ICOX INNOVATIONS INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Edgar Glimpses |

Forward-Looking Statements

This quarterly report contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or management's plans and objectives for future operations. In some cases, forward-looking statements can be identified by the use of terminology such as "may", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or "continues" or the negative of these terms or other comparable terminology. Examples of forward-looking statements made in this quarterly report include or may include, among others, statements about:



  ? our proposed plan of operations;
  ? our financial and operating objectives and strategies to achieve them;
  ? the costs and timing of our services;
  ? our use of available funds;
  ? our capital and funding requirements; and
  ? our other financial or operating performances.



The material assumptions supporting these forward-looking statements include, among other things:



  ? our future growth potential, results of operations, future prospects and
    opportunities;
  ? execution of our business strategy;
  ? there being no material variations in current regulatory environments;
  ? our operating expenses, including general and administrative expenses;
  ? our ability to obtain any necessary financing on acceptable terms;
  ? timing and amount of capital expenditures;
  ? retention of skilled personnel;
  ? continuation of current tax and regulatory regimes; and
  ? general economic and financial market conditions.



Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

These forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, including:



  ? inability to efficiently manage our operations;
  ? general economic and business conditions;
  ? our negative operating cash flow;
  ? our ability to obtain additional financing;
  ? increases in capital and operating costs;
  ? general cryptocurrency risks;
  ? technological changes and developments in the blockchain and cryptocurrencies;
  ? risks relating to regulatory changes or actions;
  ? competition for blockchain platforms and technologies; and
  ? other risk factors discussed in our annual report on Form 10-K filed on ,



any of which may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Further, although we have attempted to identify factors that could cause actual results, levels of activity, performance or achievements to differ materially from those described in forward-looking statements, there may be other factors that cause results, levels of activity, performance or achievements not to be as anticipated, estimated or intended.



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While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect management's current judgment regarding the direction of our business, actual results may vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Accordingly, readers should not place undue reliance on forward-looking statements. Except as required by applicable law, including the securities laws of the United States and Canada, we do not intend to update any of the forward-looking statements to conform these statements to actual results. All forward-looking statements in this quarterly report are qualified by this cautionary statement.

All financial information contained herein is shown in United States dollars unless otherwise stated. Our financial statements are prepared in accordance with United States generally accepted accounting principles. Unless otherwise stated, "$" refers to United States dollars.

In this quarterly report, unless otherwise specified, all references to "shares" refer to shares of common stock in the capital of our company.

As used in this quarterly report, the terms "we", "us", "our", and "ICOx" mean ICOx Innovations Inc. and its wholly-owned subsidiary, ICOx USA, Inc. (formerly AppCoin Innovations (USA) Inc.), unless otherwise specified.



Overview


We were incorporated under the laws of the State of Nevada on . Following incorporation, we commenced the business of representing authors to publishers.

Our business is a services and development business that provides a turnkey set of services for companies to develop and integrate blockchain and cryptocurrency technologies into their business operations. We anticipate that we will enable companies to focus on their core competencies while providing the necessary resources and expertise to execute a strategy that will enable companies to integrate new blockchain plus cryptocurrency technologies into their business operations. Our plan is to be compensated on a fee-for-services model. We may also accept tokens, coins or equity in payment for our services, to the extent permitted under applicable law.

On , we entered into a business services agreement with Ryde Holding Inc. ("Ryde"), formerly WENN Digital Inc., on , we entered into the amendment no. 1 to business services agreement dated as of with Ryde, and, on , we entered into the amendment no. 2 to business services agreement dated as of with Ryde. On , we entered into the amendment no. 3 to business services agreement dated as of with Ryde. Pursuant to the business services agreement, we agreed to provide Ryde with the services in connection with Ryde's development of an image rights management and protection platform (the "Platform") using blockchain technology, including (i) the business development and technical services, (ii) the business launch services and (iii) the post-business launch support services.

Ryde has entered into a licensing partnership agreement with Eastman Kodak Company, which announced the launch of the KODAKOne blockchain platform and KODAKCoin ICO. We are providing the services relating to the KODAKOne blockchain platform and the KODAKCoin ICO pursuant to a business services agreement dated , as amended as of , and with Ryde.

On , we, through our wholly-owned subsidiary, ICOx USA, entered into a master services agreement with BitRail, LLC ("BitRail") to develop a blockchain-based payment processing application allowing the purchase and sale of cryptocurrencies.



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Results of Operations



Three Months Ended Compared to the Three Months Ended



Revenue


We had no revenue for the three months ended and 2017.



