| NATURE AND CONTINUANCE OF OPERATIONS | NOTE 1: NATURE AND CONTINUANCE OF OPERATIONS Infinity Augmented Reality, Inc. (formerly known as Absolute Life Solutions, Inc.) (the “Company”) was originally incorporated as Shimmer Gold, Inc. in the State of Nevada on September 7, 2006. The Company was in the business of acquisition and exploration of mineral resources during the period from September 7, 2006 to May 21, 2010. Subsequently, a majority of our shareholders approved an amendment to our Articles of Incorporation changing our name to Absolute Life Solutions, Inc. During the fiscal year ended August 31, 2010, the Company commenced operations as a specialty financial services company engaged in the business of purchasing life settlement contracts for long-term investment purposes. Effective November 15, 2012, the Company is no longer engaged in its prior primary activity as a specialty financial services company primarily engaged in the purchase of life settlement contracts. In May 2012, we formed a wholly-owned subsidiary Infinity Augmented Reality, LLC, (“IAR Subsidiary”), and commenced activities to enable it to be actively engaged in the development of software applications which is intended to utilize augmented reality. Effective March 7, 2013, the Company changed its name from Absolute Life Solutions, Inc. to Infinity Augmented Reality, Inc. On that same date, IAR Subsidiary was merged into the Company. Effective June 30, 2013, the Company formed a wholly owned Israeli subsidiary, Infinity Augmented Reality Israel Ltd. (“Infinity Israel”). The Company is actively engaged in the development of an augmented reality software platform which will provide end users with a fully three dimensional (3D) interactive augmented reality experience with full hand controls and a completely natural user interface. Augmented reality (”AR”), is a technology which allows the projection of visual content that the viewer perceives as a real life experience and allows the viewer to intuitively interact with augmented content in his or her physical surroundings. The Company’s technology platform is made up of computer vision algorithms which will interface with any hardware including mobile or wearable devices that have two dimensional (2D) stereoscopic cameras. The Company’s technology will turn such hardware into a powerful content augmentation platform, will be usable both outdoors and indoors and will feature a lower power consumption. The Company is developing three software development kits (“SDKs”), which will serve as the core platform for augmented reality software developers and wearable device manufacturers. Our solution is designed to assist application developers in easily and efficiently developing advanced augmented reality applications, in a shorter time-to-market, while still providing a rich augmented reality
experience. On February 2, 2015, the Company and certain of its debenture holders and stockholders and their affiliates holding a majority of the Company’s outstanding voting equity securities (the “Security Holders”) entered into a definitive agreement to restructure a portion of the Company’s existing debt, provide for the assumption by certain of the stockholders of liabilities arising from the Company’s former business and serving as a first step in efforts to effect a recapitalization of the Company (the “Master Agreement”). Under the terms of the Master Agreement, Credit Strategies LLC, Platinum Partners Value Arbitrage Fund L.P. (“Platinum”) and ALS Capital Ventures LLC for itself and as agent for each of its affiliates on behalf of whom it holds the assets relating to our former business, the Life Settlement Business ( “ALS” and collectively, the “Indemnitors”) have assumed all liabilities relating to the Company’s former activities in the life settlement business and have agreed to indemnify the Company and its directors and officers from and against any losses related to such former business. In connection therewith, the Indemnitors have agreed to indemnify the Company for all legal fees and expenses and to assume all liability relating to the legal suit currently proceeding in State Court in New York which was commenced by CMS Life Insurance Opportunity Fund, L.P., and have agreed to reimburse the Company for all legal fees including those that have already been paid to the Company’s attorneys in respect of said proceeding. The Company issued debentures in an aggregate principal amount of $7,793,543 convertible into shares of the Company’s common stock, par value $0.00001 per share (“Common Stock”), at a rate of $0.25 per share (the “Debentures”). In connection with the issuance of the Debentures, the Company issued warrants to purchase up to 31,174,172 additional shares of Common Stock at an exercise price of $0.50 per share (the “Warrants”). Under the Master Agreement, the Security Holders, with the exception of ALS, have agreed to exchange these Debentures, accrued interest and Warrants for 52,767,193 shares of newly designated Preferred A Convertible Stock par value $0.00001 per share (the “Series A Preferred Stock”). ALS has agreed to convert all of its Debentures, accrued interest and Warrants into 9,918,883 shares of our Common Stock. The Series A Preferred Stock will be authorized in accordance with an amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock to be filed with the Nevada Secretary of State once the Authorized Capital Increase described below has been implemented. A total of 52,767,193 shares of Series A Preferred Stock will be so authorized. The holders of Series A Preferred Stock will be entitled to a liquidation preference of an aggregate of $6,634,256, plus interest of 1.2% per annum commencing from January 1, 2015 (“Liquidation Preference”) payable upon the liquidation, consolidation or merger of the Company or upon the sale of all of substantially all of the assets or outstanding share capital of the Company (each, a “Deemed Liquidation”). Notwithstanding the foregoing, the holders of Series A Preferred Stock shall not be entitled to receive the Liquidation Preference and the Liquidation Preference shall be void, if such Series A Preferred Stock holders would have received an amount exceeding the Liquidation Preference
