2018
|
Nine Months
Ended
Sept 30,
2017
|
|
Revenues
|
$873,153
|
$-
|
|
Cost of
revenues
|
666,484
|
-
|
|
Gross
Profit
|
206,668
|
-
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
Depreciation and
amortization
|
41,097
|
36,215
|
|
Rent
|
186,733
|
144,112
|
|
Personnel,
consulting and labor costs
|
1,564,349
|
900,690
|
|
Sponsor
fees
|
554,693
|
-
|
|
Stock Issued for
Services
|
118,614,810
|
29,550,000
|
|
General and
Administrative
|
752,252
|
2,438,154
|
|
Total Operating
Expenses
|
121,713,934
|
33,069,171
|
|
|
|
|
|
Total Operating
Income (Loss)
|
(121,507,266)
|
(33,069,171)
|
|
|
|
|
|
Other Income
(Expense)
|
|
|
|
Other
Income
|
915
|
-
|
|
Interest
Expense
|
(2,027)
|
-
|
|
Impairment of
Assets
|
(12,775,005)
|
(9,278,244)
|
|
Total Other Income
(Expense)
|
(12,776,117)
|
(9,278,244)
|
|
NET INCOME (LOSS)
BEFORE INCOME TAX
|
(134,283,383)
|
(42,797,415)
|
|
|
|
|
|
NET INCOME
(LOSS)
|
$(134,283,383)
|
$(42,797,415)
|
|
|
|
|
|
OTHER COMPREHENSIVE
INCOME:
|
|
|
|
Net Income per
Above
|
(134,283,383)
|
(42,797,415)
|
|
|
|
|
|
Foreign Currency
Translation
|
108,379
|
-
|
|
TOTAL OTHER
COMPREHENSIVE INCOME
|
$108,379
|
$-
|
|
|
|
|
|
TOTAL COMPREHENSIVE
INCOME
|
$(134,175,004)
|
$(42,797,415)
|
|
|
|
|
|
BASIC and DILUTED:
|
|
|
|
Weighted Average
Shares Outstanding
|
84,713,564
|
71,290,314
|
|
Earnings (Loss) per
Share
|
$(1.59)
|
$(0.48)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
80
Consolidated Statements of Cash Flow
For
the Nine Months Ended September 30, 2018 and 2017
(Unaudited)
|
|
Nine Months
Ended
Sept 30,
2018
|
Nine Months
Ended
Sept 30,
2017
|
|
Cash Flows (used
by) Operating Activities:
|
|
|
|
Net Income
(Loss)
|
$(134,175,004)
|
$(42,697,415)
|
|
Adjustments to
reconcile net income (loss) to net cash (used by) operating
activities:
|
|
|
|
Depreciation and
Amortization
|
40,927
|
36,215
|
|
Common Stock Issued
for Services
|
118,614,810
|
29,550,000
|
|
Impairment
Expense
|
12,775,005
|
9,728,244
|
|
Changes in assets
and liabilities:
|
|
|
|
Accounts
Receivable
|
(235,973)
|
-
|
|
Prepaid
Expenses
|
(58,335)
|
-
|
|
Other Current
Assets
|
(6,413)
|
10,070
|
|
Other
Assets
|
(1,431)
|
-
|
|
Accounts
Payable
|
71,620
|
24,466
|
|
Accrued
Expenses
|
1,394,438
|
166,565
|
|
Accrued Expenses
– Related Party
|
(2,347)
|
23,944
|
|
Net cash provided
(used by) operating activities
|
(1,582,703)
|
(1,528,407)
|
|
|
|
|
|
Cash Flows from
(used in) Investing Activities:
|
|
|
|
Purchase of
property, plant and equipment
|
(11,261)
|
-
|
|
Total from
Investing Activities:
|
(11,261)
|
-
|
|
|
|
|
|
Cash Flows from
(used in) Financing Activities:
|
|
|
|
Sale of Common
Stock
|
10,000,000
|
-
|
|
Collection on
Receivable from Sale of Common Stock
|
-
|
3,022,700
|
|
Repurchase of
Common Stock
|
(660,000)
|
(470,300)
|
|
Net cash provided
(used by) financing activities
|
9,340,000
|
2,552,400
|
|
|
|
|
|
NET INCREASE
(DECREASE) IN CASH
|
7,746,036
|
1,023,993
|
|
CASH AT BEGINNING
OF PERIOD
|
1,962,240
|
1,617,486
|
|
CASH AT END OF
PERIOD
|
$9,708,276
|
$2,641,479
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
Income taxes
paid
|
$-
|
$-
|
|
Interest
paid
|
$2,027
|
$-
|
The
accompanying notes are an integral part of these consolidated
financial statements.
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2018
(Unaudited)
NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING
POLICIES
Nature of Activities, History and Organization
Vivi
Holdings, Inc. (The “Company”, “Vivi
Holdings”) was organized on June 24, 2016, as a Delaware
corporation. The Company is in the technology business
providing and managing prepaid card programs, offering global
telecommunications services and innovative technical solutions
through its wholly owned subsidiaries in the United States, Brazil
and Mexico. Vivi Pay, Inc., Vivi Assets, Inc., ViviTech, LLC, Vivi
Coins USA, Inc. and Image Access, Inc. are United States
subsidiaries and Vivi Asset Consultoria de Negocios e Investimentos
Sociedade Anomina, ViviPay Servicos e Intermediacoes Sociedade
Anomina, and ViviTech Desenvolvimento de Softwares SA are
subsidiaries in Brazil. ViviPay Mexico, Sociedad Anomina de Capital
Variable is a Mexican subsidiary.
Significant Accounting Policies
The
Company’s management selects accounting principles generally
accepted in the United States of America and adopts methods for
their application. The application of accounting
principles requires the estimating, matching and timing of revenue
and expense. The accounting policies used conform to generally
accepted accounting principles which have been consistently applied
in the preparation of these financial statements.
The
financial statements and notes are representations of the
Company’s management which is responsible for their integrity
and objectivity. Management further acknowledges that it is solely
responsible for adopting sound accounting practices, establishing
and maintaining a system of internal accounting control and
preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other
items that: 1) recorded transactions are
valid; 2) valid transactions are
recorded; and 3) transactions are recorded in
the proper period in a timely manner to produce
financial statements which present fairly the
financial condition, results of operations and
cash flows of the Company for
the respective periods presented.
Basis of Presentation
The
Company prepares its financial statements on the accrual basis of
accounting in conformity with accounting principles generally
accepted in the United States.
Principles of Consolidation
The
financial statements include the accounts of Vivi Holdings, Inc.
and its subsidiaries. All significant inter-company
transactions have been eliminated. All amounts are
presented in U.S. Dollars unless otherwise stated.
82
Cash and Cash Equivalents
The
Company considers all highly liquid debt instruments with a
maturity of three months or less to be cash
equivalents. At times, cash balances may be in excess of
the Federal Deposit Insurance Corporation (“FDIC”)
insurance limits. The carrying amount approximates fair market
value.
Accounts Receivable and Allowances for Doubtful
Accounts
The
allowance for accounts receivable is recorded when receivables are
considered to be doubtful of collection. As of September 30, 2018
and December 31, 2017, no allowance has been made.
Property
The
Company leases a 5,459 sf office headquartered in Florida and the
Company leases four offices in Brazil of 527, 507, 1,085 and 2,030
sf.
Intangible Assets
The
Company purchased licenses and certain technology important to
completing or complement their digital network. These intangible
assets were valued at the market price of the common stock issued,
and if there is no trading price, the most readily determinable fair market
value of shares issued, whichever can be objectively determined. The
Company sold common stock to an investor for cash in October 2016
and July 2018 at $7.50 per share. These sales provided the most
readily determinable value for the shares and all shares issued for
services were valued at this price.
Additionally,
these assets are examined for impairment in accordance with ASC
360. Impairment is recorded when an asset’s carrying amount
is not recoverable. An asset is not recoverable if the carrying
amount exceeds the expected future cash flows to be derived from
the asset on a non-discounted basis.
Income Taxes
The
Company accounts for income taxes under ASC 740 “Income Taxes” using the
liability method, recognizing certain temporary differences between
the financial reporting basis of liabilities and assets and the
related income tax basis for such liabilities and assets. This
method generates either a net deferred income tax liability or
asset for the Company, as measured by the statutory tax rates in
effect. The Company derives the deferred income tax charge or
benefit by recording the change in either the net deferred income
tax liability or asset balance for the year. The Company records a
valuation allowance against any portion of those deferred income
tax assets when it believes, based on the weight of available
evidence, it is more likely than not that some portion or all of
the deferred income tax asset will not be realized.
83
Use of Estimates
In
order to prepare financial statement in conformity with accounting
principles generally accepted in the United States, management must
make estimates, judgments and assumptions that affect the amounts
reported in the financial statements and determines whether
contingent assets and liabilities, if any, are disclosed in the
financial statements. The ultimate resolution of issues requiring
these estimates and assumptions could differ significantly from
resolution currently anticipated by management and on which the
financial statements are based.
Revenue Recognition
The
Company recognizes revenue in accordance with ASC 605-10,
"Revenue Recognition in Financial
Statements". Revenue is recognized when
persuasive evidence of an arrangement exists, delivery or service
has occurred, the sale price is fixed or determinable and receipt
of payment is probable.
