UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2016
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to __________
Commission File Number: 333-165972
U-VEND, INC.
(Exact name of registrant specified in its charter)
| Delaware | 22-3956444 | |
|
(State
or other jurisdiction of incorporation
or organization) |
(I.R.S. Employer Identification No.) |
1507 7th STREET, #425
SANTA MONICA, CALIFORNIA 90401
(Address of principal executive offices)
(800) 467-1496
(Registrant’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
|
Non-accelerated
filer ☐
(Do not check if smaller reporting company) |
Smaller reporting company ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s Common Stock, $0.001 par value per share, was 21,839,992, as of August 8, 2016.
U-VEND, INC.
INDEX
| Page | ||
| PART I - FINANCIAL INFORMATION: | ||
| Item 1. | Financial Statements (unaudited) | |
| Condensed Consolidated Balance Sheets | 3 | |
| Condensed Consolidated Statements of Operations | 4 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to Interim Condensed Consolidated Financial Statements | 6 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 |
| Item 4. | Controls and Procedures | 16 |
| PART II - OTHER INFORMATION: | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
| Item 3. | Defaults Upon Senior Securities | 18 |
| Item 4. | Mine Safety Disclosures | 18 |
| Item 6. | Exhibits | 19 |
| SIGNATURES | ||
| 2 |
U-VEND, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of | ||||||||
|
June
30,
2016 |
December
31,
2015 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 199,126 | $ | 139,677 | ||||
| Accounts receivable | 16,165 | 3,807 | ||||||
| Inventory (net) | 62,618 | 46,979 | ||||||
| Prepaid expenses and other assets | 48,073 | 79,548 | ||||||
| Total current assets | 325,982 | 270,011 | ||||||
| Noncurrent assets: | ||||||||
| Property and equipment (net) | 717,057 | 747,298 | ||||||
| Security deposits | 17,386 | 16,018 | ||||||
| Other assets (net) | 155,021 | 70,010 | ||||||
| Intangible asset (net) | 217,001 | 260,401 | ||||||
| Goodwill | 642,340 | 642,340 | ||||||
| Total noncurrent assets | 1,744,801 | 1,736,067 | ||||||
| Total assets | $ | 2,070,783 | $ | 2,006,078 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 341,460 | $ | 254,946 | ||||
| Accrued expenses | 155,021 | 156,484 | ||||||
| Accrued interest | 119,902 | 121,080 | ||||||
| NHL sponsorship liability | 543,488 | 316,997 | ||||||
| Registration rights liability | — | 22,156 | ||||||
| Amounts due to officers | 227,077 | 624,307 | ||||||
| Senior convertible notes, net of discount | — | 372,498 | ||||||
| Promissory notes payable | 403,676 | 479,576 | ||||||
| Convertible notes payable, net of discount | 734,291 | 744,807 | ||||||
| Current capital lease obligation | 63,097 | 90,783 | ||||||
| Total current liabilities | 2,588,012 | 3,183,634 | ||||||
| Noncurrent liabilities: | ||||||||
| Senior convertible notes, net of discount | 371,761 | — | ||||||
| Convertible notes payable, net of discount | 742,355 | — | ||||||
| Capital lease obligation, net of discount | 199,372 | 207,703 | ||||||
| Warrant liabilities | 222,017 | 310,960 | ||||||
| Total noncurrent liabilities | 1,535,505 | 518,663 | ||||||
| Total liabilities | 4,123,517 | 3,702,297 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficiency: | ||||||||
| Common stock, $.001 par value, 600,000,000 shares authorized, 21,589,992 shares issued and outstanding (18,148,816 - 2015) | 21,590 | 18,148 | ||||||
| Additional paid-in capital | 4,811,448 | 4,113,055 | ||||||
| Accumulated deficit | (6,885,772 | ) | (5,827,422 | ) | ||||
| Total stockholders’ deficiency | (2,052,734 | ) | (1,696,219 | ) | ||||
| Total liabilities and stockholders’ deficiency | $ | 2,070,783 | $ | 2,006,078 | ||||
The accompanying notes are an integral part of the consolidated financial statements
| 3 |
U-VEND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2016 | June 30, 2015 | June 30, 2016 | June 30, 2015 | |||||||||||||
| Revenue | $ | 381,481 | $ | 224,463 | $ | 675,023 | $ | 349,212 | ||||||||
| Cost of revenue | 178,874 | 134,721 | 322,490 | 215,269 | ||||||||||||
| Gross profit | 202,607 | 89,742 | 352,533 | 133,943 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling | 318,820 | 221,057 | 620,844 | 374,756 | ||||||||||||
| General and administrative | 361,967 | 284,016 | 635,544 | 586,826 | ||||||||||||
| Accretion and reversal of earn-out liability | — | (223,173 | ) | — | (201,013 | ) | ||||||||||
| 680,787 | 281,900 | 1,256,388 | 760,569 | |||||||||||||
| Operating loss | (478,180 | ) | (192,158 | ) | (903,855 | ) | (626,626 | ) | ||||||||
| Other (income) expense, net | ||||||||||||||||
| Gain on change in fair value of debt and warrant liabilities | (78,980 | ) | (10,709 | ) | (108,185 | ) | (35,701 | ) | ||||||||
| Amortization of debt discount and deferred financing costs | 109,076 | 63,157 | 136,007 | 114,953 | ||||||||||||
| Interest expense | 60,981 | 76,467 | 117,646 | 122,806 | ||||||||||||
| Unrealized loss (gain) on foreign currency | 612 | 820 | 9,027 | (15,959 | ) | |||||||||||
| 91,689 | 129,735 | 154,495 | 186,099 | |||||||||||||
| Net loss | $ | (569,869 | ) | $ | (321,893 | ) | $ | (1,058,350 | ) | $ | (812,725 | ) | ||||
| Net loss per share - basic and diluted | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.07 | ) | ||||
| Weighted average common shares outstanding - basic and diluted | 18,198,816 | 13,790,225 | 18,198,541 | 12,246,112 | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements
| 4 |
U-VEND, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the six months ended | ||||||||
| June 30, 2016 | June 30, 2015 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,058,350 | ) | $ | (812,725 | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Stock based compensation | 85,292 | 12,840 | ||||||
| (Gain) loss on fair value of warrant liabilities | (108,185 | ) | (30,301 | ) | ||||
| Common shares issued for lease obligation | — | 21,146 | ||||||
| Common shares and warrants issued for services | — | 115,474 | ||||||
| Depreciation | 71,007 | 58,392 | ||||||
| Amortization of intangible assets | 43,400 | 43,400 | ||||||
| Amortization of debt discount and deferred financing costs | 40,167 | 114,953 | ||||||
| Accretion and reversal of contingent consideration liability | — | (201,013 | ) | |||||
| Unrealized loss (gain) on foreign currency | 9,027 | (15,959 | ) | |||||
| Settlement of debt interest, fees and penalties with convertible notes | 95,840 | — | ||||||
| Convertible notes payable fair value adjustment | — | (5,400 | ) | |||||
| (Increase) decrease in assets: | ||||||||
| Accounts receivable | (12,358 | ) | (12,269 | ) | ||||
| Inventory | (15,639 | ) | (36,499 | ) | ||||
| Prepaid expenses and other assets | 30,107 | 10,546 | ||||||
| Increase in liabilities: | ||||||||
| Accounts payable and accrued expenses | 311,538 | 216,134 | ||||||
| Accrued interest | 70,849 | 78,347 | ||||||
| Amount due to officers | 184,020 | 142,562 | ||||||
| Net cash used by operating activities | (253,285 | ) | (300,372 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (40,766 | ) | (7,115 | ) | ||||
| Net cash used by investing activities | (40,766 | ) | (7,115 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from common stock warrant exercises | — | 40,000 | ||||||
| Proceeds from convertible notes, net of financing costs | — | 299,700 | ||||||
| Proceeds from promissory notes | 503,300 | 25,000 | ||||||
| Repayment of convertible note | — | (70,200 | ) | |||||
| Principal repayments of promissory notes | (49,800 | ) | — | |||||
| Deferred financing costs paid | (100,000 | ) | — | |||||
| Net cash provided by financing activities | 353,500 | 294,500 | ||||||
| Net increase (decrease) in cash | 59,449 | (12,987 | ) | |||||
| Cash - beginning of period | 139,677 | 73,396 | ||||||
| Cash - end of period | $ | 199,126 | $ | 60,409 | ||||
| Cash paid for: | ||||||||
| Interest | $ | 44,000 | $ | 11,841 | ||||
| Non-cash investing and financing activities: | ||||||||
| Debt discount related to warrant liability and beneficial conversion feature | $ | 106,285 | $ | 7,127 | ||||
| Issuance of common stock to satisfy capital lease obligation | $ | — | $ | 102,266 | ||||
| Issuance of common shares and warrants as debt financing cost | $ | 7,000 | $ | 8,672 | ||||
| Conversion of senior convertible notes into common stock | $ | 22,500 | $ | 5,000 | ||||
| Issuance of common shares to pay due to officers | $ | 500,000 | $ | — | ||||
| Issuance of senior convertible note to settle interest, fees and penalties due | $ | 108,804 | $ | — | ||||
| Issuance of convertible notes to settle principal, interest, fees and penalties | $ | 761,597 | $ | — | ||||
| Equipment, inventory and coin financed with debt | $ | — | $ | 65,750 | ||||
| Equipment acquired in exchange of warrant liability | $ | — | $ | 50,100 | ||||
| Issuance of common shares to satisfy contingent consideration obligation | $ | — | $ | 272,276 | ||||
| Issuance of common stock warrants to satisfy accrued expenses | $ | — | $ | 60,000 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements
| 5 |
U-VEND, INC.