pursuant to any actual or Deemed Liquidation distributed on an as converted basis (prior to calculating and applying the Liquidation Preference). The Series A Preferred Stock shall vote together with the Common Stock as a single class, and shall not confer upon the holders thereof any rights senior to, or otherwise different from, the rights conferred upon the holders of Common Stock, other than the Liquidation Preference. At the option of the Series A Preferred Stock holder(s), the shares of Series A Preferred Stock shall be convertible into shares of Common Stock on a one-for-one basis, as adjusted for subdivision, combination or consolidation of Common Stock, stock dividends and other distributions. The Series A Preferred Stock shall automatically be converted into Common Stock upon the closing of a public offering of the Company’s Common Stock with net proceeds to the Company of at least $20,000,000 or upon the consent of the holders of a majority of the outstanding Series A Preferred Stock at such time, to so convert. In addition, it was agreed under the Master Agreement that the Company should take all steps necessary in order to reduce the number of record holders of the Company’s Common Stock to below 300 holders of record, which would cause the Company’s reporting obligations under The Exchange Act of 1934, as amended (the “Exchange Act”) to become eligible for suspension under Rule12h-3 or Section 15(d) thereunder, and cause the Company’s Common Stock to become eligible for termination of registration under Rule 12g-4 and Section 12(g) of the Exchange Act. The purpose of these efforts is to reduce the administrative burden and costs associated with the Company’s reporting obligations under the Exchange Act. In addition, the prospect of additional financing (discussed further below) is premised on the Company successfully suspending its reporting obligation under the Exchange Act. In furtherance of the Company’s efforts to suspend its reporting obligation under the Act, the Master Agreement contemplates that the Company will implement a 101-for-1 reverse stock split of the Company’s outstanding Common Stock (the “Reverse Stock Split”) immediately followed by a 1-for-101 forward stock split of the Company’s outstanding Common Stock (the “Forward Stock Split”, and collectively with the Reverse Stock Split, the “Reverse/Forward Stock Split”). Holders of record of less than one share of Common Stock after the Reverse Stock Split would be cashed out at the rate of $0.15 per pre-split share. Holders of record of more than one share of Common Stock after the Reverse Stock Split will participate in the Forward Stock Split. Such amendments would not change the par value per share or the number of authorized shares of Common Stock. The Company intends to hold a special meeting of stockholders to approve such matters set for in the Master agreement which require stockholder approval (the “Special Meeting”). If the Reverse/Forward Stock Split is implemented as contemplated, the number of record holders of the Company’s Common Stock would fall below 300 holders of record and the Company would no longer be required to file periodic reports with the Securities Exchange Commission (the “SEC”). The Company believes that the deregistration of its Common Stock under the Exchange Act should reduce significant outlays currently expended in complying with the Company’s reporting obligations and allow management to expend its time and resources
to otherwise managing the growth of its business and maximizing long-term shareholder value. Subject to the successful completion of all of the transactions contemplated under the Master Agreement, including the suspension of the Company’s reporting obligations under the Exchange Act, and approval by the Company’s board of directors, the Security Holders comprising the holders of a majority of the Company’s outstanding Common Stock have agreed that the Company should seek investment in the Company for an aggregate purchase price of up to $5,000,000 at a Company pre-money valuation of no less than $6,000,000. Any such investment would be on terms and conditions approved by the Company’s board of directors. The Master Agreement contemplates an increase of the authorized share capital (the “Authorized Capital Increase”) of Common Stock from 500,000,000 shares of Common Stock, to 1,000,000,000 shares of Common Stock, and an increase of the Company’s authorized shares of preferred stock from 100,000,000 shares of preferred stock, par value $0.00001 per share (the “Preferred Stock”) to 500,000,000 shares of Preferred Stock The Authorized Capital Increase is intended, among other things, to provide for the