The
Company recognizes revenue from contracts with customers in
accordance with ASC 606 which was issued related to revenue from
contracts with customers. Under this guidance, revenue is
recognized when promised goods or services are transferred to
customers in an amount that reflects the consideration that is
expected to be received for those goods or services. As of the date
of these financial statements, one hundred percent of the revenue
was generated by the Company providing technical services for
clients.
Stock-Based Compensation
The
Company accounts for stock options, common stock for services and
stock based compensation at fair value as prescribed in
ASC 718. The Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing
model and provides for expense recognition over the service period,
if any, of the stock option. If there is no trading price, the most
readily determinable
fair market value of shares issued, whichever can be objectively determined. The
Company sold common stock to an investor for cash in October 2016
and July 2018 at $7.50 per share. These sales provided the most
readily determinable value for the shares and all shares issued for
services were valued at this price.
At
September 30, 2018, there were no stock options granted. See
Footnote 4 for more information.
The
Company accounts for common stock issued for services at the market
price of the common stock issued, and if there is no trading price,
the most readily determinable fair market
value of shares issued whichever can be objectively determined. The
Company sold common stock to an investor for cash in October 2016
and July 2018 at $7.50 per share. These sales provided the most
readily determinable value for the shares and all shares issued for
services were valued at this price.
84
Per Share Amounts
Earnings
per share are calculated in accordance with ASC 260
“Earnings per
Share”. The weighted average number of common
shares outstanding during each period is used to compute basic
earnings (loss) per share. Diluted earnings per share
are computed using the weighted average number of shares and
potentially dilutive common shares
outstanding. Potentially dilutive common shares
are additional common shares assumed to be
exercised. Potentially dilutive common shares consist of
stock options and convertible preferred shares and convertible
notes and are excluded from the diluted earnings per share
computation in periods where the Company has incurred a net loss,
as their effect would be considered anti-dilutive.
As the
Company incurred a net loss during the year ended December 31, 2017
and the nine months ended September 30, 2018, the basic and diluted
loss per common share is the same amount, as any common stock
equivalents would be considered anti-dilutive and, therefore, have
been excluded from the computation.
Foreign Currency Translation
The
functional currency for the subsidiaries of the Company is the
Brazilian Real. As a result, the financial statements of the
subsidiaries have been re-measured from Brazilian Real into U.S.
dollars using (i) current exchange rates for monetary asset and
liability accounts, (ii) historical exchange rates for nonmonetary
asset and liability accounts, (iii) historical exchange rates for
revenues and expenses associated with nonmonetary assets and
liabilities and (iv) the weighted average exchange rate of the
reporting period for all other revenues and expenses. In
addition, foreign currency translation gains and losses are
reported as a separate component of stockholders’ equity
(comprehensive income (loss).
Fair Value of Financial Instruments
The ASC
guidance for fair value measurements and disclosure establishes a
fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value
hierarchy are described below:
Level 1 Inputs – Quoted prices
for identical instruments in active markets.
Level 2 Inputs – Quoted prices
for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 Inputs – Instruments with
primarily unobservable value drivers.
As of
September 30, 2018 and 2017, the Company had no Level 3
inputs.
85
Recently Issued Accounting Pronouncements
Presentation of an Unrecognized Tax
Benefit: In July 2013, the Financial
Accounting Standards Board ("FASB") issued Accounting Standard
Update ("ASU") 2013-11 related to the presentation of an
unrecognized tax benefit when a net operating loss carryforward, a
similar tax loss or a tax credit carryforward exists. The updated
guidance requires an entity to net its unrecognized tax benefits
against the deferred tax assets for the same jurisdiction's net
operating loss carryforward, a similar tax loss, or tax credit
carryforwards. A gross presentation will be required only if such
carryforwards are not available or would not be used by the entity
to settle any additional income taxes resulting from disallowance
of the uncertain tax position. The update was effective
prospectively for the Company's fiscal year beginning
January 1, 2016. The guidance affects disclosures only and the
adoption had no impact on the Company's consolidated financial
position, results of operations or cash flows.
Foreign Currency Matters: In March
2013, the FASB issued ASU 2013-05 related to Foreign Currency
Matters to clarify the treatment of cumulative translation
adjustments when a parent sells a part or all of its investment in
a foreign entity or no longer holds a controlling financial
interest in a subsidiary or group of assets that is a business
within a foreign entity. The updated guidance also resolves the
diversity in practice for the treatment of business combinations
achieved in stages in a foreign entity. The update was effective
prospectively for the Company's fiscal year beginning
January 1, 2016. The updated guidance had no impact on the
Company's consolidated financial position, results of operations or
cash flows.
Presentation of Financial Statements—Going
Concern—Disclosure of Uncertainties about an Entity's Ability
to Continue as a Going Concern: In
August 2016, ASC 205-40 guidance was amended to provide
guidance about management's responsibility to evaluate whether
there is substantial doubt about an entity's ability to continue as
a going concern and to provide related footnote disclosures. The
amendments require management to assess an entity's ability to
continue as a going concern by incorporating and expanding upon
certain principles that are currently in U.S. auditing standards.
Specifically, the amendments (1) provide a definition of the
term substantial doubt, (2) require an evaluation every
reporting period including interim periods, (3) provide
principles for considering the mitigating effect of management's
plans, (4) require certain disclosures when substantial doubt
is alleviated as a result of consideration of management's plans,
(5) require an express statement and other disclosures when
substantial doubt is not alleviated, and (6) require an
assessment for a period of one year after the date that the
financial statements are issued (or available to be issued). The
amendments in this update are effective for the Company's fiscal
year ending December 31, 2016, with early application permitted.
The amended guidance had no impact on the Company's consolidated
financial statements.
Presentation of Financial Statements and Property, Plant and
Equipment—Reporting Discontinued Operations and Disclosures
of Components of an Entity: In April
2016, ASC 205 and ASC 360 guidance was amended to change
the requirements for reporting discontinued operations in
ASC 205-20. A disposal of a component of an entity or a group
of components of an entity is required to be reported in
discontinued operations only if the disposal represents a strategic
shift that has, or will have, a major effect on an entity's
operations and financial results when any of the following occurs:
(1) the component of an entity or group of components of an
entity meets the criteria in ASC 205-20-45-1E to be classified
as held for sale; (2) the component of an entity or group of
components of an entity is disposed of by sale; or (3) the
component of an entity or group of components of an entity is
disposed of other than by sale. The update is effective
prospectively for the Company's fiscal year beginning
January 1, 2016. The guidance had no impact on the Company's
consolidated financial statements.
86
Revenue from Contracts with
Customers: In May 2016, ASC 606
was issued related to revenue from contracts with customers. Under
this guidance, revenue is recognized when promised goods or
services are transferred to customers in an amount that reflects
the consideration that is expected to be received for those goods
or services. The updated standard will replace most existing
revenue recognition guidance under GAAP when it becomes effective
and permits the use of either the retrospective or cumulative
effect transition method. Early adoption is not permitted. The
standard will be effective for the Company's fiscal year beginning
January 1, 2017, including interim reporting periods within
that year. The updated guidance had no impact on the Company's
consolidated financial statements.
NOTE 2 – PROPERTY
Property
consists of the following at September 30, 2018 and December 31,
2017:
|
|
2018
|
2017
|
|
Leasehold
Improvements
|
$141,966
|
$141,966
|
|
Office furniture
and fixtures
|
18,278
|
18,278
|
|
Office furniture
and equipment
|
44,588
|
33,328
|
|
Sub-total
|
204,832
|
193,572
|
|
Less: Accumulated
depreciation
|
(95,347)
|
(54,420)
|
|
Total
Property
|
$109,485
|
$139,152
|
Depreciation
has been provided over each asset’s estimated useful
life. Depreciation expense for the period ended
September 30, 2018 was $40,927 and $5,872 for the twelve months
ended December 31, 2017.
NOTE 3 – SUBSCRIPTION RECEIVABLE
In
2016, the Company issued 6,666,667 common shares for receivables
with a face amount of $50,000,000, which was to be paid back to the
Company starting in January 2017 at $2,000,000 per month.
Subsequently, on April 12, 2017, the Company deemed the receivable
uncollectible and a stockholder transferred to the Company
15,000,000 common shares in satisfaction of the receivable and
other obligations, which shares were then retired.
NOTE 4 – STOCKHOLDERS’ EQUITY
Authorized Capital. The total number of shares of all
classes of capital stock which the corporation shall have the
authority to issue is 500,011,000 shares, of which Four Hundred
Eighty Million (480,000,000) shares shall be common stock, par
value $.001 per share (“Common Stock”), and
Twenty Million Eleven Thousand (20,011,000) shares shall be
preferred stock, par value $.001 per share (“Preferred
Stock”) of which one thousand (1,000) shares shall be
designated as Series A Preferred Stock and ten thousand (10,000)
shares shall be designated as Series B Preferred Stock and
20,000,000 are unassigned to a specific class.