Notes to the Condensed Consolidated Financial Statements
June 30, 2016 (Unaudited)
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company entered the business of developing, marketing and distributing various self-serve electronic kiosks and mall/airport co-branded islands throughout North America with the merger with U-Vend Canada, Inc. on January 7, 2014. The Company seeks to place its kiosks in high-traffic host locations such as big box stores, restaurants, malls, airports, casinos, universities, and colleges. Currently, the Company leases, owns and operates their kiosks but intends to also provide the kiosks, through a distributor relationship, to the entrepreneur wanting to own their own business.
The Company’s vending kiosks incorporate advanced wireless technology, creative concepts, and ease of management. The Company’s kiosks have been designed to be tech-savvy and can be managed on line 24 hours a day/7 days a week, accepting traditional cash input as well as credit and debit cards. Host locations and suppliers have been drawn to this distribution concept of product vending based on the advantages of reduced labor and lower product theft as compared to non-kiosk merchandising platforms. The Company takes a solutions development approach for the marketing of products through a variety of kiosk offerings. The Company’s approach to the market can include the addition of a digital LCD monitor to most makes and models in a kiosk program. This would allow the Company to offer digital advertising as a national and/or local loop basis and a corresponding additional revenue stream for the Company.
Management’s plans
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis. The Company incurred a loss of $1,058,350 during the six months ended June 30, 2016, has incurred accumulated losses totaling $6,885,772, and has a working capital deficit of $2,262,030 at June 30, 2016. These factors, among others, indicate that the Company may be unable to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
To fund the Company’s operations for the next 12 months, to allow the Company to continue the development of its business plans and satisfy its obligations on a timely basis the Company needs to raise additional financing. Should additional financing not be available, the Company will have to negotiate with its lenders to extend the repayment dates of its indebtedness. There can be no assurance that the Company will be able to successfully restructure its debt obligations in the event it fails to obtain additional financing.
On January 7, 2014, U-Vend, Inc. (formerly Internet Media Services, Inc. (“IMS”)) entered into an Exchange of Securities Agreement with U-Vend Canada, Inc., and the shareholders of U-Vend Canada, Inc. (“U-Vend Canada”) The Company believes the merger with U-Vend Canada will provide it with business operations and also working capital. The Company is in discussion to raise additional capital to execute on its current business plans. There is no assurance that future financing arrangements will be successful or that the operating results of U-Vend, Inc. will yield sufficient cash flow to execute the Company’s business plans or satisfy its obligations. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis of Presentation - The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying condensed consolidated balance sheets and related condensed consolidated statements of operations and cash flows include all adjustments, consisting only of normal recurring items necessary for their fair presentation in accordance with U.S. generally accepted accounting principles. Interim results are not necessarily indicative of results expected for a full year. For further information regarding the Company’s accounting policies, please refer to the audited consolidated financial statements and footnotes for the year ended December 31, 2015 included in the Company’s 10-K annual report filed with the SEC on April 28, 2016.
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States (U.S. GAAP), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions.
Principles of Consolidation - The condensed consolidated financial statements include the accounts of U-Vend, Inc. (formerly Internet Media Services, Inc.), and the operations of U-Vend America, Inc., U-Vend Canada, Inc. and its wholly owned subsidiary, U-Vend USA LLC. All intercompany balances and transactions have been eliminated in consolidation.
| 6 |
Common Shares Issued and Earnings Per Share - Common shares issued are recorded based on the value of the shares issued or consideration received, including cash, services rendered or other non-monetary assets, whichever is more readily determinable. The Company presents basic and diluted earnings per share. Basic earnings per share reflect the actual weighted average of shares issued and outstanding during the period. Diluted earnings per share are computed including the number of additional shares that would have been outstanding if dilutive potential shares had been issued. In a loss period, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive.
As of June 30, 2016, there were approximately 53.1 million (43.2 million at June 30, 2015) shares potentially issuable under convertible debt agreements, options, and warrants that could dilute basic earnings per share in the future that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company’s losses during the periods presented.
Fair Value of Financial Instruments - Financial instruments include cash, accounts receivable, accounts payable, accrued expenses, derivative warrant liabilities, promissory notes payable, capital lease obligation, convertible notes payables, and senior convertible notes payable. Fair values were assumed to approximate carrying values for these financial instruments, except for derivative warrant liabilities, convertible notes payable and senior convertible notes payable, since they are short term in nature or they are payable on demand. The senior convertible notes and the convertible notes payable are recorded at face value net of any unamortized discounts, based upon the number of underlying convertible shares. The estimated fair value of the convertible notes is determined based on the trading price on June 30, 2016 since the underlying shares are trading in an active observable market, the fair value measurement qualifies as a Level 1 input. Certain convertible notes payable are recorded at fair value at June 30, 2016. (See Note 2). The determination of the fair value of the derivative warrant liabilities include unobservable inputs and is therefore categorized as a Level 3 measurement. Changes in unobservable inputs may result in significantly higher or lower fair value measurement.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ASC 820 “Fair Value Measurement” establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring 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). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Reclassifications - Certain prior period amounts in the accompanying condensed consolidated financial statements have been reclassified to current period presentation. These reclassifications had no effect on the results of operations or cash flows for the periods presented.
Accounting Pronouncements – FASB ASU 2015-11, Inventory (Topic 330): “Simplifying the Measurement of Inventory”. This ASU requires inventory within the scope of the guidance be measured at the lower of cost or net realizable value. FASB ASU 2015-11 is effective for annual and interim periods beginning after December 15, 2016, with prospective application required. Early adoption is permitted. The Company is evaluating the potential impact of this ASU on the consolidated financial statements.
In May 2014, the FASB issued new accounting guidance, ASU 2014-09 “Revenue from Contracts with Customers”. The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the effect the updated standard will have on the consolidated financial statements and related disclosures.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The guidance requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related footnote disclosures in certain circumstances. The guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. The Company does not believe the adoption of this ASU will have a significant impact on its consolidated financial statements.
| 7 |
In February 2016, the FASB issued an accounting standard update ASU 2016-02, “Leases”, which requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The Company has not yet evaluated nor has it determined the effect of the standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation — Stock Compensation: Improvements to Employee Share-Based Payment Accounting.” The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for the Company on January 1, 2017 and the Company is currently evaluating the impact that ASU 2016-09 will have on its consolidated financial statements and related disclosures.
In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” to clarify two aspects of Topic 606: (i) identifying performance obligations and (ii) the licensing implementation guidance, while retaining the related principles for those areas. The Company is evaluating the impact, if any, the adoption of this standard will have on the consolidated financial statements and related disclosures.
NOTE 2. DEBT
Senior Convertible Notes
The Company entered into a Securities Purchase Agreement (“2013 SPA”) dated June 18, 2013 with Cobrador Multi-Strategy Partners, LP (“Investor” or “Cobrador”) pursuant to Cobrador providing an aggregate of $400,000 financing through senior convertible notes and warrants.
