Introduction
. Digatrade Financial Corp (referred to as
“Digatrade” or “the Company”), is a British
Columbia corporation, incorporated on December 28, 2000. The
Company is listed as a fully reporting issuer on the OTC Market
Group Inc.’s “Pink” marketplace, and trades under
the symbol “DIGAF”.
The
Company was incorporated under the name Black Diamond Holdings
Corporation. On June 26, 2007, the Company changed its name from
Black Diamond Holdings Corporation to Black Diamond Brands
Corporation. On November 21, 2008, the Company changed its name to
Rainchief Energy Inc., and on February 19, 2015, to Bit-X Financial
Corporation. On October 27, 2015, the Company changed its name to
Digatrade Financial Corporation.
Digatrade operates as a financial technology (FinTech) services
company. The Company has been focused on the financial technology
industry since 2015. During that time, the Company has pursued
several different areas of business including blockchain
development services, transaction services for crypto-currencies
(e.g. Bitcoin) and other related financial services
technologies.
In March 2015, the Company entered into an agreement with Mega
Ideas Holdings Limited, dba ANX (“ANXPRO and ANX
International”), a company incorporated and existing under
the laws of Hong Kong. ANX owns a proprietary trading platform and
provides operational support specializing in blockchain development
services and exchange and transaction services for
crypto-currencies e.g. Bitcoin and other digital assets. However,
effective October 17, 2018, the Company closed its online retail
trading platform, although the Company may continue to evaluate
opportunities and continue with research in digital-asset trading
for prospective institutional customers while continuing to seek
new opportunities within the blockchain and the financial
technology services (non-trading) sector.
On
February 28, 2019 the Company
executed
a definitive agreement (the “Securter Agreement”) with
Securter Inc. (“Securter Inc.”), a private Canadian
Corporation that is developing a proprietary, patent-pending credit
card payment platform to significantly increase the security of
online credit card payment processing. Securter technology reduces
immense losses by financial institutions and merchants that arise
from fraudulent credit card use and protects cardholder privacy by
eliminating the distribution of personal information to third
parties. With the current worldwide surge in online commerce
expected to continue for years to come, the problem of credit card
security is large and growing. The Definitive Agreement with
Securter Inc. sets out that Securter’s technology will be
launched and commercialized as a Digatrade
subsidiary.
Pursuant
to the terms of the Securter Agreement, the parties agreed to form
a subsidiary of Digatrade, Securter Systems, Inc. (“Securter
Systems”), and assign all of the assets and intellectual
property of Securter Inc. into Securter Systems. Securter Systems
has been created to launch and commercialize the Securter
technology under Digatrade.
The
Securter Agreement with Securter Inc. sets out that
Securter’s technology will be launched and commercialized
under Securter Systems as a Digatrade subsidiary. The consummation
of the Securter Agreement is subject to certain milestone events,
including the contribution of capital by Digatrade to Securter
Systems.
Item 1. Identity of Directors, Senior Management and
Advisers
A.
Directors and Senior
Management
.
The
President of the Company is Brad Moynes, and the directors of the
Company are Brad Moynes, Tyrone Docherty, and Timothy Delaney of
1500 West Georgia Street, Suite 1300, Vancouver, British Columbia,
Canada, V6C 2Z6. Mr. Moynes also serves as our Chairman,
Chief Executive Officer and Interim Chief Financial Officer. See
Item 6 for further information.
Not
applicable; Pursuant to Instructions to Item 1.B, we are not
required to provide this information.
The
Company’s registered independent auditors are WDM Chartered
Professional Accountants, Suite 420 – 1501 West Broadway,
Vancouver, British Columbia, Canada, V6J 4Z6. For
further information, see Item 16C and the consolidated financial
statements under Item 8.
Item 2. Offer Statistics and Expected
Timetable
Not
applicable; Pursuant to Instructions to Item 2, we are not required
to provide this information.
Item 3. Key Information
A. Selected Financial Data
The
following selected information should be read in conjunction with
the Company’s consolidated financial statements and notes for
the year ended December 31, 2018, filed with this Form
20-F. This information, and all other financial
information in this Form 20-F, is stated in Canadian dollars unless
otherwise noted.
The
financial information is presented on the basis of International
Financial Reporting Standards. With respect to the
Company’s consolidated financial statements, there are no
material differences from applying these principles compared to
applying United States generally accepted accounting
principles.
Selected Consolidated Financial and Operating Data
|
|
|
|
Operating
Data
|
|
|
|
|
|
|
|
Sales
|
-
|
-
|
|
Gross Profit, Net
of Cost of Sales
|
-
|
-
|
|
|
|
|
|
Net
Loss
|
(1,122,820
)
|
(674,520
|
|
Loss
per Common Share – Basic & Diluted*
|
(0.01
)
|
(0.01
|
|
|
|
|
|
Number
of Shares Outstanding*
|
226,411,904
|
49,661,150
|
|
|
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
527,193
|
960,108
|
|
Current
Liabilities
|
766,169
|
1,742,215
|
|
Total
Assets
|
|
|
|
|
|
|
|
Share
Capital
|
6,047,999
|
4,106,207
|
|
Accumulated
Deficit
|
(6,298,936
)
|
(5,176,116
)
|
|
Dividends
per Common Share
|
0
|
0
|
|
Net
Loss
|
(1,122,820
)
|
(674,520
)
|
|
Loss
per Common Share – Basic & Diluted*
|
(0.01
)
|
(0.01
)
|
*
Adjusted to reflect the consolidation of the Company’s stock
on (i) March 22, 2010 in the ratio of 1 new common share for 10 old
common shares, (ii) April 3, 2013 in the ratio of 1 new common
share for 50 old common shares and (iii) June 8, 2016 in the ratio
of 1 new common share for 50 old common shares
Exchange Rates
In this
FORM 20-F, references to “dollars”, “$” or
“CAD$” are to Canadian dollars, unless otherwise
specified. Reference to “US$” refers to United States
dollars. Since June 1, 1970, the Government of Canada has permitted
a floating exchange rate to determine the value of the Canadian
dollar as compared to the United States dollar.
The
Company’s consolidated financial statements are stated in
Canadian dollars.
The
Company realized a loss on foreign exchange of $26,711 for the year
ended December 31, 2018 and a gain of $40,723 for the year ended
December 31, 2017, respectively. These foreign exchange
gains and losses were due to currency exchange rate fluctuations
between the Canadian and United States dollar.
The
Bank of Canada closing exchange rate on December 31, 2018 was
Cdn$1.3642 per US$1.00. For the past five fiscal years ended
December 31, 2018 and for the period between January 1, 2018 and
December 31, 2018, the following exchange rates were in effect for
Canadian dollars exchanged for United States dollars, expressed in
terms of United States dollars (based on the nominal exchange rates
provided by the Bank of Canada):
|
Year
Ended
|
|
|
December 31,
2014
|
$
1.10
|
|
December 31,
2015
|
$
1.28
|
|
December 31,
2016
|
$
1.33
|
|
December 31,
2017
|
$
1.30
|
|
December 31,
2018
|
$
1.30
|
|
|
|
|
Month
Ended
|
|
|
|
January 31,
2018
|
$
1.23
|
$
1.25
|
|
February 28,
2018
|
$
1.23
|
$
1.28
|
|
March 31,
2018
|
$
1.28
|
$
1.31
|
|
April 30,
2018
|
$
1.26
|
$
1.29
|
|
May 31,
2018
|
$
1.28
|
$
1.30
|
|
June 30,
2018
|
$
1.29
|
$
1.33
|
|
July 31,
2018
|
$
1.30
|
$
1.33
|
|
August 31,
2018
|
$
1.29
|
$
1.32
|
|
September 30,
2018
|
$
1.29
|
$
1.32
|
|
October 31,
2018
|
$
1.28
|
$
1.31
|
|
November 30,
2018
|
$
1.31
|
$
1.33
|
|
December 31,
2018
|
$
1.32
|
$
1.36
|
B. Capitalization and Indebtedness
The
following table sets forth our capitalization as of December 31,
2018, using:
●
226,411,904
common shares outstanding on an
actual basis;
●
100,000 Class B
common shares outstanding
on an actual basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
493,810
|
392,004
|
|
Long-term
obligations, less current portion
|
11,961
|
-
|
|
|
|
|
|
Shareholders’ (deficiency) equity
|
|
|
|
Share
capital
|
6,047,999
|
6,507,198
|
|
Contributed
Surplus
|
-
|
60,000
|
|
Accumulated
deficit
|
(6,298,936
)
|
(6,935,727
)
|
|
Shareholders’
(deficiency) equity
|
(250,937
|
(368,529
)
|
Effective June 8,
2016 the common shares of the Company were consolidated at the
ratio of one new common share for every 50 old common shares. The
Company issued 12,306 shares to round up fractional entitlements
resulting from the consolidation.
On July
15, 2016, the Company entered into a debt settlement agreement with
a company controlled by a Director and Officer of the Company to
settle outstanding accounts payable of $25,000. The Company agreed
to issue 25,000,000 shares with a fair value equal to the value of
the underlying debt settled.
On
August 15, 2016, the Company entered into an assignment of
creditors and settlement of debt agreement with certain arm’s
length parties. The Company settled certain promissory notes
totalling $118,204 (US$91,475) by the issuance of 8,000,000 shares
with a fair value equal to the value of the underlying debt
settled
On
December 20, 2016, the Company entered into an assignment of
creditors and settlement of debt agreement with certain arm’s
length parties. The Company settled promissory notes totalling
$175,185 (including US$65,550) by the issuance of 8,000,000 shares
with a fair value of $133,779. A gain of $41,406 on the settlement
of debts was recognized.
On
December 12, 2016, the Company completed a private placement of
500,000 shares at US$0.50 per share, raising gross proceeds of
$308,977 (US$250,000). The shares were not issued by December 31,
2016 and on September 20, 2017, the Company re-priced the
subscription share price to US$0.10 per share and issued 2,500,000
common shares to the subscribers.
On June
12, 2017, the Company settled convertible promissory notes
totalling $32,700 by the issuance of 2,000,000 common shares with a
fair value equal to the value of the underlying debt
settled.
On
September 21, 2017, the Company settled a convertible promissory
note owed to a company controlled by a former Officer and Director
of the Company in the amount of $61,694 (US$50,000) by the issuance
of 1,000,000 common shares with a fair value equal to the value of
the underlying debt settled.
On
October 10, 2018, the Company passed a resolution authorizing the
creation of a new 100,000 Class “B” common shares with
the following characteristics: non-participating, no par value, and
with the voting right of 1,000 votes per share. On the same day,
the Company issued 100,000 Class “B” common shares at
$0.001 per share for total proceeds of $100 to a shareholder who is
also a Director and Office of the Company. On January 2, 2019, the
Company passed a resolution to increase the authorized number of
Class “B” common shares from 100,000 to 1,100,000 and
issued 1,000,000 Class “B” common shares at $0.0001 per
share for total proceeds of $100 to a shareholder who is also a
Director and Officer of the Company.
None of
the capitalization referred to above is secured or guaranteed. All
amounts in respect of capitalization including long term debt are
unsecured and not guaranteed.