87
Series A Preferred Stock
The
Company has designated 1,000 shares of its Preferred Stock as
Series A, having a par value of $0.001 per share. Holders of the
Series A Preferred Stock have the right to elect a majority of the
Board of Directors of the Company. In June 2016, the Company
issued 1,000 shares of Series A Preferred Stock to its CEO. At
September 30, 2018 and December 31, 2017, there were 1,000 shares
of Series A Preferred Stock outstanding, which shares are
convertible on a one-for-one basis into shares of common stock
without any additional consideration by the holder to effectuate
the conversion.
Series B Preferred Stock
The
Company has designated 10,000 shares of its Preferred Stock as
Series B, having a par value of $0.001 per share. Holders of the
Series B Preferred Stock have the right to convert into what would
equal ten percent of the outstanding common stock of the
company. At September 30, 2018 and December 31, 2017, there
were no shares of Series B Preferred Stock
outstanding.
On
April 10, 2018, the Company authorized the issuance 10,000 shares
of Series B Preferred Stock to its CEO at such time the designation
is filed and accepted by the State of Delaware. The designation was
filed and accepted by the State of Delaware on October 8, 2018.
Accordingly, the charge will be reflected in the financial
statements as of the date the filing in Delaware is
completed.
Separate Series; Increase or Decrease in Authorized Shares.
The shares of each series of Preferred Stock may vary from the
shares of any other series thereof in any or all of the foregoing
respects and in any other manner. The Board of Directors may
increase the number of shares of Preferred Stock designated for any
existing series by a resolution adding to such series authorized
and unissued shares of Preferred Stock not designated for any other
series. Unless otherwise provided in the Preferred Stock
Designation, the Board of Directors may decrease the number of
shares of Preferred Stock designated for any existing series by a
resolution subtracting from such series authorized and unissued
shares of Preferred Stock designated for such existing series, and
the shares so subtracted shall become authorized, unissued and
undesignated shares of Preferred Stock.
Common Stock
The
Company is authorized to issue 480,000,000 common shares at a par
value of $0.001 per share. These shares have full voting rights. At
September 30, 2018 and December 31, 2017, there were 93,471,977 and
80,185,000 shares outstanding, respectively. No dividends were
paid for the period ended September 30, 2018 or the year ended
December 31, 2017.
Stock Issuances
During
the nine months ended September 30, 2018, the Company issued
15,815,309 shares for services as detailed below and also received
back 5,345,500 shares from shareholders for cancellation which were
reissued as part of the 15,815,309.
88
2018 Activity
On
March 31, 2018, the Company, relying upon Regulation S, issued
1,582,200 common shares for employment related services to
forty-six foreign employees for services provided to the
Company.
On
April 2, 2018, the Company, relying upon Regulation S, issued
500,000 common shares for employment related services to one
foreign employee for services provided to the Company.
On
April 2, 2018, the Company, relying upon Regulation S, issued
403,334 common shares to four foreign persons as consideration for
the receipt of technology assets to integrate into the
Company’s digital platform to two foreign
persons.
On
April 30, 2018, the Company, relying upon Regulation S, issued
200,000 common shares to one foreign person as consideration for
the receipt of technology assets to integrate into the
Company’s digital platform.
On
April 30, 2018, the Company, relying upon Rule 701 of the
Securities Act, issued 100,000 common shares for employment related
services to one U.S. person for services to the
Company.
On
April 30, 2018, the Company, relying upon Regulation S, issued
240,000 common shares for employment related services to fifteen
foreign employees for services provided to the
Company.
On
April 30, 2018, relying upon Regulation S, the Company issued
30,000 common
shares for services to three foreign persons provided to the
Company.
On May
10, 2018, the Company, relying upon Regulation S, issued 500,000
common shares for employment related services to one foreign
employee for services provided to the Company.
On May
15, 2018, the Company, relying upon Regulation S, issued 1,080,000
common shares for employment related services to five foreign
employees for services provided to the Company.
On June
1, 2018, the Company, relying upon Regulation S, issued 1,100,000
common shares to one foreign person as consideration for receipt of
technology assets to integrate into the Company’s digital
platform.
On June
1, 2018, the Company, relying upon Regulation S, issued 755,800
common shares for employment related services to three foreign
employees for services provided to the Company.
On June
1, 2018, relying upon Regulation S, the Company issued 500,000
common
shares for services to two foreign persons for services
provided to the Company.
On June
1, 2018, relying upon Regulation S, the Company issued 15,000
common
shares for services to two foreign persons for services
provided to the Company.
89
On June
1, 2018, relying upon Regulation S, the Company issued 500,000
common
shares for services to two foreign persons for services
provided to the Company.
On June
21, 2018, the Company, relying upon Regulation S, issued 1,000,000
common shares for employment related services to one foreign person
for services provided to the Company.
On June
21, 2018, the Company, relying upon Section 4(2), issued 100,000
common shares for services to one U.S. entity for services provided
to the Company.
On July
12, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 400,000 common shares for consulting related
services to two U.S. entities for consulting services provided to
the Company.
On July
16, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 666,667 common shares to one U.S. person for
total cash consideration of $5,000,000 at a purchase price of $7.50
per share.
On July
26, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 750,000 common shares for consulting related
services to one U.S. entity for services provided to the Company,
and, relying on Regulation S issued 300,000 common shares to one
foreign person for services provided to the Company, and relying on
Regulation 701, issued 50,000 common
shares to one U.S. person for services provided to the
Company.
On July
26, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 500,000 common shares for consulting related
services to one U.S. person for services provided to the
Company.
On
August 23, 2018, the Company, relying upon Rule 701 of the
Securities Act, issued 500,000 common shares for consulting related
services to one U.S. person for services provided to the
Company.
On
August 30, 2018, the Company, relying upon Regulation S, issued
500,000 common shares for services to eleven foreign persons for
services provided to the Company.
On
September 13, 2018, the Company, relying upon Rule 701 of the
Securities Act, issued 500,000 common shares for consulting related
services to one U.S. person for services provided to the
Company.
On
September 13, 2018, the Company, relying upon Section 4(a)(2) of
the Securities Act, issued 666,667 common shares to one U.S.
investor for total cash consideration of $5,000,000 at a purchase
price of $7.50 per share.
On
September 14, 2017, the Company, relying upon Regulation S, issued
100,000 common shares for employment related services to one
foreign employee and relying on Rule 701 of the Securities Act,
issued 520,000 common shares to two U.S. persons for services
provided to the Company.
90
On
September 14, 2017, the Company, relying upon Regulation S, issued
300,000 common shares for employment related services to one
foreign employee.
On
September 30, 2018, the Company, relying upon Section 4(a)(2) of
the Securities Act, issued 180,000 common shares for consulting
related services to three U.S. persons for services provided to the
Company.
On
September 30, 2018, the Company, relying upon Regulation S, issued
1,692,308 common shares for employment and consulting related
services to three foreign employees, and, relying on Rule 701 of
the Securities Act, issued 100,000 common shares to one U.S. person
for employment services provided to the Company and relying on
Section 4(a)(2) of the Securities Act, issued 1,000,000 common
shares for consulting related services to one U.S. entity for
services provided to the Company.
The
following table summarizes these issuances in 2018:
|
|
Services
|
Assets/Technology
|
Cash
|
Estimated Value per
Share
|
Valuation
|
|
Assets
|
-
|
1,703,834
|
-
|
$7.50
|
12,778,755
|
|
Cash
|
-
|
-
|
1,333,334
|
$7.50
|
10,000,000
|
|
Services –
Employees
|
6,850,309
|
-
|
-
|
$7.50
|
51,317,318
|
|
Services –
Consultants
|
8,965,000
|
-
|
-
|
$7.50
|
67,237,500
|
|
|
15,815,309
|
1,703,834
|
1,333,334
|
|
141,398,573
|
Options and Warrants
The
Company has no options or warrants outstanding.
NOTE 5 – IMPAIRMENT OF ASSETS
The
Company has adopted ASC 360 “Property, Plant and Equipment”,
which addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be
disposed of. Specifically, ASC 360 requires that a company
recognize an impairment loss if, and only if, the carrying amount
of a long-lived asset (asset group) is not recoverable from the sum
of the undiscounted cash flows expected to result from the use and
eventual disposal of the asset (the “Recoverable
Amount”) and if the carrying amount exceeds the asset’s
Fair Value. If it is determined that an asset is impaired, the
amount of the impairment is equal to the difference between the
carrying amount of the long-lived asset and the Fair Value of the
asset.
In
2018, the Company purchased licenses and technology that the
Company determined enhanced its digital platform but needed to be
fully impaired in 2018. The amount of assets purchased and impaired
in 2018 follows:
91
Intangible
assets:
|
|
Intangible Assets
|
|
December 31,
2017
|
$-
|
|
Total 2018
Intangible Assets Purchased
|
21,948,085
|
|
Less:
Impairment
|
(20,898,085)
|
|
Net Intangible
Assets, September 30, 2018
|
$50,000
|
NOTE 6 – RELATED PARTY TRANSACTIONS
In the
nine months ended September 30, 2018, the Company paid $2,347 in
related party payables which were outstanding at December 31,
2017.