During the six months ended June 30, 2016, the terms of the convertible notes were extended until December 31, 2017. Pursuant to the extension the maturity of the convertibles notes are for more than one year as of June 30, 2016 and accordingly are reclassified as noncurrent liabilities. In connection with the extension, the Company extended the expiration dates of Series A Warrants by one year. The fair value of the Series A Warrants did not materially change due to the extension.
During the six months ended June 30, 2016, the Company issued 450,000 shares of common stock upon Cobrador converting a Senior Convertible Note in the face amount of $22,500.
On June 30, 2016, the Company entered into an agreement with Cobrador and issued an additional Senior Convertible Note in the face amount of $108,804 in settlement of accrued interest, additional interest, fees and penalties. The additional interest, fees and penalties $72,734 and this amount was charged to operations as debt discount amortization during the six months ended June 30, 2016. The Senior Convertible Note are due on December 31, 2017 and can be convertible into shares of common stock at a conversion price $.05 per share. The Company determined that the Senior Convertible Note had beneficial conversion feature and allocated $87,043 as debt discount representing the beneficial conversion. The Company will amortize the debt the discount over the term of the note.
At June 30, 2016, total outstanding Senior Convertible Notes had a face value of $458,804 are presented net of debt discount of $87,043 resulting in a carrying value of $371,761. At December 31, 2015, the face and carrying values were $372,498 as the then debt discounts were completely amortized. Pursuant to 2013 SPA, there were an aggregate of 11.2 million Series A Warrants expiring at various dates between June 2017 and December 2018 and an aggregate of 12 million Series B Warrants expiring at various dates between June 2018 and November 2019.
Promissory Notes Payable
During the six months ended June 30, 2016, the Company issued nine unsecured promissory notes and borrowed an aggregate amount of $474,000. The promissory notes bear interest at 10% per annum, with a provision for an increase in the interest rate upon an event of default as defined therein, and were due at various due dates in June 2016. On June 30, 2016 the Company issued new convertible promissory notes and repaid the promissory notes as further detailed in the Convertible Note Payable section.
In addition, during the six months ended June 30, 2016, the Company borrowed an aggregate of $29,300 pursuant to three unsecured promissory notes. The notes bear interest at 19% and the borrowings are payable together with interest over a period of six months from the date of borrowing. The Company repaid an aggregate of $30,549 of borrowings during the six months ended June 30, 2016 and the balance outstanding on these notes at June 30, 2016 was $9,834 ($11,083 at December 31, 2015).
In January and October 2015, the Company entered into two separate 24 month equipment financing agreements with Perkin Industries, LLC (“the Lender”) for equipment in the aggregate amount of $137,750 with an annual interest rate of 15%. The Lender received an aggregate of 110,200 warrants with an exercise price of $0.35 per share and a term of three years in connection with this financing which was recorded as a debt discount and derivative warrant liability due to the “down round provision” in the amount of $1,237. During the three months and six months ended June 30, 2016, the Company amortized debt discount of $147 and $293, respectively, and the carrying value of this financing is $137,604, net of $146 debt discount, at June 30, 2016. The fair value of the warrant liability related to Perkin equipment financing obligations was $1,829 as of June 30, 2016 ($2,920 December 31, 2015).
| 8 |
Convertible Note Payable
During the six months ended June 30, 2016, the Company repaid one convertible note payable in Canadian dollars that was acquired in connection with the U-Vend Canada merger on January 7, 2014 in the face amount of $19,250. The Company has another convertible 18% note in the principal carrying value of $77,420 as of June 30, 2016. During the three and six months ended June 30, 2016, the Company recorded an unrealized loss on foreign currency translation related to these notes and the related accrued interest of $612 and $9,027, respectively. During the three months ended June 30, 2015, the Company recorded an unrealized loss on foreign currency translation of $820 and, the Company recorded an unrealized gain on foreign currency translation of $15,959 during the six months ended June 30, 2015 related to these notes and the accrued interest.
During the year ended December 31, 2015, the Company issued eleven 9.5% subordinated convertible notes aggregating $441,000 pursuant to 2015 Stock Purchase Agreement (2015 SPA). In connection with these borrowings, the Company granted a total of 735,002 warrants with an exercise price of $0.40 per share and 5 year terms. The Company allocated $8,113 of proceeds received to debt discount based on the computed fair value of the convertible notes and warrants issued. During the three and six months ended June 30, 2016 the Company recorded $769 and $2,180, respective, as amortization of debt discount on the 2015 SPA subordinated convertible notes. As of June 30, 2016, outstanding 2015 SPA notes had a face value of $441,000 ($441,000 at December 31, 2015) and are presented net of debt discount of $129 ($2,309 at December 31, 2015) resulting in a carrying value of $440,871 ($438,691 at December 31, 2015).
On June 30, 2016, the Company issued five Convertible Notes in the aggregate face amount of $761,597 pursuant to 2016 Stock Purchase Agreement (2016 SPA). 2016 SPA Notes are due in 24 months and bear interest at 9.5% and are convertible into shares of common stock at a conversion price of $0.17 per share. The Company satisfied its obligations for: previously issued Promissory Notes of $549,000, accrued interest of $38,615, lease principal installments of $47,466, previously accrued registration rights penalties of $22,156, due to an ex-officer of $81,250, and additional interest, expenses, fine and penalties of $23,110 through the issuance of 2016 SPA Notes. The Company charged additional interest, expenses, fine and penalties $23,110 to operations as amortization of debt discount and deferred financing costs during the six months ended June 30, 2016.
In connection with these borrowings, the Company granted a total of 2,239,990 warrants with an exercise price of $0.30 per share with a 5 year expiration. The Company allocated $19,242 to debt discount based on the computed fair value of the convertible notes and warrants issued, and the debt discount is classified as derivative warrant liability due to the “down round provision” in the warrants.
As of June 30, 2016 five convertible notes payable with a face amount of $237,000 ($175,313 at December 31, 2015) are currently due for repayment. The terms of the notes, amongst other things, provide for payment of additional interest if repayments are not made on due dates. The Company is in discussion with the note holders for an extension of the repayment date, however, as of August 8, 2016 no agreement has been reached. Additional interest payable, if any, on the notes as of June 30, 2016 was immaterial.
Other Assets - Deferred Financing Costs
Financing costs associated with the Senior Convertible Notes, certain of the Subordinated Convertible Notes payable and planned financing are included in deferred financing costs on the condensed consolidated balance sheets at June 30, 2016 and December 31, 2015. These costs are amortized over the term of the respective notes. The Company incurred approximately $107,000 of financing costs during the six months ended June 30, 2016, including $7,000 related to maturity extensions of a convertible note paid in shares of the Company’s common stock. Amortization of financing costs for the three and six months ended June 30, 2016 was $6,596 ($16,438 in 2015) and $25,993($34,632 in 2015), respectively. As of June 30, 2016, Other Assets balance includes $150,000 ($50,000 at December 31, 2015) financing costs incurred with respect to a planned financing that has not been completed.
NOTE 3. STOCKHOLDERS’ DEFICIENCY
During the six months ended June 30, 2016, the Company granted options to acquire 20,000 shares of its common shares pursuant to the Company’s Stock Option plan.
During the six months ended June 30, 2016, $85,292 ( $12,840 in 2015) was charged to operations as stock based compensation costs for the options and the restricted shares granted.
During the six months ended June 30, 2016, the Company issued 50,000 shares of common stock with a fair value of $7,000 to a note holder to extend the maturity date of the note.
During the six months ended June 30, 2016, the Company issued 450,000 shares upon conversion of $22,500 face amount of Senior Convertible Note. In addition, the Company issued 2,941,176 shares to settle $500,000 due to three of its officers.