C. Reasons for the Offer and Use of
Proceeds
The
Company is seeking to raise gross proceeds of up to US$5,000,000
from the sale of its securities in a Reg. A offering (the
“Offering”). The Company intends to apply these
proceeds substantially as set forth herein, subject only to
reallocation by Company Management in the best interests of the
Company. All proceeds from such will become immediately available
to us and may be used as they are accepted.
|
Percentage
of Offering Sold
|
|
|
|
|
|
Gross Offering
Proceeds
|
$
5,000,000
|
$
3,750,000
|
$
2,500,000
|
$
1,250,000
|
|
Use
of Proceeds:
|
|
|
|
|
|
General Working
Capital
|
$
1,800,000
|
$
600,000
|
$
100,000
|
$
50,000
|
|
Research &
Development of Securter technology (1)
|
$
3,000,000
|
$
3,000,000
|
$
2,300,000
|
$
1,100,000
|
|
Legal
Fees
|
$
75,000
|
$
75,000
|
$
75,000
|
$
75,000
|
|
Accounting
Fees
|
$
25,000
|
$
25,000
|
$
25,000
|
$
25,000
|
|
Reserve/contingency
|
$
100,000
|
$
50,000
|
$
0
|
$
0
|
|
TOTAL
|
$
5,000,000
|
$
3,750,000
|
$
2,500,000
|
$
1,250,000
|
(1)
As
it relates to general working capital allocated for the development
of Securter technology, use of proceeds will be for research and
development of the Securter patent pending application that will
enable FinTech to be more secure with online payments for Card not
Present “CNP” transactions. The Securter Agreement is
attached to this report as Exhibit 10.1. The anticipated technology
development costs and key personnel hires in year-one will be
approximately US$1.14m. The Securter Systems team will consist of
one full-time CTO, CINO or VP of R&D, three full-time company
developers, scientific adviser, one full-time technical support
person, web programmer, web designer, 3rd party software
development company and HW development company. Additional PCI and
EMV L2 certifications will be approximately
US$190k.
In the event that the Offering is less than fully subscribed, the
Company plans to raise capital from other financial instruments to
fund operations related to Securter Systems and/or reduce planned
staffing/hires which may delay implementation of the proposed
business plan
. The Company cannot guarantee that it
will be available to raise sufficient capital for such purposes
from other sources.
D. Risk Factors
Forward-looking Statements
. In this document, we
are showing you a picture which is part historical (events which
have happened) and part predictive (events which we believe will
happen). Except for the historical information, all of
the information in this document comprises "forward looking"
statements. Specifically, all statements (other than
statements of historical fact) regarding our financial position,
business strategy and plans and objectives are forward-looking
statements. These forward-looking statements are based
on the beliefs of management, as well as assumptions made by, and
information currently available to management. These
statements involve known and unknown risks, including the risks
resulting from economic and market conditions, accurately
forecasting operating and capital expenditures and capital needs,
successful anticipation of competition which may not yet be fully
developed, and other business conditions. Our use of the
words "anticipate", "believe", "estimate", "expect", "may", "will",
"continue" and "intend", and similar words or phrases, are intended
to identify forward-looking statements (also known as "cautionary
statements"). These statements reflect our current views
with respect to future events. They are subject to the
realization in fact of assumptions, but what we now believe will
occur may turn out to be inaccurate or incomplete. We
cannot assure you that our expectations will prove to be
correct. Actual operating results and financial
performance may prove to be very different from what we now predict
or anticipate. The "risk factors" below specifically
address all of the factors now identifiable by us that may
influence future operating results and financial
performance.
Risk Factors
Risks Related to the Business
We have a history of operating losses and need additional capital
to implement our business plan.
For the
year ended December 31, 2018, we recorded a net loss of from
operations of $1,122,820 (US$866,822) as compared to a net loss of
$674,520 (US$520,199) for the year ended December 31, 2017. The
financial statements have been prepared using IFRS principles
applicable to a going concern. However, as shown in note 1 to the
consolidated financial statements for the year ended December 31,
2018, our ability to continue operations is uncertain.
We
continue to incur operating losses and have a consolidated deficit
of $6,298,938 (US$5,725,781) as at December 31, 2018. Operations
for the year ended December 31, 2018 have been funded primarily
from the issuance of share capital, debt financing and the
continued support of creditors. Historically, we have met working
capital needs primarily by selling equity to Canadian residents,
raising debt finance and from loans (including loans from relatives
of principal shareholders).
We
estimate that we will require at least US$3,000,000 to further fund
the development of a proprietary, patent-pending credit card
payment platform to significantly increase the security of online
credit card payment processing, reducing financial losses being
experienced by financial institutions and merchants from fraudulent
credit card use, while also better protecting cardholder privacy. A
full implementation of our business plan will be delayed until the
necessary capital is raised.
We cannot predict when or if we will produce revenues.
We have
not generated any revenue to date from operations. In order for us
to continue with our plans and open our business, we must raise
capital. The timing of the completion of the milestones needed to
commence operations and generate revenues is contingent on the
success of this raise. There can be no assurance that we will
generate revenues or that revenues will be sufficient to maintain
our business.
Our entry into the development of a secure mobile application for
card not present “CNP” transaction business may not be
successful and there are risks attendant on these
activities.
The
Financial Technology “FinTech” business is extremely
competitive. There are many companies, large and small entering the
market with the capital to develop and create new innovative
applications resulting in a highly competitive and fast-moving
environment. Even with capital and technical expertise, industry,
political and compliance risks are significant. Regulatory
compliance and the overall ecosystem for secure online payments is
extremely complex and not yet fully defined by governments and
financial institutions worldwide. We may not be able to finance our
business plan and marketing plan, there is no assurance that our
entry into this business will be successful.
Cybersecurity risks associated with the FinTech industry are
becoming increasingly challenging and we may be unable to meet
future regulatory requirements related to data protection and
privacy.
Cybersecurity
is becoming increasingly challenging with the growth in the number
of hackers and financial stalkers seeking opportunities to disrupt
operations and/or extort funds from persons or companies whose
cybersecurity measures were unable to prevent malicious data
harvesting and misuse. We cannot guarantee that all such attempts
shall be defeated, nor that our intellectual property shall remain
beyond the reach of parties seeking proprietary insights. Data
protection and privacy is never absolute, regardless of method(s)
used. Independent of any 3rd party malicious intent referred to
above, there is a risk that despite best efforts our data
protection and privacy shall not meet a future regulatory
definition of a reasonable standard, if it is imposed or
“expected” retroactively. Information at risk may or
may not be financial in nature and may or may not be our own
information. We do not have sufficient resources to evaluate all
possible outcomes, or all possible measures that we could take now,
or could have taken in the past, to attain an even higher level of
diligence and care than we are taking presently.
Regulatory compliance in the FinTech sector is
evolving.
We are
unable to guarantee that we will be able to proceed with all
desired plans if the regulatory environment changes in a manner
that undermines existing business plans. Such regulations have an
impact in every country in which we will be deriving revenue from
licensing or by any other commercial mechanism.
We may be unable to meet growth Open Source technology trends which
could have a detrimental impact on our business.
Open
source software compliance and vulnerability management has become
an area of risk due to the expanding scope of this realm of
software. We cannot ensure that we will at all times fully
understand the state-of-the-art standing of every aspect of our own
development goals until such time that a sufficient expenditure of
time, money and effort has been made to understand all open source
material and trends, and their relevance to our own
interests.
Customers may not adapt to our new technology which may affect our
ability to generate revenues in the future.
Culture
risk emerges when our organization interfaces with financial
institutions as our customers. We do not know in advance whether
all our customers will be willing to make changes, if necessary, to
accommodate protocols that arise from the adoption of our
technology, or incompatibility that may arise from the nature of
our software development methods, including our approach to FinTech
problem solving.
Reliance on systems governance on third party transactions may risk
compliance issues.
Governance
for intelligent automation is of increasing importance in business
activity that is characterized by a large number of
small-dollar-value transactions. Our revenue model requires sharing
of transaction fees for commerce that, in aggregate, may represent
millions or even hundreds of millions of consumer transactions. We
may therefore need to rely upon systems-governance more than
individual situational oversight where third party transactions are
concerned. This may mean that non-compliance of some type may come
to light too late to remedy in the immediate tense and may
therefore only be correctable with systemic adjustment for the
future.
FinTech is an emerging industry that may be subject to changes in
accounting standards in the future the adoption of which may
require time for our business to adjust.
New
accounting standards in the category of FinTech sector businesses
may be introduced over time and have a bearing on our planning,
execution and reporting in respect of issues that have hitherto
been satisfactory and understood, but may require a period of
transition to grasp implications at the strategic level and
communicate same to shareholders effectively.
Use of
data and analytics in our internal audit may become more complex as
metadata becomes increasingly important to our analyses. It is not
known whether the effect upon our internal practices of new
analytics will remain permissible from the perspective of
third-party audits occurring after-the-fact.
Our use of Cloud computing, data storage and/or cloud collaboration
may not conform to future operational “best
practices.”
Transitioning
to and operating “in the cloud” is a matter whose risks
and rewards are subject to conflicting strategies even amongst
companies who otherwise are considered to have best practices,
operationally. It is not knowable in advance whether our own
policies regarding the use of cloud computing, cloud data storage
or cloud collaboration in our use of information, our sharing of
information and our design of proprietary information assets will
conform to a future interpretation of “best practices”,
after cloud eco-system techniques and their implications are better
understood.
We rely on third party service providers which we may not be able
to control. This subjects us to risks for failure of performance in
development of our business plan.
We will
at all times in the pursuit of our goals rely on at least some
expertise that is external to our company. Despite best efforts to
vet the competency of service providers, it will not be possible to
fully appreciate the quality of their contribution until
after-the-fact, which may in some instances require second
attempts, corrections or new directions. We shall always seek to
mitigate our risk and liability arising from any failures of
performance that may arise; however, it is not possible to quantify
this in financial terms or predict it in operational terms. The
risk in our development work is inherently high and does not
diminish over time as we will continually focus on customer
problems that require new solutions yet to be created.
The loss of key personnel or the inability of replacements to
quickly and successfully perform in their new roles could adversely
affect our business.
We
depend on the leadership and experience of our key executive and
chairman, Brad Moynes. Mr. Moynes functions as our chairman and
executive officer, and as such, we are heavily dependent upon him
to conduct our operations. In 2018, the Company added two
additional directors which now brings the board to four directors.
We do not have key man insurance. If Mr. Moynes resigns or dies,
there could be a substantial negative impact upon our operations.
If that should occur, until we find other qualified candidates to
become officers and/or directors to conduct our operations, we may
have to suspend our operations or cease operating entirely. In that
event, it is possible you could lose your entire
investment.
Risks Relating to Intellectual Property
If we are unable to protect our intellectual property rights,
including those related to Securter technology, our competitive
position could be harmed or we could be required to incur
significant expenses to enforce our rights.
Our
ability to compete effectively is dependent in part upon our
ability to protect our proprietary technology. We rely on patents,
trademarks, trade secret laws, confidentiality procedures and
licensing arrangements to protect our intellectual property rights.
There can be no assurance these protections will be available in
all cases or will be adequate to prevent our competitors from
copying, reverse engineering or otherwise obtaining and using our
technology, proprietary rights or products. For example, the laws
of certain countries in which our products may be licensed may not
protect our proprietary rights to the same extent as the laws of
Canada or the United States. In addition, third parties may seek to
challenge, invalidate or circumvent our intellectual property, or
applications for same. There can be no assurance that our
competitors will not independently develop technologies that are
substantially equivalent or superior to our technology or design
around our proprietary rights. In each case, our ability to compete
could be significantly impaired. To prevent substantial
unauthorized use of our intellectual property rights, it may be
necessary to prosecute actions for infringement and/or
misappropriation of our proprietary rights against third parties.
Any such action could result in significant costs and diversion of
our resources and management’s attention, and there can be no
assurance we will be successful in such action. Furthermore, many
of our current and potential competitors have the ability to
dedicate substantially greater resources to enforce their
intellectual property rights than we do. Accordingly, despite our
efforts, we may not be able to prevent third parties from
infringing upon or misappropriating our intellectual
property.
Claims by others that we infringe their intellectual property
rights could harm our business.
Our
industry is characterized by vigorous protection and pursuit of
intellectual property rights, which has resulted in protracted and
expensive litigation for many companies. Third parties may in the
future assert claims of infringement of intellectual property
rights against us or against our customers for which we may be
liable. As the number of service providers and competitors in our
market increases and overlaps occur, infringement claims may
increase.