On
April 30, 2018, the Company authorized the issuance of 10,000 of
Series B Preferred Stock to the Company Chairman/CEO in 2018 for
services. The 10,000 Series B Preferred Stock has the right to
convert into ten percent of the common stock of the Company. The
issuance was also approved by a majority of the shareholders. On
October 8, 2018, the Company filed Amended and Restated Articles of
Incorporation with the State of Delaware. In the Amended and
Restated Articles the Company has designated 10,000 shares of its
Preferred Stock as Series B, having a par value of $0.001 per
share. Holders of the Series B Preferred Stock have the right to
convert into what would equal ten percent of the outstanding common
stock of the company. At December 31, 2017, there were 0
shares of Series B Preferred Stock outstanding. On April 10, 2018,
the shareholders voted to issue the 10,000 Series B Preferred Stock
to its Eugenio Santos at such time the designation is filed and
accepted by the State of Delaware. The designation was filed and
accepted by the State of Delaware on October 8, 2018 and
accordingly, the shares are deemed issued to Eugenio Santos as of
that date.
On June
15, 2018, the Company’s subsidiary ViviTech,LLC signed a
Joint Venture Agreement with Carrier EQ, Inc. dba AirFox (hereafter
“AirFox”), where by the parties will install, maintain
and exploit the AirFox platform with the purpose to provide a wide
range of value added services over such platform only in the scope
of blockchain-as-a-service products or development consulting
within the blockchain scope. The founder and President of AirFox is
the son of Vivi’s founder.
On
September 19, 2018, the Company repurchased 200,000 common shares
from its founder at $3.00 per share.
NOTE 7 – FOREIGN CURRENCY TRANSLATION
The
functional currency for the subsidiaries of the Company is the
Brazilian Real. As a result, the financial statements of
the subsidiaries have been re-measured from Brazilian Real into
U.S. dollars using (i) current exchange rates for monetary asset
and liability accounts, (ii) historical exchange rates for
nonmonetary asset and liability accounts, (iii) historical exchange
rates for revenues and expenses associated with nonmonetary assets
and liabilities and (iv) the weighted average exchange rate of the
reporting period for all other revenues and expenses. In
addition, foreign currency translation gains and losses are
reported as a separate component of stockholders’ equity
(comprehensive income (loss).
92
The
financial statements of the subsidiaries should not be construed as
representations that Brazilian Real have been, could have been or
may in the future be converted into U.S. dollars at such rates or
any other rates.
Relevant
exchange rates used in the preparation of the financial statements
for the subsidiaries are as follows as of September 30, 2018 and
December 31, 2017 (Brazilian Real per one U.S.
dollar):
|
|
|
Sept
30,
2018
|
Dec
31,
2017
|
|
Exchange Rate at
Period End
|
Reais
|
4.020
|
3.313
|
Relevant
exchange rates used in the preparation of the income statement
portion of financial statements for the subsidiaries are as follows
for the periods ended September 30, 2018 and 2017 (Brazilian Real
per one U.S. dollar):
|
|
|
Sept
30,
2018
|
Sept
30,
2017
|
|
Weighted Average
Exchange Rate for the Nine Months Ended
|
Reais
|
3.606
|
3.173
|
The
Company recorded currency transaction gains of $108,379 and $0 for
the nine months ended September 30, 2018 and 2017,
respectively.
NOTE 8 – SUBSEQUENT EVENTS
On
October 8, 2018, the Company filed Amended and Restated Articles of
Incorporation with the State of Delaware. In the Amended and
Restated Articles, the Company has designated 10,000 shares of its
Preferred Stock as Series B, having a par value of $0.001 per
share. Holders of the Series B Preferred Stock have the right to
convert into what would equal ten percent of the outstanding common
stock of the company. At December 31, 2017, there were no shares of
Series B Preferred Stock outstanding. On April 10, 2018, the
shareholders voted to issue the 10,000 Series B Preferred Stock to
Eugenio Santos at such time the designation is filed and accepted
by the State of Delaware. The designation was filed and accepted by
the State of Delaware on October 8, 2018 and accordingly, in
reliance on Section 4(a)(2) of the Securities Act, the Company on
October 8, 2018, issued 10,000 Series B Preferred Stock for
consulting services to Eugenio Santos, the principal stockholder,
founder and former CEO of the Company, which were subsequently
transferred to MasterCom Group, LLC, a limited liability company
owned and controlled by the family of Eugenio Santos.
93
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
Vivi Holdings, Inc. and Subsidiaries
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of
Vivi Holdings, Inc. and
Subsidiaries (“the Company”) as of December 31,
2017 and 2016 and the related consolidated statements of
operations, stockholders’ deficit and the related notes (collectively referred to as
the “financial statements”) for the years ended
December 31, 2017 and 2016. 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 audit. In our opinion, the consolidated
financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of
December 31, 2017 and 2016, and the results of its operations,
changes in stockholders’ deficit and cash flows for the years
then ended in conformity with accounting principles generally
accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, 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.
Our audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ L&L CPAS, PA
L&L CPAS, PA
Certified Public Accountants
Cornelius, North Carolina
The United States of America
November 30, 2018
The
firm has served this client since November 2016.
94
For the Fiscal Year Ended December 31, 2017 and
December 31, 2016
Consolidated Balance Sheet
December
31, 2017 and 2016
(Audited)
ASSETS
|
|
Dec 31,
2017
|
Dec 31,
2016
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and Cash
Equivalents
|
$1,962,241
|
$1,617,486
|
|
Prepaid
Expenses
|
5,330
|
20,000
|
|
Accounts Receivable
– Stock Subscription
|
-
|
3,022,700
|
|
Other Current
Assets
|
906
|
7,399
|
|
Total Current
Assets
|
1,968,476
|
1,621,689
|
|
|
|
|
|
Property, Plant and
Equipment (Net)
|
139,152
|
154,372
|
|
|
|
|
|
Other
Assets:
|
|
|
|
Other
Assets
|
1,479
|
-
|
|
Deposits
|
30,059
|
30,059
|
|
Total Other
Assets
|
31,538
|
30,059
|
|
|
|
|
|
TOTAL
ASSETS
|
$2,139,166
|
$4,852,016
|
LIABILITIES AND SHAREHOLDERS’ (DEFICIT)
|
|
Dec 31,
2017
|
Dec 31,
2016
|
|
Current
Liabilities:
|
|
|
|
Accounts Payable
and Accrued Expenses
|
$138,668
|
$10,000
|
|
Accrued Expenses
– Related Party
|
2,347
|
-
|
|
TOTAL
LIABILITIES
|
141,015
|
10,000
|
|
|
|
|
|
STOCKHOLDERS’
(DEFICIT)
|
|
|
|
Preferred Stock,
Series A, $0.001 par value, 1,000 shares authorized, 1,000 shares
issued and outstanding
|
1
|
1
|
|
Preferred Stock,
Series B, $0.001 par value, 10,000 shares authorized, no shares
issued and outstanding
|
-
|
-
|
|
Preferred Stock,
$0.001 par value, 20,000,000 shares authorized, no shares issued
and outstanding
|
-
|
-
|
|
Common Stock,
$0.001 par value, 480,000,000 shares authorized, 80,185,000 and
87,591,037 shares issued and outstanding
|
80,185
|
87,591
|
|
Additional Paid In
Capital
|
145,742,258
|
120,435,198
|
|
Common Stock
Subscribed
|
-
|
(65,000,000)
|
|
Other Comprehensive
Income
|
1,599
|
-
|
|
Treasury
Stock
|
(469,954)
|
-
|
|
Retained
Deficit
|
(143,355,939)
|
(50,680,774)
|
|
TOTAL
SHAREHOLDERS’ (DEFICIT)
|
1,998,150
|
4,842,016
|
|
|
|
|
|
TOTAL LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
$2,139,166
|
$4,852,016
|
The
accompanying notes are an integral part of these consolidated
financial statements.