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At June 30, 2016 the Company had the following warrant securities outstanding:
| Warrants | Exercise Price | Expiration | ||||||||
| 2011 Private placement warrants | 12,500 | $ | 60.00 | March 2018 | ||||||
| 2013 Series A warrants Senior convertible notes | 5,200,000 | $ | 0.05 | June 2017-December 2017 | ||||||
| 2013 Series B warrants Senior convertible notes | 6,000,000 | $ | 0.06 | June 2018-December 2018 | ||||||
| 2013 Issued with lease obligation | 861,250 | $ | 0.12 | October 2016 | ||||||
| 2014 Series A warrants Senior convertible notes | 6,000,000 | $ | 0.05 | January 2018-December 2018 | ||||||
| 2014 Series B warrants Senior convertible notes | 6,000,000 | $ | 0.06 | January 2019-November 2019 | ||||||
| 2014 Warrants for services | 420,000 | $ | 0.35 | August 2019-December 2019 | ||||||
| 2014 Warrants for services | 96,000 | $ | 0.05 | December 2016 | ||||||
| 2014 Warrants for services | 1,184,000 | $ | 0.06 | June 2018-December 2018 | ||||||
| 2014 Issued to Director for debt | 729,166 | $ | 0.24 | November 2016-July 2017 | ||||||
| 2014 Issued with 2014 SPA convertible debt | 243,334 | $ | 0.35 | August 2019-December 2019 | ||||||
| 2014 Issued with equipment financing obligation | 200,000 | $ | 0.35 | October 2017 | ||||||
| 2014 issued with lease obligation | 246,563 | $ | 0.20 | March 2017 | ||||||
| 2014 issued with lease obligation | 483,889 | $ | 0.18 | May 2017 | ||||||
| 2015 Issued with 2014 SPA convertible debt | 116,668 | $ | 0.35 | January 2020-March 2020 | ||||||
| 2015 Issued with convertible financing obligation | 110,200 | $ | 0.35 | January 2018-October 2018 | ||||||
| 2015 Issued for services | 407,067 | $ | 0.40 | April 2020-November 2020 | ||||||
| 2015 Issued with 2015 SPA convertible debt | 735,002 | $ | 0.40 | April 2020- September 2020 | ||||||
| 2015 Warrants issued for equipment | 200,000 | $ | 0.35 | January 2020 | ||||||
| 2016 Warrants issued with 2016 SPA convertible debt | 2,239,990 | $ | 0.30 | June 2021 | ||||||
| 2015 Warrants issued with sale of common shares | 779,413 | $ | 0.30 | December 2017 | ||||||
| 32,265,042 | ||||||||||
During the six months ended June 30, 2016, 1,286,482 warrants expired unexercised.
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NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table provides a summary of changes in derivative warrant liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2016 and the year ended December 31, 2015.
|
June
30,
2016 |
December 31, 2015 | |||||||
| Balance at beginning of period | $ | 310,960 | $ | 309,993 | ||||
| Allocation of proceeds related to convertible and promissory notes to derivative liabilities due to “down round” provision | 19,242 | 38,282 | ||||||
| Reclassification of warrant liability as additional paid in capital upon exercise of warrants | — | (3,534 | ) | |||||
| Equipment purchased with warrants classified as derivative liabilities due to “down round” provision | — | 50,100 | ||||||
| Unrealized gain on fair value adjustment | (108,185 | ) | (83,881 | ) | ||||
| $ | 222,017 | $ | 310,960 | |||||
The fair value of warrants outstanding at June 30, 2016 and December 31, 2015 has been determined based on the consideration of the enterprise value of the Company, the limited market of the shares issuable under the agreement and modeling of the Monte Carlo simulation using multiple volatility assumptions. Warrants issued in and prior to 2012 are significantly out of the money and diluted therefore, management has deemed the fair value of these to be de minimis. Due to certain unobservable inputs in the fair value calculations of the warrants, derivative warrant liabilities are classified as Level 3.
NOTE 5. COMMITMENTS
In June, 2016 the Company entered into a license agreement beginning January 1, 2016 through December 31, 2018 with Major League Baseball Properties, Inc. (“MLB” “Licensor”)for the non-exclusive right to certain proprietary intangible property of the Licensor to be used in connection with the manufacturing, distribution, promotion and advertisement of the Company’s products sold within the U.S., the District of Columbia and U.S. territories. Under the license agreement, the Company is scheduled to pay the following guaranteed payments; $150,000 during 2016, $275,000 during 2017, $575,000 during 2018. The Company is obligated to pay the licensor a royalty based on the product sold or advertising sold. The royalty paid shall offset all or a portion of the guaranteed payments. The agreement is subject to customary default and termination clauses. The Company has paid $25,000 at the inception of the agreement and has charged to operations $21,429 of guaranteed payments related to six months ended June 30, 2016
NOTE 6. SUBSEQUENT EVENTS
In July 2016, the Company entered into a services agreement with a consultant and issued a total of 200,000 shares of restrictive common stock for services to be rendered.
In July 2016, the Company entered into a services agreement with a consultant and issued a total of 1,250,000 five-year cash basis warrants with an exercise price of $0.17 for services to be rendered.
In August 2016, the Company issued 50,000 shares of common stock to a consultant for sales and marketing services to be rendered under a November 2015 consulting agreement.
In August 2016, the Company entered into an agreement with Automated Retail Leasing Partners, L.P. (“ARLP”), one of its existing equipment leasing companies, to amend the expiration date associated with certain equipment leases. The amendment calls for the extension of the expiration dates of the ARLP leases to December 31, 2017. In consideration for the extension of the expiration dates, the Company issued to ARLP a three-year warrant to purchase Company’s common stock in the amount of 150,000 shares with an exercise price of $0.30 per share. The warrant contains an anti-dilution adjustment clause.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the three and six months ended June 30, 2016 and June 30, 2015
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). U-Vend, Inc. desires to avail itself of certain “safe harbor” provisions of the 1995 Reform Act and is therefore including this special note to enable us to do so. Except for the historical information contained herein, this report contains forward-looking statements (identified by the words “estimate,” “project,” “anticipate,” “plan,” “expect,” “intend,” “believe,” “hope,” “strategy” and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements, including, without limitation, those discussed under Part I, Item 1A “Risk Factors” in this Annual Report, and those described herein that could cause actual results to differ materially from the results anticipated in the forward-looking statements, and the following:
| ☐ | Our limited operating history with our business model. |
| ☐ | The low cash balance and limited financing currently available to us. We may in the near future have a number of obligations that we will be unable to meet without generating additional income or raising additional capital. |
| ☐ | Further cost reductions or curtailment in future operations due to our low cash balance and negative cash flow. |
| ☐ | Our ability to effect a financing transaction to fund our operations which could adversely affect the value of our stock. |
| ☐ | Our limited cash resources may not be sufficient to fund continuing losses from operations. |
| ☐ | The failure of our products and services to achieve market acceptance. |
| ☐ | The inability to compete in our market, especially against established industry competitors with greater market presence and financial resources. |
The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition and should be read in conjunction with the financial statements and footnotes that appear elsewhere in this report.
General
U-Vend, Inc. was incorporated in March 2007 as a Delaware corporation and herein we refer to the company as “we”, “us”, the “Company” or “U-Vend.” We are headquartered in Santa Monica, California and maintain operations in Ontario, Canada, Chicago, Illinois, southern California, and Las Vegas, Nevada. Our corporate office is located at 1507 7th Street, #425, Santa Monica, CA 90401 and our telephone number is (800) 467-1496. Our corporate website address is www.u-vend.com. Information contained on our websites is not a part of this interim report.
Nature of Business
The Company entered the business of developing, marketing and distributing various self-serve electronic kiosks and mall/airport co-branded islands throughout North America with the merger with U-Vend Canada, Inc. on January 7, 2014. The Company seeks to place its kiosks in high-traffic host locations such as big box stores, restaurants, malls, airports, casinos, universities, and colleges. Currently, the Company leases, owns and operates their kiosks but intends to also provide the kiosks, through a distributor relationship, to the entrepreneur wanting to own their own business.
The Company’s vending kiosks incorporate advanced wireless technology, creative concepts, and ease of management. The Company’s kiosks have been designed to be tech-savvy and can be managed on line 24 hours a day/7 days a week, accepting traditional cash input as well as credit and debit cards. Host locations and suppliers have been drawn to this distribution concept of product vending based on the advantages of reduced labor and lower product theft as compared to non-kiosk merchandising platforms. The Company takes a solutions development approach for the marketing of products through a variety of kiosk offerings. The Company’s approach to the market includes the addition of digital LCD monitors to most makes and models of their kiosk program. This would allow the Company to offer digital advertising as a national and/or local loop basis and a corresponding additional revenue stream for the Company.