issuance of the Series A Preferred Stock, Series B Preferred Stock, issuance of additional series of Preferred Stock to prospective investors and for the issuance of up to 155,000,000 shares of Common Stock to our directors and employees pursuant to the Company’s new incentive plan and to enhance corporate flexibility to finance and develop the operations of our business. Increasing the Company’s authorized shares of Common Stock will provide the Company with greater flexibility and allow for the issuance of additional shares of Common Stock at such times that the Company’s board may deem such issuance to be in the service of the Company’s interest, without the expense or delay of seeking approval from the stockholders. The Master Agreement Shareholders have advised the Company that they intend to vote in favor of the Capital increase. The Master Agreement contemplates that the Company approve an equity incentive plan in order to facilitate the grant of Restricted Stock Units and/or options to purchase Common Stock of the Company to such executive officers, employees and consultants of the Company and its subsidiary, as the Board of Directors deems fit, from time to time (the “2015 Incentive Plan”). On April 6, 2015, the Company entered into a definitive agreement (the “Agreement”) with Singulariteam Fund II L.P. , an affiliate of an existing stockholder of the Company (“Singulariteam II”), Platinum, an existing stockholder of the Company, and SUNCORPORATION of Japan (collectively, the “Investors”), for the purpose of raising funds through a private placement, for the Company’s operation and activities. According to the Agreement, the Investors invested $1,250,000 at the initial closing and received convertible notes (the “Notes”) which will be convertible into Series B Preferred Stock, par value $0.00001 each (the “Preferred B Stock”) upon the designation and issuance thereof. The Agreement also provides that after a certificate of designation of Series B Preferred Stock of the Company is filed with the Secretary of State of Nevada and is deemed effective, the Investors are obligated to invest an additional aggregate amount of $3,750,000. The Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws and may not be offered or sold in the United States absent an effective registration statement or an applicable exemption from registration requirements or a transaction not subject to the registration requirements of the Securities Act or any state securities laws. The holders of Preferred B Stock will be entitled to vote together with the Common Stock as a single class. The Preferred B Stock will confer upon the holder(s) thereof special approval rights, as well as the right to appoint a director on behalf of all of the Preferred B Stockholders, preemptive rights, the right of first refusal, Co-Sale and Drag Along Rights. In addition, holders of Preferred B Stock shall be entitled to a liquidation preference of 3 times the amount that has been invested plus interest at the rate of 1.2% per annum (the “Preferred B Preference”). Notwithstanding the foregoing, the holders of Series B Preferred Stock will not be entitled to receive the Preferred B Preference and the Preferred B Preference shall be void, if such Series B Preferred Stock holders would have received an amount exceeding the Preferred B Preference pursuant to any actual or deemed liquidation distributed on an as converted basis (prior to calculating and applying the Preferred B Preference). The Preferred B Stock may be converted to Common Stock at any time and shall be automatically converted to Common Stock upon a public offering by the company with proceeds of at least $20,000,000, or upon the consent of the holders of a majority of the outstanding Series B Preferred Stock at such time, to so convert. The Notes issued at the initial closing bear interest at the rate of 1.2% per annum, commencing on the date of its purchase and until the conversion or repayment thereof, and are, without any further action, convertible into Series B Preferred Stock immediately upon the effectiveness of the Certificate of Designation of the Series B Preferred Stock. The holders of the Notes may convert the Note into Common Stock at any time prior to the creation of such Preferred B Stock. The continued existence of the Company is dependent upon its ability to generate profit from its augmented reality business and to meet its obligations as they become due. The Company intends to finance the future capital required for continued operations from a combination of traditional debt and equity markets. However, there is no assurance that (a) traditional debt and equity markets may be accessible as required, or if so, on acceptable terms and, or (b) the demand for and selling prices of the Company’s augmented reality products, may not be sufficient to meet cash flow expectations. The outcome of these matters cannot be predicted with certainty and therefore the Company may not be able to continue or expand operations as planned. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These unaudited financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. However, as contemplated by the Agreement subject to the filing of certificate of designation of Series B Preferred Stock of the Company with the Secretary of State of Nevada and after such certificate of designation is deemed effective, the Investors are obligated to invest an additional aggregate amount of $3,750,000. |