95
Consolidated Statement of Operations
For
the Period June 24, 2016 (Date of Inception) to December 31, 2016,
and
Twelve Months Ended December 31, 2017
(Audited)
|
|
Twelve Months
Ended
Dec 31,
2017
|
June 24,
2016
(Date of
Inception) to
Dec 31,
2016
|
|
Revenues
|
$-
|
$-
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
Depreciation and
Amortization
|
48,558
|
5,872
|
|
Stock Issued for
Services
|
85,050,000
|
50,144,340
|
|
General and
Administrative
|
2,335,704
|
530,562
|
|
Total Operating
Expenses
|
87,434,262
|
50,680,774
|
|
|
|
|
|
Total Operating
Income (Loss)
|
(87,434,262)
|
(50,680,774)
|
|
|
|
|
|
Other Income
(Expense)
|
-
|
-
|
|
Other
Income
|
15,320
|
-
|
|
Interest
Expense
|
(418)
|
-
|
|
Impairment of
Assets
|
(5,250,000)
|
-
|
|
Total Other Income
(Expense)
|
(5,235,098)
|
-
|
|
NET INCOME
(LOSS) BEFORE INCOME TAX
|
(92,669,360)
|
(50,680,774)
|
|
|
|
|
|
Currency
Translation Loss
|
(5,805)
|
-
|
|
|
|
|
|
NET INCOME
(LOSS)
|
$(92,675,165)
|
$(50,680,774)
|
|
|
|
|
|
BASIC and DILUTED:
|
|
|
|
Weighted Average
Shares Outstanding
|
80,134,726
|
35,948,527
|
|
Earnings (Loss) per
Share
|
$(1.16)
|
$(1.41)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
96
Consolidated Statements of Changes in Stockholders’
Equity
For
the Period June 24, 2016 (Date of Inception) to December 31, 2016,
and
Twelve Months Ended December 31, 2017
(Audited)
|
|
Preferred
A
Shares
|
Stock
Amount
|
Preferred
B
Shares
|
Preferred
B
Amount
|
Common
Shares
|
Stock
Amount
|
Common Stock
Subscribed
|
Additional Paid
In Capital
|
Treasury
Stock
|
Other
Comp
Income
|
Retained
Deficit
|
Totals
|
|
Balance at Inception, June 24,
2016
|
-
|
$-
|
-
|
-
|
-
|
$-
|
(65,000,000)
|
$-
|
$-
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Issued
for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services and
Assets
|
1,000
|
1
|
-
|
-
|
-
|
-
|
-
|
9,999
|
-
|
-
|
-
|
10,000
|
|
Common Stock Issued
For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
-
|
-
|
-
|
-
|
3,012,703
|
3,013
|
-
|
20,367,287
|
-
|
-
|
-
|
20,370,300
|
|
Services
|
-
|
-
|
-
|
-
|
73,836,667
|
73,837
|
-
|
50,060,503
|
-
|
-
|
-
|
50,134,340
|
|
Expenses
|
-
|
-
|
-
|
-
|
4,075,000
|
4,075
|
-
|
4,075
|
-
|
-
|
-
|
8,150
|
|
Assets
|
-
|
-
|
-
|
-
|
6,666,667
|
6,666
|
-
|
49,993,334
|
-
|
-
|
-
|
50,000,000
|
|
Common Stock
Subscribed
|
-
|
-
|
|
|
-
|
-
|
-
|
(65,000,000)
|
|
|
|
(65,000,000)
|
|
Net Income
(Loss)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(50,680,774)
|
(50,680,774)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2016
|
1,000
|
1
|
-
|
-
|
87,591,037
|
87,591
|
(65,000,000)
|
102,435,198
|
-
|
-
|
(50,680,774)
|
4,842,016
|
|
Common Stock
Repurchased
|
-
|
|
-
|
-
|
(346,036)
|
(346)
|
|
|
(469,954)
|
|
|
(470,300)
|
|
Common Stock Issued
For:
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
Services
|
-
|
-
|
-
|
-
|
11,340,000
|
11,340
|
-
|
85,038,660
|
-
|
-
|
-
|
85,050,000
|
|
Licenses
|
-
|
-
|
-
|
-
|
200,000
|
200
|
-
|
1,499,800
|
-
|
-
|
-
|
1,500,000
|
|
Technology
|
-
|
-
|
-
|
-
|
500,000
|
500
|
-
|
3,749,500
|
-
|
-
|
-
|
3,750,000
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled For
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
-
|
-
|
-
|
-
|
(2,000,000)
|
(2,100)
|
-
|
2,100
|
-
|
-
|
-
|
-
|
|
Note Receivable
|
-
|
-
|
-
|
-
|
(15,000,000)
|
(15,000)
|
50,000,000
|
(49,985,000)
|
-
|
-
|
-
|
-
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled for Common Stock
Receivable
|
-
|
-
|
-
|
-
|
(2,000,000)
|
(2,000)
|
15,000,000
|
(14,998,000)
|
-
|
-
|
-
|
-
|
|
Other Comprehensive
Income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,599
|
-
|
1,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(92,675,165)
|
(92,675,165)
|
|
Balance at December 31,
2017
|
1,000
|
1
|
-
|
-
|
80,185,000
|
80,185
|
-
|
145,742,258
|
(469,954)
|
1,599
|
(143,355,939)
|
1,998,150
|
The
accompanying notes are an integral part of these consolidated
financial statements.
97
Consolidated Statement of Cash Flows
For
the Period June 24, 2016 (Date of Inception) to December 31, 2016,
and
Twelve Months Ended December 31, 2017
(Audited)
|
|
Twelve Months
Ended
Dec 31,
2017
|
Period
From
June 24,
2016
(Inception)
to
Dec 31,
2016
|
|
Cash Flows (used
by) Operating Activities:
|
|
|
|
Net Income
(Loss)
|
$(92,675,165)
|
$(50,680,714)
|
|
Adjustments to
reconcile net income (loss) to net cash (used by) operating
activities:
|
|
|
|
Depreciation and
Amortization
|
48,548
|
5,872
|
|
Preferred Stock
Issued for Services
|
-
|
10,000
|
|
Common Stock Issued
for Services
|
85,050,000
|
50,134,340
|
|
Stock issued for
Payment of Expenses
|
-
|
8,150
|
|
Impairment
Expense
|
5,250,000
|
-
|
|
Changes in assets
and liabilities:
|
|
|
|
Other Current
Assets
|
13,765
|
(20,000)
|
|
Miscellaneous
Receivables
|
7,399
|
(7,399)
|
|
Other
Assets
|
(1,479)
|
(30,059)
|
|
Accounts
Payable
|
58,786
|
-
|
|
Accrued
Expenses
|
69,882
|
-
|
|
Accrued Expenses
– Related Party
|
2,347
|
10,000
|
|
Net cash provided
(used by) operating activities
|
(2,175,917)
|
(569,870)
|
|
|
|
|
|
Cash Flows from
(used in) Investing Activities:
|
|
|
|
Purchase of
property, plant and equipment
|
(33,328)
|
(160,244)
|
|
Total from
Investing Activities:
|
(33,328)
|
(160,244)
|
|
|
|
|
|
Cash Flows from
(used in) Financing Activities:
|
|
|
|
Accounts Receivable
– Stock Subscriptions
|
3,022,700
|
-
|
|
Repurchase of
Common Stock
|
(470,300)
|
-
|
|
Other Comprehensive
Income
|
1,599
|
-
|
|
Proceeds from Sale
of Common Stock
|
-
|
2,347,600
|
|
Net cash provided
(used by) financing activities
|
2,553,999
|
2,347,600
|
|
NET INCREASE IN
CASH
|
344,754
|
1,617,486
|
|
CASH AT BEGINNING
OF PERIOD
|
1,617,486
|
-
|
|
CASH AT END OF
PERIOD
|
$1,962,240
|
$1,617,486
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
Income taxes
paid
|
$-
|
$-
|
|
Interest
paid
|
$-
|
$-
|
The
accompanying notes are an integral part of these consolidated
financial statements.
98
VIVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING
POLICIES
Nature of Activities, History and Organization
Vivi
Holdings, Inc. (The “Company”, “Vivi
Holdings”) was organized on June 24, 2016, as a Delaware
corporation. The Company is in the technology business
providing and managing prepaid card programs, offering global
telecommunications services and innovative technical solutions
through its wholly owned subsidiaries in the United States, Brazil
and Mexico. Vivi Pay, Inc., Vivi Assets, Inc., ViviTech, LLC, Vivi
Coins USA, Inc. and Image Access, Inc. are United States
subsidiaries. Vivi Asset Consultoria de Negocios e Investimentos
Sociedade Anomina, ViviPay Servicos e Intermediacoes Sociedade
Anomina, and ViviTech Desenvolvimento de Softwares SA are
subsidiaries in Brazil. ViviPay Mexico, Sociedad Anomina de Capital
Variable is a Mexican subsidiary.
Significant Accounting Policies
The
Company’s management selects accounting principles generally
accepted in the United States of America and adopts methods for
their application. The application of accounting
principles requires the estimating, matching and timing of revenue
and expense. The accounting policies used conform to generally
accepted accounting principles which have been consistently applied
in the preparation of these financial statements.
The
financial statements and notes are representations of the
Company’s management which is responsible for their integrity
and objectivity. Management further acknowledges that it is solely
responsible for adopting sound accounting practices, establishing
and maintaining a system of internal accounting control and
preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other
items that: 1) recorded transactions are
valid; 2) valid transactions are
recorded; and 3) transactions are recorded in
the proper period in a timely manner to produce
financial statements which present fairly the
financial condition, results of operations and
cash flows of the Company for
the respective periods presented.
Basis of Presentation
The
Company prepares its financial statements on the accrual basis of
accounting in conformity with accounting principles generally
accepted in the United States.
Principles of Consolidation
The
financial statements include the accounts of Vivi Holdings, Inc.
and its subsidiaries. All significant inter-company
transactions have been eliminated. All amounts are
presented in U.S. Dollars unless otherwise stated.
99
Cash and Cash Equivalents
The
Company considers all highly liquid debt instruments with a
maturity of three months or less to be cash
equivalents. At times, cash balances may be in excess of
the Federal Deposit Insurance Corporation (“FDIC”)
insurance limits. The carrying amount approximates fair market
value.
Accounts Receivable and Allowances for Doubtful
Accounts
The
allowance for accounts receivable is recorded when receivables are
considered to be doubtful of collection. As of December 31, 2017
and 2016, no allowance has been made.
Property
The
Company maintains a 5,459 sf office headquartered in
Florida.