The Company began its current business efforts with the acquisition of the U-Vend Canada business in January 2014. The business acquired from U-Vend Canada was focused on the Chicago, Illinois region at the date of the acquisition and has since expanded to include southern California during the fourth quarter of 2014 and Las Vegas, Nevada in the third quarter of 2015. The Company has a depot and staffing to develop and service customers in each of these geographic regions. The Company will experience increased expenses with the growth in sales and number of kiosks in service, both of which increased as the Company executed it business plan.
In February 2015, the Company announced entering into an exclusive five year North American sponsorship and licensing agreement with the National Hockey League (“NHL”) for the development, manufacturing and marketing of a novelty ice cream product. The Company has branded the product Frozen Pond Premium Ice Cream. This is the first consumer product the Company has taken from concept to market and will seek to establish a wide distribution network for the sale of the product to consumers throughout Canada and the United States.
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In June 2016, the Company entered into a license agreement beginning January 1, 2016 through December 31, 2018 with Major League Baseball Properties, Inc. (“MLB”, “Licensor”) for the non-exclusive right to certain proprietary intangible property of the Licensor to be used in connection with the manufacturing, distribution, promotion and advertisement of an ice cream novelty product to be sold within the U.S., the District of Columbia and U.S. territories.
Management’s plans
The accompanying condensed consolidated financial statements have been prepared on a going concern basis. The Company incurred a loss of $1,058,350 during the six months ended June 30, 2016, has accumulated losses totaling $6,885,772, and has a working capital deficit of $2,262,030 at June 30, 2016. These factors, among others, indicate that the Company may be unable to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
To fund the Company’s operations for the next 12 months, to allow the Company to continue the development of its business plans and satisfy its obligations on a timely basis, the Company needs to raise additional financing. Should additional financing not be available, the Company will have to negotiate with its lenders to extend the repayment dates of its indebtedness. There can be no assurance that the Company will be able to successfully restructure its debt obligations in the event it fails to obtain additional financing.
On January 7, 2014, U-Vend, Inc., formerly Internet Media Services, Inc. (“IMS”) entered into an Exchange of Securities Agreement with U-Vend Canada, Inc., and the stockholders of U-Vend Canada, Inc. (“U-Vend Canada”). The Company believes the merger with U-Vend Canada will provide it with business operations and also working capital. The Company is in discussion to raise additional capital to execute on its current business plans. There is no assurance that future financing arrangements will be successful or that the operating results of U-Vend, Inc. will yield sufficient cash flow to execute the Company’s business plans or satisfy its obligations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Results of Operations: For the Three and Six Months Ended June 30, 2016 and June 30, 2015
Revenues:
For the three months ended June 30, 2016 the Company’s revenues increased by $157,018 or 70.0% to $381,481 compared to revenues of $224,463 during the three months ended June 30, 2015. For the six months ended June 30, 2016, the Company’s revenues increased by $325,811 or 93.3% to $675,023 during the comparable period in 2015. The increases in revenues were due to additional electronic kiosks installed and operational during 2016. As of June 30, 2016, the Company had 131 electronic kiosks installed and operational in Greater Chicago, Illinois, southern California and Las Vegas, Nevada compared to 118 at June 30, 2015. A substantial number of kiosks were installed in the first quarter of 2015 and the benefit of a full operational of these kiosks was realized in 2016.
Cost of Revenues:
For the three months ended June 30, 2016, the Company’s cost of revenues increased by $44,153 or 32.8% to $178,874 compared to cost of revenues of $134,721 during the three months ended June 30, 2015. For the six months ended June 30, 2016, the Company’s cost of revenues increased by $107,221 or 49.8% to $322,490 compared to cost of revenues of $215,269 during the comparable period in 2015. The increase in cost of revenues in 2016 was due to higher revenues generated by the Company in 2016 compared to 2015. The Company’s cost of revenues as a percentage of revenues during the three and six months ended June 30, 2016 were 46.9% and 47.8%, respectively, compared to 60.0% and 61.6, respectively, in 2015.
Selling Expenses:
Selling expenses for three months and six months ended June 30, 2016 increased by $97,763 and $246,088 compared to the comparable period in 2015. Selling expenses increased, in part, due to increased revenues attained by the Company during 2016 resulting in increases in selling expenses such as commissions paid to host locations where the Company’s kiosks are based. In addition, during the six months ended June 30, 2016, the Company accrued or expensed $247,920 for sponsorship and media commitment fees in connection with the NHL Corporate Marketing Agreement and MLB compared to $140,576 during the comparable period in 2015.
General and Administrative Expenses:
General and Administrative expenses for the three months and six months ended June 30, 2016 increased by $77,591 and $48,718, respectively, compared to the comparable period in 2015. Increased levels of operations and revenues in 2016 resulted in increases in support costs including compensation, revenue based incentives and travel expenses. However the increases were offset by decreases in professional fees and merger related expenses compared to costs incurred in 2015.
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Reversal of earn-out liability:
The Company had estimated the earn-out liability pursuant to its merger agreement U-Vend Canada. The Company paid part of the liability through issuance of 2,261,425 common shares. During the six months ended June 30, 2015, the Company determined that it is unlikely that there will be additional earn-out payments since the revenue targets stipulated for the earn-out will not be achieved. Accordingly, the Company reversed the liability for contingent consideration in the amount of $201,013, resulting in non-cash operating income reflected in the accompanying condensed consolidated Statement of Operations during the six months ended June 30, 2015.
Change in fair value of debt and warrant liabilities:
The Company evaluates financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Certain warrants the Company has issued have a “down round provision” as a result the warrants are classified as derivative liabilities for accounting purposes. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair market value and then is revalued at each reporting date with any change in fair value reported in the condensed consolidated statement of operations. During the three and six months ended June 30, 2016, the Company recognized a gain on the change in fair value of warrant liabilities in the amount of $78,980 and $108,185, respectively. During the three and six months ended June 30, 2015 the Company recognized a gain on the change in fair value of warrant liabilities in the amount of $10,709 and $35,701, respectively.
Amortization of debt discount and deferred financing costs:
Amortization of debt discount and deferred financing costs increased by $45,919 from $63,157 during the three months ended June 30, 2015 to $109,076 during the three months ended June 30, 2016. For six months ended June 30, 2016, amortization of debt discount and deferred financing costs increased by $21,054 compared to comparable period in 2015. The increase in debt discount and deferred financing costs were due to additional interest, expenses, fine and penalties of $95,844 arising from Senior Convertible Notes and 2016 SPA notes issuance charged as debt discount and deferred financing costs in 2016. Since a significant part of the debt discount and deferred financing related to the senior convertible notes that were fully amortized in 2015 and 2014, these expenses decreased in 2016.
Interest expense:
Interest expense for the three months and six months ended June 30, 2016 decreased by $15,486 and $5,160, respectively over the comparable period in 2015. The decreases were due to reduction of certain debt balances with higher interest rate.
Unrealized (gain) loss on foreign currency:
The Company had two convertible notes payable in Canadian dollars that were acquired in connection with the U-Vend Canada merger on January 7, 2014. During the three months and six months ended June 30, 2016, the Company recorded an unrealized loss on foreign currency related to these notes and the related accrued interest of $612 and $9,027, respectively. During the three months ended June 30, 2015, the Company recorded an unrealized loss on foreign currency translation of $820 and, the Company recorded an unrealized gain on foreign currency translation of $15,959 during the six months ended June 30, 2015 related to these notes and the accrued interest.
Net Loss:
As a result of the foregoing, the net loss for the three months ended June 30, 2016 was $569,869 compared to a net loss of $321,893 during the three months ended June 30, 2015. For the six months ended June 30, 2016, the net loss was $1,058,350 compared to a net loss of $812,725 in 2015.
Liquidity and Capital Resources
At June 30, 2016, the Company had a working capital deficiency of approximately $2,262,000 compared to working capital deficiency of approximately $2,914,000 at December 31, 2015. The decrease in the working capital deficiency is primarily due to the refinancing short term debt with long term debt pursuant to Senior Convertible Notes and 2016 SPA Notes issuance but the decrease was offset by Company’s operating losses during the six months June 30, 2016. During the six months ended June 30, 2016, the Company’s operating activities used cash of approximately $253,000 compared to approximately $300,000 used during the six months ended June 30, 2015.
During the six months ended June 30, 2016, the Company’s operations, after adjusting for non-cash items, used approximately $823,000 of cash. Changes in working capital items provided approximately $570,000 of cash during the six months months ended June 30, 2016. During the six months ended June 30, 2015, the Company’s operations, after adjustment for non-cash items, used approximately $699,000 of cash and working capital items provided approximately $399,000 of cash.