Intellectual
property claims against us, and any resulting lawsuits, may result
in our incurring significant expenses and could subject us to
significant liability for damages and invalidate what we currently
believe are our proprietary rights. Our involvement in any patent
dispute or other intellectual property dispute or action to protect
trade secrets and know-how could have a material adverse effect on
our business. Adverse determinations in any litigation could
subject us to significant liabilities to third parties, require us
to seek licenses from third parties and prevent us from developing
and selling our products. Any of these situations could have a
material adverse effect on our business.
These
claims, regardless of their merits or outcome, would likely be time
consuming and expensive to resolve and could divert
management’s time and attention.
We are generally obligated to indemnify our end-customers for
certain expenses and liabilities resulting from intellectual
property infringement claims regarding our software products, which
could force us to incur substantial costs.
We have
agreed, and expect to continue to agree, to indemnify our
end-customers for certain intellectual property infringement claims
regarding our software products. As a result, in the case of
infringement claims against these end-customers, we could be
required to indemnify them for losses resulting from such claims or
to refund amounts they have paid to us. Our end-customers in the
future may seek indemnification from us in connection with
infringement claims brought against them. We will evaluate each
such request on a case-by-case basis and we may not succeed in
refuting all such claims. If an end-customer elects to invest
resources in enforcing a claim for indemnification against us, we
could incur significant costs disputing it. If we do not succeed in
disputing it, we could face substantial liability.
Risks Related to Our Stock
The market price of our shares may fluctuate
significantly.
The
market price and liquidity of the market for shares may be
significantly affected by numerous factors, some of which are
beyond our control and may not be directly related to our operating
performance. Some of the factors that could negatively affect the
market price of our shares include:
●
our actual or
projected operating results, financial condition, cash flows and
liquidity, or changes in business strategy or
prospects;
●
equity issuances by
us, or share resales by our stockholders, or the perception that
such issuances or resales may occur;
●
loss of a major
funding source;
●
actual or
anticipated accounting problems;
●
changes in market
valuations of similar companies;
●
adverse market
reaction to any indebtedness we incur in the future;
●
speculation in the
press or investment community;
●
price and volume
fluctuations in the overall stock market from time to
time;
●
general market and
economic conditions, and trends including inflationary concerns,
the current state of the credit and capital markets;
●
significant
volatility in the market price and trading volume of securities of
companies in our sector, which are not necessarily related to the
operating performance of these companies;
●
changes in law,
regulatory policies or tax guidelines, or interpretations
thereof;
●
operating
performance of companies comparable to us; and
●
short-selling
pressure with respect to shares of our shares
generally.
As
noted above, market factors unrelated to our performance could also
negatively impact the market price of our shares. One of the
factors that investors may consider in deciding whether to buy or
sell our shares is our distribution rate as a percentage of our
share price relative to market interest rates. If market interest
rates increase, prospective investors may demand a higher
distribution rate or seek alternative investments paying higher
dividends or interest. As a result, interest rate fluctuations and
conditions in the capital markets can affect the market value of
our shares. For instance, if interest rates rise, it is likely that
the market price of our shares will decrease as market rates on
interest-bearing securities increase.
If we have to raise capital by selling securities in the future,
your rights and the value of your investment in the Company could
be reduced.
If we
issue debt securities, the lenders would have a claim to our assets
that would be superior to the stockholder rights. Interest on the
debt would increase costs and negatively impact operating results.
If we issue more common stock or any preferred stock, your
percentage ownership will decrease and your stock may experience
additional dilution, and the holders of preferred stock (called
preference securities in Canada) may have rights, preferences and
privileges which are superior to (more favorable) the rights of
holders of the common stock. It is likely the Company will sell
securities in the future. The terms of such future transactions
presently are not determinable.
If the market for our common stock is illiquid in the future, you
could encounter difficulty if you try to sell your
stock.
Our
stock trades on the OTC "Pink" Marketplace but it is not actively
traded. If there is no active trading market, you may not be able
to resell your shares at any price, if at all. It is possible that
the trading market in the future will continue to be "thin" or
"illiquid," which could result in increased price volatility.
Prices may be influenced by investors' perceptions of us and
general economic conditions, as well as the market for energy
generally. Until our financial performance indicates substantial
success in executing our business plan, it is unlikely that there
will be coverage by stock market analysts will be extended. Without
such coverage, institutional investors are not likely to buy the
stock. Until such time, if ever, as such coverage by analysts and
wider market interest develops, the market may have a limited
capacity to absorb significant amounts of trading. As the stock is
a “penny stock,” there are additional constraints on
the development of an active trading market – see the next
risk factor.
The penny stock rule operates to limit the range of customers to
whom broker-dealers may sell our stock in the market.
In
general, "penny stock" (as defined in the SEC’s rule 3a51-1
under the Securities Exchange Act of 1934) includes securities of
companies which are not listed on the principal stock exchanges, or
the Nasdaq National Market or the Nasdaq Capital Market, and which
have a bid price in the market of less than US$5.00; and companies
with net tangible assets of less than $2 million ($5 million if the
issuer has been in continuous operation for less than three years),
or which has recorded revenues of less than $6 million in the last
three years.
As a
"penny stock" our stock therefore is subject to the SEC’s
rule 15g-9, which imposes additional sales practice requirements on
broker-dealers which sell such securities to persons other than
established customers and "accredited investors" (generally,
individuals with net worth in excess of US$1 million or annual
incomes exceeding US$200,000, or US$300,000 together with their
spouses, or individuals who are the officers or directors of the
issuer of the securities). For transactions covered by rule 15g-9,
a broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser's written consent to
the transaction prior to sale. This rule may adversely affect the
ability of broker-dealers to sell our stock, and therefore may
adversely affect our stockholders' ability to sell the stock in the
public market.
Your legal recourse as a United States investor could be
limited.
The
Company is incorporated under the laws of British Columbia. Most of
the assets now are located in Canada. Our directors and officers
and the audit firm are residents of Canada. As a result, if any of
our shareholders were to bring a lawsuit in the United States
against the officers, directors or experts in the United States, it
may be difficult to effect service of legal process on those people
who reside in Canada, based on civil liability under the Securities
Act of 1933 or the Securities Exchange Act of 1934. In addition, we
have been advised that a judgment of a United States court based
solely upon civil liability under these laws would probably be
enforceable in Canada, but only if the U.S. court in which the
judgment were obtained had a basis for jurisdiction in the matter.
We also have been advised that there is substantial doubt whether
an action could be brought successfully in Canada in the first
instance on the basis of liability predicated solely upon the
United States' securities laws.
Item 4. Information on the Company
A. History and Development of the Company
The
Company was incorporated under the name Black Diamond Holdings
Corporation back on December 28, 2000. On June 26, 2007, the
Company changed its name from Black Diamond Holdings Corporation to
Black Diamond Brands Corporation. On November 21, 2008, the Company
changed its name to Rainchief Energy Inc., and on February 19,
2015, to Bit-X Financial Corporation. On October 27, 2015, the
Company changed its name to Digatrade Financial
Corporation.
Digatrade operates as a financial technology (FinTech) services
company. The Company has been focused on the financial technology
industry since 2015. During that time, the Company has pursued
several different areas of business including blockchain
development services, transaction services for crypto-currencies
(e.g. Bitcoin) and other related financial services
technologies.
In March 2015, the Company entered into an agreement with Mega
Ideas Holdings Limited, dba ANX (“ANXPRO and ANX
International”), a company incorporated and existing under
the laws of Hong Kong. ANX owns a proprietary trading platform and
provides operational support specializing in blockchain development
services and exchange and transaction services for
crypto-currencies e.g. Bitcoin and other digital assets. However,
effective October 17, 2018, the Company closed its online retail
trading platform, although the Company may continue to evaluate
opportunities and continue with research in digital-asset trading
for prospective institutional customers while continuing to seek
new opportunities within the blockchain and the financial
technology services (non-trading) sector.
On
February 28, 2019 the Company
executed
a definitive agreement (the “Securter Agreement”) with
Securter Inc. (“Securter Inc.”), a private Canadian
Corporation that is developing a proprietary, patent-pending credit
card payment platform to significantly increase the security of
online credit card payment processing. Securter technology reduces
immense losses by financial institutions and merchants that arise
from fraudulent credit card use and protects cardholder privacy by
eliminating the distribution of personal information to third
parties. With the current worldwide surge in online commerce
expected to continue for years to come, the problem of credit card
security is large and growing. The Securter Agreement with Securter
Inc. sets out that Securter’s technology will be launched and
commercialized as a Digatrade subsidiary.
Pursuant
to the terms of the Securter Agreement, the parties agreed to form
a subsidiary of Digatrade, Securter Systems, Inc. (“Securter
Systems”), and assign all of the assets and intellectual
property of Securter Inc. into Securter Systems. Securter Systems
has been created to launch and commercialize the Securter
technology under Digatrade. The consummation of the Securter
Agreement is subject to certain milestone events, including the
contribution of capital by Digatrade to Securter
Systems.
B. Business Overview
Securter Systems
Overview
Securter
Systems is a newly-formed subsidiary, incorporated on March 20,
2019, of Digatrade. The name Securter describes both the technology
itself and Securter Systems that is developing a proprietary
payment platform that increases the security of credit card holder
information and enhances the authentication of online credit card
purchases. These enhancements help online merchants and banks
significantly reduce Card-Not-Present (“CNP”) fraud.
CNP Fraud losses are estimated at over US$6 Billion annually in
North America.
Securter
Systems may also reduce the costs associated with PCI DSS
compliance, a payments industry processing protocol. Securter
Systems technology, which is now patent pending, focuses on
cardholder identification for transaction
verification.
Following
EMV (a credit card cooperative association) technology migration to
reduce counterfeit fraud at “point of sale” (POS),
criminals are currently able to steal credit card information from
personal computers & open public networks. Securter Systems has
researched and is developing the software and hardware of a next
generation of online user authentication that is based on remote
processing of EMV/smart credit/debit cards. Securter Systems’
payment platform adapts and extends conventional and existing
methods, by going beyond the most reliable EMV technology
(currently intended for physical Point of Sales / POS) to secure
EMV online payments as well.
The
research and development is related to the cyber-security field, in
order to provide robust system architecture without dependence upon
any kind of personal computer vulnerabilities. This is possible
because all operations are performed on two trusted sides –
the bank side and a smart-card secured microprocessor. This
eliminates the need for costly risk management by intermediate
servers (that is the norm today).
Intellectual Property
We rely on Patent (pending), trademark, copyright and trade secret
laws, confidentiality procedures, and contractual provisions to
protect our technology.
Our IP includes "know how", programming code, business plans,
potential customer and partner lists, ideas related to R&D
cycle and other confidential information to protect IP as trade
secrets.
As of November 19, 2015, we had filled provisional patent pending
application that was continued as a PCT patent application that
currently started the examination in the United States and Canada.
Securter Systems Inc. International Patent Application
“Coordinator managed payments” No. PCT/CA2016/051294
intended to cover overall payment/authentication system
architecture and possible implementation of a very secure payment
terminal.
The proposed payment system architecture allows:
*very reliable customer authentication and authorization based on
processing smart cards
* technology implementation in a variety of potential business
directions such as e-commerce/retail, e-gov (Digital ID), IoT
payments/authentication, e-banking (especially for unbanked
population), digital authentication services, blockchain
cryptocurrencies, etc.
US Patent application status:
On May 21st, 2019 we had filled US Revival Patent application and
assignment (including a Petition to revive) with the United
States Patent and Trademark Office. This application was filed as a
small entity (less than 500 employees) and the application number
is 16/462,548.