Intangible Assets
The
Company purchased licenses and certain technology important to
completing or complement their digital network. These intangible
assets were valued at the market price of the common stock issued,
and if there is no trading price, the most readily determinable fair market
value of shares issued, whichever can be objectively determined. The
Company sold common stock to an investor for cash in October 2016
at $7.50 per share. These sales provided the most readily
determinable value for the shares and all shares issued for
services were valued at this price.
Additionally,
these assets are examined for impairment in accordance with ASC
360. Impairment is recorded when an asset’s carrying amount
is not recoverable. An asset is not recoverable if the carrying
amount exceeds the expected future cash flows to be derived from
the asset on a non-discounted basis.
Income Taxes
The
Company accounts for income taxes under ASC 740 “Income Taxes” using the
liability method, recognizing certain temporary differences between
the financial reporting basis of liabilities and assets and the
related income tax basis for such liabilities and assets. This
method generates either a net deferred income tax liability or
asset for the Company, as measured by the statutory tax rates in
effect. The Company derives the deferred income tax charge or
benefit by recording the change in either the net deferred income
tax liability or asset balance for the year. The Company records a
valuation allowance against any portion of those deferred income
tax assets when it believes, based on the weight of available
evidence, it is more likely than not that some portion or all of
the deferred income tax asset will not be realized.
Use of Estimates
In
order to prepare financial statement in conformity with accounting
principles generally accepted in the United States, management must
make estimates, judgments and assumptions that affect the amounts
reported in the financial statements and determines whether
contingent assets and liabilities, if any, are disclosed in the
financial statements. The ultimate resolution of issues requiring
these estimates and assumptions could differ significantly from
resolution currently anticipated by management and on which the
financial statements are based.
100
Revenue Recognition
The
Company recognizes revenue in accordance with ASC 605-10,
"Revenue Recognition in Financial
Statements". Revenue is recognized when
persuasive evidence of an arrangement exists, delivery or service
has occurred, the sale price is fixed or determinable and receipt
of payment is probable.
The
Company recognizes revenue from contracts with customers in
accordance with ASC 606 which was issued related to revenue from
contracts with customers. Under this guidance, revenue is
recognized when promised goods or services are transferred to
customers in an amount that reflects the consideration that is
expected to be received for those goods or services. As of the date
of these financial statements, one hundred percent of the revenue
was generated by the Company providing technical services for
clients.
Stock-Based Compensation
The
Company accounts for stock options, common stock for services and
stock-based compensation at fair value as prescribed in
ASC 718. The Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing
model and provides for expense recognition over the service period,
if any, of the stock option. If there is no trading price, the most
readily determinable
fair market value of shares issued, whichever can be objectively determined. The
Company sold common stock to an investor for cash in October 2016
at $7.50 per share. These sales provided the most readily
determinable value for the shares and all shares issued for
services were valued at this price.
At
December 31, 2017, there were no stock options granted. See
Footnote 5 for more information.
Per Share Amounts
Earnings
per share are calculated in accordance with ASC 260
“Earnings per
Share”. The weighted average number of common
shares outstanding during each period is used to compute basic
earnings (loss) per share. Diluted earnings per share
are computed using the weighted average number of shares and
potentially dilutive common shares
outstanding. Potentially dilutive common shares
are additional common shares assumed to be
exercised. Potentially dilutive common shares consist of
stock options and convertible preferred shares and convertible
notes and are excluded from the diluted earnings per share
computation in periods where the Company has incurred a net loss,
as their effect would be considered anti-dilutive.
As the
Company incurred a net loss during the period ended December 31,
2017, the basic and diluted loss per common share is the same
amount, as any common stock equivalents would be considered
anti-dilutive and, therefore, have been excluded from the
computation.
101
Fair Value of Financial Instruments
The ASC
guidance for fair value measurements and disclosure establishes a
fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value
hierarchy are described below:
Level 1 Inputs – Quoted prices
for identical instruments in active markets.
Level 2 Inputs – Quoted prices
for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active;
and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 Inputs – Instruments with
primarily unobservable value drivers.
As of
December 31, 2017 and 2016, the Company had no Level 3
inputs.
Recently Issued Accounting Pronouncements
Presentation of an Unrecognized Tax
Benefit: In July 2013, the Financial
Accounting Standards Board ("FASB") issued Accounting Standard
Update ("ASU") 2013-11 related to the presentation of an
unrecognized tax benefit when a net operating loss carryforward, a
similar tax loss or a tax credit carryforward exists. The updated
guidance requires an entity to net its unrecognized tax benefits
against the deferred tax assets for the same jurisdiction's net
operating loss carryforward, a similar tax loss, or tax credit
carryforwards. A gross presentation will be required only if such
carryforwards are not available or would not be used by the entity
to settle any additional income taxes resulting from disallowance
of the uncertain tax position. The update was effective
prospectively for the Company's fiscal year beginning
January 1, 2016. The updated guidance affects disclosures only
and the adoption had no impact on the Company's consolidated
financial position, results of operations or cash
flows.
Foreign Currency Matters: In March
2013, the FASB issued ASU 2013-05 related to Foreign Currency
Matters to clarify the treatment of cumulative translation
adjustments when a parent sells a part or all of its investment in
a foreign entity or no longer holds a controlling financial
interest in a subsidiary or group of assets that is a business
within a foreign entity. The updated guidance also resolves the
diversity in practice for the treatment of business combinations
achieved in stages in a foreign entity. The update was effective
prospectively for the Company's fiscal year beginning
January 1, 2016. The updated guidance had no impact on the
Company's consolidated financial position, results of operations or
cash flows.
Presentation of Financial Statements—Going
Concern—Disclosure of Uncertainties about an Entity's Ability
to Continue as a Going Concern: In
August 2016, ASC 205-40 guidance was amended to provide
guidance about management's responsibility to evaluate whether
there is substantial doubt about an entity's ability to continue as
a going concern and to provide related footnote disclosures. The
amendments require management to assess an entity's ability to
continue as a going concern by incorporating and expanding upon
certain principles that are currently in U.S. auditing standards.
Specifically, the amendments (1) provide a definition of the
term substantial doubt, (2) require an evaluation every
reporting period including interim periods, (3) provide
principles for considering the mitigating effect of management's
plans, (4) require certain disclosures when substantial doubt
is alleviated as a result of consideration of management's plans,
(5) require an express statement and other disclosures when
substantial doubt is not alleviated, and (6) require an
assessment for a period of one year after the date that the
financial statements are issued (or available to be issued). The
amendments in this update are effective for the Company's fiscal
year ending December 31, 2016, with early application
permitted.
102
Presentation of Financial Statements and Property, Plant and
Equipment—Reporting Discontinued Operations and Disclosures
of Components of an Entity: In April
2016, ASC 205 and ASC 360 guidance was amended to change
the requirements for reporting discontinued operations in
ASC 205-20. A disposal of a component of an entity or a group
of components of an entity is required to be reported in
discontinued operations only if the disposal represents a strategic
shift that has, or will have, a major effect on an entity's
operations and financial results when any of the following occurs:
(1) the component of an entity or group of components of an
entity meets the criteria in ASC 205-20-45-1E to be classified
as held for sale; (2) the component of an entity or group of
components of an entity is disposed of by sale; or (3) the
component of an entity or group of components of an entity is
disposed of other than by sale. The update is effective
prospectively for the Company's fiscal year beginning
January 1, 2016. The guidance had no impact on the Company's
consolidated financial statements.
Revenue from Contracts with
Customers: In May 2016, ASC 606
was issued related to revenue from contracts with customers. Under
this guidance, revenue is recognized when promised goods or
services are transferred to customers in an amount that reflects
the consideration that is expected to be received for those goods
or services. The updated standard will replace most existing
revenue recognition guidance under GAAP when it becomes effective
and permits the use of either the retrospective or cumulative
effect transition method. Early adoption is not permitted. The
standard will be effective for the Company's fiscal year beginning
January 1, 2017, including interim reporting periods within
that year.
NOTE 2 – PROPERTY
Property
consists of the following at December 31, 2017 and
2016:
|
|
2017
|
2016
|
|
Leasehold
Improvements
|
$141,966
|
$141,966
|
|
Office furniture
and fixtures
|
18,278
|
18,278
|
|
Office furniture
and equipment
|
33,328
|
-
|
|
Sub-total
|
193,572
|
160,244
|
|
Less: Accumulated
depreciation
|
(54,420)
|
(5,872)
|
|
Total
Property
|
$139,152
|
$154,372
|
Depreciation
has been provided over each asset’s estimated useful
life. Depreciation expense was $48,548 and $5,872 for
the twelve months ended December 31, 2017 and the period from June
24, 2016 (date of inception) to December 31, 2016,
respectively.
NOTE 3 – NOTE RECEIVABLE
In
2016, the Company issued 6,666,667 common shares for receivables
with a face amount of $50,000,000 which was to be paid back to the
company starting in January 2017 at $2,000,000 per month. On April
12, 2017, the Company cancelled the receivable in exchange for the
cancellation of 15,000,000 shares of its common stock.
103
NOTE 4 – INCOME TAXES
The
Company has adopted ASC 740-10, “Income Taxes”, which requires the
use of the liability method in the computation of income tax
expense and the current and deferred income taxes payable (deferred
tax liability) or benefit (deferred tax
asset). Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to
be realized.