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During the six months ended June 30, 2016, the Company issued nine promissory notes and borrowed an aggregate amount of $474,000. The promissory notes bear interest at 10% per annum and were due at various due dates in June 2016. These promissory notes were settled through issuance of 2016 SPA notes on June 30, 2016. In addition, during the six months ended June 30, 2016, the Company borrowed an aggregate of $29,300 pursuant to three promissory notes. The notes bear interest at 19% and the borrowings are payable together with interest over a period of six months from the date of borrowing. The Company repaid an aggregate of $30,549 of borrowings during the six months ended June 30, 2016 and the balance outstanding on these notes at June 30, 2016 was $9,834.
During the six months ended June 30, 2016, the Company issued 450,000 shares of common stock upon Cobrador converting Senior Convertible Note in the face amount of $22,500.
On June 30, 2016, the Company entered into an agreement with Cobrador and issued an additional Senior Convertible Note in the face amount of $108,804 in settlement of accrued interest, additional interest, fees and penalties. The additional interest, fees and penalties $72,734 and this amount was charged to operations as debt discount amortization during the six months ended June 30, 2016. The Senior Convertible Note are due on December 31, 2017 and can be convertible into shares of common stock at a conversion price $.05 per share. The Company determined that the Senior Convertible Note had beneficial conversion and allocated $87,043 as debt discount representing the beneficial conversion. The Company will amortize the debt the discount over the term of the note.
During the six months ended June 30, 2016, the Company repaid one convertible note payable in Canadian dollars that were acquired in connection with the U-Vend Canada merger on January 7, 2014 in the face amount of $19,250.
On June 30, 2016, the Company issued five Convertible Notes in the aggregate face amount of $761,597 pursuant to 2016 Stock Purchase Agreement (2016 SPA). 2016 SPA Notes are due in 24 months and bear interest at 9.5% and are convertible into shares of common stock at a conversion price of $0.17 per share. The Company satisfied its obligations for: previously issued Promissory Notes of $549,000, accrued interest of $38,615, lease principal installments of $47,466, previously accrued registration rights penalties of $22,156, due to an ex officer of $81,250, and additional interest, expenses, fine and penalties of $23,110 through the issuance of 2016 SPA Notes.
As of June 30, 2016, aggregate principal amounts of approximately $237,000 are due for repayment pursuant to the terms of the related notes. The Company is in discussion with the note holders for an extension of the repayment date, however, as of August 2, 2016 no agreement has been reached. There is no assurance that an acceptable extension agreement will be reached.
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis. The Company incurred a loss of $1,058,350 during the six months ended June 30, 2016, has accumulated losses totaling $6,885,772, and has a working capital deficit of $2,262,030 at June 30, 2016. These factors, among others, indicate that the Company may be unable to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
To fund the Company’s operations for the next 12 months, to allow the Company to continue the development of its business plans and satisfy its obligations on a timely basis the Company needs to raise additional financing. Should additional financing not be available the Company will have to negotiate with its lenders to extend the repayment dates of its indebtedness. There can be no assurance that the Company will be able to successfully restructure its debt obligations in the event it fails to obtain additional financing.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.
Inflation
Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the last three years as we are generally able to pass the increase in our material and labor costs to our customers, or absorb them as we improve the efficiency of our operations.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. The consolidated financial statements as of December 31, 2015 describe the significant accounting policies and methods used in the preparation of the consolidated financial statements. Actual results could differ from those estimates and be based on events different from those assumptions. Future events and their effects cannot be predicted with certainty; estimating therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired or as additional information is obtained. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of our consolidated financial statements:
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Fair Value of Financial Instruments
Financial instruments include cash, accounts receivable, accounts payable, accrued expenses, derivative warrant liabilities, promissory notes payable, capital lease obligations, convertible notes payables, and senior convertible notes payable. Fair values were assumed to approximate carrying values for these financial instruments, except for derivative warrant liabilities, convertible notes payable and senior convertible notes payable, since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The convertible notes payable are recorded at face amount, net of any unamortized discounts based on the underlying shares the notes can be converted into. The estimated fair value of the convertible notes is determined based on the trading price on June 30, 2016, since the underlying shares are trading in an active, observable market, the fair value measurement qualifies as a Level 1 input. The determination of the fair value of the derivative warrant liabilities include unobservable inputs and is therefore categorized as a Level 3 measurement.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 “Fair Value Measurement” establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring 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). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Derivative Financial Instruments
We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Certain warrants the Company has issued have a “down round provision.” As a result, the warrants are classified as derivative liabilities for accounting purposes.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair market value and then is revalued at each reporting date, with changes in fair value reported in the consolidated statement of operations. The methodology for valuing our outstanding warrants classified as derivative instruments was determined based on the consideration of the enterprise value of the Company, the limited market of the shares issuable under the agreement and modeling of the Monte Carlo simulation using multiple volatility assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The warrant liability is measured at fair value using certain estimated factors such as volatility and probability which are classified within Level 3 of the valuation hierarchy. Significant unobservable inputs are used in the fair value measurement of the Company’s derivative warrant liabilities include impact of dilution and volatility. Significant increases (decreases) in the volatility input would result in a significantly higher (lower) fair value measurement.
Share-Based Payments
We record our common shares issued based on the value of the shares issued or consideration received, including cash, services rendered or other non-monetary assets, whichever is more readily determinable. The Company accounts for stock-based compensation under the provisions of FASB ASC 718 “Stock Compensation.” This statement requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period in which the employee is required to provide service in exchange for the award, which is usually the vesting period. In accordance with FASB ASC 505 “Equity”, the measurement date for the non-forfeitable awards to nonemployees that vest immediately is the date the award is issued.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures:
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s chief executive officer also acting as chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
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Our chief executive officer also acting as chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and procedures were not effective and that material weaknesses described in our Form 10-K for the fiscal year ended December 31, 2015 exist in our internal control over financial reporting based on the evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.
To address the material weaknesses we performed additional analyses and other post-closing procedures and retained the services of a consultant to ensure that our condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Notwithstanding these material weaknesses, management believes that the financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, result of operations and cash flows for the periods presented.
(b) Changes in Internal Control over Financial Reporting:
There were no changes in the Company’s internal control over financial reporting during the second quarter of 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended June 30, 2016,
The Company issued 450,000 shares of its common stock upon conversion of $22,500 face amount of Senior Convertible Note.
The Company issued 2,941,176 shares of its common stock to settle $500,000 of debt due to three of its officers.
The shares of common stock to be issued in the above transactions have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were issued and sold in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
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| 10.47 | Agreement to Amend ARLP Leases |
| 10.48 | ARLP Warrant Agreement |
| 31.1 | Certification of Principal Executive and Chief Financial Officer Pursuant to Rule 13a-14(a) and15d-14(a) |
| 32.1 | Certification of Principal Executive and Chief Financial Officer Pursuant to 18 U.S.C. 1350 |
| 101.INS* | XBRL Instance Document |
| 101.SCH* | XBRL Taxonomy Extension Schema Document |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* | XBRLTaxonomy Extension Definition Linkbase Document |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
*Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Exchange Act of 1934, as amended, are deemed not filed for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.
| 19 |
In accordance with Section 13 or 15(d) of the Exchange Act of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| U-VEND, INC. | ||
| August 15, 2016 | By: | /s/ Raymond Meyers |
|
Raymond
Meyers
Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
20
Exhibit 10.47
agreement to amend LEASES
by and between
u-vend, inc.
and
AutoMATED RETAIL LEASING PARTNERS, LP
Dated as of August 8, 2016
agreement to amend leases
This agreement to amend leases (the or this “ Agreement ”), dated as of August 8, 2016, is by and between U-Vend, Inc., a Delaware corporation (the “ Company ”), and Automated Retail Leasing Partners, LP, a Delaware limited partnership (“ Lessor ”). The Company and Holder are sometimes collectively referred to herein as the “ Parties ,” and individually as a “ Party .”
W I T N E S S E T H:
WHEREAS, the Company and Lessor have entered into a number of equipment leases that are identified on Schedule A hereto (as amended, restated and/or modified prior to the date hereof, the “ Leases ,” each a “ Lease ”); and
WHEREAS, the Parties now desire to amend certain, specific terms of the Leases as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements and in reliance upon the undertakings, representations and warranties set forth herein, the Company and Lessor hereby agree as follows.