Operating Expenses


We incurred general and administrative expenses and related party consulting of $914,153 and $67,022 for the three months ended and 2017, respectively, representing an increase of $847,131 between the two periods. These expenses consisted primarily of consulting fees, professional fees, and other general and administrative costs. The increase in consulting fees between the two periods from $56,500 in 2017 to $342,361 in 2018 was due to the consulting agreement with Business Instincts Group Inc. to provide strategic and project management services as well as consulting agreements with our senior and executive staff. Business Instincts Group Inc. is a related party as Cameron Chell is a common director of the companies. Professional fees increased from $8,450 in 2017 to $95,895 in 2018 and the increase was primarily due to obtaining a legal opinion letter and higher review expenses. The increase in other general and administrative costs increased from $2,062 in 2017 to $475,635 in 2018 due to increased travel costs, advertising and marketing costs, compliance fees, and stock-based compensation. Service costs increased from $nil in 2017 to $78,421 in 2018 is a result of services rendered for our client in our new business or operations.

Consulting fees of $342,361 in the third quarter of 2018 relate in part to $105,000 paid to Business Instincts Group Inc., $67,500 to our directors, $48,000 paid to our president, Bruce Elliott, for management services, $41,108 paid to members of our advisory board, $30,000 paid to our chief financial officer, Michael Blum, for management services, $30,000 paid for accounting services, $16,678 in stock-based compensation, and $4,075 paid for development services.

Service fees of $78,421 in the third quarter of 2018 relate to $34,429 for legal fees, $24,757 for public relation and marketing services, $18,285 for travel, and $950 for website and graphic design.



Net Loss from Operations


We incurred net losses from operations of $996,958 and $73,112 for the three months ended and 2017, respectively, representing an increase of $923,846, primarily attributable to the factors discussed above under the heading "Operating Expenses".

Nine Months Ended Compared to the Nine Months Ended




Revenue



We had no revenue for the nine months ended and 2017.



Operating Expenses


We incurred general and administrative expenses and related party consulting of $2,289,738 and $102,166 for the nine months ended and 2017, respectively, representing an increase of $2,105,072 between the two periods. These expenses consisted primarily of consulting fees, professional fees, and other general and administrative costs. The increase in consulting fees between the two periods from $77,900 in 2017 to $1,108,887 in 2018 was due to the consulting agreement with Business Instincts Group Inc. to provide strategic and project management services as well as consulting agreements with our senior and executive staff. Business Instincts Group Inc. is a related party as Cameron Chell is a common director of the companies. Professional fees increased from $20,234 in 2017 to $214,025 in 2018 and the increase was primarily due to an increase in legal services related to the evaluation of potential business opportunities, regulatory compliance, and higher review expenses. The increase in other general and administrative costs increased from $4,022 in 2017 to $964,530 in 2018 due to increased travel costs, advertising and marketing costs, compliance fees, and stock-based compensation. Service costs increased from $nil in 2017 to $651,341 in 2018 is a result of services rendered for our client in our new business or operations.



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Consulting fees of $1,108,887 in the first nine months of 2018 relate in part to $455,000 paid to Business Instincts Group Inc., $156,511 to our directors, $122,000 paid to our president, Bruce Elliott, for management services, $98,616 paid to members of our advisory board, $90,000 paid to our chief financial officer, Michael Blum, for management services, $84,000 paid for accounting services, $47,221 paid for development services, $43,039 in stock-based compensation, and $12,500 for recruiting services.

Service fees of $651,341 in the first nine months of 2018 relate to $337,561 for public relation and marketing services, $149,845 for legal fees, $54,306 for travel, $51,700 for website and graphic design, $47,372 for management costs, $5,116 for due diligence, $2,482 for token exchange listing assistance, $1,908 to establish a social media presence, and $1,051 for office supplies.



Net Loss from Operations


We incurred net losses from operations of $2,985,020 and $123,695 for the nine months ended and 2017, respectively, representing an increase of $2,861,325, primarily attributable to the factors discussed above under the heading "Operating Expenses".

Liquidity and Capital Resources




Working Capital



                             As at                    As at
                       September 30, 2018       December 31, 2017
Current Assets        $          3,504,210     $           880,766
Current Liabilities                323,138                 182,919
Working Capital                  3,181,072                 697,847




Current Assets


Current assets were $3,504,210 as at and $880,766 as at . The increase in current assets as at was due to the closing of the private placement partially offset by the payment of business expenses.




Current Liabilities



Current liabilities as at  were attributable to $323,138 in
accounts payable and accrued expenses compared to $182,919 as at .



Cash Flow



                                                       Nine months              Nine months
                                                          ended                    ended
                                                    September 30, 2018      September 30, 2017
Net cash (used in) operating activities            $         (2,742,911 )   $          (141,039 )
Net cash (used in) investing activities                      (1,150,000 )                     -
Net cash provided by financing activities                     5,232,989                 280,000
Net changes in cash and cash equivalents           $          1,340,078     $           138,961




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Operating Activities


Net cash used in operating activities was $2,742,911 for the nine-month period ended , as compared to $141,039 for the nine-month period ended , an increase of $2,601,872. The increase in net cash used in operating activities was primarily due an increase in operating expenses and deferred service costs offset by receipts of accounts receivable and an increase in the accounts payable outstanding.



Investing Activities


Investing activities used cash of $1,150,000 for the nine-month period ended as compared to $nil for the nine-month period ended . The cash used was from loans provided to Ryde in partially offset by a repayment from the previous loan provided to Ryde.



Financing Activities


Financing activities provided cash of $5,232,989 for the nine months ended and $280,000 for the nine months ended . To help fund our operating activities until our private placement closed, we received a $100,000 loan from Michael Blum, the chief financial officer of our company, and a $100,000 loan from Greg Burnett, a member of our advisory board. These loans were repaid in after the closing of the private placement for net proceeds of $5,232,989.



Cash Requirements


We expect that we will require $5.515 million, including our current working capital, to fund our operating expenditures for the next twelve months. Projected working capital requirements for the next twelve months are as follows:



      Estimated Working Capital Expenditures During the Next Twelve Months



Operating expenses                                               $      2,015,000
General and administrative expenses                                     3,350,000
Estimated costs of the listing on a Canadian stock exchange
and related expenses                                                      150,000
Total                                                            $      5,515,000



We plan to continue to provide the services in connection with the development and launch of the Platform (with a targeted launch prior to ) pursuant to the business services agreement dated , as amended as of , and with Ryde. As at , we spent approximately $851,000 and expect to spend additional $200,000 to $300,000 in connection with the development and launch of the Platform and post-launch support.

In addition, we plan to continue to provide the services to develop a blockchain based payment processing application allowing the purchase and sale of cryptocurrencies (with a targeted launch prior to ) pursuant a master services agreement dated with BitRail. As at , we spent approximately $256,000 and expect to spend additional $100,000 to $200,000 in connection with the development and launch of the blockchain based payment processing application and post-launch support.

For the next 12 months, we plan to enter into one or two additional business services agreements with other clients on terms similar to agreements entered with Ryde or BitRail. We intend to spend between $500,000 and $1,000,000 on various expenses to assist client companies to develop and integrate blockchain and cryptocurrency technologies into their business operations.



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Our estimated operating expenses for the next 12 months are $2,015,000 and are comprised of blockchain platform launch related expenses such as project management and consulting, legal fees, support agents and monitoring expenses, and blockchain and software expenses, all of which are included in the amounts between $500,000 and $1,000,000 we intend to spend on various expenses to assist client companies to develop and integrate blockchain and cryptocurrency technologies into their business operations.

Our estimated general and administrative expenses for the next 12 months are $3,350,000 and are comprised of: $2,250,000 for consulting fees, of which approximately $1,260,000 is allocated to Business Instincts Group Inc., $192,000 is allocated to our president, Bruce Elliott, $120,000 is allocated to our chief financial officer, Michael Blum, $120,000 is allocated to our lead director, James P. Geiskopf, $120,000 is allocated for accounting services, $60,000 is allocated for financial services, $200,000 is allocated to our board of directors and our advisory board, $110,000 is allocated to our marketing and development consultants, and $68,000 is allocated to our public relations and marketing consultants; $250,000 for legal and professional fees (including auditing fees); $180,000 for marketing and advertising expenses; $102,000 for trade shows; $250,000 for travel expenses; $198,000 for office rent and $120,000 for miscellaneous and office expenses.

We will require additional cash resources to meet our planned capital expenditures and working capital requirements for the next 12 months. We expect to derive such cash through the sale of equity or debt securities or by obtaining a credit facility. The sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in debt service obligations, could cause additional dilution to our stockholders, and could require us to agree to financial covenants that could restrict our operations or modify our plans to source a new business opportunity. Financing may not be available in amounts or on terms acceptable to us, if at all. Failure to raise additional funds could cause our company to fail.




Going Concern



Our consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have not yet established a source of revenues sufficient to cover our operating costs and to allow us to continue as a going concern. We have incurred losses since inception resulting in an accumulated deficit of $3,678,028 as at (: $693,008). Our ability to operate as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable.

In its report on our financial statements for the years ended and 2016, our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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