The
cumulative tax effect at the expected tax rate of 21% (based upon
the of significant items comprising the Company’s net
deferred tax amounts as of December 31, 2017 and 2016 are as
follows:
Deferred
Tax Asset Related to:
|
|
Deferred Tax
|
|
Date of Inception,
June 24, 2016
|
$-
|
|
Tax Benefit for
2016
|
112,651
|
|
Total Deferred Tax
Asset
|
112,651
|
|
Less: Valuation
Allowance
|
(112,651)
|
|
Net Deferred Tax
Asset, December 31, 2016
|
$-
|
|
Tax Benefit for
Current Year
|
498,785
|
|
Total Deferred Tax
Asset
|
611,436
|
|
Less: Valuation
Allowance
|
(611,436)
|
|
Net Deferred Tax
Asset, December 31, 2017
|
$-
|
The net
deferred tax asset and benefit for the current year is generated
primarily from the cumulative net operating loss carry-forward for
tax purposes of approximately $2,911,599 at December 31, 2017, and
will expire in years 2036 to 2037.
The
realization of deferred tax benefits is contingent upon future
earnings and is fully reserved at December 31, 2017.
The
Company or its subsidiaries file income tax returns in the United
States. These tax returns are subject to examination by local
taxation authorities provided the tax years remain open to audit
under the relevant statute of limitations. The following summarizes
the open tax years by major jurisdiction:
|
United
States:
|
2016
and 2017
|
|
Brazil
|
2017
|
The
Company does not have any other material items of temporary or
permanent differences, which give rise to deferred tax assets or
liabilities.
NOTE 5 – STOCKHOLDERS’ EQUITY
Authorized Capital. The total number of shares of all
classes of capital stock which the corporation shall have the
authority to issue is 500,011,000 shares, consisting of (i) twenty
million and eleven thousand (20,011,000) shares of Preferred Stock,
par value $0.001 per share (“Preferred Stock”), of
which one thousand (1,000) shares shall be designated as Series A
Preferred Stock, 10,000 shall be designated as Series B Preferred
Stock and 20,000,000 are unassigned to a specific class, and (ii)
four hundred eighty million (480,000,000) shares of Common Stock,
par value $.001 per share (“Common
Stock”).
104
Series A Preferred Stock
The
Company has designated 1,000 shares of its Preferred Stock as
Series A, having a par value of $0.001 per share. Holders of the
Series A Preferred Stock have the right to elect a majority of the
Board of Directors of the Company. On June 25, 2016, the
Company issued 1,000 shares of Series A Preferred Stock to its CEO.
At December 31, 2017 and 2016, there were 1,000 shares of Series A
Preferred Stock outstanding, which shares are convertible on a
one-for-one basis into shares of common stock without any
additional consideration by the holder to effectuate the
conversion.
Series B Preferred Stock
The
Company has designated 10,000 shares of its Preferred Stock as
Series B, having a par value of $0.001 per share. Holders of the
Series B Preferred Stock have the right to convert into what would
equal ten percent of the outstanding common stock of the
company. At December 31, 2017 and 2016, there were no shares
of Series B Preferred Stock outstanding.
Common Stock
The
Company is authorized to issue 480,000,000 common shares at a par
value of $0.001 per share. These shares have full voting rights. At
December 31, 2017 and 2016, there were 80,185,000 and 87,591,036
shares outstanding, respectively. No dividends were paid for
the years ended December 31, 2017 or 2016.
Stock Issuances
During
the twelve months ended December 31, 2017, the Company issued
11,340,000 shares for services as detailed below and also received
2,100,000 shares from shareholders for cancellation which were
reissued as part of the issuance of the 11,340,000
shares.
2017 Activity
During
the year ended December 31, 2017, the Company issued 11,340,000
common shares for services performed for the Company in conjunction
with its foundational operating plan. Additionally, during the year
ended December 31, 2017, the Company received 2,100,000 common
shares back which had previously been issued for services and
reissued them as part of the 11,340,000.
On
January 3, 2017, the Company, relying upon Rule 701 of the
Securities Act, issued 500,000 common shares for employment related
services to one U.S. person for services provided to the
Company.
On
January 20, 2017, the Company issued 400,000 common
shares to two foreign persons in reliance upon Regulation S,
and 200,000 common shares of common stock to one U.S. entity in
reliance on Section 4(2) of the Securities Act.
105
On
January 26, 2017, the Company, relying on Regulation S, issued
500,000 common
shares to two foreign persons, and in reliance on Section
4(2) of the Securities Act, issued 500,000 common
shares to one U.S. person.
On
February 16, 2017, the Company, relying upon Regulation S, issued
300,000 common shares for employment related services to two
foreign persons and, relying on Section 4(a)(2) of the Securities
Act, issued 200,000 common
shares to one U.S. person for services provided to the
Company.
On
March 31, 2017, the Company, relying upon Regulation S, issued
2,000,000 common shares for services to one foreign consulting
entity for services provided to the Company.
On
April 7, 2017, the Company, relying upon Regulation S, issued
1,340,000 common shares for services to four foreign persons for
employment services provided to the Company.
On
October 12, 2017, the Company, relying upon Regulation S, issued
700,000 common shares for employment related services to three
foreign employees for services provided to the
Company.
On
December 2, 2017, the Company, relying upon Regulation S, issued
500,000 common shares for consulting related services to one
foreign person for services provided to the Company.
On
December 29, 2017, the Company, relying on Regulation S, issued
500,000 common
shares k to one foreign person for services.
The
following table summarizes these issuances in 2017:
|
|
Services
|
Assets/Technology
|
Valuation
|
|
Assets
|
-
|
-
|
5,250,000
|
|
Services –
Employees
|
4,740,000
|
700,000
|
35,550,000
|
|
Services –
Consultants
|
6,600,000
|
-
|
49,500,000
|
|
|
11,340,000
|
700,000
|
90,300,000
|
During
the period ended December 31, 2017, the Company repurchased 346,036
common
shares for $470,300.
During
the period ended December 31, 2017, the Company issued 6,666,667
common shares for receivables with a face amount of $50,000,000. On
April 12, 2017, the Company cancelled the receivable in exchange
for the cancellation of 15,000,000 shares of its common stock. The
Company also cancelled 2,000,000 common shares for the cancellation
of the $15,000,000 common stock subscribed.
2016 Activity
On June
25, 2016, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 1,000 Series A Preferred Shares for
consulting services to Eugenio Santos, the principal stockholder,
founder, and CEO of the Company at that time, and subsequently
transferred to Master Com Group Holding USA, Inc., and then to
MasterCom Group, LLC, a limited liability company owned and
controlled by Eugenio Santos.
106
On June
27, 2016, the Company, relying upon Regulation S, issued 14,410,000
common shares for employment related services to eleven foreign
employees and one foreign consultant of the Company in conjunction
with formation.
On June
27, 2016, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 49,660,000 common shares to five U.S.
persons and one U.S. entity for employment related services of the
Company in conjunction with formation.
On June
27, 2016, the Company, relying upon Rule 701 of the Securities Act,
issued 3,100,000 common shares to four U.S. persons for employment
related services of the Company in conjunction with its
formation
On June
27, 2016, the Company, relying on Regulation S, issued 1,075,000
common shares to nine foreign persons for services provided to the
Company, and the Company, relying on Section 4(a)(2) of the
Securities Act, issued 3,000,000 common
shares to three vendors who were U.S. persons, all in
connection with the formation and commencement of operations of the
Company.
On
September 14, 2016, the Company, relying upon Regulation S, issued
346,036 common shares to three foreign persons for total cash
consideration of $370,300 at a purchase price of $1.07 per
share.
On
October 31, 2016, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 2,266,667 common shares to one U.S. person
and issued 4,400,000 common shares to one U.S. entity in exchange
for accounts receivables with a face amount of
$50,000,000.
On
October 31, 2016, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 2,666,667 common shares to one U.S. person
for total cash consideration of $5,000,000 and $15,000,000 common
stock receivable at a purchase price of $7.50 per
share.
On
October 31, 2016, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 6,666,667 common shares to one U.S. person
for services provided to the Company.
The
following table summarizes these issuances in 2016:
|
|
Founder
Shares
|
Cash
|
Services
|
Assets /
Technology
|
Valuation
|
|
Various
|
71,245,000
|
-
|
-
|
-
|
142,490
|
|
Investors
|
-
|
3,012,703
|
-
|
-
|
20,370,300
|
|
Assets
|
-
|
-
|
-
|
13,333,333
|
50,000,000
|
|
Services –
Consultants
|
-
|
-
|
6,666,667
|
-
|
50,000,000
|
|
|
71,245,000
|
3,012,703
|
6,666,667
|
13,333,333
|
120,512,790
|
Options and Warrants
The
Company has no options or warrants outstanding.
107
NOTE 6 – RELATED PARTY TRANSACTIONS
Policy on Related Party Transactions
The
Company has a formal policy that includes procedures intended to
ensure compliance with the related party provisions in common
practice for public companies. For purposes of the policy, a
“related party transaction” is a transaction in which
the Company participates and in which a related party (including
all of GEX’s directors and executive officers) has a direct
or indirect material interest. Any transaction exceeding the 1%
threshold, and any transaction involving consulting, financial
advisory, legal or accounting services that could impair a
director’s independence, must be approved by the Board of
Directors. Any related party transaction in which an executive
officer or a Director has a personal interest, must be approved by
the Board of Directors, following appropriate disclosure of all
material aspects of the transaction.
Stock Issued to Management
In
2016, the Company issued 1,000 of Series A Preferred Stock to the
Company Chairman/CEO in 2016 for services and 100% of the
outstanding capital stock of Image Access, Inc.
In
2016, the Company issued 42,900,000 common shares for services to
officers and directors for their work in the plan and formation of
the Company and continued service to the Company.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
In
October 2016, the Company entered into a 38 month lease agreement
for its 5,459 sf corporate office. The Company paid base rent
and their share of maintenance expense of $173,230 related to this
lease for the period ended December 31, 2017.
The
following are the minimum lease obligations under the
lease:
|
Year
|
Amount
|
|
2018
|
112,182
|
|
2019
|
115,558
|
|
2020
|
9,653
|
|
Total
|
$237,393
|
Other Contingencies
The
Company's technology platform is subject to semi-annual maintenance
payments of $30,000.
NOTE 8 – IMPAIRMENT OF ASSETS
The
Company has adopted ASC 360 “Property, Plant and Equipment”,
which addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be
disposed of. Specifically, ASC 360 requires that a company
recognize an impairment loss if, and only if, the carrying amount
of a long-lived asset (asset group) is not recoverable from the sum
of the undiscounted cash flows expected to result from the use and
eventual disposal of the asset (the “Recoverable
Amount”) and if the carrying amount exceeds the asset’s
Fair Value. If it is determined that an asset is impaired, the
amount of the impairment is equal to the difference between the
carrying amount of the long-lived asset and the Fair Value of the
asset.
108
In
2017, the Company purchased licenses and technology that the
Company determined needed to be fully impaired in 2017.The amount
of assets purchased and impaired in 2017 follows:
|
|
Intangible Assets
|
|
December 31,
2016
|
$–
|
|
Total 2017
Intangible Assets Purchased
|
5,250,000
|
|
Less:
Impairment
|
(5,250,000)
|
|
Net Intangible
Assets, December 31, 2017
|
$–
|
NOTE 9 – SUBSEQUENT EVENTS
On
March 31, 2018, the Company, relying upon Regulation S, issued
1,582,200 common shares for employment related services to
forty-six foreign employees for services provided to the
Company.
On
April 2, 2018, the Company, relying upon Regulation S, issued
500,000 common shares for employment related services to one
foreign employee for services provided to the Company.
On
April 2, 2018, the Company, relying upon Regulation S, issued
403,334 common shares to four foreign persons as consideration for
the receipt of technology assets to integrate into the
Company’s digital platform to two foreign
persons.
On
April 30, 2018, the Company, relying upon Regulation S, issued
200,000 common shares to one foreign person as consideration for
the receipt of technology assets to integrate into the
Company’s digital platform.
On
April 30, 2018, the Company, relying upon Rule 701 of the
Securities Act, issued 100,000 common shares for employment related
services to one U.S. person for services to the
Company.
On
April 30, 2018, the Company, relying upon Regulation S, issued
240,000 common shares for employment related services to fifteen
foreign employees for services provided to the
Company.
On
April 30, 2018, relying upon Regulation S, the Company issued
30,000 common
shares for services to three foreign persons provided to the
Company.
On May
10, 2018, the Company, relying upon Regulation S, issued 500,000
common shares for employment related services to one foreign
employee for services provided to the Company.
On May
15, 2018, the Company, relying upon Regulation S, issued 1,080,000
common shares for employment related services to five foreign
employees for services provided to the Company.
On June
1, 2018, the Company, relying upon Regulation S, issued 1,100,000
common shares to one foreign person as consideration for receipt of
technology assets to integrate into the Company’s digital
platform.
109
On June
1, 2018, the Company, relying upon Regulation S, issued 755,800
common shares for employment related services to three foreign
employees for services provided to the Company.
On June
1, 2018, relying upon Regulation S, the Company issued 500,000
common
shares for services to two foreign persons for services
provided to the Company.
On June
1, 2018, relying upon Regulation S, the Company issued 15,000
common
shares for services to two foreign persons for services
provided to the Company.
On June
1, 2018, relying upon Regulation S, the Company issued 500,000
common
shares for services to two foreign persons for services
provided to the Company.
On June
21, 2018, the Company, relying upon Regulation S, issued 1,000,000
common shares for employment related services to one foreign person
for services provided to the Company.
On June
21, 2018, the Company, relying upon Section 4(2), issued 100,000
common shares for services to one U.S. entity for services provided
to the Company.
On July
12, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 400,000 common shares for consulting related
services to two U.S. entities for consulting services provided to
the Company.
On July
16, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 666,667 common shares to one U.S. person for
total cash consideration of $5,000,000 at a purchase price of $7.50
per share.
On July
26, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 750,000 common shares for consulting related
services to one U.S. entity for services provided to the Company,
and, relying on Regulation S issued 300,000 common shares to one
foreign person for services provided to the Company, and relying on
Regulation 701, issued 50,000 common
shares to one U.S. person for services provided to the
Company.
On July
26, 2018, the Company, relying upon Section 4(a)(2) of the
Securities Act, issued 500,000 common shares for consulting related
services to one U.S. person for services provided to the
Company.
On
August 23, 2018, the Company, relying upon Rule 701 of the
Securities Act, issued 500,000 common shares for consulting related
services to one U.S. person for services provided to the
Company.
On
August 30, 2018, the Company, relying upon Regulation S, issued
500,000 common shares for services to eleven foreign persons for
services provided to the Company.
On
September 13, 2018, the Company, relying upon Rule 701 of the
Securities Act, issued 500,000 common shares for consulting related
services to one U.S. person for services provided to the
Company.
110
On
September 13, 2018, the Company, relying upon Section 4(a)(2) of
the Securities Act, issued 666,667 common shares to one U.S.
investor for total cash consideration of $5,000,000 at a purchase
price of $7.50 per share.
On
September 14, 2017, the Company, relying upon Regulation S, issued
100,000 common shares for employment related services to one
foreign employee and relying on Rule 701 of the Securities Act,
issued 520,000 common shares to two U.S. persons for services
provided to the Company.
On
September 14, 2017, the Company, relying upon Regulation S, issued
300,000 common shares for employment related services to one
foreign employee.
On
September 30, 2018, the Company, relying upon Section 4(a)(2) of
the Securities Act, issued 180,000 common shares for consulting
related services to three U.S. persons for services provided to the
Company.
On
September 30, 2018, the Company, relying upon Regulation S, issued
1,692,308 common shares for employment and consulting related
services to three foreign employees, and, relying on Rule 701 of
the Securities Act, issued 100,000 common shares to one U.S. person
for employment services provided to the Company and relying on
Section 4(a)(2) of the Securities Act, issued 1,000,000 common
shares for consulting related services to one U.S. entity for
services provided to the Company.
On
October 8, 2018, the Company filed Amended and Restated Articles of
Incorporation with the State of Delaware. In the Amended and
Restated Articles, the Company has designated 10,000 shares of its
Preferred Stock as Series B, having a par value of $0.001 per
share. Holders of the Series B Preferred Stock have the right to
convert into what would equal ten percent of the outstanding common
stock of the company. At December 31, 2017, there were no shares of
Series B Preferred Stock outstanding. On April 10, 2018, the
shareholders voted to issue the 10,000 Series B Preferred Stock to
Eugenio Santos at such time the designation is filed and accepted
by the State of Delaware. The designation was filed and accepted by
the State of Delaware on October 8, 2018 and accordingly, in
reliance on Section 4(a)(2) of the Securities Act, the Company on
October 8, 2018, issued 10,000 Series B Preferred shares for
consulting services to Eugenio Santos, the principal stockholder,
founder and former CEO of the Company, which were subsequently
transferred to MasterCom Group, LLC, a limited liability company
owned and controlled by the family of Eugenio Santos.
111
SIGNATURES
Pursuant to the
requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized on the 10th
day of December, 2018.
|
|
VIVI HOLDINGS,
INC.
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ José
Ferreria
|
|
|
|
|
Name:
José Ferreria
|
|
|
|
|
Title:
Chief Executive Officer
|
|
112
EXHIBIT INDEX
|
Exhibit
|
Description
|
|
Amended
and Restated Certificate of Incorporation of Vivi Holdings, Inc.,
effective as of October 5, 2018*
|
|
|
Amended
and Restated Bylaws of Vivi Holdings, Inc., effective as of
September 30, 2018*
|
|
|
Employment
Agreement, dated October 1, 2018, between Vivi Holdings, Inc.
and José Ferreria*
|
|
|
Employment
Agreement, dated October 1, 2018, between Vivi Holdings, Inc.
and Lester Bello*
|
|
|
Employment
Agreement, dated October 1, 2018, between Vivi Holdings, Inc.
and Lucas Sodré*
|
|
|
Contract
Service Agreement, dated October 1, 2018, between Vivi
Holdings, Inc. and Alejandro Villicana*
|
|
|
Subsidiaries*
|
|
|
Consent
of Independent Registered Public Accounting
Firm*
|
*
Filed
herewith
113