ARTICLE 1
AMENDMENTS TO LEASES
Section 1.1 Term of Lease .
i. The portion of Section 2 of each Lease beginning after the defined term “(“Commencement Date”)” is hereby amended and restated as follows: “…and shall expire on December 31, 2017.”
ii. For any fees due and payable under any Lease, the Lessor shall have the option to take payment for such fees in cash or in the form of a promissory note (convertible or otherwise).
iii. As full consideration for the extension of the term of the Leases, the Company shall issue a warrant to the Lessor the purchase of the Company’s common stock, with a five (5) year maturity from the date of issuance, in the form attached hereto as Exhibit A (the “Warrant”). The Warrant shall be for 150,000 shares of the Company’s common stock with an exercise price of $0.30 per share.
ARTICLE 2
EFFECT OF AGREEMENT
Section 2.1 Interpretation & Effect . Except as specifically set forth herein, Lessor does not by virtue of this Agreement waive any of its rights as “Lessor” under any Leases. In addition, nothing herein shall constitute a satisfaction of the Company’s obligations under the Leases. Furthermore, this Agreement does not obligate Lessor to make or agree to make any future amendments to any of the Leases. Upon its execution, this Agreement shall be deemed effective retroactively as of the original issue date of each Lease, and the terms and provisions of each Lease which are not nullified, negated, terminated, superseded, preempted, altered, modified, changed, restated, amended or otherwise rendered ineffective, inoperative and/or meaningless hereby (the “ Surviving Terms ,” each a “ Surviving Term ”) shall remain in effect and shall at all times be interpreted and enforced by the Parties in a manner consistent with, and so as to give full force and effect to, the provisions of this Agreement. In the event of any inconsistency or contradiction between this Agreement and any Surviving Term, this Agreement shall control.
Section 3.2 Integration . This Agreement together with the Surviving Terms shall constitute the entire agreement of the Parties respecting the subject matter hereof and shall collectively supersede all other provisions of the Leases and all other agreements, negotiations and prior or contemporaneous discussions and understandings of the Parties in connection with the transactions contemplated hereby.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PARTIES
Section 3.1 Lessor . Lessor hereby represents, warrants and covenants to the Company as follows:
i. Due Organization, Authority, Etc. Lessor is a limited partnership duly organized and validly existing under the laws of the State of Delaware. Lessor has all requisite power and authority to own its properties and to carry on its business as now being conducted and as proposed to be conducted and to deliver, execute and perform its obligations under this Agreement.
ii. Due Authorization . The execution, delivery and performance by Lessor of this Agreement have been duly authorized by all necessary action on the part of the manager(s) and member(s) of Lessor.
iii. Legal, Valid and Binding Obligation . This Agreement has been duly executed and delivered by Lessor and constitutes the legal, valid and binding obligation of Lessor, enforceable against Lessor in accordance with its terms.
iv. Consents, Etc. No consent, approval or authorization of or declaration, registration or filing with any federal, state or local governmental authority, or any regulatory body having jurisdiction over Holder, on the part of Lessor, which has not yet been attained or secured: (a) is required in connection with (i) the execution and delivery of this Agreement by Lessor, (ii) the performance by Lessor of its obligations hereunder; or (b) is a condition to the legality, validity or enforceability of this Agreement.
Section 3.2 Company . The Company hereby represents, warrants and covenants to Lessor as follows:
i. Due Organization, Authority, Etc. The Company is a corporation duly organized under the laws of the State of Delaware. The Company has all requisite power and authority (i) to own its properties and to carry on its business as now being conducted and as proposed to be conducted and (ii) to deliver, execute and perform its obligations under this Agreement and the Surviving Terms.
ii. Due Authorization . The execution, delivery and performance by the Company of this Agreement and the consummation of all other transactions contemplated by this Agreement have been duly authorized by all necessary action on the part of the Company.
iii. Legal, Valid and Binding Obligation . This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.
iv. Consents, Etc. No consent, approval or authorization of or declaration, registration or filing with any federal, state or local governmental authority, or any regulatory body having jurisdiction over the Company, on the part of the Company, which has not yet been attained or secured: (a) is required in connection with (i) the execution and delivery of this Agreement, or (ii) the performance by the Company of its obligations hereunder; or (b) is a condition to the legality, validity or enforceability of this Agreement.
ARTICLE 4
MISCELLANEOUS
Section 4.1 Representations . Each Party, acting through its member(s), manager(s) and/or authorized officer(s), has had an opportunity to consult with counsel of its choice prior to entering into this Agreement, and such member(s), manager(s) and/or officer(s) has/have read and is/are familiar with this entire Agreement and the Surviving Terms and their legal effect. Accordingly, no provision of this Agreement or of any Surviving Term (or any ambiguity contained herein or therein) shall be construed against the drafter hereof or thereof.
Section 5.2 Severability . In case any provision in this Agreement or in any Surviving Term shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions herein or therein, as the case may be, shall not in any way be affected or impaired thereby.
Section 5.3 Governing Law; Counterparts . The validity of this Agreement, the construction of its terms and the determination of the rights and duties of the Parties in accordance herewith, shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the conflicts of law provisions thereof, as this Agreement specifically pertains to the Leases, which, by their specific terms, are governed by such laws. This Agreement may be executed in counterparts, all of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile or electronic transmission shall be deemed to be an original signature hereto.
[ Remainder of Page Intentionally Left Blank ]
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.
| U-VEND, INC. | |||
| By: | /s/ Raymond Meyers | ||
| Name: | Raymond Meyers | ||
| Title: | Chief Executive Officer | ||
| AUTOMATED RETAIL LEASING PARTNERS, LP | |||
| By: | Automated Retail Leasing Partners, LP | ||
| Its: | General Partner | ||
| By: | /s/ Marilyn Kane | ||
| Name: | Marilyn Kane | ||
| Title: | Managing Principal | ||
Schedule A
Leases
|
Commencement
Date |
Original
Expiration Date |
Amended
Expiration Date |
Machine
Serial Number |
|||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-851 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-854 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-855 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-856 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-857 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-858 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-859 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-860 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-861 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-862 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-863 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-864 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-865 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-866 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-868 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-872 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-873 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-874 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-875 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-881 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-901 |
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-903 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-905 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-906 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-907 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-908 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-909 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-910 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-911 | |||
| 10/25/13 | 10/24/16 | 12/31/17 | MM00110-912 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-869 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-870 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-876 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-877 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-891 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-892 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-894 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-895 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-896 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-922 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-923 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-925 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-928 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-939 | |||
| 03/05/14 | 03/04/17 | 12/31/17 | 110-940 |
| 05/16/14 | 05/15/17 | 12/31/17 | 11202 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 11677 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 12379 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 16145 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 19395 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 20385 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 21675 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 22122 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-915 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-723 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-774 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-902 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-904 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-914 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-916 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-917 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-918 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-920 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-921 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-926 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-929 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-932 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-933 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-934 |
| 05/16/14 | 05/15/17 | 12/31/17 | 110-935 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-936 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-937 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-938 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-941 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-942 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-392 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-464 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 110-465 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 33779673 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 41161290 | |||
| 05/16/14 | 05/15/17 | 12/31/17 | 41161347 |
Exhibit A
Warrant
Exhibit 10.48
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT (THE “SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR UNDER ANY STATE SECURITIES LAWS (“BLUE SKY LAWS”). NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE BLUE SKY LAWS OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND COUNSEL WILL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT NO REGISTRATION IS REQUIRED BECAUSE OF THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE BLUE SKY LAWS.
WARRANT (ARLP-005)
To Purchase 150,000 Shares of Common Stock
of
U-VEND, INC.
EXERCISABLE ON OR BEFORE, AND VOID AFTER
5:00 P.M. EASTERN TIME ON AUGUST 8, 2019 (Three years from issuance)
THIS CERTIFIES THAT, for good and valuable consideration, Automated Retail Leasing Partners, LP (“ Holder ”), or its registered assigns, is entitled to subscribe for and purchase from U-VEND, INC., a Delaware corporation (the “ Company ”), at any time after August 8, 2016, to and including August 8, 2019, One Hundred and Fifty Thousand (150,000) fully paid and non-assessable shares of the Common Stock of the Company (“ Shares ”) at the price of $0.30 per Share (the “ Warrant Exercise Price ”), subject to the anti-dilution provisions of this Warrant.