On June 12th, 2019 we have received notice that the application was
revived as of June 11th, 2019.
Canadian Patent application status:
We have received the Notice of National Phase Entry for the
Canadian patent application, indicating that this application was
accorded the filing date of November 7, 2016, and assigned
Application No. 3,040,776.
Provisional Rights: This application has been laid open to public
inspection. In Canada, “reasonable compensation” is
available for infringing activities occurring after the laid open
date and before the patent issue date.
Substantive Examination: A request for substantive
examination, along with the examination fee, must be submitted
within five years of the filing date, or by November 7,
2021.
Vision
Our
belief is that enormous resources are being wasted on fraudulent
Card-Not-Present (CNP) transactions. We aim to bring a convenient,
more affordable and safer solution to cardholders, merchants and
financial institutions. We intend to innovate the payment space by
collaborating with financial institution stakeholders. Our revenue
model is to share in the resulting transaction fees, by being an
integral part of the transaction processing.
History
The
initial technology idea was introduced by Securter Inc.’s
founders. In 2013 an agreement was signed by them with Mr. Steve
Epstein, now serving as CEO of Securter Inc., to develop a business
plan and to find ways to adapt the technology to the marketplace.
Since 2013 Securter Inc.‘s founders have achieved Technology
Readiness Level (TRL) 6 – which includes a working prototype
tested in the lab environment. On February 26
th
2019 Securter
Inc.’s founders approved the Securter Agreement with us. This
was reported by SEC Form 6-K, which filing included a copy of the
agreement. The Securter Agreement called for the formation of a new
Digatrade subsidiary (Securter Systems Inc) to receive and hold all
the Securter Inc. founders’ technology related assets and
intellectual property, including existing and future patent
rights.
Under
the agreement, Digatrade will fund our new subsidiary up to US$3
Million in operational financing. This will enable the subsidiary
to make its technology market-ready for launch through alliances
with established payment service providers and other FinTech
industry channels.
Previously,
Securter Inc.’s founders, through their predecessor company,
Securter Inc., submitted a provisional patent under PCT rules
(Patent Community Treaty), and received letters of intent for
partnership / collaboration with companies specializing in
cyber-security and ASIC design & development, and had been
accepted into the IBM Global Entrepreneur Program.
The Market
Online
shopping is a thriving sector within world commerce. Retail
e-commerce sales worldwide are on-track to nearly double between
2016 and 2020. Internet-savvy buyers are determined to spend time
researching products online and reading online reviews in order to
get the best deal possible. Around 42 percent of U.S. consumers
have searched and purchased products or services online, while 14
percent prefer searching online and buying in store. Retail sales
from worldwide electronic commerce are expected to grow from $2.3
trillion U.S. dollars in 2017 to almost $4.9 trillion in
2021.
Technical and Commercial objectives
Securter
Inc. will proceed further with the development of its online
payments system to become fully ready for demonstrations in an
operational environment and field testing by 2020.
Securter
Systems currently has a functional “Alpha” prototype
and will proceed with the development of its online payments system
that will be available for demonstrations in an operational
environment and field testing.
Projected
timetable: Securter Systems will proceed in the 8 months post
Regulation A funding (Phase 1) with the Payment Card Industry Data
Security Standard (PCI DSS) Compliance that applies to companies
that process and transmit cardholder data; Payment Service Provider
(PSP) integration; Mobile Application development; Server Side
(Back End) and Website (Front End) development. By the end of this
phase, Securter Systems will start a real-world pilot with on-line
merchants. We already have interested prospective implementation
partners. This is why we believe that our transaction fee revenue
sharing model is realistic.
In
Phase 2, Securter Systems will make improvements based on Phase 1
tests and demonstrations (developmental testing and evaluation of
whether the Securter platform meets operational requirements) and
testing actual applications of the technology in its final form
under real-life conditions.
Costs of Development
Approximately
$30,000 (US$22,496) in costs have incurred to date paid for by
Digatrade and thousands of working hours in R&D and business
development. The Company anticipates additional research and
development of the Securter technology will cost
US$3,000,000.
The
anticipated technology development costs and key personnel hires in
year-one will be approximately US$1.14m. The Subsidiary team will
consist of one full-time CTO, CINO or VP of R&D, three
full-time company developers, scientific adviser, one full-time
technical support person, web programmer, web designer, 3rd party
software development company and HW development company. Additional
PCI and EMV L2 certifications will be approximately
US$190k.
Securter Agreement
Structure
On
March 20, 2019,
Digatrade incorporated
Securter Systems Inc. as a wholly owned
subsidiary.
On April 8, 2019, Securter Systems received a transfer of
Intellectual Property, including Patents and Trademarks from
Securter Inc. Subject to the terms and conditions of the Agreement
with Securter Inc., Securter Systems will issue to shareholders
30,000,000 Class “A” Voting Shares “Shares”
and Digatrade has the option to purchase via subscription up to
12,900,000 Shares at a price of US$0.23, for a total investment of
up to US$3.0m.
On June 19, 2019 30,000,000 shares were issued to shareholders of
Securter Inc. and 100,000 class “B” supervoting shares
(1000 votes each) issued to Digatrade Financial Corp. Digatrade
retains voting control due to its supervoting shares as well as a
board seat (see below) and certain protective provisions in
Securter Systems governing documents.
Board of Directors
As per terms of the Digatrade and Securter agreement the board of
directors of Securter Systems shall initially be the following
three (3) members:
(a)
One
third (1/3) of the Board must be represented by Digatrade nominees,
which individual shall initially be James D. Romano;
(b)
One
third (1/3) of the Board must be represented by Securter
Inc.nominees, which individual shall initially be Steve Epstein;
and
(c)
One
third (1/3) of the Board must be represented by an independent
nominee mutually acceptable to both Digatrade and Securter Inc.,
which individual shall initially be Andrei Grenader.
Termination
Should Digatrade fail to purchase Shares in Securter Systems within
120 days from the date of the Agreement and 90 days from the date
of the any previous purchase then Digatrade’s right to
purchase Common Stock in Securter Systems shall be terminated.
Digatrade will retain all shares acquired at formation and/or
purchased regardless of termination.
Technology Rights
All developments, rights to the technology will be the exclusive
property of Securter Systems and it will have sole discretion and
responsibility to deal with developments.
C. Organizational Structure
.
As of
the date of this report, the Company has four wholly-owned
subsidiaries, Digatrade Limited (a British Columbia incorporated
corporation), Digatrade Limited (a Nevada incorporated
corporation), Digatrade (UK) Limited (a United Kingdom incorporated
corporation) and Securter Systems Inc., (a Canadian incorporated
Corporation).
Digatrade
Limited (a British Columbia incorporated corporation), Digatrade
Limited (a Nevada incorporated corporation), and Digatrade (UK)
Limited (a United Kingdom incorporated corporation) were
incorporated during the year ended December 31, 2015.
Securter
Systems Inc. (a Canadian incorporated Corporation), was
incorporated March 20, 2019.
D. Property, Plants, and Equipment
.
The
Company does not own any real estate. The Company’s address
is 1500 West Georgia Street, Suite 1300, Vancouver, British
Columbia, Canada, V6C 2Z6. The Company currently has no policy with
respect to investments or interests in real estate, real estate
mortgages or securities of, or interests in, persons primarily
engaged in real estate activities.
Item 4A. Unresolved Staff Comments
Not
applicable; Pursuant to Instructions to Item 4A, we are not
required to provide this information.
Item 5. Operating and Financial Review and
Prospects
A. Operating Results
For the
years ended December 31, 2018, 2017, and 2016, the Company had net
losses of $1,122,820 (US$866,882), $674,520 (US$520,199) and
$172,969 (US$130,590), respectively.
Accounting,
Audit and Legal expenses decreased by $5,508 (US$4,252) from
$105,652 (US$81,480) for the year ended December 31, 2017 to
$100,144 (US$77,317) for the year ended December 31, 2018.
Accounting and audit fees increased by $2,559 (US$1,976); legal
expenses in connection with the issuance of Convertible Promissory
Notes increased by $4,359 (US$3,365) and general corporate legal
expenses decreased by $12,426 (US$9,594).
Accounting,
Audit and Legal expenses increased by $59,130 (US$45,652 to
$105,562 (US$81,411) for the year ended December 31, 2017 from
$46,523 (US$35,124) for the year ended December 31, 2016.
Accounting and audit fees increased by $789 (US$596); legal
expenses in connection with the issuance of Convertible Promissory
Notes increased by $32,295 (US$24,906) and general corporate legal
expenses increased by $26,049 (US$20,089).
Consulting
expense for the year ended December 31, 2018 increased by $169,210
(US$160,640) to $307,402 (US$237,332) as compared with $138,192
(US$106,576) for the year ended December 31, 2017, and by $52,043
(US$40,136) as compared with $86,149 (US$65,042) for the year ended
December 31, 2016, as a result of increased corporate activity
during the respective periods.
During
the year ended December 31, 2018 the Company incurred Filing and
Transfer Agents Expenses in the amount of $26,331 (US$20,329) as
compared with $7,866 (US$6,066) incurred during the year ended
December 31, 2017, an increase of $18,465 (US$14,256), as a result
of increased filing activity during the period. Filing and Transfer
Agents Fees for the year ended December 31, 2017 decreased by
$4,950 (US$3,818) from $12,816 (US$9,676 for the year ended
December 31, 2016 to $7,866 (US$6,066) for the year ended December
31, 2017 as a result of decreased corporate activity during that
year.
During
the year ended December 31, 2018 the Company incurred $189,376
(US$146,209)in interest expense on Convertible Promissory Notes and
bank Charges expense as compared with $30,669 (US$23,652) and
$29,559 (US$22,317) for the years ended December 31, 2017 and 2016,
respectively.
The
Company did not incur any Investor Relations expenses during the
years ended December 31, 2018 and 2016. During the year ended
December 31, 2017, the Company entered into investor relations
contracts for a total cost of $107,103 (US$82,599).
Management
fees for the year ended December 31, 2018 amount to $241,950
(US$186,799) as compared with $105,000 (US$80,977) for the year
ended December 31, 2017, and $60,000 (US$45,299) for the year ended
December 31, 2016. The increased expenditure during the years ended
December 31, 2018 and 2017 resulted from increased corporate
activities during the periods under review.
The
Company incurred Exchange Platform Development Costs in the amount
of $102,683 (US$79,277) during the year ending December 31, 2018,
as compared with $104,591 (US$80,662) incurred during the year
ended December 31, 2017 and $111,734 (US$84,358) incurred during
the year ended December 31, 2016. The reduction in these costs
resulted from the renegotiation of the agreement with the platform
provider during 2017 and costs related to certain development
projects in 2015 which were not continued in 2016 and 2017. The
Company will not incur further development expenditures as a
consequence of the termination of the exchange trading platform
agreement with ANX.
The
Company incurred $12,281(US$9,482) in Administrative expenses
during the year ended December 31, 2018 as compared with $7,137
(US$5,504) during the year ended December 31, 2017, an increase of
$5,144 (US$3,971). The Company did not incur Administrative
expenses for the years ended December 31, 2016. Administrative
expenditure is comprised of travel, office and website development
expenses.
The
Company incurred Finders Fees in the amounts of $123,101
(US$95,041) and $109,033 (US$84,088) in connection with the
issuance of convertible promissory notes during the years ended
December 31, 2018 and 2017, respectively.
The
Company incurred a loss on foreign exchange of $26,711 (US$20,622)
for the year ended December 31, 2018, as compared with gains on
foreign exchange of $40,723 (US$31,406) and $13,238 (US$9,995) for
the years ended December 31, 2017 and 2016, respectively. The
losses and gain resulted from changes in the foreign currency
exchange rates between the Canadian and US Dollars.
During
the year ended December 31, 2016 the Company earned $119,600
(US$90,297) in Coin Development Fees in connection with the joint
venture agreement to develop a diamond-backed digital
currency.
During
the years ended December 31, 2016, the Company realized net gains
on the settlement of certain debts in the amounts of $41,406
(US$31,261). The Company did not realize net gains or incur net
losses on settlement of debts in the years ending December 31, 2018
and 2017, respectively.
Financial position
As at
December 31, 2018, the Company had a working capital deficiency of
$257,432 (US$188,705) as compared with a working capital deficiency
of $782,107 (US$623,417) as at December 31, 2017, a decrease of
$524,675 (US$405,080) The decrease in working capital deficiency
during the year ended December 31, 2018 is due to decreases in Cash
of $633(US$489), Accounts Receivable of $297,309 (US$229,540) and
Prepaid Expenses of $137,101 (US$105,850); offset by decreases in
Trade and Other Payables of $20,934 (US$16,162), Liabilities to
Customers of $297,309 (US$229,540) and Current portion of
Convertible Notes Payable of $639,347 (US$493,613), and an increase
in of $2,128 (US$1,643) in GST Recoverable.
B. Liquidity and Capital Resources
Since
we have historically generated nominal revenues from our
operations, we have no internal sources of funds and are reliant
upon investors and lenders to fund our operations so that we can
further develop our products. We have funded our operations to date
principally from the sale of convertible promissory notes and, to a
lesser extent, sale of equity securities. We believe we will
continue to be reliant upon debt and equity financing to fund
continuing operations until our business plan is fully implemented.
We have incurred losses since inception and have incurred negative
cash flows from operations from inception through December 31,
2018. During the year ended December 31, 2018, the Company used
cash in the amount of $760,289 (US$586,987) to fund the Company's
continuing operations (year ended December 31, 2017 –
$693,347 (US$534,718)). Changes in working capital accounts during
the year ended December 31, 2018 provided $104,828 (US$80,933)
(year ended December 31, 2017 consumed $258,322
(US$199,221)).
During
the year ended December 31, 2018 the Company raised $686,590
(US$530,087) by the issuance of Convertible Promissory Notes (year
ended December 31, 2017 -$1,642,122 (US$1,266,426)) and re-paid a
convertible Promissory Note in the amount of $31,762 (US$25,500)
(year ended December 3, 2017 - $130,498 (US$100,642)). As at
December 31, 2018, the Company had not entered into any material
commitments for capital expenditures. Furthermore, as of the filing
date of this Offering Circular, we have no material unutilized
sources of liquidity.
We
believe our cash flows from our existing cash, cash equivalents and
marketable securities, together with the net proceeds from this
offering, will be sufficient to fund our operating expenses and
capital expenditure requirements through at least the 12 months
following the date of this Offering Circular. However, if our
available cash, cash equivalents and marketable securities, net
proceeds from this offering and anticipated cash flow from
operations are insufficient to satisfy our liquidity requirements,
we may seek to sell additional equity or convertible debt
securities, enter into a credit facility or another form of
third-party funding or seek other debt financing. The sale of
equity and convertible debt securities may result in dilution to
our shareholders and, in the case of preferred equity securities or
convertible debt, those securities could provide for rights,
preferences or privileges senior to those of our common stock. The
terms of debt securities issued or borrowings pursuant to a credit
agreement could impose significant restrictions on our operations.
Additional capital may not be available on reasonable terms, or at
all.
In the
12 months following the commencement of this Offering Circular, we
plan to utilize the existing cash, cash equivalents and marketable
securities, and the proceeds from this offering to accomplish three
objectives: (i) finish software development and ensure its
compatibility with the server (our website), (ii) develop and
perform small batch manufacturing of card readers, and (iii)
showcase our product on the market by partnering with a global FIs
and/or PSP companies. To accomplish these objectives, our goals for
the 12 months following the commencement of this Offering Circular
are to: (a) further develop our website, (b) develop Android/Mobile
App platform, (c) develop cryptocurrency merchant solutions for
vendors, (d) obtain certification, (e) conduct pilot with online
and mobile merchants, (f) manufacture card readers, (g) enter into
agreements with distributors, and (h) market our
services.
After
we develop our product and services and enter into agreements with
distributors, we expect our accounts receivable and inventory
balances to increase. Any increase in accounts receivable and
inventory may not be completely offset by increases in accounts
payable and accrued expenses, which could result in greater working
capital requirements.
Transactions with Related Parties
As reported in the audited consolidated financial statements for
the year ended December 31, 2018, the Company was involved in
certain transactions with related parties:
The
Company incurred management fees for services provided by key
management personnel for the years ended December 31, 2018, 2017
and 2016, as described below.
|
|
|
|
|
|
|
|
|
|
|
Management
Fees
|
241,950
(1)
|
105,000
(2)
|
60,000
(3)
|
(1)
(US$186,799)
(2)
(US$80,977)
(3)
(US$45,299)
During
the year ended December 31, 2018, the Company incurred consulting
fees for services provided by Directors of the Company in the
amount of $12,900 (US$9,960) (2017 - $11,296
(US$8,712)).
The
above noted management fees were paid to Vancap Ventures Inc., a
company controlled by the president of the Company, Brad Moynes.
Financial Instruments
a)
Financial
Instruments
The financial instrument guidelines require all financial assets,
except those held to maturity and derivative financial instruments,
to be measured at fair market value. All financial liabilities are
measured at fair value if they are held for trading. Other
financial liabilities are measured at amortized cost.
The Company classifies its financial instruments into one of the
following balance sheet categories:
●
Held-for-trading financial assets
and liabilities that are initially measured at fair value and where
subsequent changes in fair value are recognized in the statement of
operations;
●
Available-for-sale financial
assets that are initially measured at fair value and where
subsequent changes in fair value are recorded in other
comprehensive income until the investment is derecognized or
impaired at which time the amounts are transferred to and recorded
in net income; and
●
Held-to-maturity investments,
loans and receivables, or other financial liabilities – all
of which are initially measured at cost and where subsequent
changes in cost are amortized using the effective interest rate
method.
Accordingly,
the Company has classified its financial instruments as
follows:
●
Cash is classified as financial
assets at fair value through profit or loss and accordingly carried
at its fair value;
●
Bank indebtedness is classified
as financial liabilities at fair value through profit or loss and
accordingly carried at its fair value; and
●
Trade and other payables and
promissory notes are classified as other financial liabilities and
are currently carried at their amortized cost.
The Company undertakes certain transactions in foreign currencies
denominated in U.S. dollars and as such is subject to risk due to
fluctuations in exchange rates. The Company does not use derivative
instruments to hedge exposure to foreign exchange rate
risk.
Internal Control over Financial Reporting
As at the date of this report, management is not aware of any
change in the Company’s internal control over financial
reporting that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over
financial reporting.
C. Research and Development, Patents and Licenses,
etc.
See
Item 4 herein, the context of which is incorporated herein by
reference.
D. Trend Information
Management
is not aware of any trend, commitment, event or uncertainty that is
expected to have a material effect on our business, financial
condition or results of operations.
E. Off-Balance Sheet Arrangements
The
Company has not entered into any material off-balance sheet
arrangements such as guarantee contracts, contingent interests in
assets transferred to unconsolidated entities, derivative financial
obligations, or with respect to any obligations under a variable
interest equity arrangement.
F. Tabular Disclosure of Contractual
Obligations
Not
applicable.
Item 6. Directors, Senior Management and
Employees
A. Directors and Senior Management
The
following table sets forth the name, positions held and principal
occupation of each of our directors, senior management and
employees upon whose work the Company is
dependent. Information on such persons’ share
ownership is under Item 7.
|
Name and Positions Held
|
Experience and Principal Business Activities
|
|
|
|
|
Bradley
J. Moynes (49)
Chairman,
President, Director and Interim Chief Financial
Officer
|
President
and Director of the Company since December 2000.
|
|
Tyrone
Docherty (59)
|
Director
of the Company since July 10, 2016
|
|
|
|
|
Timothy
Delaney (64)
|
Director
of the Company since November 20, 2018
|
Brad J. Moynes
: Mr. Moynes has worked in the public
markets and business management since 2000 offering services to
private and public companies in sectors including Financial
Technology, Internet Commerce, Online Security, Payment Processing,
Software Development, Mining & Energy. Mr. Moynes has
held titles including CEO, President & Director.
Currently the President & CEO of Digatrade Financial Corp (a
company developing more secure FinTech for online payments
including card not present "CNP" transactions). Areas of
expertise include corporate finance with funding mechanisms
successfully raising over $25.0m.
Tyrone Docherty
: Current CEO of Deer Horn Capital
“DHC” and former President & CEO of Quinto Mining
Inc., where with limited resources in a difficult market he raised
more than $30 million and advanced a Quebec iron ore property to a
viable project. Sold Quinto to Consolidated Thompson Iron Mines in
June 2008 for a share value equal to $175M. Consolidated Thompson
eventually sold to Cliffs Resources for $4.9B. From 2012 to 2018,
Tyrone was Director and Chairman of Mason Graphite Inc. Mr.
Docherty has worked in the financial and minerals markets for over
30 years.
Timothy G. Delaney
: Mr. Delaney graduated with a B. Comm
(1979) from the University of British Columbia. He has been active
in commercial real estate in both sales and development. He also
has extensive experience in corporate filings and due diligence of
public companies. From 2003 to 2014 he was the founder, principal,
and managing partner for the day to day operations of a retail
company with sales in excess of $6,000,000.
Family Relationships
There
are no family relationships among and between the issuer’s
directors, officers, persons nominated or chosen by the issuer to
become directors or officers, or beneficial owners of more than ten
percent of any class of the issuer’s equity
securities.
Legal Proceedings
No
officer, director, or persons nominated for such positions,
promoter, control person or significant employee has been involved
in the last five years in any of the following:
●
Any bankruptcy petition filed by or against any
business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years
prior to that time,
●
Any conviction in a criminal proceeding or being
subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses),
●
Being subject to any order, judgment, or decree,
not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any
type of business, securities or banking
activities,
●
Being found by a court of competent jurisdiction
(in a civil action), the Securities Exchange Commission or the
Commodity Futures Trading Commission to have violated a federal or
state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated,
●
Having any government agency, administrative
agency, or administrative court impose an administrative finding,
order, decree, or sanction against them as a result of their
involvement in any type of business, securities, or banking
activity,
●
Being the subject of a pending administrative
proceeding related to their involvement in any type of business,
securities, or banking activity, or
●
Administrative proceedings related to their
involvement in any type of business, securities, or banking
activity.
B. Compensation
SUMMARY COMPENSATION TABLE
The
following table sets forth the compensation paid to the executive
officers of the Company in each of the years ended December 31,
2018, 2017 and 2016. The table includes compensation
paid for service by such persons to subsidiaries. All amounts are
stated in US dollars.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
|
|
|
|
|
|
|
Name and Current
Principal Position
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#
|
|
|
|
Brad J.
Moynes,
|
|
2018
|
$
186,799
(1)
|
$
-
|
$
-
|
$
-
|
-
|
$
-
|
$
-
|
|
President
|
|
2017
|
$
80,977
(2)
|
$
-
|
$
-
|
$
-
|
-
|
$
-
|
$
-
|
|
|
|
2016
|
$
45,299
(3)
|
$
-
|
$
-
|
$
-
|
-
|
$
-
|
$
-
|
(1)
(CDN$241,950)
(2)
(CDN$105,000)
(3) (CDN$60,000)
Executive Compensation Plans and Employment Agreements
Management Agreements
No
management agreements were entered into for the period commencing
January 1, 2018 to December 31, 2018.
Equity Compensation Plans
Effective
December 31, 2010, our Board of Directors adopted the 2010 Stock
Option Incentive Plan (“the Stock Option Plan”). The
purpose of the Stock Option Plan is to enhance the long-term
stockholder value of the Company by offering opportunities to
directors, officers, key employees and eligible consultants of the
Company to acquire and maintain stock ownership in the Company, in
order to give these persons the opportunity to participate in the
Company's growth and success, and to encourage them to remain in
the service of the Company. A maximum of 10% of the issued and
outstanding shares of common stock are available for issuance under
the Stock Option Plan.
Director Compensation
During the most recently completed fiscal year, there are no
arrangements (standard or otherwise) under which directors of the
Company were compensated by the Company or its subsidiaries for
services rendered in their capacity as directors, nor were any
amounts paid to the directors for committee participation or
special assignments. There were no arrangements under
which the directors would receive compensation or benefits in the
event of the termination of that office.
C. Board Practices
Each
director holds office until the next annual general meeting of the
Company unless his office is earlier vacated in accordance with the
Articles of the Company or the Canada Business Corporations
Act.
During
the most recently completed fiscal year, there are no arrangements
(standard or otherwise) under which directors of the Company were
compensated by the Company or its subsidiaries for services
rendered in their capacity as directors, nor were any amounts paid
to the directors for committee participation or special
assignments, other than the granting of stock
options. There were no arrangements under which the
directors would receive compensation or benefits in the event of
the termination of that office.
The
Company does not have an audit committee at the present time. The
Company is currently seeking a suitable individual to serve on an
audit committee.
The
audit committee is responsible for selecting, evaluating and
recommending the Company’s auditors to the Board of Directors
for shareholder approval; evaluating the scope and general extent
of the auditors’ review; overseeing the work of the auditors;
recommending the auditors’ compensation to the Board of
Directors; and assisting with the resolution of any disputes
between management and the auditors regarding financial
reporting. The audit committee is also responsible for
reviewing the Company’s annual and interim financial
statements and recommending their approval to the Board of
Directors; reviewing the Company’s policies and procedures
with respect to internal controls and financial reporting; and
establishing procedures for dealing with complaints regarding
accounting, internal controls or auditing matters.
The
Company does not have a compensation or corporate governance
committee at the present time. The Company is listed for trading on
the OTCBB as a reporting issuer under registration statement Form
20-F (Foreign Private Issuer) and as such it believes that it is
not required to have such committees.
D. Employees
The
Company currently has two officers and no
employees. Employees will be added as
required.
E. Share Ownership
Our
directors and officer own the indicated shares of common stock as
at the date hereof; percentages are based on 302,251,877 shares of
common stock and 1,100,000 shares of Class B common stock issued
and outstanding as at June 30, 2019:
|
Name
|
No. of Shares of
Common
Stock
|
Percentage of
outstanding (1)
|
|
Brad J.
Moynes
|
22,504,000
|
7.45
%
|
|
Tyrone
Docherty
|
250,000
|
*
|
|
Timothy
Delaney
|
0
|
*
|
|
All Officers and
Directors as a Group (3 persons)
|
22,754,000
|
7.46
%
|
|
Name
|
No. of Shares of
Class B Common Stock
|
Percentage of
outstanding(1)
|
|
Brad
Moynes
|
1,100,000
|
100
%
|
(1)
Based on 302,252,877 shares of common stock and 1,100,000 shares of
Class B common stock as at June 21, 2019.
Interest of Management and Others in Certain
Transactions
Except
as described otherwise herein, the Company had the following
transactions in which the amount involved exceeds the lesser of
$120,000 (US$92,647) and one percent of the average of the
Company’s total assets at year-end for the last two completed
fiscal years with “Related Persons,” as that
term is defined in item 404 of Regulation SK, which includes, but
is not limited to:
●
any of
our directors or officers;
●
any
person who beneficially owns, directly or indirectly, shares
carrying more than 10% of the voting rights attached to our
outstanding shares of common stock; or
●
any
member of the immediate family (including spouse, parents,
children, siblings and in- laws) of any of the above
persons.
Trade and Other Payables
As at December 31, 2018, the Company had $129,279
(US$99,811)
(2017 - $150,213
(US$115,846)
) in trade and other
payables.
Management Fees
Management
fees for the year ended December 31, 2018 amount to $241,950
(US$186,799) as compared with $105,000 (US$80,977) for the year
ended December 31, 2017, and $60,000 (US$45,299) for the year ended
December 31, 2016. The increased expenditure during the years ended
December 31, 2018 and 2017 resulted from increased corporate
activities during the periods under review. The above noted
management fees were paid to Vancap Ventures Inc., a company
controlled by the president of the Company, Brad
Moynes.
Item 7. Major Shareholders and Related Party
Transactions
A. Major Shareholders
To our
knowledge, only one person beneficially owns, directly or
indirectly, or exercises control or direction over, common shares
carrying more than 5% of the voting rights attached to the
302,251,877 shares outstanding at June 30, 2019.
The
Company has approximately 210 shareholders of record at June 30,
2019. The number of shareholders holding securities
beneficially through street name nominees, as reflected in the
record position of Cede & Co. and other intermediaries, is
approximately 87.1%.
To the
best of our knowledge, approximately 20% of the Company’s
common shares are owned by residents of Canada or residents of
countries other than the United States. The number of
shareholders holding securities beneficially through street name
nominees, as reflected in the record position of Cede & Co. and
other intermediaries, who may be residents of other countries, is
approximately 2%. These assumptions are based on our shareholder
registry issued by Action Stock Transfer as of June 30,
2019.
To our
knowledge, we are not owned or controlled directly or indirectly by
another corporation or by any foreign government, nor are there any
arrangements which may result in a change of control of the
Company. The directors of the Company own approximately 8% of the
Class "A" common voting shares and all of 1,100,000 of the Class
"B" common voting non-participating shares. As a result the
percentage of shares controlled by the directors currently
represents voting control of the Company.
B. Related Party Transactions
Balances
and transactions between the Company and its subsidiaries, which
are related parties of the Company, have been eliminated on
consolidation and are not disclosed. Details of transactions
between the Company and other related parties, in addition to those
transactions disclosed elsewhere in these consolidated financial
statements, are described below. All related party transactions
were in the ordinary course of business and were measured at their
exchange amounts.
Promissory
Notes
During
the year ended December 31, 2017, the Company repaid promissory
notes in the amount of $90,529, (including US$31,200) to a company
controlled by a Director (also an officer) of the Company. Included
in convertible promissory notes as at December 31, 2018, was $Nil
(2017 – $89,364 including US$31,200) owed to this
company.
During
the year ended December 31, 2017, the Company settled a promissory
note owed to a company controlled by a former officer of the
Company in the amount $69,205 (US$50,000) by the issuance of
1,000,000 common shares. Included in convertible promissory notes
as at December 31, 2018, was $Nil (2017 – $67,135 including
US$50,000) owed to this company
Compensation
of Key Management Personnel
The
Company incurred management fees for services provided by key
management personnel for the years ended December 31, 2018, 2017
and 2016, as described below.
Management
Fees
|
|
|
|
|
|
|
|
|
|
|
Management
Fees
|
241,950
(1)
|
105,000
(2)
|
60,000
(3)
|
|
Share-Based
Payments
|
-
|
-
|
-
|
|
|
|
|
|
|
|
241,950
|
105,000
|
60,000
|
(1)
(US$186,799)
(2)
(US$80,977)
(3)
(US$45,299)
The
above noted management fees were paid to Vancap Ventures Inc., a
company controlled by the president of the Company, Brad
Moynes.
During
the year ended December 31, 2018, the Company incurred consulting
fees for services provided by Directors of the Company in the
amount of $12,900 (2017 - $11,296).
During
the year ended December 31, 2016, the Company incurred consulting
fees for services provided by a Director of the Company. The fees
were settled by the issuance of 250,000 post-consolidation shares
at $0.06 per share (Note 10(c)(ii)) and a cash payment of $6,699
(US$5,000).
C. Interest of Experts and Counsel
None.
Item 8. Financial Information
See the
consolidated financial statements under Item 18.
Item 9. The Offer and Listing
A. Offer and Listing Details
The
Company is listed as a fully reporting issuer on the OTC Market
Group Inc.’s “Pink” marketplace, and trades under
the symbol “DIGAF”
The
Company's common shares are traded on the OTC Market Group
Inc.’s “Pink” marketplace under the symbol DIGAF;
the shares are not listed on any exchange or traded on any other
medium. Trading commenced in the first quarter 2004 on
the Pink Sheets and then became a reporting issuer and was listed
for trading on the OTC Markets during the second quarter of
2007.
B. Plan of Distribution
Not
applicable; Pursuant to Instructions to Item 9, we are not required
to provide this information.
C. Markets
See
"Offer and Listing Details" above.
D. Selling Shareholders
Not
applicable; Pursuant to Instructions to Item 9, we are not required
to provide this information.
E. Dilution
Not
applicable; Pursuant to Instructions to Item 9, we are not required
to provide this information.
F. Expenses of the Issue
Not
applicable; Pursuant to Instructions to Item 9, we are not required
to provide this information.
Item 10. Additional Information
A. Share Capital
Unlimited
number of common shares without par value, and 1,100,000 Class
“B” Common Shares which are non-participating, voting
(voting right of 1,000 votes per share) without par
value.
Issued and Outstanding
|
|
|
Number of Class B Common Shares
|
|
|
Balance, December
31, 2015
|
1,661,150
|
-
|
3,358,848
|
|
|
|
|
|
|
Shares issued in
settlement of debt
|
41,000,000
|
-
|
276,983
|
|
Shares issued for
Services
|
250,000
|
-
|
15,000
|
|
Shares held in
escrow
|
(1,500
)
|
-
|
(5,374
)
|
|
|
|
|
|
|
Balance, December
31, 2016
|
42,909,650
|
-
|
3,645,457
|
|
|
|
|
|
|
Shares
Issued
|
2,500,000
|
-
|
334,975
|
|
Shares Issued
in Settlement of
Debts
|
4,000,000
|
-
|
103,779
|
|
Shares Issued for
Cash
|
-
|
100,000
|
100
|
|
Shares Issued for
Services
|
250,000
|
-
|
21,896
|
|
Shares Held in
Trust
|
1,500
|
-
|
-
|
|
Balance, December
31, 2017
|
49,661,150
|
100,000
|
4,106,207
|
|
|
|
|
|
|
Shares Issued for
Services
|
600,000
|
-
|
7,373
|
|
Shares Issued on
Conversion of Convertible Promissory Notes
|
176,150,754
|
-
|
1,934,419
|
|
|
|
|
|
|
Balance, December
31, 2018
|
226,411,904
|
100,000
|
6,047,999
|
Share issuance
On July
15, 2016, the Company entered into a debt settlement agreement with
a company controlled by a Director and Officer of the Company to
settle outstanding accounts payable of $25,000. The Company agreed
to issue 25,000,000 shares with a fair value equal to the value of
the underlying debt settled.
On
August 15, 2016, the Company entered into an assignment of
creditors and settlement of debt agreement with certain arm’s
length parties. The Company settled certain promissory notes
totalling $118,204 (US$91,475) by the issuance of 8,000,000 shares
with a fair value equal to the value of the underlying debt
settled
On
December 20, 2016, the Company entered into an assignment of
creditors and settlement of debt agreement with certain arm’s
length parties. The Company settled promissory notes totalling
$175,185 (including US$65,550) by the issuance of 8,000,000 shares
with a fair value of $133,779. A gain of $41,406 on the settlement
of debts was recognized.
On
December 12, 2016, the Company completed a private placement of
500,000 shares at US$0.50 per share, raising gross proceeds of
$308,977 (US$250,000). The shares were not issued by December 31,
2016 and on September 20, 2017, the Company re-priced the
subscription share price to US$0.10 per share and issued 2,500,000
common shares to the subscribers.
On June
12, 2017, the Company settled convertible promissory notes
totalling $32,700 by the issuance of 2,000,000 common shares with a
fair value equal to the value of the underlying debt
settled.
On
September 21, 2018, the Company settled a convertible promissory
note owed to a company controlled by a former Officer and Director
of the Company in the amount of $61,694 (US$50,000) by the issuance
of 1,000,000 common shares with a fair value equal to the value of
the underlying debt settled.
During
the year ended December 31, 2016, the Company issued 250,000 shares
at a fair value of $0.06 per share to a related party for
consulting services rendered. Share-based compensation of $15,000
was recorded.
During
the year ended December 31, 2017, the Company entered into a
consulting agreement for the
provision
of business strategy and compliance services. The Company issued
250,000 common shares valued at $21,896.
During
the year ended December 31, 2018, the Company entered into a
consulting agreement for the provision of business strategy and
compliance services. The Company issued 600,000 common shares
valued at $7,373.
On
October 10, 2018, the Company passed a resolution authorizing the
creation of a new 100,000 Class “B” common shares with
the following characteristics: non-participating, no par value, and
with the voting right of 1,000 votes per share. On the same day,
the Company issued 100,000 Class “B” common shares at
$0.001 per share for total proceeds of $100 to a shareholder who is
also a Director and Office of the Company.
Share Purchase Warrants
Not
applicable
B. Memorandum and Articles of Association
The
Company is registered under the Company Act of the Province of
British Columbia, Canada (BC 0619991).
With
respect to directors, under the by-laws, a director who is a party
to a material contract or proposed material contract with us, or is
a director or officer of or has a material interest in any person
who is a party to a material contract or proposed material contract
with us, must disclose to us in writing the nature and extent of
such interest. An interested director can vote on only a
limited number of such matters (securing a loan from the director
to the Company, his remuneration, indemnity or insurance, or a
contract with an affiliate) provided the interest is
disclosed. Otherwise, even with disclosure of the
interest, such a director cannot vote on a material contract or
proposed material contract. A contract approved by the
board of directors is not voidable because one or more directors
has a conflict of interest, if the conflict is disclosed and the
interested director(s) do not vote on the
matter. Subject to the conflict of interest provisions
summarized above, there is no restriction in the by-laws on the
power of the board of directors to have the Company borrow money,
issue debt obligations, or secure debt or other obligations of the
Company. The by-laws contain no provision for the
retirement or non-retirement of directors under an age limit
requirement. A director is not required to hold any
shares of the Company in order to be a director.
The
Articles of the Company provide for the issuance of unlimited
number of shares of common stock, without par value. All
holders of common stock have equal voting rights, equal rights to
dividends when and if declared, and equal rights to share in assets
upon liquidation of the corporation. The common shares
are not subject to any redemption or sinking fund
provisions. Directors serve from year to year, there
being no provision for a staggered board; cumulative voting for
directors is not allowed. Between annual general
meetings, the existing board can appoint one or more additional
directors to serve until the next annual general meeting, but the
number of additional directors shall not at any time exceed
one-third of the number of directors who held office at the
expiration of the last annual meeting. All issued and
outstanding shares are fully paid and non-assessable
securities.
In
order to change the rights of the holders of common stock, the
passing of a special resolution by such shareholders is required,
being the affirmative vote of not less than 2/3 of the votes cast
in person or by proxy at a duly called meeting of
shareholders.
An
annual meeting of shareholders must be called by the board of
directors not later than 15 months after the last annual
meeting. The board at any time may call a special
meeting of shareholders. Notice of any meeting must be
sent not less than 21 and not more than 50 days before the meeting,
to every shareholder entitled to vote at the
meeting. All shareholders entitled to vote are entitled
to be present at a shareholders meeting. A quorum is the
presence in person or by proxy of the holders of at least 5% of the
issued and outstanding shares of common stock.
Except
under the Investment Canada Act, there are no limitations specific
to the rights of non-Canadians to hold or vote our shares under the
laws of Canada or our charter documents. The Investment
Canada Act ("ICA") requires a non-Canadian making an investment
which would result in the acquisition of control of a Canadian
business, the gross value of the assets of which exceed certain
threshold levels or the business activity of which is related to
Canada's cultural heritage or national identity, to either notify,
or file an application for review with, Investment Canada, the
federal agency created by the ICA. The notification
procedure involves a brief statement of information about the
investment on a prescribed form which is required to be filed with
Investment Canada by the investor at any time up to 30 days after
implementation of the investment. It is intended that
investments requiring only notification will proceed without
intervention by government unless the investment is in a specific
type of business related to the scope of the ICA. If an
investment is reviewable under the ICA, an application for review
in the prescribed form normally is required to be filed with
Investment Canada before the investment is made and it cannot be
implemented until completion of review and Investment Canada has
determined that the investment is likely to be of net benefit to
Canada. If the agency is not so satisfied, the
investment cannot be implemented if not made, or if made, it must
be unwound.
C. Material Contracts
Except
as otherwise disclosed in this Form 20-F, we have no material
contracts.
D. Exchange Controls
There
are no laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the
remittance of interest, dividends or other payments to non-resident
holders of our shares of common stock.
E. Taxation
Canada
Canadian Federal Income Tax Information for United States
Residents
The
following is a discussion of material Canadian federal income tax
considerations generally applicable to holders of our common shares
who acquire such shares in this offering and who, for purposes of
the Income Tax Act (Canada) and the regulations thereunder, or the
Canadian Tax Act:
●
deal at arm’s
length and are not affiliated with us;
●
hold such shares as
capital property;
●
do not use or hold
(and will not use or hold) and are not deemed to use or hold our
common shares, in or in the course of carrying on business in
Canada;
●
have not been at
any time residents of Canada; and
●
are, at all
relevant times, residents of the United States, or U.S. Residents,
under the Canada-United States Income Tax Convention (1980), (the
Convention).
TAX MATTERS ARE VERY COMPLICATED AND THE CANADIAN FEDERAL INCOME
TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON
SHARES WILL DEPEND UPON THE STOCKHOLDER’S PARTICULAR
SITUATION. THE SUMMARY OF MATERIAL CANADIAN FEDERAL INCOME TAX
CONSEQUENCES SET FORTH BELOW IS INTENDED TO PROVIDE ONLY A GENERAL
SUMMARY AND IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL CANADIAN FEDERAL INCOME TAX
CONSEQUENCES.
THIS DISCUSSION DOES NOT INCLUDE A DESCRIPTION OF THE TAX LAWS OF
ANY PROVINCE OR TERRITORY WITHIN CANADA. ACCORDINGLY, HOLDERS AND
PROSPECTIVE HOLDERS OF OUR COMMON SHARES ARE ENCOURAGED TO CONSULT
WITH THEIR OWN TAX ADVISERS ABOUT THE TAX CONSEQUENCES TO THEM
HAVING REGARD TO THEIR OWN PARTICULAR CIRCUMSTANCES, INCLUDING ANY
CONSEQUENCES OF PURCHASING, OWNING OR DISPOSING OF OUR COMMON
SHARES ARISING UNDER CANADIAN FEDERAL, CANADIAN PROVINCIAL OR
TERRITORIAL, U.S. FEDERAL, U.S. STATE OR LOCAL TAX LAWS
OR TAX LAWS OF JURISDICTIONS OUTSIDE THE UNITED STATES OR
CANADA.
This
summary is based on the current provisions of the Canadian Income
Tax Act, proposed amendments to the Canadian Income Tax Act
publicly announced by the Minister of Finance (Canada) prior to the
date hereof (the “Proposed Amendments”), and the
provisions of the Convention as in effect on the date
hereof. No assurance can be given that the Proposed
Amendments will be entered into law in the manner proposed, or at
all. No advance income tax ruling has been requested or obtained
from the Canada Revenue Agency to confirm the tax consequences of
any of the transactions described herein.
This
summary is not exhaustive of all possible Canadian federal income
tax consequences for U.S. Residents, and other than the
Proposed Amendments, does not take into account or anticipate any
changes in law, whether by legislative, administrative,
governmental or judicial decision or action, nor does it take into
account Canadian provincial, U.S. or foreign tax
considerations which may differ significantly from those discussed
herein. No assurances can be given that subsequent
changes in law or administrative policy will not affect or modify
the opinions expressed herein.
A
U.S. Resident will not be subject to tax under the Canadian
Tax Act in respect of any capital gain on a disposition of our
common shares unless such shares constitute “taxable Canadian
property”, as defined in the Canadian Tax Act, of the
U.S. Resident and the U.S. Resident is not eligible for
relief pursuant to the Convention. Our common shares
will not constitute “taxable Canadian property” if, at
any time during the 60-month period immediately preceding the
disposition of the common shares, the U.S. Resident, persons
with whom the U.S. Resident did not deal at arm’s
length, or the U.S. Resident together with all such persons,
did not own 25% or more of the issued shares of any class or series
of shares of our capital stock. In addition, the Convention
generally will exempt a U.S. Resident who would otherwise be
liable to pay Canadian income tax in respect of any capital gain
realized by the U.S. Resident on the disposition of our common
shares, from such liability provided that the value of our common
shares is not derived principally from real property situated in
Canada. The Convention may not be available to a U.S. Resident
that is a U.S. LLC which is not subject to tax in the
U.S.
Amounts
in respect of our common shares paid or credited or deemed to be
paid or credited as, on account or in lieu of payment of, or in
satisfaction of, dividends to a U.S. Resident will generally
be subject to Canadian non-resident withholding tax at the rate of
25%. Currently, under the Convention the rate of Canadian
non-resident withholding tax will generally be reduced
to:
●
5% of the gross
amount of dividends if the beneficial owner is a company that is
resident in the U.S. and that owns at least 10% of our voting
shares; or
●
15% of the gross
amount of dividends if the beneficial owner is some other resident
of the U.S.
United States Federal Income Tax Information for United States
Holders.
The
following is a general discussion of material U.S. federal
income tax consequences of the ownership and disposition of our
common shares by U.S. Holders (as defined below). This
discussion is based on the United States Internal Revenue Code of
1986, as amended, Treasury regulations promulgated thereunder, and
judicial and administrative interpretations thereof, all as in
effect at the date hereof and all of which are subject to change,
possibly with retroactive effect. This discussion only addresses
the tax consequences for U.S. Holders that will hold their
common shares as a “capital asset” and does not address
U.S. federal income tax consequences that may be relevant to
particular U.S. Holders in light of their individual
circumstances or U.S. Holders that are subject to special
treatment under certain U.S. federal income tax laws, such
as:
●
tax-exempt
organizations and pension plans;
●
persons subject to
alternative minimum tax;
●
banks and other
financial institutions;
●
partnerships and
other pass-through entities (as determined for United States
federal income tax purposes);
●
persons who hold
their common shares as a hedge or as part of a straddle,
constructive sale, conversion transaction, and other risk
management transaction; and
●
persons who
acquired their common shares through the exercise of employee stock
options or otherwise as compensation.
As used
herein, the term “U.S. Holder” means a beneficial
owner of our common shares that is:
●
an individual
citizen or resident of the United States;
●
a corporation, a
partnership or entity treated as a corporation or partnership for
U.S. federal income tax purposes, that is created or organized
in or under the laws of the United States or any political
subdivision thereof;
●
an estate the
income of which is subject to U.S. federal income taxation
regardless of its source; and
●
a trust if both a
United States Court is able to exercise primary supervision
over the administration of the trust; and one or more United States
persons have the authority to control all substantial decisions of
the trust.
TAX MATTERS ARE VERY COMPLICATED AND THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR
COMMON SHARES WILL DEPEND UPON THE STOCKHOLDER’S PARTICULAR
SITUATION. THE SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES SET FORTH BELOW IS INTENDED TO PROVIDE ONLY A GENERAL
SUMMARY AND IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES.
NOTE THAT THIS DISCUSSION DOES NOT INCLUDE A DESCRIPTION OF THE TAX
LAWS OF ANY STATE OR LOCAL GOVERNMENT WITHIN THE UNITED STATES.
ACCORDINGLY, HOLDERS AND PROSPECTIVE HOLDERS OF OUR COMMON SHARES
ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS ABOUT THE
U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF
PURCHASING, OWNING AND DISPOSING OF OUR COMMON SHARES.
Ownership of Shares.
The
gross amount of any distribution received by a U.S. Holder
with respect to our common shares generally will be included in the
U.S. Holder’s gross income as a dividend to the extent
attributable to our current and accumulated earnings and profits
(as determined under U.S. federal income tax principles). To
the extent a distribution received by a U.S. Holder is not a
dividend because it exceeds the U.S. Holder’s pro rata
share of our current and accumulated earnings and profits, it will
be treated first as a tax-free return of capital and reduce (but
not below zero) the adjusted tax basis of the
U.S. Holder’s shares. To the extent the distribution
exceeds the adjusted tax basis of the U.S. Holder’s
shares, the remainder will be taxed as capital gain (the taxation
of capital gain is discussed under the heading “Sale of
Shares” below).
For
taxable years beginning before January 1, 2009, dividends
received by non-corporate U.S. Holders from a qualified
foreign corporation are taxed at the same preferential rates that
apply to long-term capital gains. A foreign corporation is a
“qualified foreign corporation” if it is eligible for
the benefits of a comprehensive income tax treaty with the United
States (the income tax treaty between Canada and the United States
is such a treaty) or the shares with respect to which such dividend
is paid is readily tradable on an established securities market in
the United States (such as the Nasdaq Capital
Market). Notwithstanding satisfaction of one or both of
these conditions, a foreign corporation is not a qualified foreign
corporation if it is a passive foreign investment company
(“PFIC”) for the taxable year of the corporation in
which the dividend is paid or the preceding taxable year. (Whether
a foreign corporation is a PFIC is discussed below under the
heading “Passive Foreign Investment Companies”). A
foreign corporation that is a PFIC for any taxable year within a
U.S. person’s holding period generally is treated as a
PFIC for all subsequent years in the U.S. person’s
holding period. Although we have not been, are not now,
and do not expect to be a PFIC, and we don’t expect to pay
dividends, you should be aware of the following matters in the
event that we do become a PFIC and do pay dividends.
If we
were to become a PFIC, then U.S. Holders who acquire our
common shares may be treated as holding shares of a PFIC throughout
their holding period for the purpose of determining whether
dividends received from us are dividends from a qualified foreign
corporation. As a consequence, dividends received by
U.S. Holders may not be eligible for taxation at the
preferential rates applicable to long-term capital
gains.
If a
distribution is paid in Canadian dollars, the U.S. dollar
value of such distribution on the date of receipt is used to
determine the amount of the distribution received by a
U.S. Holder. A U.S. Holder who continues to hold such
Canadian dollars after the date on which they are received, may
recognize gain or loss upon their disposition due to exchange rate
fluctuations. Generally, such gains and losses will be ordinary
income or loss from U.S. sources.
U.S. Holders
may deduct Canadian tax withheld from distributions they receive
for the purpose of computing their U.S. federal taxable income
(or alternatively a credit may be claimed against the
U.S. Holder’s U.S. federal income tax liability as
discussed below under the heading “Foreign Tax
Credit”). Corporate U.S. Holders generally will not be
allowed a dividend received deduction with respect to dividends
they receive from us.
Foreign Tax Credit
Generally,
the dividend portion of a distribution received by a
U.S. Holder will be treated as income in the passive income
category for foreign tax credit purposes. Subject to a number of
limitations, a U.S. Holder may elect to claim a credit against
its U.S. federal income tax liability (in lieu of a deduction)
for Canadian withholding tax deducted from its distributions. The
credit may be claimed only against U.S. federal income tax
attributable to a U.S. Holder’s passive income that is
from foreign sources.
If we
were to become a qualified foreign corporation with respect to a
non-corporate U.S. Holder, dividends received by such
U.S. Holder will qualify for taxation at the same preferential
rates that apply to long-term capital gains. In such case, the
dividend amount that would otherwise be from foreign sources is
reduce by multiplying the dividend amount by a fraction, the
numerator of which is the U.S. Holder’s preferential
capital gains tax rate and the denominator of which is the
U.S. Holder’s ordinary income tax rate. The effect is to
reduce the dividend amount from foreign sources, thereby reducing
the U.S. federal income tax attributable to foreign source
income against which the credit may be claimed. Canadian
withholding taxes that cannot be claimed as a credit in the year
paid may be carried back to the preceding year and then forward
10 years and claimed as a credit in those years, subject to
the same limitations referred to above.
The
rules relating to the determination of the foreign tax credit are
very complex. U.S. Holders and prospective U.S. Holders
should consult their own tax advisors to determine whether and to
what extent they would be entitled to claim a foreign tax
credit.
Sale of Shares
Subject
to the discussion of the “passive foreign investment
company” rules below, a U.S. Holder generally will
recognize capital gain or loss upon the sale of our shares equal to
the difference between: (a) the amount of cash plus the fair
market value of any property received; and (b) the
U.S. Holder’s adjusted tax basis in such shares. This
gain or loss generally will be capital gain or loss from
U.S. sources, and will be long-term capital gain or loss if
the U.S. Holder held its shares for more than 12 months.
Generally, the net long-term capital gain of a non-corporate
U.S. Holder from the sale of shares is subject to taxation at
a top marginal rate of 15%. A Capital gain that is not long-term
capital gain is taxed at ordinary income rates. The deductibility
of capital losses is subject to certain limitations.
Passive Foreign Investment Companies
We will
be a PFIC if, in any taxable year either: (a) 75% or more of
our gross income consists of passive income; or (b) 50% or
more of the value of our assets is attributable to assets that
produce, or are held for the production of, passive
income. Subject to certain limited exceptions, if we
meet the gross income test or the asset test for a particular
taxable year, our shares held by a U.S. Holder in that year
will be treated as shares of a PFIC for that year and all
subsequent years in the U.S. Holder’s holding period,
even if we fail to meet either test in a subsequent
year.
If we
were a PFIC in the future, gain realized by a U.S. Holder from the
sale of PFIC Shares and certain dividends received on such shares
would be subject to tax under the excess distribution regime,
unless the U.S. Holder made one of the elections discussed
below. Under the excess distribution regime, federal income tax on
a U.S. Holder’s gain from the sale of PFIC Shares would
be calculated by allocating the gain rateably to each day the
U.S. Holder held its shares. Gain allocated to years preceding
the first year in which we were a PFIC in the
U.S. Holder’s holding period, if any, and gain allocated
to the year of disposition would be treated as gain arising in the
year of disposition and taxed as ordinary income. Gain
allocated to all other years would be taxed at the highest tax rate
in effect for each of those years. Interest for the late payment of
tax would be calculated and added to the tax due for each of the
PFIC Years, as if the tax was due and payable with the tax return
filed for that year. A distribution that exceeds 125% of the
average distributions received on PFIC Shares by a U.S. Holder
during the 3 preceding taxable years (or, if shorter, the portion
of the U.S. Holder’s holding period before the taxable
year) would be taxed in a similar manner.
A
U.S. Holder may avoid taxation under the excess distribution
regime by making a qualified electing fund (“QEF”)
election. For each year that we would meet the PFIC gross income
test or asset test, an electing U.S. Holder would be required
to include in gross income, its pro rata share of our net ordinary
income and net capital gains, if any. The
U.S. Holder’s adjusted tax basis in our shares would be
increased by the amount of such income inclusions. An
actual distribution to the U.S. Holder out of such income
generally would not be treated as a dividend and would decrease the
U.S. Holder’s adjusted tax basis in our shares. Gain
realized from the sale of our shares covered by a QEF election
would be taxed as a capital gain. U.S. Holders will be
eligible to make QEF elections, only if we agree to provide to the
U.S. Holders, which we do, the information they will need to
comply with the QEF rules. Generally, a QEF election
should be made by the due date of the U.S. Holder’s tax
return for the first taxable year in which the U.S. Holder
held our shares that includes the close of our taxable year for
which we met the PFIC gross income test or asset test. A QEF
election is made on IRS Form 8621.
A
U.S. Holder may also avoid taxation under the excess
distribution regime by timely making a mark-to-market
election. An electing U.S. Holder would include in
gross income the increase in the value of its PFIC Shares during
each of its taxable years and deduct from gross income the decrease
in the value of its PFIC Shares during each of its taxable
years. Amounts included in gross income or deducted from
gross income by an electing U.S. Holder are treated as
ordinary income and ordinary deductions from
U.S. sources. Deductions for any year are limited
to the amount by which the income inclusions of prior years’
exceed the income deductions of prior years. Gain from the sale of
PFIC Shares covered by an election is treated as ordinary income
from U.S. sources while a loss is treated as an ordinary
deduction from U.S. sources only to the extent of prior income
inclusions. Losses in excess of such prior income inclusions are
treated as capital losses from U.S. sources. A
mark-to-market election is timely if it is made by the due date of
the U.S. Holder’s tax return for the first taxable year
in which the U.S. Holder held our shares that includes the
close of our taxable year for which we met the PFIC gross income
test or asset test. A mark-to-market election is also made on IRS
Form 8621.
As
noted above, a PFIC is not a qualified foreign corporation and
hence dividends received from a PFIC are not eligible for taxation
at preferential long-term capital gain tax
rates. Similarly, ordinary income included in the gross
income of a U.S. Holder who has made a QEF election or a
market-to-market election, and dividends received from corporations
subject to such election, are not eligible for taxation at
preferential long-term capital gain rates. The PFIC rules are
extremely complex and could, if they apply, have significant,
adverse effects on the taxation of dividends received and gains
realized by a U.S. Holder. Accordingly, prospective
U.S. Holders are strongly urged to consult their tax adviser
concerning the potential application of these rules to their
particular circumstances.
Controlled Foreign Corporation
Special
rules apply to certain U.S. Holders that own stock in a
foreign corporation that is classified as a “controlled
foreign corporation” (“CFC”). We do
not expect to be classified as a CFC. However, future ownership
changes could cause us to become a CFC. Prospective
U.S. Holders are urged to consult their tax advisor concerning
the potential application of the CFC rules to their particular
circumstances.
Information Reporting and Backup Withholding
United
States information reporting and backup withholding requirements
may apply with respect to distributions to U.S. Holders, or
the payment of proceeds from the sale of shares, unless the
U.S. Holder: (a) is an exempt recipient (including a
corporation); (b) complies with certain requirements,
including applicable certification requirements; or (c) is
described in certain other categories of persons. The backup
withholding tax rate is currently 28%. Any amounts
withheld from a payment to a U.S. Holder under the backup
withholding rules may be credited against any U.S. federal
income tax liability of the U.S. Holder and may entitle the
U.S. Holder to a refund.
F. Dividends and Paying Agents
Not
applicable; Pursuant to Instructions to Item10, we are not required
to provide this information.
G. Statements by Experts
Not
applicable; Pursuant to Instructions to Item 10, we are not
required to provide this information
H. Documents on Display
The
documents concerning the Company which are referred to in the
documents may be inspected at the Company’s headquarters
located at 1500 West Georgia Street, Suite 1300, Vancouver, British
Columbia, Canada, V6C 2Z6.
I. Subsidiary Information
See the
notes to the financial statements.
Item 11. Quantitative and Qualitative Disclosures About
Market Risk
Not
applicable. Pursuant to Instructions to Item 11. these disclosures
are included in the Company's annual financial statements which are
prepared under IFRS.
Item 12. Description of Securities Other Than Equity
Securities
Not
applicable.