The Shares that may be acquired upon exercise of this Warrant are sometimes referred to herein as the “ Warrant Shares .” As used herein, the term “ Holder ” includes any party who acquires all or a part of this Warrant as a registered transferee of Holder, or any record holder or holders of the Warrant Shares issued upon exercise, whether in whole or in part, of the Warrant. The term “ Shares ” means the common stock, par value $0.001 per share, of the Company, and will also include any capital stock of any class of the Company hereafter authorized which will not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution, or winding up of the Company. The term “ Convertible Securities ” means any stock or other securities convertible into, or exchangeable for, Shares.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability .
(a) The rights represented by this Warrant may be exercised by the Holder hereof, in whole or in part (but not as to a fractional Share), by written notice of exercise (in the form attached hereto) delivered to the Company at the principal office of the Company prior to the expiration of this Warrant and accompanied or preceded by the surrender of this Warrant along with a check in payment of the Warrant Exercise Price for such shares.
(b) Limitations on Exercises Notwithstanding anything to the contrary contained in this Warrant, this Warrant shall not be exercisable by the Holder hereof to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 4.99% (the “ Maximum Percentage ”) of the Common Stock. To the extent the above limitation applies, the determination of whether this Warrant shall be exercisable (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its affiliates) and of which such securities shall be exercisable (as among all such securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability. For the purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Warrant or securities otherwise issued. By written notice to the Company, any Holder may increase or decrease the Maximum Percentage to any other percentage specified in such notice; provided that (i) any such increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder sending such notice and not to any other holder of Warrants.
2. Exchange and Replacement . Subject to Sections 1 and 7 hereof, this Warrant is exchangeable upon the surrender hereof by the Holder to the Company at its office for new Warrants of like tenor and date representing in the aggregate the right to purchase the number of Warrant Shares purchasable hereunder, each of such new Warrants to represent the right to purchase such number of Warrant Shares (not to exceed the aggregate total number purchasable hereunder) as will be designated by the Holder at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction, or mutilation of this Warrant, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant. This Warrant will be promptly canceled by the Company upon the surrender hereof in connection with any exchange or replacement. The Company will pay all expenses, taxes (other than stock transfer taxes), and other charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 2 .
| 2 |
3. Issuance of the Warrant Shares .
(a) The Company agrees that the Warrant Shares purchased upon exercise of this Warrant will be and are deemed to be issued to the Holder as of the close of business on the date on which this Warrant will have been surrendered and the payment made for such Warrant Shares as aforesaid. Subject to the provisions of paragraph (b) of this Section 3 , certificates for the Warrant Shares so purchased will be delivered to the Holder within a reasonable time, not exceeding fifteen (15) days after the rights represented by this Warrant will have been so exercised, and, unless this Warrant has expired, a new Warrant representing the right to purchase the number of Warrant Shares, if any, with respect to which this Warrant will not then have been exercised will also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company will not be required to deliver any certificate for Warrant Shares upon exercise of this Warrant except in accordance with registration under or exemptions from the applicable securities registration requirements under the Securities Act or applicable Blue Sky Laws. Nothing herein, however, will obligate the Company to effect registrations under the Securities Act or applicable Blue Sky Laws. The Holder agrees to execute such documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company for the issuance of the Warrant Shares.
4. Covenants of the Company . The Company covenants and agrees that all Warrant Shares will, upon issuance, be duly authorized and issued, fully paid, non-assessable and free from all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant a sufficient number of Shares to provide for the exercise of the rights represented by this Warrant.
5. Anti-Dilution Adjustments . Subject and pursuant to the provisions of this Section 5, the Warrant Price and number of Common Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter in this Section 5.
a. Adjustments upon Issuance of Shares of Common Stock . If and whenever on or after the date hereof, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company) for a consideration per share (the “ New Issuance Price ”) less than a price equal to the Exercise Price in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a “ Dilutive Issuance ”), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to the New Issuance Price.
| 3 |
b. Subdivision and Combination . In case the Company shall at any time subdivide or combine the outstanding Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination.
c. Adjustment in Number of Warrant Shares . Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 3, the number of Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full shares of Common Stock by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price.
d. Reclassification, Consolidation, Merger, etc . In case of any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in the case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in nominal value, as aforesaid), or in the case of a sale or conveyance to another corporation of the property of the Company as an entirety, the Holder shall thereafter have the right to purchase the kind and number of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance as if the Holder were the owner of the Warrant Shares issuable upon exercise of the Warrants immediately prior to any such events at a price equal to the product of (x) the number of Warrant Shares issuable upon exercise of the Warrants and (y) the Exercise Price in effect immediately prior to the record date for such reclassification, change, consolidation, merger, sale or conveyance as if such Holder had exercised the Warrants.
e. Determination of Outstanding Shares . The number of shares of Common Stock at any one time outstanding shall include the aggregate number of shares issued or issuable upon the exercise of outstanding options, rights, warrants and upon the conversion or exchange of outstanding convertible or exchangeable securities.
f. Except as otherwise specifically provided herein the date of issuance or sale of Common Stock shall be deemed to be the date the Company is legally obligated to issue such Common Shares. In case at any time the Company shall take a record date for the purpose of determining the holders of Common Stock entitled (i) to receive a dividend or other distribution payable in Common Stock or (ii) to subscribe for or purchase Common Stock, then such record date shall be deemed to be the date of issue or sale of the Common Shares, deemed to have been issued or sold upon the declaration of such dividend or the making of such distribution or the granting of such right of subscription or purchase, as the case may be.
6. No Voting Rights . This Warrant will not entitle the Holder to any voting rights or other rights as a shareholder of the Company.
| 4 |
7. Notice of Transfer of Warrant or Resale of the Warrant Shares . The Holder, by acceptance hereof, agrees to give written notice to the Company before transferring this Warrant or transferring any Warrant Shares of such Holder’s intention to do so, describing briefly the manner of any proposed transfer. Holder shall also furnish the Company with an opinion of counsel reasonably acceptable to it to the effect that promptly upon receiving such written notice, the Company will present copies thereof to counsel to the original purchaser of this Warrant. The proposed transfer may be effected without registration under the Securities Act or applicable Blue Sky Laws. The prospective transferee or purchaser will also execute such documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company for the transfer or disposition of the Warrant or Warrant Shares.
8. Fractional Shares . Fractional shares will not be issued upon the exercise of this Warrant, but in any case where the holder would, except for the provisions of this Section, be entitled under the terms hereof to receive a fractional share, the number of Shares will be rounded up to the nearest whole Share.
9. Governing Law . This Warrant shall be governed by the laws of the State of Delaware without regard to its principles of conflict of laws.
| 5 |
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer and this Warrant to be dated August 8, 2016.
| U-VEND, INC. | ||
| By: | /s/ Raymond Meyers | |
| Name: | Raymond Meyers | |
| Title: | Chief Executive Officer | |
SUBSCRIPTION FORM
(To be signed upon exercise of Warrant)
The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, _____________________________ of the shares of Common Stock of U-Vend, Inc. to which such Warrant relates and herewith makes payment of $__________________ therefore in cash or by certified check and requests that the certificate for such shares be issued in the name of, and be delivered to, ______________________, the address for which is set forth below the signature of the undersigned.
Dated: __________________
| (Signature) | |
| (Name) | |
| (Address) | |
| Social Security or Tax Ident. No. |
ASSIGNMENT FORM
(To be signed upon authorized transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto ______________________________ the right to purchase ____________ shares of Common Stock of U-Vend, Inc. to which the within Warrant relates and appoints ___________________ attorney, to transfer said right on the books of ________________ with full power of substitution in the premises.
Dated: __________________
| (Signature) | |
| (Name) | |
| (Address) | |
| Social Security or Tax Ident. No. |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Raymond Meyers, certify that:
1. I have reviewed this report on Form 10-Q of U-Vend, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over such reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Raymond Meyers | ||
| Raymond Meyers | ||
| August 15 , 2016 | Chief Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE AND CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 906
Of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of U-Vend, Inc. the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 (the Form10-Q) of the Company fully complies with the requirement of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: August 15, 2016 | ||
| /s/ Raymond Meyers | ||
|
Raymond Meyers
Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |