Filed pursuant to Rule 253(g)(2)
File No. 024-10795
OFFERING CIRCULAR DATED JUNE 13, 2019
73 Greentree Drive, #558
Dover, DE 19904
(888) 546-7980
100,000,000 shares of
Series A Non-Voting Preferred Stock
SEE “SECURITIES BEING OFFERED” AT PAGE 28
| Price to Public | Underwriting discount and commissions(1) | Proceeds to issuer(2) | ||||||||||
| Per share | $ | 0.15 | 0 | $ | 0.15 | |||||||
| Total Maximum | $ | 15,000,000 | 0 | $ | 15,000,000 | |||||||
(1) The company does not currently intend to use commissioned sales agents or underwriters. In the event it uses commissioned sales agents or underwriters, it will file an amendment to this Offering Circular.
(2) Does not include expenses of the Offering, including costs of blue sky compliance. See “Plan of Distribution.”
This Offering Circular covers the offer and sale of Series A Non-Voting Preferred Stock to:
| ● | New investors in the company who will pay cash for their investments; and |
| ● | Members of the company (people who use the company’s website) who will receive stock in reward for using the company’s services, which we refer to as our Stock Award program. |
See “Plan of Distribution.”
Prior to December 1, 2017, there was no public market for our Series A Non-Voting Preferred Stock. Our Series A Non-Voting Preferred Stock began being quoted on the OTCQB Venture Market operated by OTC Markets Group Inc. (“OTCQB”) under the symbol “RWRDP” on December 1, 2017. The Depositary Trust Company made RWRDP DTC-eligible and the first trades happened in March, 2018. As of May 7, 2019 the company had issued 217,525 shares in this offering for total proceeds of $32,627.25.
The company is offering a maximum of 100,000,000 shares of Series A Non-Voting Preferred Stock on a “best efforts” basis (the “Offering”). There is no minimum offering amount. The Offering will continue until the earlier of (1) the date when all shares have been sold and (2) the date on which the Offering is earlier terminated by the company at its sole discretion. See “Plan of Distribution” and “Securities Being Offered” for a description of the company’s capital stock.
| 1 |
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL OF ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
GENERALLY NO SALE MAY BE MADE TO YOU IN THIS OFFERING IF THE AGGREGATE PURCHASE PRICE YOU PAY IS MORE THAN 10% OF THE GREATER OF YOUR ANNUAL INCOME OR NET WORTH. DIFFERENT RULES APPLY TO ACCREDITED INVESTORS AND NON-NATURAL PERSONS. BEFORE MAKING ANY REPRESENTATION THAT YOUR INVESTMENT DOES NOT EXCEED APPLICABLE THRESHOLDS, WE ENCOURAGE YOU TO REVIEW RULE 251(d)(2)(i)(C) OF REGULATION A. FOR GENERAL INFORMATION ON INVESTING, WE ENCOURAGE YOU TO REFER TO www.investor.gov.
This offering is inherently risky. See “Risk Factors” on page 5.
Sales of these securities will commence on approximately June 13, 2019.
The company is following the “Offering Circular” format of disclosure under Regulation A.
| 2 |
TABLE OF CONTENTS
In this Offering Circular, the term “iConsumer” or “the company” refers to iConsumer Corp.
THIS OFFERING CIRCULAR MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING CIRCULAR, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH CONSTITUTE FORWARD LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
| 3 |
LETTER TO PROSPECTIVE SHAREHOLDERS
May 15, 2019
Millions of people want to learn about and experience ownership in public companies. Especially in the context of the world of start ups. We’ve made it as simple as shopping. iConsumer members shop, earn, and learn. They see the example of eBates and RetailMeNot, and farther afield, the long list of tech unicorns, and they say, I’d like to participate.
They read about the SEC chairman, Jay Clayton, saying he’d like to see more companies become public earlier in their growth cycles so that more ordinary people can take part in the prospects of early stage investing. He’s reacting to the amazing stories of companies like Uber and Pinterest. We’ve done just that. iConsumer is very definitely early stage, and the participants are by far and away ordinary people. Certainly not venture capitalists.
We created a classic two-sided market. Just like Google, where consumers search for free, and advertisers and retailers pay the bills, at iConsumer, members get rewarded with RWRDP, our OTC quoted stock. All that’s required is shopping at our network of ~2,000 worldwide retailers. That’s about as free as it gets. And those retailers, advertisers, and others interested in equity pay us. Whether their interest is education, speculation, accumulation, the blockchain, or simply pride of ownership, our members are becoming actively involved in the fabric of our economy. Which is good for all of us. And especially good for investors in RWRDP.
This filing represents the second year of our continuous offering. Lots of things have changed. Most notably, we put using Bitcoin as a reward on hiatus in November, 2018. We completed our rescission offer (two people took us up on it) in December. We resumed offering RWRDP as a reward in June, 2018. With this requalification, we have ceased accepting Bitcoin or Ether as payment for investing in our equity. We filed our 2018 financial statements (our Form 1-K).
Our history really starts with the pricing of our stock (RWRDP) in February and its first trade in March 2018. At that point, members could Google our ticker symbol and see the market price. Everything else we’d done was prelude. Making it legal to have 1,000,000 shareholders, getting our stock quoted on the OTCQB, getting market makers, and getting our ticker symbol were all necessary, but insufficient. It was being traded on a market that began to make a difference.
But we couldn’t really take off yet. As pioneers, we were certain to find some bumps in the road. One of those bumps involved making sure we had a qualified offering in place. Because of mistakes on our part, coupled with being the first to try to get a Regulation A offering through FINRA in order to trade on OTC Markets, we didn’t have a qualified offering between mid-February and mid-June of last year. No offering of stock as a reward. Put a big crimp in our plans. To fix that, we offered to buy back (to rescind) shares and Bitcoin earned during that period. The uncertainty of that put another crimp in our plans. For most of 2018 we were hobbled. But that’s all behind us.
Shopper acquisition is the name of the game.
Which is one reason we’re raising money in this offering. Our first round got us to this point. We’re very lightly traded and still early-stage. Now it’s time to scale our marketing. We estimate we need about 20,000 net new members, just like the ones who joined and shopped in the first quarter of 2018, to become comfortably cash flow positive. And while we were able to attract those members in the first quarter for less than $10 in cash each, we’re expecting our acquisition costs to rise as we scale, so we’re estimating $50 per member in acquisition costs. Not coincidentally, marketing should help RWRDP’s liquidity, too.
Based on unaudited results through May 31, 2019, the members who joined in the first quarter of 2019 have had purchase behavior that is similar in timing and quantity to the members who joined in the first quarter of 2018. We have not raised sufficient capital to scale our marketing. So the rate of acquiring new members (and the expected increase in cost per acquisition) have not changed measurably. We believe we can be cash flow self-sustaining within a year of raising additional capital. At a $50 projected cost of acquisition, that means we need to raise $1,000,000.
Notably, the first quarter of 2019 results represent the changed reward offering. New members are no longer earning Bitcoin. We were pleased to see that the economics of acquiring new members did not fundamentally change with the change in the underlying reward being offered.
Until we scale our marketing and become cash flow positive, we will continue to require outside funding. There is no certainty that we will continue to be able to secure outside funding.
Our first goal is to be cash flow positive, but we don’t plan to stop there. Our potential markets are large, our current membership is small (only 56,000 members) in comparison. Whether our potential market is defined as online shoppers who are stock curious or start up curious, we believe the market opportunity is tens of millions of people. We base this on the fact that other rewards programs that we compete with have large member bases. Rakuten alone has tens of millions of members in the United States and elsewhere. Our potential market also includes people who have chosen to carry rewards cards from credit card issuers, whether those rewards are miles, points, or cashback. American Express numbers its membership rewards program in the tens of millions. Chase Rewards likewise. We’re primarily focused on millennials but being curious truly has no demographic. Whether they’re in North America or elsewhere. The ability to trade our stock isn’t limited to just one continent, or the young, or the old.
Thanks for helping us Change the Faces of Wall Street.
Robert N. Grosshandler
Sanford D. Schleicher
Kimberly Logan
Co-Founders
| 4 |
The Securities and Exchange Commission (the “Commission”) requires the company to identify risks that are specific to its business and its financial condition. The company is still subject to all the same risks that all companies in its business, and all companies in the economy, are exposed to. These include risks relating to economic downturns, political and economic events and technological developments (such as hacking and the ability to prevent hacking). Additionally, early-stage companies are inherently more risky than more developed companies. You should consider general risks as well as specific risks when deciding whether to invest.
Risks Related to the Company and its Business
The company has only recently commenced its planned principal operations.
iConsumer was formed in 2010 and recognized no significant revenues prior to 2016. In the first quarter of 2016, the company experienced positive results from its market testing. This testing was limited in scope and duration. After the positive testing results, the company reduced its marketing expenditures in anticipation of a first closing on its initial offering, which it did in December 2016. Throughout the balance of 2016, and until January 2017, its focus had been on preparing a marketing campaign, not member acquisition or revenue growth. Its preferred equity was first traded on the OTCQB market in March 2018. Accordingly, the company has a limited history upon which an evaluation of its performance and future prospects can be made. iConsumer’s current and proposed operations are subject to all the business risks associated with new enterprises. These include likely fluctuations in operating results as the company reacts to developments in its market, including purchasing patterns of shoppers and the reaction of existing competitors to iConsumer’s offerings and entry of new competitors into the market. iConsumer will only be able to pay dividends on any shares once its directors determine that it is financially able to do so.
The company depends on one source of revenue.
The company is completely dependent on online shopping. If this market were to cease to grow, or to decrease, for reasons that may include economic or technological reasons (including, for example, recessions or loss of confidence in online commerce due to hacking) the company may not succeed. The company’s current member base is small compared to competitors, having begun post-testing operations in February 2017, and the company will only succeed if it can attract a significant number of members.
The company’s current member base of retailers and advertisers (to whom it provides advertising and loyalty services) numbers approximately 2,000. The company will only succeed if these retailers choose to continue to do business with iConsumer. They may choose to stop doing business with the company for reasons in or out of the control of the company. There are no contractual requirements binding the retailer or advertiser to continue a relationship. Most of these retailers are primarily focused on the U.S. market.
The company is depending on the incentive of ownership in the company to attract members.
iConsumer is using the prospect of ownership in the company and the ability to share in its success as an incentive to use the company’s products. If potential consumers do not find this a compelling reason to use iConsumer as opposed to its competitors, the company will have fewer unique selling propositions to distinguish it from its competitors. This incentive requires that potential shareholders be able to ascertain the value of their ownership, which may be hard or impossible to do. The amount of the incentive is calculated based upon a consumer receiving ownership using the price per share specified in the offering statement in effect as of the date that consumer makes a purchase with a merchant via the company's website. If that incentive does not work, the company is less likely to succeed.
The value of the ownership earned by consumers is a non-cash expense to the company.
This non-cash expense will depress earnings for the foreseeable future. This may affect the price future prospective shareholders are willing to pay for the stock. The company’s financial projections assume that there is a tax benefit to this non-cash expense. If that assumption is false, the company will have a larger tax liability than anticipated. The company is recording the cost of the incentive compensation at the last public price paid for its stock in its qualified offerings. If the market price of the company as quoted on a market (e.g. OTCQB) is different from that price, and if there is sufficient liquidity in that market, the company will need to use the market price to ascertain the value of the stock earned by members. If there is no price quoted publicly or in a prior offering, the company will need to use other valuation methodologies.
| 5 |
The company is challenged in raising capital.
Until the company is cash flow positive, it requires outside financing to meet its obligations, and to fund its growth. Raising such outside financing is extremely hard to do, and there is no certainty that the company will succeed in raising sufficient financing.
The company’s operations are reliant on technology licensed from a related company.
iConsumer’s operations are run on technology licensed from Outsourced Site Services, LLC (“OSS”), a company under common control, pursuant to an Amended and Restated License Agreement dated May 25, 2016 (the “License Agreement”), which is summarized under “Interest of Management and Others in Certain Transactions". iConsumer pays OSS a license fee for the use of this technology, and it is the intention of Robert Grosshandler, who controls both companies, to reduce the fee over time, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Changes in the license fee will impact the company’s expenses and profitability. Since Mr. Grosshandler controls both companies, and will continue to control iConsumer after this offering, he will have the power to determine whether the company will continue to be able to rely on the OSS license, and the price (whether at market rate, or above or below market rate) it pays for the license.
A related company provides operational and other services, which eventually the company will have to pay for at market rates.
The company’s personnel and other operational support such as web hosting, site maintenance, member support, retailer support and marketing are currently provided by OSS, pursuant to the License Agreement, as described in “Interest of Management and Others in Certain Transactions”. The company will eventually have to pay its own personnel and perform these functions itself or outsource them to other providers. This may have the result of increasing the company’s expenses. The current arrangement also means that the financial results of the company in the current stage of operations are unlikely to be a good indicator of future performance.
The company depends on a small management team.
The company depends primarily on the skill and experience of three individuals, Robert Grosshandler, Kimberly Logan, and Sanford Schleicher. If the company is not able to call upon any of these people, for any reason, its operations and development could be harmed.
The company is controlled by its officers and directors.
Robert Grosshandler currently holds all of the company’s voting stock, and at the conclusion of this offering will continue to hold all of the company’s common stock. Investors in this offering will not have the ability to control a vote by the shareholders or the board of directors.
Competitors may be able to call on more resources than the company.
While the company believes that its approach to online shopping is unique, it is not the only way to attract users. Additionally, existing or new competitors may replicate iConsumer’s business ideas (including the issuance of shares to users) and produce directly competing offerings. These competitors may be better capitalized than iConsumer, which might give them a significant advantage, for example, in surviving an economic downturn where shoppers pull back. Competitors may be able to use their greater resources to provide greater rebates or cashback to consumers, even to uneconomic levels that iConsumer cannot match.
There are logistical challenges involved in the management of large numbers of shareholders.
iConsumer’s business plan is based upon using share ownership as a way to attract online shoppers to its services, and the more it succeeds in doing so, the larger the number of shareholders it will have to manage. The need to address shareholder concerns with respect to recording of ownership, transfer and communications with shareholders may take up a disproportionate amount of management time and increase costs.
Our accountant has included a “going concern” note in its audit report.
We may not have enough funds to sustain the business until it becomes profitable. Even if we raise funds in this offering, we may not accurately anticipate how quickly we may use the funds and if these funds are sufficient to bring the business to profitability. Our ability to remain in business is reliant on either generating sufficient cash flows from operations, raising additional capital, or likely a combination of the two.
| 6 |
Rebate oriented members are demanding and aggressive.
Companies that offer rebates on member purchases attract members who enjoy pushing the limits in order to maximize their rebates and stock compensation. This aggressive buying behavior can turn into fraudulent behavior against iConsumer or its partners. The company believes that it was the first established company to offer rebates in the form of Bitcoin, which effort it ceased in November, 2018. It is possible that members drawn to this offer will be more or less aggressive than cash back members. The company will need to manage this risk and behavior. Doing so may take up a disproportionate amount of management’s time. This behavior may have unknown financial exposure for iConsumer.
The transition to providing rebates in the form of cash back may cause confusion.
The company’s more than 55,000 members had the opportunity to earn Bitcoin during 2018. As of November 23, 2018 the company transitioned to providing cash back instead of Bitcoin. Existing members, having earned Bitcoin, may find the transition confusing. Members may spend more or less than their historical averages, due to the transition to Bitcoin. The cost to market to potential members may be uneconomical. There are no historical precedents to guide the company’s forecasting, making it more likely that our forecasts will be inaccurate.
Having used Bitcoin as compensation creates speculative risk to the company.
The company ceased offering Bitcoin as a reward on November 23, 2018. The company is required to purchase Bitcoin at prevailing market rates in order to satisfy its need to fulfill previously earned Bitcoin to members. As the markets for Bitcoin are new, thinly capitalized, and unregulated, the company is not able to foresee all of the risks the need to purchase Bitcoin might entail. At a minimum, this need to participate in the cryptocurrency markets exposes the company to the extreme volatility in the market price of Bitcoin, plus the potential inability to purchase sufficient Bitcoin at any price. While the company intends to use commercially reasonable means to mitigate those risks (including, but not limited to, engaging in hedging operations), it may lack the expertise, capital, or other elements necessary to successfully purchase Bitcoin to fulfill its obligations to members.
Having earned Bitcoin as compensation creates speculative risk to the member.
The price of Bitcoin in the market may drop radically between the time the award to the member was calculated (Bitcoin awards ceased in November, 2018), and the time the member is able to transfer the Bitcoin from iConsumer into his or her account or wallet. The member bears that speculative risk.
The value of Bitcoin earned by a member may decrease between the date it was earned and the date at which it is transferred.
The price of Bitcoin in the market may drop radically between the time the award to the member was calculated, and the time the member requests a transfer of the Bitcoin from iConsumer into his or her account or wallet. The company anticipates transferring Bitcoin immediately upon request. However, there may be a delay between the request and the transfer. The member bears the risk of fluctuation between the time of the award and the time of the ultimate transfer to the member.
The company has no management with international experience.
The company may need to expand its marketing, investment efforts, and operations beyond North America. Current management has no experience in this area. It may need to hire employees, or retain contractors and advisors, with applicable experience. There is no assurance that such employees, contractors, or other resources, will be available and/or affordable at the point the company seeks such assistance.
The estimates used to provide forecasts may not scale with additional marketing expenditures and could prove inaccurate.
As outlined in the letter to shareholders, the company is forecasting cash flow break even status when it acquires approximately 20,000 more shoppers who behave like the 273 shoppers acquired in the first quarter of 2018 and the 205 shoppers acquired in the first quarter of 2019 (unaudited, as of May 31, 2019). Those estimates are based on behaviors observed over a small number of early adopting individuals. That behavior may not be indicative of future performance. If we attract sufficient capital to scale our marketing efforts, we’re predicting that our cost of member acquisition will rise. Additionally, if the new members behave differently than the members acquired during that quarter, it may take longer for the company to reach cash flow break even. It is possible that the company does not raise enough money in this offering to fund its continued operations. At an acquisition cost of $50 per shopper, it will take $1,000,000 of additional funding to achieve the goal of 20,000 net new shoppers. The company believes it will be cash flow break even within a year of raising that $1,000,000.
| 7 |
The company used the following unaudited data (as of May 1, 2019) to estimate the number of new shoppers required to reach cash flow break even status:
| Shoppers Acquired 1st Quarter 2018 | 273 | |||
| Total Net Cash Generated by New Shoppers 1st Quarter 2018 after Rebate | $ | 2,837 | ||
| Cash Cost of Acquisition | $ | 1,365 | ||
| Net Cash Generated Per New Shopper in 1st Quarter 2018 | $ | 5.39 | ||
| Net Cash Generated by Existing Shoppers 1st Quarter 2018 after Rebate | $ | 17,085 | ||
| Average Number of Days before Shopper Covered Acquisition Cost | 35 | |||
| Estimated Annual Net Cash Generated by New Shopper | $ | 50 | ||
| Estimated Number of Net New Shoppers | 23,000 | |||
| Estimated Cost to Acquire Net New Shopper | $ | 45 | ||
| Estimated Total Cost of Acquiring New Shoppers to Reach Cash Flow Break Even | $ | 1,000,000 |
The company used the following assumptions in making its forecasts. The first quarter is a “slow” quarter. The company will require approximately $1,000,000 in cash annually (net of the cash required for member acquisition) to operate once it acquires 20,000 net additional shoppers. Net cash assumes that all revenues are collected. We assume we can acquire new members rapidly. Investors should take the assumptions into consideration when reading the estimates and consider whether they think they are reasonable. The 205 shoppers who joined in the first quarter of 2019 behaved similarly to the shoppers acquired in 2018.
Members who earned shares under the company’s Stock Award program may have remaining rescission rights.
Under Commission rules, an issuer that is offering securities on a continuous basis under Rule 251 of Regulation A promulgated under the Securities Act of 1933, as amended (the “Securities Act”) must amend its offering statement annually to update the financial information in the offering circular and to reflect any other changes to its disclosure. The company failed to amend its offering statement that was re-qualified by the SEC on February 13, 2017 on a timely basis. As a result, that offering statement was no longer available for the company to make stock awards to members who made purchases from February 14, 2018 until May 23, 2018. We permitted members to earn stock awards until May 23, 2018. Stock awards earned during that period may not have been exempt from the registration or qualification requirements under federal securities laws, may have been awarded in violation of federal securities laws and may be subject to rescission. In order to address this issue, we made a rescission offer to all members who earned stock awards from February 14, 2018 until May 23, 2018. Two members accepted our offer of rescission, for a total of 1,824 shares.
Federal securities laws do not provide that a rescission offer will terminate a purchaser’s right to rescind a sale of stock that was not registered as required or was not otherwise exempt from such registration requirements. We may continue to be liable under federal and state securities laws for up to an amount equal to the value of those shares plus any statutory interest since February 13, 2018, which we may be required to pay.
Risks Related to the Company's Securities
There is no current liquid market for the preferred stock. We may not continue to satisfy the requirements for quotation on the OTCQB market and, even if we do, an active market for the preferred stock may not develop.
Prior to December 1, 2017, there was no formal marketplace for the resale of the company’s preferred stock. Our preferred stock is quoted on the OTCQB over-the-counter market operated by OTC Markets Group Inc. under the symbol “RWRDP”. Even though our stock is quoted, that does not mean that there is or will be a liquid market for our equity. If we fail to continue to meet the requirements for quotation on OTCQB, the shares may be quoted on other tiers of the over-the-counter market to the extent any demand exists. Whether or not we’re quoted on a market, or listed on an exchange, investors should assume that they may not be able to liquidate their investment for some time, or be able to pledge their shares as collateral, or be able to hold the stock in a traditional brokerage account. Without a liquid market for the preferred stock, it may be impossible for shareholders to be able to value their stock, reducing or eliminating the value of the stock as an incentive. Even if we continue to satisfy the requirements of the OTCQB, it is not a stock exchange. As a result, there may be significantly less trading volume and analyst coverage of, and significantly less investor interest in, our preferred stock than there would be if the shares were listed on a stock exchange, which may lead to lower trading prices for our preferred stock.
If we are successful in continuing to be quoted on a market, we will be considered a “penny stock”.
Among other consequences, this will make it harder, potentially impossible, for a liquid market in our securities to develop. Without a liquid market, it is harder, potentially impossible, for a shareholder to find a buyer for his, hers, or its securities at an acceptable price. For example, many institutional investors will not invest in the “penny stocks”. Many brokerage firms do not trade in penny stocks, or trade in stock quoted on the OTC markets.
| 8 |
If and when our quoted stock price goes down, members / shareholders may react negatively.
Many of the company’s shareholders are first time investors in a public company. Their reaction to a fluctuating stock price is unknown. For example, they may choose to stop being members or they may choose to air their grievances on social media platforms.
Alternative forms of investment and reward points may become popular.
Competitors, and potential competitors to the company, are rumored to be announcing cryptocurrencies that allow them to raise capital or compete in ways that the company may not be able to replicate. This increases the number of probable competitors to the company. For example, we are aware that the parent company of eBates, Rakuten, has announced that Rakuten points will be blockchain-based. The BAT token (basicattentiontoken.org), associated with the Brave browser, may also directly compete with us. Another token that may compete is LOYYAL. The increasing popularity of this fundraising mechanism is making qualified resources able to assist with the process hard to find, and if available, very expensive. There is no assurance that the company will be able to compete with these well-funded competitors.
Risks Related to Bitcoin
The fundamental value of Bitcoin is sensitive to subjective perception.
The value of Bitcoin can be based on its ease of use, the energy used to mine it, what it can be used to purchase, or its revolutionary technology, but there is no underlying value or institution supporting its value. This results in price volatility, which encourages speculative behavior. Speculative subscribers may hold Bitcoin instead of spending it, which makes the currency illiquid. Furthermore, any particular cryptocurrency may become worthless, which could result in an adverse effect on the company and members who have previously received Bitcoin and continue to hold a balance.
A disruption of the Internet or the Bitcoin network could impair the value and the ability to transfer Bitcoin.
A significant disruption in Internet connectivity could disrupt the Bitcoin network, until the disruption is resolved, and could have an adverse effect on the value of Bitcoin. It is possible that such an attack could adversely affect the value of Bitcoin.
The price of Bitcoin and Ether assets are extremely volatile. Fluctuations in the price of Bitcoin could materially and adversely affect the company and the value of members’ rebates and rewards.
The prices of blockchain assets are significant uncertainties for the company and members. The price of Bitcoin and other cryptocurrencies such as Ether, Ripple, and Litecoin are subject to dramatic fluctuations. The company uses the Gemini digital asset exchange to set the price at which it awards Bitcoin. For example, the price of Bitcoin on the Gemini exchange on December 24, 2017 at 4 pm Eastern Standard Time (“EST”) was$13,586.76. The company purchased a futures contract on January 12, 2018. At that date, the futures contract reflected a market price of approximately $9,000.00. The 4 pm EST price of Bitcoin on March 5, 2018 on the Gemini exchange was $11,570.00. During the year, the company continued to hedge its Bitcoin exposure by purchasing contracts. Those contracts had expired by December 31, 2018. To further illustrate the volatility of Bitcoin and Ether, we have set forth in the table below the US dollar prices quoted at 4pm EST on the Gemini exchange since September 1, 2017.
| Date | Price of Bitcoin | Price of Ether | ||||||
| September 1, 2017 | $ | 4,855.44 | $ | 391.50 | ||||
| September 15, 2017 | $ | 3,690.00 | $ | 257.97 | ||||
| October 1, 2017 | $ | 4,298.25 | — | |||||
| October 15, 2017 | $ | 5,506.37 | $ | 329.00 | ||||
| November 1, 2017 | $ | 6,570.00 | $ | 297.50 | ||||
| November 15, 2017 | $ | 7,260.00 | — | |||||
| December 1, 2017 | $ | 10,717.48 | — | |||||
| December 15, 2017 | $ | 17,715.85 | $ | 688.90 | ||||
| January 1, 2018 | $ | 13,411.49 | — | |||||
| January 15, 2018 | $ | 13,700.00 | $ | 1,287.28 | ||||
| February 1, 2018 | $ | 9,099.99 | $ | 1,012.24 | ||||
| February 15, 2018 | $ | 10,081.89 | $ | 927.13 | ||||
| April 30, 2018 | $ | 9,307.30 | $ | 676.37 | ||||
| April 1, 2019 | $ | 4,115.29 | $ | 140.32 | ||||
| May 1, 2019 | $ | 5,299.11 | $ | 157.45 | ||||
| 9 |
The company is exposed to these fluctuations until such time as it transfers a member’s remaining Bitcoin earnings, earned while the company still offered Bitcoin as a reward.
While the company intends to continue to use commercially reasonable means to mitigate its exposure to such fluctuations, several factors may affect price, including, but not limited to:
| ● | Global blockchain asset supply; |
| ● | Global blockchain asset demand, which can be influenced by the growth of retailers’ and commercial businesses’ acceptance of blockchain assets like cryptocurrencies as payment for goods and services, the security of online blockchain asset exchanges and digital wallets that hold blockchain assets, the perception that the use and holding of blockchain assets is safe and secure, and the regulatory restrictions on their use; |
| ● | Changes in the software, software requirements or hardware requirements underlying a blockchain network; |
| ● | Changes in the rights, obligations, incentives, or rewards for the various participants in a blockchain network; |
| ● | Currency exchange rates, including the rates at which Bitcoin and other cryptocurrencies such as Ether, which the company accepts as payment for subscriptions in this offering, may be exchanged for fiat currencies; |
| ● | Fiat currency withdrawal and deposit policies of blockchain asset exchanges and liquidity on such exchanges; |
| ● | Interruptions in service from or failures of major blockchain asset exchanges; |
| ● | Investment and trading activities of large investors, including private and registered funds, that may directly or indirectly invest in blockchain assets; |
| ● | Monetary policies of governments, trade restrictions, currency devaluations and revaluations; |
| ● | Regulatory measures, if any, that affect the use of blockchain assets; |
| ● | The maintenance and development of the open-source software protocol of the Bitcoin or other cryptocurrency networks; |
| ● | Global or regional political, economic or financial events and situations; |
| ● | Expectations among blockchain participants that the value of blockchain assets will soon change; and |
| ● | A decrease in the price of blockchain assets that may have a material adverse effect on the company’s financial condition and operating results. |
If someone gains access to a member’s login credentials to an iConsumer account, the account holder may lose the value of their account.
If someone gains access to or learns of a member’s login credentials or private keys, that person may be able to dispose of the member’s account and the member’s Bitcoin, and they may lose the entirety of their holdings.
Most holders of cryptocurrencies can only gain access to them by use of a private key. The loss of access to private keys may result in the permanent loss of access to an account and the value of the cryptocurrencies therein.
Bitcoin is stored in a digital wallet on the blockchain and is controllable only by the individual who controls the private key. If the private key is lost or destroyed an investor may be unable to access the Bitcoin held in the digital wallet, which may result in permanent loss of funds. In addition, if the private key becomes known to a third party, it may result in misappropriation and therefore permanent loss of funds. Internet errors related to cyber malfunction of the wallet where the Bitcoin is held could also result in its loss.
| 10 |
While securities accounts at U.S. brokerage firms are often insured by the Securities Investor Protection Corporation (SIPC) and bank accounts at U.S. banks are often insured by the Federal Deposit Insurance Corporation (FDIC), Bitcoin held in a digital wallet currently does not have similar protections.
Unlike bank accounts, credit unions or accounts at other financial institutions that provide certain safety guarantees, such as insurance, to depositors, coins and tokens held in digital wallets on a blockchain are currently uninsured. In the event of loss or loss of utility value there is no public insurer or private insurance to offer recourse to the injured holder.
Cryptocurrency markets are subject to market manipulations and schemes that may decrease the value of Bitcoin.
There is a risk of market manipulation, such as the spreading of false and misleading information about Bitcoin to affect its price. Rumors about Bitcoin may be spread in a variety of ways, including on websites, press releases, email spam, posts on social media, online bulletin boards, and chat rooms. The false or misleading rumors may be negative and could result in a decrease in the value of Bitcoin.
| 11 |
Dilution means a reduction in value, control or earnings of the shares the investor owns.
Immediate dilution
An early-stage company typically sells its shares (or grants options over its shares) to its founders and early employees at a very low cash cost, because they are, in effect, putting their “sweat equity” into the company. When the company seeks cash investments from outside investors, like you, the new investors typically pay a much larger sum for their shares than the founders or earlier investors, which means that the cash value of your stake is diluted because each share of the same type is worth the same amount, and you paid more for your shares than earlier investors did for theirs.
The following table compares the price that new investors are paying for their shares with the effective cash price paid by existing shareholders. Investors in this offering will pay $.15 per share. The table reflects all transactions since inception (including the Recapitalization and Exchange effected in July 2015 and discussed in more detail in “The Company’s Business”), establishing a net tangible book value deficit of $(604,465) or $(0.0029) per share as of December 31, 2018. Net tangible book value is calculated as tangible assets less tangible liabilities. This method gives investors a better picture of what they will pay for their investment compared to the company’s insiders and earlier investors than just including such transactions for the last 12 months, which is what the Commission requires. The table then gives effect to the sale of shares assuming we issue A) a low-range number of shares, B) a mid-range number of shares and C) the maximum number of shares in this offering.
| Low-Range Raise | Mid-Range Raise | Maximum Raise | ||||||||||
| Price per Share | $ | 0.15 | $ | 0.15 | $ | 0.15 | ||||||
| Shares Issued | 1,000,000 | 10,000,000 | 100,000,000 | |||||||||
| Capital Raised | $ | 150,000 | $ | 1,500,000 | $ | 15,000,000 | ||||||
| Less: Offering Costs | $ | (26,500 | ) | $ | (40,000 | ) | $ | (150,000 | ) | |||
| Net Offering Proceeds | $ | 123,500 | $ | 1,460,000 | $ | 14,850,000 | ||||||
| Net Tangible Book Value (12/31/18) | $ | (604,465 | ) | $ | (604,465 | ) | $ | (604,465 | ) | |||
| Increase to Net Tangible Value | $ | 123,500 | $ | 1,460,000 | $ | 14,850,000 | ||||||
| Net Tangible Book Value Post-Financing | $ | (480,965 | ) | $ | 855,535 | $ | 14,245,535 | |||||
| Shares Issued and Outstanding (12/31/2018) | 208,505,206 | 208,505,206 | 208,505,206 | |||||||||
| No-fee Shares Earned | 14,223,960 | 14,223,960 | 14,223,960 | |||||||||
| Post-Financing Shares Issued and/or Earned and Outstanding | 223,729,166 | 232,729,166 | 322,729,166 | |||||||||
| Net tangible book value (deficit) per share prior to offering | $ | (0.0029 | ) | $ | (0.0029 | ) | $ | (0.0029 | ) | |||
| Increase/(Decrease) per share attributable to new investors | $ | 0.0007 | $ | 0.0066 | $ | 0.047 | ||||||
| Net tangible book value (deficit) per share after offering | $ | (0.0022 | ) | $ | 0.0037 | $ | 0.0441 | |||||
| Dilution per share to new investors | $ | 0.1522 | $ | 0.1463 | $ | 0.1059 | ||||||
The table reflects past issuances to members on a no-fee basis under the prior offering. It does not reflect future issuances to members on a no-fee basis. Any no-fee issuances to members will further dilute investors in this offering. Under this offering, between June 13, 2018 and May 7, 2019, the company issued 372,491 no-fee shares. It issued 217,525 shares for a total consideration of $32,627.25.
No-fee issuances are those shares issued and transferred to members as consideration for the member making purchases from network retailers using the iConsumer platform. No cash is received from the member as part of the consideration. iConsumer is under no obligation to issue shares unless it has an offering statement qualified by the Commission at the time a member makes a purchase. iConsumer has not, and will not, issue no-fee shares unless it has a qualified offering statement. We refer to these no-fee issuances as iConsumer’s “Stock Award” program.
| 12 |
Future dilution
Another important way of looking at dilution is the dilution that happens due to future actions by the company. The investor’s stake in a company could be diluted due to the company issuing additional shares, whether as part of a capital-raising event, or issued as compensation to the company’s members, employees, or marketing partners. In other words, when the company issues more shares, the percentage of the company that you own will go down, even though the value of the company may go up. You will own a smaller piece of a larger company. This increase in number of shares outstanding could result from a stock offering (such as a public offering, another crowd funding round, a venture capital round, angel investment), employees exercising stock options, compensation to members, or by conversion of certain instruments (e.g. convertible bonds, preferred shares or warrants) into stock.
If the company decides to issue more shares, an investor could experience value dilution, with each share being worth less than before, and control dilution, with the total percentage an investor owns being less than before. There may also be earnings dilution, with a reduction in the amount earned per share.
The type of dilution that hurts early-stage investors most occurs when the company sells more shares in a “down round,” meaning at a lower valuation than in earlier offerings.
An example of how this might occur is as follows (numbers are for illustrative purposes only):
| ● | In June 2018 Jane invests $20,000 for shares that represent 2% of a company valued at $1 million. |
| ● | In December the company is doing very well and sells $5 million in shares to venture capitalists on a valuation (before the new investment) of $10 million. Jane now owns only 1.3% of the company but her stake (at least on paper) is worth $200,000. |
| ● | In June 2019 the company has run into serious problems and in order to stay afloat it raises $1 million at a valuation of only $2 million (the “down round”). Jane now owns only 0.89% of the company and her stake is worth only $26,660. |
If you are making an investment expecting to own a certain percentage of the company or expecting each share to hold a certain amount of value, it’s important to realize how the value of those shares can decrease by actions taken by the company. Dilution can make drastic changes to the value of each share, ownership percentage, voting control, and earnings per share.
The Offering Statement filed with the Commission covers the offer and sale of preferred shares to:
| ● | New investors in the company who will pay cash for their investments; and |
| ● | Members of the company (people who use the company’s website) who will be awarded “no-fee shares” in reward for using iConsumer’s services and to encourage them to shop more through iConsumer and urge their friends to do the same. Members will earn shares of the company based on the amount of shopping rebates they earn. Members may also earn shares as incentive for other activities, including, but not limited to, signing up to become a member. The issuance of shares to members in exchange for their activities is a “sale” of shares under securities law, and thus must be registered with the Commission or made in reliance on an exemption from registration, such as Regulation A. This Offering Circular therefore covers the issuance of 75,000,000 preferred shares to members. The company will not receive cash from the issuance to members; the cash accounted for in “Use of Proceeds” will come from new investors. Under this and prior offerings, as of December 31, 2018 the company had transferred 2,089,455 shares to the transfer agent to reflect the earnings of approximately 2,600 members. In this offering, through May 7, 2019, the company issued and transferred 381,032 shares to the transfer agent to reflect the earnings of 52 members. |
TAX CONSEQUENCES FOR RECIPIENT (INCLUDING FEDERAL, LOCAL AND FOREIGN INCOME TAX CONSEQUENCES) WITH RESPECT TO THE ISSUANCE OF SHARES TO MEMBERS ARE THE SOLE RESPONSIBILITY OF THE INVESTOR. INVESTORS MUST CONSULT WITH THEIR OWN PERSONAL ACCOUNTANT(S) AND/OR TAX ADVISOR(S) REGARDING THESE MATTERS.
The cash price per share of Series A Non-Voting Preferred Stock is $0.15, which may be paid in cash.
| 13 |
The company intends to market the shares in this offering both through online and offline means. Online marketing may take the form of contacting potential investors through social media and posting the company’s Offering Circular and supporting materials on an online investment platform.
In the event the company makes arrangements with a broker-dealer to sell its shares, it will file a supplement to this Offering Circular.
No securities are being sold for the account of security holders; all net proceeds of this offering will go to the company.
Investors’ Tender of Funds
After the Offering Statement has been qualified by the Commission, the company will accept tenders of funds to purchase the preferred shares. The company may close on investments on a “rolling” or “continuous” basis (so not all investors will receive their shares on the same date). Each time the company accepts funds is defined as a “Closing." Funds tendered in cash by potential investors will be held by the Escrow Agent and will be transferred to the company upon Closing. The escrow agreement can be found in Exhibit 8 to the Offering Statement of which this Offering Circular is a part. FundAmerica and the Escrow Agent are performing AML and OFAC due diligence on investors. All cash funds are held in escrow pending satisfactory due diligence. The company will accept a subscription (i.e., hold a Closing) within 30 calendar days after due diligence is successfully completed. Given the timing of completion of diligence, it is possible that the company could conduct a Closing every weekday, which would be administratively burdensome. In order to reduce the number of Closings, the company may wait until it has completed due diligence on several investments before submitting a disbursement request to the Escrow Agent.
In the event that it takes some time for the company to raise funds in this offering, the company will rely on income from sales, as well support from OSS. It has only a limited amount of cash on hand, but the License Agreement with OSS provides that OSS will be responsible for much of the company’s operations, as set out in “Interests of Management and Others in Certain Transactions.”
Processing of Subscriptions
You will be required to complete a subscription agreement in order to invest or to receive “no-fee” shares in the Stock Award program. The subscription agreement includes a representation by the investor (including members receiving no-fee shares) to the effect that, if you are not an “accredited investor” as defined under securities law, you are investing an amount that does not exceed the greater of 10% of your annual income or 10% of your net worth (excluding your principal residence).
The company has previously paid Fund America, Inc., a technology and escrow service provider, an escrow fee of $500. Additionally, the company will pay Fund America $7.50 per transaction processed for investments over $250. Direct Transfer, LLC, an affiliate of Issuer Direct Corp., serves as transfer agent to maintain stockholder information on a book-entry basis and will charge $2.50 for a new cash shareholder who invests less than $1,000, $5.00 for a new cash shareholder who invests $1,000 or more, and $1.50 for each new no-fee shareholder, upon transfer and issuance of their shares. If each investor were to invest a subscription amount of $200.00 for the offering per investor, the company estimates the maximum fee that could be due to Fund America and Issuer Direct Corp. for the aforementioned services would be $125,000 if it achieved the maximum offering proceeds.
The company may also engage additional broker-dealers or processing agents to perform administrative functions, who may have different financial arrangements and costs.
Upon acceptance of an investment, the FundAmerica platform automatically generates and sends an email with the details of the transaction to the investor. In the event that the company does not accept an investment in whole or in part, it will notify an investor via email through the FundAmerica platform.
The company anticipates that the share register as maintained by the transfer agents will reflect the issuance and transfer of shares to investors within two weeks after the company accepts and closes on an investment.
The company is absorbing all fees connected to cash investments charged by FundAmerica and/or Issuer Direct, where practicable.
| 14 |
The Incentive Program
The primary business of iConsumer is helping its members understand and participate in the stock market. To facilitate that, consumers are incented to utilize the services of iConsumer to earn rebates and save money via coupons and “deals” whenever they shop at participating retailers. The retailers pay iConsumer for this service, and iConsumer shares those payments with its members as a rebate.
The incentive is delivered in two ways. Consumers receive a portion in the equity of iConsumer – RWRDP – and a portion in cash. The company will only issue shares (“no-fee shares”) to members while it has an Offering Statement qualified by the Commission, such Offering Statement remains qualified, and upon each member's execution of a subscription agreement, as well as their compliance with other requirements as set out in the company’s terms of service. The rebate percentage (typically the rebate is a percentage of the purchase amount) is displayed to the user on iConsumer’s site, in its apps, or as a banner on the retailer’s site prior to the user making a purchase.
The rebate percentage varies from retailer to retailer and is set by iConsumer. iConsumer may vary the rebate percentage frequently.
The rebates that are to be delivered as equity are calculated as a percentage of the purchase price, if possible. The price used for this calculation is the price of the stock as set forth in the offering statement that is qualified as of the date of purchase. That price is displayed in the footer of most pages of the iConsumer website. iConsumer may vary the number of shares earned per purchase at its sole discretion.
The rebates that are to be delivered as cash (cash back) are typically calculated as a percentage of the purchase price. A member may request their cash back earnings to be remitted in the form of Bitcoin. We use the Gemini closing price of Bitcoin as of the date the request is made.
The consumer thus knows the percentages (or fixed “special rate”) of the rebates to be received, prior to making a purchase.
| 15 |
As of December 31, 2018, the company’s books reflected a liability of $31,801 for Bitcoin earned as a reward between December, 2017 and November, 2018. It may purchase futures contracts to cover this liability and to protect from cryptocurrency volatility, in addition to purchasing Bitcoin. The company currently holds less than one month’s anticipated demand for Bitcoin in a wallet or in an account on an exchange. As its redemption experience grows, it may hold more or less Bitcoin in a crypto wallet on in an account on an exchange.
The security of the exchange-based account is a feature of the exchange. Where the Bitcoin is held in iConsumer’s wallet, that wallet is kept on a computer that is not publicly accessible, or in cold storage in a hardware wallet like a Nano. The wallet technology is provided by a third party. The state of wallet technology is rapidly changing, and we expect to change wallet providers as technology improves. For security reasons, we are not disclosing the vendors of the products and services we employ to transact in and store cryptocurrencies.
The company used Bitcoin for rewards between December 23, 2017 and November 12, 2018. The company believes it currently holds Bitcoin sufficient to meet anticipated redemption needs through June 30, 2019.
Until such time as a member requests, and the company completes, a transfer of Bitcoin to the member’s wallet or exchange account, ownership of the Bitcoin does not pass to the member. The company does not allocate a specific purchase of Bitcoin to a specific member. The company’s Bitcoin is an asset of the company and may be used for any purpose it deems appropriate.
The company intends to keep Bitcoin purchases at a minimum to reduce security concerns. It may continue to use futures contracts to protect against upward price movements of Bitcoin.
In February 2018 the company introduced a Bitcoin-based incentive for members to refer new members. It ended that promotion in November, 2018. The incentive had two components. First, a fixed amount of Bitcoin is awarded upon the shopping activity of the recruited member. Second, the referring member earns Bitcoin equal to 5% of the referred member’s earned Bitcoin from shopping, for as long as the referring and referred members remains active on the iConsumer platform (by making purchases through iConsumer’s platform). like all incentives the company offers, these terms may be changed or withdrawn at any time, in the company’s sole discretion, prospectively.
| 16 |
An example from a retailer’s site.
The consumer is able to see a ledger recapping purchase amounts, cash back rebate, and stock earned amounts.
| 17 |
Current examples of both of these incentives (incentives change frequently) are as follows:
Jody learns about iConsumer from her friend George. When Jody becomes an iConsumer member and makes her first purchase from a participating retailer, iConsumer awards her 100 shares of equity, subject to the existence of a qualified offering statement for the shares. When she makes her first purchase from a participating retailer (in any amount), iConsumer rewards George with $5 in cash back.
Jody makes a $100 purchase at jet.com via iConsumer because she knows she’ll accrue $2 in cash back and 22.22 iConsumer shares (assuming a qualified offering statement is on file with the Commission).
After approximately 75 days have passed (to allow for returns), Jody may request the company to issue and transfer her earned shares. The company will automatically send her cash back rebate to her in accordance with the then current cash back guidelines. Upon her request, the execution of the appropriate subscription agreement, confirmation that Jody has complied with iConsumer’s terms and conditions, and assuming a qualified offering statement is on file with the Commission, her accrued shares will be issued and transferred to the transfer agent’s books in about a month.
| 18 |
From time to time the company may offer or withdraw additional incentives for George to recruit Jody.
As of December 31, 2018, iConsumer had transferred Bitcoin to 83 members. As of May 7, 2019, it had transferred Bitcoin to 137 members.
As of December 31, 2018 iConsumer had transferred 2,089,455 shares to approximately 2,600 members as a result of their joining, shopping, and recruiting other members. Between January 1, 2019 and May 6, 2019, inclusive, the company transferred an additional 165,130 shares to the transfer agent to reflect the earnings of its members in the current and prior offerings. Of those shares, 8,541 shares were earned in the current offering.
Offering Circular Supplements and Post-Qualification Amendments
The company undertakes to file, during any period in which offers or sales are being made,
| 1) | Any supplement required pursuant to Rule 253(g) under the Securities Act; and |
| 2) | A post-qualification amendment to the Offering Statemen to reflect in the offering circular any facts or events arising after the qualification date of the Offering statement (or the most recent post-qualification amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Offering Statement. |
| 19 |
Assuming the Maximum Offering amount is raised, the net proceeds of this offering to the issuer, after expenses of the offering (payment to Fund America, Issuer Direct Corp. LLC, professional fees and other expenses) will be approximately $14,850,000. All cash proceeds will be derived from the sale of preferred shares to new investors as opposed to the issuance of preferred shares to members.
There is no minimum offering amount.
If iConsumer receives the maximum proceeds in this offering, it plans to use the net proceeds as follows:
| · | Marketing expenses (primarily new member acquisition) in the amount of approximately $12,000,000. |
| · | Web site and technological development in the amount of approximately $1,000,000. |
Approximately $1,850,000, or 12.5% of the net proceeds, assuming the maximum amount offered is raised, has not been allocated for any particular purpose. Through May 7, 2019, we have sold 217,515 shares for cash, for total proceeds of $32,627.25, which we have used for marketing. Through May 7, 2019 we have issued 381,032 no-fee shares under this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Because the offering is a “best efforts” offering, iConsumer may close the offering without sufficient funds for all the intended purposes set out above. In that event it will “bootstrap” its expenses and only spend funds on marketing when it has cash to do so.
The company reserves the right to change the above use of proceeds if management believes it is in the best interests of the company.
| 20 |
Overview
The company was founded in 2010 and began operations in 2015. Since founding, it has not undergone any reorganization or acquisitions. Prior to 2016, the company had negligible revenues. In 2016, the company began offering consumers the opportunity to learn about the stock market by becoming shareholders in a publicly quoted company. They receive rebates from shopping in the form of equity (Series A Non-Voting Preferred shares) in the company, in addition to other forms of incentives, including cash rebates, and, from December 2017 through November 2018, Bitcoin.
In order to have a platform that could comply with U.S. securities regulations, the company filed an offering statement with the Commission under Regulation A. That offering statement was first qualified in September 2016 and the company began an offering under Regulation A. This offering was a continuous offering and remained open through February 13, 2018.
In February 2017 the company raised the price per share in the offering from $.045 to $.09. The company’s offering statement was requalified by the Commission on February 13, 2017. Under Commission rules, an issuer that is offering securities on a continuous basis under Rule 251 of Regulation A must amend its offering statement annually to update the financial information in the offering circular and to reflect any other changes to its disclosure. The company failed to amend its offering statement on a timely basis. As a result, that offering statement was no longer available for the company to make stock awards to members who made purchases after February 13, 2018 and through May 23, 2018, a period during which the company permitted members to earn stock. Stock awards accrued during that period may not have been exempt from the registration or qualification requirements under federal securities laws, may have been accrued in violation of federal securities laws and may have been subject to rescission. As of December 31, 2017, it had closed on cash investments in that offering from 188 individuals, representing $174,866 of invested capital since the inception of the offering. From May 2017 until February 13, 2018, the company did not issue any shares under the offering statement.
On June 13, 2018, the Commission qualified the company’s offering statement for a new offering under Regulation A. The share price in this offering was raised to $.15/share. This offering is a continuous offering and remained open as of December 31, 2018. As of December 31, 2018, it had closed on cash investments in that offering from 40 individuals, representing $40,288 of invested capital.
On October 26, 2018 the Commission qualified the company’s offering statement in connection with a rescission offer under Regulation A. This offering covered stock that may have been earned by members between February 13, 2018 and May 23, 2018. It provided a mechanism for eligible members to, at their option, reverse the transactions that resulted in them earning stock and other rebates during the period in question. Two people took advantage of the rescission offer.
As of December 31, 2016, the company had 12,804 members. As of December 31, 2017, the company had 49,989 members. As of December 31, 2018, the company had 54,056 members.
The company applied to FINRA to obtain a ticker symbol in January 2017 so that the company’s Series A Non-Voting Preferred shares could be traded on a market. In December 2017 FINRA issued the company the ticker symbol RWRDP. In March 2018 the first trading of RWRDP occurred on the OTCQB market.
Principal Products and Services
The company provides its members the opportunity to experience the ownership of an asset that members find challenging, without cost to the member: ownership in a company quoted on the over-the-counter market (iConsumer). The company generates revenue by providing an online shopping portal where the company’s members can shop at approximately 2,000 participating retailers worldwide. The retailers pay the company commissions and advertising fees in exchange for members’ shopping. In turn, the company rebates a portion of its revenues to its members in the form of equity and cash back. In 2016 and 2017, revenue from advertising was negligible.
The company launched its online shopping services to the general public on June 19, 2015. From that date until December 23, 2017, it offered rebates in the form of its equity and cash. On December 23, 2017, the company transitioned from offering cash rebates to offering Bitcoin rebates. On November 12, 2018, the company transitioned back to offering cash rebates. It retained the ability to fulfill its cash obligation to a member by remitting Bitcoin instead of cash, at the member’s option.
| 21 |
Market
The company’s target market encompasses all online shoppers, with the initial target being those shoppers located in the United States. With the transition from cash rebates to Bitcoin rebates, the company expanded its potential market worldwide. While the company has no direct competitors, the company’s indirect competitors include companies that offer cash back or frequent flyer miles or points as incentives for their shopping behavior. Those indirect competitors estimate that they have nearly 100 million global users, and those shoppers located in the United States are the initial target of the company’s marketing efforts.
The company uses social media, PR, display and other forms of paid and unpaid advertising to attract new members to its site. The initial marketing strategy includes “influencers” such as bloggers, writers, and other outlets reachable through social media and public relations. After establishing this beachhead, the company intends to use its own members to spread the word about the advantages of the company’s offering.
A further source of potential members is the people who have expressed interest in the company’s offering of shares through its offering under Regulation A.
Competition
The company’s indirect competitors include eBates, Shopathome, RetailMeNot, MyPoints, CouponCabin, Brads Deals, and swagbucks. iConsumer offers the same ability to save money shopping by offering coupons but differentiates itself by additionally offering its members the ability to earn ownership in the company through the acquisition of shares, as well as cash back. This further incentivizes members to prefer iConsumer’s offering and to encourage their friends to do the same.
Participating Merchants
Through an agreement with OSS, an affiliated company, iConsumer represents approximately 2,000 retailers, providing cash and equity back and coupon-based savings to consumers when they shop at these retailers. OSS personnel are responsible for attracting and maintaining those relationships. iConsumer pays OSS a fee based on revenues for this service. OSS provides similar services to iGive.com Holdings, LLC, an affiliated company.
Research and Development
The company is licensing technology developed by its affiliate OSS and has begun to make expenditures on research and development.
Employees
The company has no directly paid employees. Its management and operations are provided by the affiliated company OSS, as described in “Interest of Management and Others in Certain Transactions.”
Intellectual Property
iConsumer has a copyright in its web site, applications, and other computer software. It has received trademark registrations for iConsumer, the logo, and related marks. The technology upon which the company is relying for its operations is owned by OSS and licensed to iConsumer.
Litigation
The company is not involved in any litigation.
The company does not own any real estate or significant real assets. The company owns, to the extent permitted by law and end-user agreements, the data generated by its members, and about its members. The cost of creating this data is reflected as expenses in the company’s financial statements. The value of these assets is not reflected in the financial statements.
| 22 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in this Offering Circular. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Unless otherwise indicated, latest results discussed below are as of December 31, 2018.
The company is in an early stage of development. Operations prior to January 2016 produced minimal revenues.
The company earns revenues through offering advertising on its website, its member-focused emails, alerts and notifications in its apps, and primarily through agreements with customers (primarily retailers) for web traffic and sales referred through the iConsumer.com website and apps (commission revenue). The company recognizes contract revenue in accordance with FASB ASC 606. For other revenues, it only recognizes revenue when the price is fixed or determinable, persuasive evidence of an arrangement exists, the services have been provided, and collectability is assured. Revenues from advertising were negligible in 2017 and 2018.
Beginning in June 2015, the company began to earn commission revenue by directing members to participating retailers. Measurable revenue from operations began in January 2016. The company’s revenues varied significantly each month during 2016 as it refined its marketing and promotional offers.
Starting in the third quarter of 2016 and continuing throughout 2018, the company launched improved generations of its mobile apps for Apple IOS and Android. It also launched updated versions of the iConsumer Button for Chrome, Safari, Firefox, and Internet Explorer. Regular releases of the apps and the Button have occurred during that time. These technologies are provided under the License Agreement with OSS, outlined more fully below.
In September 2016 the company’s Regulation A offering, described below under “— Liquidity and Capital Resources,” was first qualified by the Commission. It began issuing and transferring shares of its Series A Non-Voting Preferred Stock to its members and selling equity for cash.
During the first quarter of 2017, the company increased the offering price of the Series A Non-Voting Preferred Stock to $.09 per share. The company officially announced that it was leaving its “beta testing” phase in February, and commenced full operating mode. The company began advertising heavily to build its membership base, and its base of potential cash investors.
During the second quarter of 2017, the company continued to advertise heavily. By the end of the period, the company had grown from approximately 13,000 members at the beginning of February 2017, to over 40,000 members.
The company filed a Form 1-Z to notify the closing of the Regulation A offering in May 2017, to comply with the instructions of FINRA, in order to commence the process of applying for quotation of its Series A Non-Voting Preferred Stock on the OTCQB market. That 1-Z filing was later withdrawn. At the time of the filing, the company had approximately 2,600 shareholders, and had raised approximately $148,500 from cash investors.
The company launched an offering of convertible debt under Rule 506(c) of Regulation D under the Securities Act in September 2017. As of December 31, 2017, the company had raised $154,721 in that offering and did not sell any convertible debt in 2018. See “—Liquidity and Capital Resources.”
The company completed its testing of widely varying member incentives in January 2017. The primary factors affecting gross income (revenue) are the number of users of the company’s services (members), the amount each member spends, and the commission rates paid by participating retailers. By adjusting the percentage of the gross income and/or equity shared with the member in the form of rebates, the company can affect the amount of gross income earned. Generally, the higher the percentage, the more likely a member will make a transaction that generates revenue.
On December 23, 2017, the company transitioned from providing rebates in the form of cash to providing rebates in the form of Bitcoin. On November 12, 2018 the company transitioned back to providing rebates in the form of cash, while retaining the ability to provide fulfillment of the cash owed as a rebate via remitting Bitcoin, at the member’s option.
In order to support quotation on the OTCQB market, on January 12, 2018 the company amended the liquidation preference for the Series A Non-Voting Preferred Stock by consent of the holders of a majority of the Common Stock and Series A Non- Voting Preferred Stock. The amendment reaffirmed that shareholders of record as of January 12, 2018 had a liquidation preference equal to the Original Issue Price of their shares and that subsequent holders of the stock will not have a liquidation preference.
| 23 |
Additionally, the amended language eliminated the liquidation preference for shareholders who acquire their shares subsequent to January 12, 2018.
Gross margin is gross income less the direct costs of that income (i.e., rebates). Rebates have cash (including Bitcoin when applicable) and non-cash components. The non-cash component reflects the estimated fair value, as reflected in the most current offering circular, of the preferred stock to be transferred to the member as the earned rebate. The company focuses on the cash component of its gross margin as the best indicator of results.
The amount spent on marketing is likely to be larger in relation to the number of members in the earlier days of operations, decreasing as the number of members grows.
The technology used by iConsumer to operate its website is licensed from OSS, where it has been used for 21 years for the operations of iGive, a business that caters to online shoppers who are interested in helping non-profits. iConsumer receives services from OSS, which include hosting, servers, support, internet connectivity, and interconnections with retailers. OSS also provides marketing, management, and accounting services. OSS also employs and compensates Robert Grosshandler, Kimberly Logan, and Sanford Schleicher, all of whom are key to the company’s successful operation.
These services are provided pursuant to the License Agreement. The provisions of the License Agreement with OSS will significantly affect the company’s financial results. Under the License Agreement, the company pays 20% of its gross revenue to OSS. The License Agreement provides that in the event the company wishes to assume responsibility for the support services provided by OSS, it can do so upon at least six months’ notice. In that event, the company will pay 5% of its gross revenues to OSS, which would likely change the company’s gross margins and profitability. In the event the company decides to provide for itself the support services provided by OSS, the company’s gross margins and profitability are likely to change, and the current results of operations may not be indicative of what they would be if the company provided for its own support services.
Both iGive and OSS are 100% owned by Robert Grosshandler.
Results of Operations
Twelve Months ended December 31, 2017 Compared to Twelve Months ended December 31, 2018
Revenues for the twelve months ended December 31, 2018 were $171,132, a decrease from revenues of $416,435 in the same period in 2017, reflecting the effects of reducing the cash back incentive paid as a percentage of sales. It also reflected the reduction in the market value of and interest in Bitcoin. Reducing the percentage reduces the incentive for users to shop. Additionally, the Company was significantly impacted by its inability to offer its main incentive – ownership in iConsumer —for one third of the year. Revenues were primarily composed of commissions from retailers.
A portion of the company’s expenses were in the form of preferred stock, a non-cash item. The stock was valued at $0.045 per share for stock earned through February 11, 2017, $.09 per share between February 12, 2017 and June 13, 2018, and $.15 per share thereafter. The value reflects the price paid by third party purchasers in the Regulation A offering.
A portion of the company’s expenses were in the form of Bitcoin, a cryptocurrency. Bitcoin was valued as of the day the expense was incurred, based upon the closing price for that day on the Gemini Bitcoin Exchange.
The company’s cost of revenues for 2018 amounted to $282,041, compared to $666,526 in 2017. Cost of revenues for 2018 included $226,718 in preferred stock, a decrease from $315,210 in 2017.
Operating expenses were $313,691 in 2018, compared to $879,660 in 2017. The primary components of operating expenses were as follows:
| · | Marketing expense decreased to $98,273 from $652,300, reflecting the company’s reduced marketing efforts. The member stock awards included as a marketing expense – a non-cash item (primarily rewards for joining and referring other shoppers) — were $43,369, down from $450,492 in 2017. Advertising and promotion expense was $54,904, down from $201,808 in 2017. Marketing expense did not include expenses related to the company’s offering under Regulation A. Expenses related to the offering were capitalized to prepaid expenses and are charged against shareholder’s equity when the offering is closed. |
| · | Fees to OSS were $34,226 in 2018, a decrease from fees of $ 83,287 in 2017. This reflected the reduction in gross income. This affiliated company (owned by Mr. Grosshandler) provides most of the services needed to operate iConsumer. Most specifically, the overheads of creating member-oriented marketing campaigns and the overhead of managing the network of approximately 2,000 retailers are borne by OSS. Additionally, all of the costs of developing and operating the technology are the responsibility of OSS. In accordance with the agreement with OSS, the expense is calculated as 20% of gross revenues. If iConsumer was not using OSS to provide these services, the results of its operations might be significantly different. |
| 24 |
| · | Legal fees for 2017 were $70,021, compared to $43,227 in 2016, primarily as a result of increased regulatory burden. |
| · | Accounting fees were $49,125 in 2018, compared to $29,174 in 2017. |
As a result of the foregoing factors, the company recorded a net loss of $424,600 in 2018, compared to a net loss of $1,129,751 in 2017.
Liquidity and Capital Resources
As of the date of this report, iConsumer has a low level of liquid assets. The company is completely dependent on the proceeds from a continuing offering of equities under Regulation A and support from affiliated companies to execute its plan of operations. In September 2016, the company commenced its initial offering under Regulation A. It offered up to $2,000,000 of its Series A Non-Voting Preferred Stock at a price of $.045 per share, subsequently raised to $.09 per share. The company received $20,341 in cash from the sale of its preferred securities in the Regulation A offering in 2017, including $7,000 in cash that was a receivable at the end of 2016. The company received $1,222 in cash from the sale of its preferred securities in 2018 at $.09 per share, and $40,288 at $.15 per share. In September 2017, the company commenced a private placement under Rule 506(c) of Regulation D of up to $2,000,000 aggregate principal amount of 8% Convertible Promissory Notes due 2020, convertible into shares of its Series A Non-Voting Preferred Stock, at the holder’s option, at a price of $.075 per share. As of December 31, 2017 the company had raised $154,721 under that offering. As of December 31, 2018 the company had raised no additional amounts under that offering. The company has no debt, other than the Convertible Promissory Notes, outside of its obligations to remit earned cash back to members when due, and no obligations to make any capital expenditures. The company has no bank lines or other financing arranged. The company will be completely dependent on the net proceeds of this offering and support from affiliated companies.
Rescission Offer
Under Commission rules, an issuer that is offering securities on a continuous basis under Rule 251 of Regulation A must amend its offering statement annually to update the financial information in the offering circular and to reflect any other changes to its disclosure. The company failed to amend its offering statement (Commission File No. 24-10480) that was re-qualified by the Commission on February 13, 2017 on a timely basis. As a result, that offering statement was no longer available for the company to make stock awards to members who made purchases after February 13, 2018 and through May 23, 2018. We permitted members to earn stock awards from February 14, 2018 until May 23, 2018. Stock awards accrued during that period may not have been exempt from the registration or qualification requirements under federal securities laws, may have been accrued in violation of federal securities laws and may be subject to rescission.
On October 27, 2018, the company commenced a rescission offer under Regulation A to 2,020 persons who had award transactions during that period. The rescission offer was open until December 6, 2018. It provided a mechanism for eligible members to, at their option, reverse the transactions that resulted in them earning stock and other rebates during the period in question. Two persons accepted the rescission offer for 1,824 shares, and the reversal of $48 in Bitcoin. The company is awaiting executed documentation from the rescinding members to complete the transactions. It had no material effect on 2018 results.
Trend Information
The company is reliant on the economic trends affecting online shopping in the United States. The addition of Bitcoin-based rebates made the company increasingly subject to worldwide economic trends affecting online shopping. The cessation of Bitcoin-based rebates in November, 2018 reduced the influence of worldwide shopping trends. The migration of retail shopping from physical locations to the internet continues and is expected to continue into the foreseeable future. The company believes that this trend is positively affecting its growth.
Amazon continues to enjoy a significant share of that online retail growth. The company has a relationship with Amazon, but the revenues from that relationship are negligible. Should the company succeed in increasing the share of its revenues from Amazon, the company would have increased customer concentration risk.
Retailers that rely primarily on physical locations are under significant economic pressure. Many of them are going through or will go through bankruptcy proceedings. The company has relationships with some of those retailers. The company will be negatively affected to a greater or lesser degree by retailer defaults. Mitigating that trend is the fact that their customers are migrating to companies with which the company already does business.
| 25 |
The credit risk associated with retailer bankruptcies is mitigated in two ways. First, the company’s service providers monitor those risks, and seek deposits and advance payments from retailers they deem risky. Second, the company does not owe rebates to its members unless the revenues those rebates are calculated upon are received.
The company utilizes online advertising to attract new members. Online advertising continues to grow as a percentage of the advertising market. The cost of the company’s advertising is subject to change, both up and down, depending on the state of the advertising market.
The addition of Bitcoin-based rebates subjects the company to advertising risks. Many advertising outlets do not allow advertisements promoting Bitcoin or other cryptocurrencies. This limited the company’s advertising options, and may result in higher advertising costs. The company ceased offering Bitcoin-based rebates in November, 2018, but certain advertising outlets may be slow in acknowledging that change.
Consumers’ internet use, and especially mobile internet use, continues to grow. The company believes this increase can result in more member growth. Navigating the transition from desktop to mobile internet use presents challenges for the company. The company utilizes technology partners that continue to invest heavily in platforms that are intended to make the company’s offerings attractive to existing members and prospective members who use the internet from mobile devices.
The cost and difficulty of hiring or retaining qualified employees continues to increase. While the company does not have any direct employees, it is dependent on its service partners’ abilities to attract and retain employees. The company believes that its ability to operate virtually will help to mitigate the increased employee challenge.
The company’s ability to raise money is affected by the stock market, and in particular, the acceptance of companies using Regulation A as amended under the 2012 JOBS Act.
The alternative markets (e.g. OTC) continue to revise their standards for quotation. Those revisions may make it harder or more expensive for the company to obtain or maintain a market for its securities.
The competition has begun to utilize alternative advertising mechanisms. eBates appeared to utilize TV advertising to a greater extent than observed in prior years. As of the date of these financial statements, eBates has begun rebranding as Rakuten, and spending significant sums supporting that effort.
The adoption of new mobile wireless technologies such as 4G and soon, 5G, continue to make mobile usage of the company’s offerings more likely.
Alternative blockchain-based competitors are beginning to appear in non-U.S. markets. The company expects blockchain-based competitors, including eBates / Rakuten, to enter the U.S. market at some point.
| 26 |
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The company’s officers and directors are as follows. All are occupied full-time on the company’s business, but with the exception of Melinda Moore, are employed by an affiliate of the company as described in “The Company’s Business – Employees.” As of June 1, 2018, Melinda Moore provides services to the affiliate as an independent contractor. The company does not currently employ any “significant employees” as defined by the Commission.
| Name | Position | Age | Term of office | |||
| Executive officers | ||||||
| Robert N. Grosshandler | President | 63 | Indefinitely from December 2010 | |||
| Sanford David Schleicher | Chief Technology Officer | 51 | Indefinitely from April 2015 | |||
| Director | ||||||
| Robert Grosshandler | 63 | Since December 2010 |
Robert N. Grosshandler, President
Robert Grosshandler has been President of the company since its inception. In 1997, he founded iGive.com, a company that helps consumers raise money for charities by shopping online. He founded iGive and has acted as CEO of iGive from that date to the present. iGive today helps 350,000 consumers contribute to 35,000 charities. He is also founder and CEO of OSS. Between 1976 and 1981 Mr. Grosshandler participated in real estate and industrial workouts. In 1981, he co-founded The SOFTA Group, Inc., which grew to 160 employees when it was sold in 1993. In 1995 he founded and sold a company to a West Coast integrated circuit manufacturer.
Sanford Schleicher, Chief Technology Officer
Mr. Schleicher is Chief Technology Officer, which position he has held since April 2015 and in that capacity he oversees engineering, production and development. From 2009 to the present date he was the Chief Technology Officer of iGive and OSS. As CTO, he is responsible for all technology R&D as well as platform operations. Prior to joining iGive.com, Mr. Schleicher was Director of Engineering of Onebox Solutions, and before that Director of Research and Development of Call Sciences which he joined in early 2001, when Call Sciences purchased Vocal Link, a company Mr. Schleicher co-founded in 1997. Prior to Vocal Link, he worked at Quantra Corporation. Previous professional experience includes Baxter Healthcare Inc. and Price Waterhouse. Mr. Schleicher holds an Engineering Degree in Computer Science from the University of Illinois in Champaign/Urbana.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
iConsumer has not yet paid or agreed to pay its officers or directors. Currently, Mr. Grosshandler and Mr. Schleicher are compensated by OSS and their services are provided to iConsumer under the License Agreement. See “Interest of Management and Others in Certain Transactions.”
In the future the company will have to pay its officers, directors and other employees, which will impact the company’s financial condition and results of operations, as discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The company may choose to establish an equity compensation plan for its management and other employees in the future.
| 27 |
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The following table sets out, as of December 31, 2018, the securities of the company that are owned by executive officers and directors, and other persons holding more than 10% of the company’s voting securities or having the right to acquire those securities.
| Title of class | Name and address of beneficial owner | Amount and nature of beneficial ownership | Amount and nature of beneficial ownership acquirable | Percent of class | ||||||
| Common Stock | Robert N. Grosshandler 2724 Simpson Street Evanston, IL 60201 | 100,000,000 direct ownership | N/A | 100 | % | |||||
| Series A Non-Voting Preferred Stock | Robert N. Grosshandler 2724 Simpson Street Evanston, IL 60201 | 39,000,000 direct ownership; Mr. Grosshandler disclaims beneficial ownership of shares held by family members | N/A | 36.1 | % | |||||
| Series A Non-Voting Preferred Stock | Sanford D. Schleicher 2724 Simpson Street Evanston, IL 60201 | 12,000,000 direct ownership; 4,000,000 Dehne Trust #1 beneficial ownership; 4,000,000 Dehne Trust #2 beneficial ownership | N/A | 11.1 | % | |||||
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Software License and Services Agreement with Outsourced Site Services
The technology used by iConsumer to operate its website is licensed from OSS, where it has been used in one form or another since 1997 for the operations of iGive, a business that caters to online shoppers who are interested in helping non-profits. iConsumer receives services from OSS, which include hosting, servers, support, internet connectivity, and interconnections with retailers. OSS also provides marketing, management, and accounting services. OSS also employs Robert Grosshandler and Sanford Schleicher.
These services are provided pursuant to an Amended and Restated Software License and Services Agreement dated May 25, 2016, between OSS and the company (the “License Agreement”). Under the License Agreement, the company pays 20% of its gross revenue to OSS. The License Agreement provides that in the event the company wishes to assume responsibility for the support services provided by OSS, it can do so upon at least six months’ notice. In that event, the company will pay 5% of its gross revenues to OSS.
Both iGive and OSS are 100% owned by Robert Grosshandler.
iConsumer’s authorized capital stock consists of 150,000,000 shares of common stock, $0.001 par value per share, and 300,000,000 shares of preferred stock, $0.001 par value per share, 250,000,000 of which preferred stock have been designated Series A Non-Voting Preferred Stock. As of December 31, 2018 there were 100,000,000 shares of iConsumer’s common stock outstanding, held by one stockholder of record, and 108,505,206of Series A Non-Voting Preferred Stock outstanding, held by approximately 2,600 stockholders of record. The company’s board of directors is authorized, without stockholder approval, to issue additional shares of capital stock.
The shares being offered to investors are Series A Non-Voting Preferred Stock of iConsumer. The rights of holders in the Series A Non-Voting Preferred Stock are different from the rights of the holders of the company’s common stock.
The following description summarizes the most important terms of the company’s capital stock. This summary does not purport to be complete and is qualified in its entirety by the provisions of the company’s amended and restated certificate of incorporation, bylaws and the Certificate of Designations for the Series A Non-Voting Preferred Stock, copies of which have been filed with the Commission as Exhibits 2.1, 2.2 and 3.1 to the Offering Statement of which this Offering Circular is a part. For a complete description of iConsumer’s capital stock, you should refer to the amended and restated certificate of incorporation and bylaws, to the Certificate of Designations and to the applicable provisions of Delaware law.
| 28 |
Series A Non-Voting Preferred Stock
Dividend Rights
Series A Non-Voting Preferred Stock will receive dividends, in preference to the holders of common stock and any other capital stock, when and as dividends may be declared from time to time by the board of directors out of legally available funds. While any shares of Series A Non-Voting Preferred Stock are outstanding, no dividends can be paid or declared, and no distribution can be made, until all accrued and unpaid dividends have been paid or declared and set apart.
Voting Rights
The Series A Non-Voting Preferred Stock have no voting rights except as required under law.
Right to Receive Liquidation Distributions
In the event of iConsumer’s liquidation, dissolution or winding up, holders of its Series A Non-Voting Preferred Stock issued in this offering will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of the company’s debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock. Shares of Series A Non-Voting Preferred Stock issued prior to January 12, 2018 have a liquidation preference equal to the original issue price of such shares if, at the time of liquidation, those shares are still held by the shareholder of record as of January 12, 2018. Any holders of shares earned through the reward program who were recorded on the company's share register as of that date are considered holders of record, which includes members who earned and were issued shares prior to January 12, 2018. Any shares transferred by a shareholder who held shares as of that date will no longer have a liquidation preference.
Rights and Preferences
The Series A Non-Voting Preferred Stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to the Series A Non-Voting Preferred Stock.
Common Stock
Dividend Rights
Subject to preferences that may be applicable to any then outstanding preferred stock, holders of iConsumer’s common stock are entitled to receive dividends, if any, as may be declared from time to time by the board of directors out of legally available funds. The company has never declared or paid cash dividends on any of its capital stock and currently does not anticipate paying any cash dividends after this offering or in the foreseeable future.
Voting Rights
Each holder of iConsumer’s common stock is entitled to ten votes for each share on all matters submitted to a vote of the stockholders, including the election of directors. The company’s stockholders do not have cumulative voting rights in the election of directors.
Right to Receive Liquidation Distributions
In the event of iConsumer’s liquidation, dissolution or winding up, holders of its common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of the company’s debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.
Rights and Preferences
Holders of iConsumer’s common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to the company’s common stock. The rights, preferences and privileges of the holders of the company’s common stock are subject to and may be adversely affected by, the rights of the holders of shares of any series of the company’s Series A Non-Voting Preferred Stock and any additional classes of preferred stock that the company may designate in the future.
Transfer Agent and Registrar
The company has appointed Issuer Direct as its transfer agent.
| 29 |
iCONSUMER CORP.
FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2018 AND DECEMBER 31, 2017
| F-1 |
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors
iConsumer Corp.
Evanston, Illinois
Report on the Financial Statements
We have audited the accompanying financial statements of iConsumer Corp., which comprise the balance sheets as of December 31, 2018 and 2017, and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free for material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of iConsumer Corp., as of December 31, 2018 and 2017, and the results of its operations and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States.
| F-2 |
Emphasis of Matter Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company has not generated significant revenues or profits since inception, and has sustained net losses of $424,600 and $1,129,751 for the years ended December 31, 2018 and 2017, respectively. Those conditions raise substantial doubt about its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters are also described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
| /s/ Wipfli LLP | |
| April 29, 2019 | |
| Minneapolis, MN |
| F-3 |
iConsumer Corp.
BALANCE SHEETS
December 31, 2018 and December 31, 2017
| 12/31/2018 | 12/31/2017 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Accounts Receivable | 9,363 | 16,323 | ||||||
| Due from Escrow Agents | 1,758 | 2,544 | ||||||
| Bitcoin | 632 | 0 | ||||||
| Prepaid Expenses | 12,333 | 13,167 | ||||||
| Total Current Assets | 24,087 | 32,034 | ||||||
| TOTAL ASSETS | 24,087 | 32,034 | ||||||
| LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | 71,213 | 10,498 | ||||||
| Checks Written in Excess of Cash | 26,617 | 43,595 | ||||||
| Member Bitcoin Payable | 31,801 | 1,391 | ||||||
| Member Cash Back Payable | 122,579 | 178,824 | ||||||
| Total Current Liabilities | 252,209 | 234,308 | ||||||
| Non-Current Liabilities | ||||||||
| Convertible Notes Payable, Net | 107,853 | 107,793 | ||||||
| Due to Related Parties | 268,489 | 225,351 | ||||||
| Total Non-Current Liabilities | 376,342 | 333,144 | ||||||
| Total Liabilities | 628,551 | 567,452 | ||||||
| Stockholders' Equity (Deficit) | ||||||||
| Paid in Capital | 1,480,141 | 1,125,811 | ||||||
| Retained Earnings (Deficit) | -2,293,111 | -1,868,511 | ||||||
| Common Stock 150,000,000 authorized, $0.001 par, 100,000,000 issued and outstanding at December 31, 2018 & 2017 | 100,000 | 100,000 | ||||||
| Series A Non-Voting Preferred Stock 250,000,000 authorized, $0.001 par, 107,282,913 and 108,505,206 issued & outstanding at December 31, 2018 & 2017 | 108,505 | 107,283 | ||||||
| Total Stockholders' Equity (Deficit) | -604,465 | -535,417 | ||||||
| TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) | 24,087 | 32,034 | ||||||
See Accompanying Notes to Financial Statements.
| F-4 |
iConsumer Corp.
STATEMENTS OF OPERATIONS
For years ending December 31, 2018 and December 31, 2017
| 12/31/2018 | 12/31/2017 | |||||||
| Revenues: | ||||||||
| Commissions from Merchants | 167,474 | 410,941 | ||||||
| Miscellaneous Income | 3,659 | 5,495 | ||||||
| Total Income | 171,132 | 416,435 | ||||||
| Cost of Revenue | ||||||||
| Member Bitcoin Back Rebate | 23,497 | 1,391 | ||||||
| Member Cash Back Rebate | 31,826 | 349,925 | ||||||
| Member Stock Back Rebate | 226,718 | 315,210 | ||||||
| Total Cost of Revenue | 282,041 | 666,526 | ||||||
| Gross Profit (Loss) | -110,909 | -250,090 | ||||||
| Operating Expenses | ||||||||
| Accounting | 49,125 | 29,174 | ||||||
| Bank Service Charges | 0 | 924 | ||||||
| Interest Expense | 38,268 | 9,877 | ||||||
| Legal Fees | 70,021 | 43,227 | ||||||
| Marketing | ||||||||
| Member Stock Awards | 43,369 | 450,492 | ||||||
| Advertising & Promotion | 54,904 | 201,808 | ||||||
| Membership Expenses | 1,010 | 3,223 | ||||||
| Miscellaneous Expenses | 0 | 193 | ||||||
| OSS Service Fee, a related party | 34,226 | 83,287 | ||||||
| Other Professional Fees | 3,000 | 27,000 | ||||||
| Stock Issuance Fees | 19,768 | 30,455 | ||||||
| Total Operating Expenses | 313,691 | 879,660 | ||||||
| Net Loss | -424,600 | -1,129,751 | ||||||
See Accompanying Notes to Financial Statements.
| F-5 |
iConsumer Corp.
STATEMENTS OF CASH FLOWS
For years ending December 31, 2018 and December 31, 2017
| 12/31/2018 | 12/31/2017 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net Loss | -424,600 | -1,129,751 | ||||||
| Adjustments to reconcile Net Loss to net cash used in operations: | ||||||||
| Shares Earned by Members | 270,087 | 765,702 | ||||||
| Non-Cash Interest Expense | 24,964 | 6,156 | ||||||
| Changes in Operating Asset & Liabilities | ||||||||
| Bitcoin | -632 | |||||||
| Accounts Receivable | 6,960 | -16,323 | ||||||
| Accounts Payable | 60,715 | 4,956 | ||||||
| Prepaid Expenses | 833 | -13,167 | ||||||
| Member Cash Back Payable | -56,245 | 25,111 | ||||||
| Member Bitcoin Payable | 30,411 | 1,391 | ||||||
| Net cash used in Operating Activities | -87,507 | -355,924 | ||||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from Issuance of Convertible Notes Payable | 10,396 | 154,721 | ||||||
| Prime Trust Escrow | 785 | 50,481 | ||||||
| Investor Funds Receivable | 0 | 7,000 | ||||||
| Checks Written in Excess of Cash | -16,978 | 23,126 | ||||||
| Increase in Due to Related Party | 43,138 | 123,140 | ||||||
| Payment of Deferred Financing Costs | 0 | -22,884 | ||||||
| Proceeds from Issuance of Preferred Stock | 50,166 | 20,341 | ||||||
| Net cash provided by Financing Activities | 87,507 | 355,924 | ||||||
| Net cash increase (decrease) for period | 0 | 0 | ||||||
| Cash at beginning of period | 0 | 0 | ||||||
| Cash at end of period | 0 | 0 | ||||||
See Accompanying Notes to Financial Statements.
| F-6 |
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For years ending December 31, 2018 and December 31, 2017
| Additional | ||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid-In | Total | |||||||||||||||||||||||||
| Number of | Amount | Number of | Amount | Capital | Accumulated | Stockholder's | ||||||||||||||||||||||
| Shares | Par .001 | Shares | Par .001 | (Deficit) | Deficit | Equity (Deficit) | ||||||||||||||||||||||
| Balance at December 31, 2016 (Audited) | 100,000,000 | $ | 100,000 | 105,896,831 | $ | 105,897 | $ | 310,953 | $ | (738,761 | ) | $ | (221,910 | ) | ||||||||||||||
| Stock Distributed to Investors | 192,682 | $ | 193 | $ | 20,149 | $ | 20,341 | |||||||||||||||||||||
| Stock Distributed to Members | 1,193,401 | $ | 1,193 | $ | (1,193 | ) | $ | - | ||||||||||||||||||||
| Stock Earned by Members | $ | 765,702 | $ | 765,702 | ||||||||||||||||||||||||
| Beneficial Conversion Feature Related to Convertible Notes | $ | 30,200 | $ | 30,200 | ||||||||||||||||||||||||
| Net Loss | $ | (1,129,751 | ) | $ | (1,129,751 | ) | ||||||||||||||||||||||
| Balance at December 31, 2017 (Audited) | 100,000,000 | $ | 100,000 | 107,282,913 | $ | 107,283 | $ | 1,125,811 | $ | (1,868,511 | ) | $ | (535,417 | ) | ||||||||||||||
| Stock Distributed to Investors | 326,239 | $ | 326 | $ | 49,839 | $ | 50,166 | |||||||||||||||||||||
| Stock Distributed to Members | 896,053 | $ | 896 | $ | (896 | ) | $ | - | ||||||||||||||||||||
| Stock Earned by Members | $ | 270,087 | $ | 270,087 | ||||||||||||||||||||||||
| Beneficial Conversion Feature Related to Convertible Notes | $ | 35,300 | $ | 35,300 | ||||||||||||||||||||||||
| Net Loss | $ | (424,600 | ) | $ | (424,600 | ) | ||||||||||||||||||||||
| Balance at December 31, 2018 (Audited) | 100,000,000 | $ | 100,000 | 108,505,206 | $ | 108,505 | $ | 1,480,141 | $ | (2,293,111 | ) | $ | (604,465 | ) | ||||||||||||||
See Accompanying Notes to Financial Statements.
| F-7 |
iConsumer Corp.
NOTES TO THE FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
NOTE 1: NATURE OF OPERATIONS
iConsumer Corp. (the “Company”), is a corporation organized December 16, 2010 under the laws of Delaware. The Company was formed to provide money saving services to consumers through a website that is designed to be searchable and discoverable by Google. On June 19, 2015 it began “test the waters” operations to determine product and service viability for a new service aimed at providing consumers cash back rebates based upon their shopping at participating retailers. As of December 31, 2015, it had not generated significant revenue.
Measurable revenue from operations began in January 2016. The Company’s revenues varied significantly each month during 2016 as it refined its marketing and promotional offers. In the years preceding the commencement of its principal operations, the Company actively provided the service of directing web traffic to iGive.com, primarily aimed at Google and other search engines.
Through June 19th, 2015, the Company’s activities consisted of formation activities and preparations to raise additional capital as described in Note 6. These activities continued through 2015. In 2016, the Company’s offering statement was qualified by the Securities and Exchange Commission (“SEC”) under Regulation A promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Company became fully operational.
The Company’s Regulation A offering statement was re-qualified by the SEC in February 2017, reflecting the change of the stock price from $.045 per share to $.09 per share. To comply with the Financial Industry Regulatory Authority’s (“FINRA”) instructions, the Company filed a Form 1-Z to notify the closing of the Regulation A offering in May 2017. FINRA required this in order for the Company to commence the process of applying for quotation of its Series A Non-Voting Preferred Stock on the OTCQB market. That 1-Z filing was later withdrawn. Under SEC rules, an issuer that is offering securities on a continuous basis under Rule 251 of Regulation A must amend its offering statement annually to update the financial information in the offering circular and to reflect any other changes to its disclosure. The Company failed to amend its offering statement (SEC File No. 24-10480) that was re-qualified by the SEC on February 13, 2017 on a timely basis. From May 2017 until June 13, 2018, the Company did not issue any shares under a Regulation A offering statement.
On June 13, 2018, the SEC qualified the Company’s offering statement for a new offering under Regulation A. The share price in this offering was raised to $.15/share. This offering is a continuous offering and remained open as of December 31, 2018.
On October 26, 2018 the SEC qualified the Company’s offering statement in connection with a rescission offer under Regulation A. This offering covered stock that may have been earned by members between February 13, 2018 and May 23, 2018. It provided a mechanism for eligible members to, at their option, reverse the transactions that resulted in them earning stock and other rebates during the period in question. The rescission offer was open from October 27, 29018 until December 6, 2018. Two members took advantage of the rescission offer for 1,824 shares and the reversal of $48 in Bitcoin. The company is awaiting executed documentation from the members to complete the transactions.
The Company received a ticker symbol from FINRA in December 2017. The Company made application to The Depository Trust Corporation (DTC) in January to facilitate the electronic transfer of its stock. The first trade of RWRDP occurred in March 2018. The Company’s stock is highly illiquid, and likely to remain so for the foreseeable future.
Between December, 2017 and November, 2018, the Company offered rebates in the form of cash, the Company’s traded equity (RWRDP), and Bitcoin. Before and after that period the Company offered rebates in the form of cash and RWRDP.
| F-8 |
The Company is dependent upon additional capital resources for the continuation of its planned principal operations and is subject to significant risks and uncertainties; including failing to secure additional funding to fully operationalize the Company’s planned operations.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP) and Article 8 of Regulation S-X of the rules and regulations of the SEC.
The Company adopted the calendar year as its basis of reporting.
Adoption of New Accounting Standards
On January 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets. For periods before January 1, 2018, the Company recognized revenue in conformance with ASC 605. Due to the nature of the Company’s business (it is an agent for its customers and it only recognized revenue after any and all performance obligations were complete) there is no effect of adopting ASC 606 on prior periods and no restatement is warranted.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash Equivalents
Cash equivalents can include time deposits, Bitcoin, certificate of deposits, and all highly liquid debt instruments with original maturities of three months or less.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at their estimated collectible amounts. Accounts receivable are periodically evaluated for collectability based on past credit history with clients and other factors. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance and current economic conditions. There are no allowances for doubtful accounts established as of December 31, 2018 or December 31, 2017.
Property and Equipment
The Company has a policy to capitalize expenditures with useful lives in excess of one year and costs exceeding $1,000. No property or equipment has been recorded as of December 31, 2018 or December 31, 2017.
Revenue Recognition
The Company earns revenues through commissions, royalties, and advertising on its website, its mobile apps, and browser add-ons. The Company recognized revenue in accordance with FASB ASC 605 through December 31, 2017, only when the price was fixed or determinable, persuasive evidence of an arrangement existed, the services had been provided, and collectability was assured. Significant revenues began being recognized beginning in the year ended December 31, 2016 and continued through December 31, 2017.
| F-9 |
As of January 1, 2018, the Company recognizes revenue in accordance with FASB ASC 606. As a public business entity as defined by FASB, we are required to disclose revenue disaggregated according to the timing of transfer of goods or services. We are required to provide qualitative information about how economic factors affect our revenue and cash flows. We disclose certain details about contracts, including performance obligations. We disclose judgments made in evaluating revenue. We continue to only recognize non-contract revenue when the price is fixed or determinable, persuasive evidence of an arrangement exists, the services have been provided, and collectability is assured
Contracts, Revenue Disaggregation, Performance Obligations, Transaction Price, Allocation, Timing, Principal vs. Agent, Risk Concentration, and Significant Judgments
Contracts
The Company primarily receives commission revenue from approximately 2,000 U.S.-based online retailers (the Company’s customers) in exchange for the Company assisting those retailers in making sales to the retailers’ customers and prospective customers located primarily in the United States. Contracts generally take one of three forms. A master contract with transaction aggregators (e.g. Commission Junction, Linkshare / Rakuten, PHG). The transaction aggregator provides the Company with opportunities with retailers. That contract is “opt-in”. That is, simply by using their services the Company agrees to a set of policies and procedures. Second, a direct contract with the retailer (e.g. Amazon). And third, oral contracts. All of these contracts are generally cancellable at will by either party. There may or may not be a notice provision. A non-material number of customers and members are located outside the United States.
The contracts generally provide for mechanisms to simply change the terms of a particular offer, typically commission rates, affected SKUs, and timing.
The Company does not have revenue generating contracts with its members.
Disaggregation
There is no material basis upon which to disaggregate 95% of the Company’s revenue. The Company does not find that disaggregating by customer location, line of business, customer size, contract length, a customer’s contracts with its customers, timing of transfer, or sales channel is possible, or if possible, material.
The number and small relative size of each customer makes such analysis moot.
Large customers (e.g. Walmart) are broad line retailers. While a portion of the transactions generated by iConsumer members may have the potential for meaningful disaggregation, the Company does not receive sufficiently granular data to make that judgment possible.
Approximately 5% of the Company’s transactions by revenue come from customers providing travel services (e.g. Expedia, Orbitz) in 2018. The balance of the Company’s customers serve essentially the same function to essentially the same online audience via the same channels under similar short term contracts via online retail sales.
We believe that travel services may respond differently to changes in the economy or societal issues. In addition to the standard broad economic risks, the Company’s customers that provide travel and travel related services to our audience members are subject to an additional set of risks. A reduction in travel expenditures can occur, even if the broad economy’s health doesn’t change. Changes in fuel prices, terrorist threats, communicable diseases, and war are some of the factors that our audience members may take into account when booking travel.
| F-10 |
Performance Obligations
As an agent for the customer, the Company’s performance obligation to a customer is created and completely fulfilled simultaneously. Generally, the retailer has agreed to pay the Company a commission when an iConsumer member (a user) makes a purchase at the retailer. In rare instances, the retailer has agreed to pay the Company a fee for showing advertising to the Company’s members. The Company is generally not obligated to promote the customer to its members. However, if it does, and the member makes a purchase from the customer, the customer is obligated to compensate the Company. If the Company does elect to promote the customer to its members, it has simultaneously created and fulfilled its obligation. The Company is responsible, but not obligated, for advertising the availability of the retailers’ offerings and facilitating the navigation of the user to the retailers. The retailer is solely responsible for executing sales to its customers.
Principal vs. Agent
For purposes of ASC 606, the Company is an agent of the customer. As such, it only recognizes the commission revenue generated by the transaction.
Generally, the retailer has agreed to pay the Company a commission when an iConsumer member (a user) makes a purchase at the retailer. If the retailer has agreed to pay the Company for advertising services, the retailer will owe the Company money once the user has been shown the retailer’s advertisement. As December 31, 2018 there have been no material advertising revenues. The Company is responsible for advertising the availability of the retailers’ offerings and facilitating the navigation of the user to the retailers. The retailer is solely responsible for executing sales to its customers.
Timing
The Company recognizes revenue as of the date of the transaction between the customer and its customer (the member), assuming the Company believes that such a transaction has a low likelihood of being reversed by the customer. In the event that a transaction has characteristics that cause the Company to believe that it has a higher likelihood of being reversed by the customer, the Company will recognize revenue for that transaction after the commission payment for that transaction is received.
The retailer is responsible for reporting that purchase or other commissionable activity, and the pertinent details of that purchase, including transaction price and commission amount, to the Company, almost exclusively after the retailer has shipped goods or provided the service.
For advertising revenue (non-material at this time) the Company recognizes revenue on the date an advertisement was shown.
Payment is generally due and received within 90 days after the transaction occurs. If a user returns the goods or service, the retailer has the right to reverse the transaction. User returns, if they occur, are generally recognized in the same accounting period as they were originally recognized. The Company closes its books approximately 45 days after the period end, which allows it to capture those returns. In the Company’s judgment, there is no material time-based obligation or variable consideration remaining after the close of its books and subsequent financial statement reports.
Concentrations of Credit Risks
The Company’s financial instruments that are exposed to concentrations of credit risk consist of its cash and counter-party risk associated with the hedging of Bitcoin using futures. As of November 12, 2018 the Company ceased offering members the opportunity to earn rebates denominated in Bitcoin. The Company will place its cash and cash equivalents other than Bitcoin with financial institutions of high credit worthiness and has a policy to not carry a balance in excess of FDIC insurance limits. The Company’s management plans to assess the financial strength and credit worthiness of any parties to which it extends funds or with whom it has deposits, and as such, it believes that any associated credit risk exposures are limited. The Company utilized the Chicago Board Options Exchange and the Chicago Mercantile Exchange to hedge Bitcoin exposure. Those exchanges manage counter-party risk as part of their futures contracts.
| F-11 |
Concentration of Customer and Customer Credit Risk
The Company is exposed to concentration of customer risk. In 2018, it had two customers that represented over 21% of its revenues. In 2017, it had two customers that represented 62% of its revenues. Should those customers stop doing business with the Company, the Company would be significantly adversely affected. Should those customers not pay the Company the monies owed to the Company, the Company would be significantly adversely affected. The impact of non-payment would be mitigated as the Company is not obligated to provide rebates to members if the Company does not get paid.
Concentration of Member (User) Risk
The Company is exposed to concentration of member risk. In 2018, it had one member whose purchases generated approximately 11% of the Company’s revenues and it had five members who generated approximately 25% of the Company’s revenues. In 2017, it had one member whose purchases generated approximately 17% of the Company’s revenues and it had five members who generated approximately 35% of the Company’s revenues. Should those members stop shopping at stores via iConsumer, the Company would be significantly negatively impacted.
Significant Judgments
The Company has implemented procedures in 2018 to identify transactions that do not meet its standards. Such transactions are recognized as revenue until payment is received. These procedures utilize a combination of member transaction history, customer transaction history, customer payment history (at the transaction level), quality of customer reporting, aging of accounts receivable, and other characteristics to make this determination. As of December 31, 2018, approximately $4,250 of transactions that may have been recognized as revenue under the procedures in place before July 1, 2018 are not being recognized and are not reflected on the financial statements dated December 31, 2018. If and when the Company receives payment for those transactions, the Company will recognize the revenue on the then current financial statements.
The Company has no unfulfilled performance obligations to customers with regard to these transactions.
Cost of Revenue
For 2017, the Company’s targeted cash back was 80% of revenue. As part of its marketing efforts, the Company frequently varied from that target. The difference from that target was recorded and presented as a marketing expense. During 2018, the Company did not frequently vary from its target of 40% cash or Bitcoin back. The Company reflects 100% of cash or Bitcoin back awards as Cost of Revenues. The Company recognizes 100% of the value of stock rebates earned directly as the result of a purchase to be Cost of Revenue.
Offering Costs
The Company complies with the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A - "Expenses of Offering" with regards to offering costs. Prior to the completion of an offering, offering costs are capitalized as deferred offering costs on the balance sheet. The deferred offering costs are charged to stockholder’s equity upon the completion of the offering. The Company ceased making sales under its offering statement discussed in Note 6 in February, 2018 and resumed making offerings in June, 2018. It had a rescission offering that began and ended in 2018. It began another equity offering in June, 2018 which remained open as of December 31, 2018.
Income Taxes
The Company accounts for income taxes with the recognition of estimated income taxes payable or refundable on income tax returns for the current period and for the estimated future tax effect attributable to temporary differences and carryforwards. Measurement of deferred income items is based on enacted tax laws including tax rates that are expected to be effective when the benefits from the deferred tax assets are realized. At December 31, 2018, and December 31, 2017, the Company had deferred tax assets of approximately $650,000 and $550,000 respectively, related to net operating loss carryforwards (NOL). At December 31, 2018 the Company has not reflected any change in the deferred tax assets from prior periods. Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in the future and utilize the NOL’s before they expire, the Company has recorded a valuation allowance to reduce the net deferred tax asset to zero. The effective tax rate is different from the expected federal tax rate due to the valuation allowance and state income taxes.
| F-12 |
The Company reviews tax positions taken to determine if it is more likely than not that the position would be sustained upon examination resulting in an uncertain tax position. The Company did not have any material unrecognized tax benefit as of December 31, 2018 or December 31, 2017. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2018 and December 31, 2017 the Company recognized no interest or penalties.
The Company is required to file U.S. federal tax returns. The U.S. federal tax returns were not filed for the Company for the years 2010-2014, in violation of IRS regulations and federal statutes. The Company filed the returns for each of the years 2010-2014 during July 2015. The Company also filed its return for 2015. As each year incurred a net operating loss, no taxes were due when the returns were filed. However, $100 late filing penalties were assessed and paid for each year, other than 2015. The Company believes it is in compliance after filing these returns. The Company has filed its 2016 and 2017 tax returns. All tax periods since inception remain open to examination by the taxing jurisdictions to which the Company is subject. The Company has filed for an extension to file U.S. federal tax returns for 2018.
Stock Distributable to Members
In January of 2017 the Company began to estimate and recognize the difference between the shares earned by and due to members that likely will be issued and transferred in the current year and shares earned that will likely be issued and transferred in a future period. Beginning in June of 2017 the Company clarified to members that a member may be charged a fee for such issuance and transfer. As of December 31, 2018, no member has been charged a fee.
As of May 11, 2017, the Company ceased issuing and transferring shares, because it filed a Form 1-Z to notify the closing of its offering, as required by FINRA, so that FINRA would issue the Company a ticker symbol. The Company subsequently withdrew the Form 1-Z. The offering statement remained qualified until February 13, 2018. Under SEC rules, an issuer that is offering securities on a continuous basis under Rule 251 of Regulation A must amend its offering statement annually to update the financial information in the offering circular and to reflect any other changes to its disclosure. The Company failed to amend its offering statement on a timely basis. The Company had begun offering members who earned stock awards prior to February 13, 2018 the opportunity to have their shares issued and transferred. No shares were issued or transferred between May 2017 and June 13, 2018. The Company’s Regulation A offering was qualified by the SEC on June 13, 2018, allowing it to offer, issue, and transfer shares for activity subsequent to June 13, 2018.
Had the Company made Stock awards between February 13, 2018 and May 23, 2018, they may not have been exempt from the registration or qualification requirements under federal securities laws, may have been issued in violation of federal securities laws and may be subject to rescission. The Company conducted a rescission offer to all members who may believe they had earned stock awards during that period. Two members took advantage of the rescission offer, tendering 1,824 shares. It had no material effect on 2018 results.
Reliance on Related Party
The Company currently has a software license and service agreement with a related party (see Note 5) and has the majority of its ordinary expenses paid by the related party under the terms of that agreement. As a result, the Company’s results of operations may not be indicative of the results that would have occurred if it operated independently.
Other Matter
As described in Note 10, the Company has reclassified its member preferred stock back distributable liability to paid in capital in excess of par to properly reflect equity accounting for such transactions.
| F-13 |
NOTE 3: STOCKHOLDERS’ EQUITY (DEFICIT)
As of the issuance date of these financial statements, 100,000,000 shares of Common Stock and 108,505,206 shares of Preferred Stock were issued and outstanding.
The Articles of Incorporation were Amended and Restated effective July 6, 2015. Among the revised provisions, the Company authorized 150,000,000 shares of Common Stock, par value $0.001 per share and reclassified "Class A Common Stock" to "Common Stock"; authorized 300,000,000 shares of Preferred Stock, par value $0.001 per share and reclassified "Class B Common Stock" to "Preferred Stock"; amended the power to authorize the number of authorized shares to be set by affirmative vote of the holders of at least a majority of the voting power of the issued and outstanding shares of Common Stock of the Company. The terms and preferences of these reclassified shares were revised where Common Stock, among other provisions, entitles holders to 10 votes for each share of Common Stock, subordinate dividend rights to Preferred Stock, and certain liquidation rights.
The Company filed a Certificate of Designations, Preferences, and Rights of Series A Non-Voting Preferred Stock of iConsumer Corp. (under Section 151 of the Delaware General Corporation Law) on July 6, 2015, designating 250,000,000 shares of Preferred Stock authorized under the Amended and Restated Certificate of Incorporation filed July 6, 2015 as Series A Non-Voting Preferred Stock ("Series A Preferred Stock"), par value $0.001. The Series A Preferred Stock was granted certain rights and preferences including dividend preference on declared and unpaid dividends and liquidation priority for the value paid for the Preferred Shares. The Series A Preferred Stock holders are not entitled to vote on any matters placed to a vote of the stockholders of the Company.
The Company entered into a recapitalization and exchange agreement effective July 6, 2015 with Robert Grosshandler. This agreement stipulated the terms of a tax-free reorganization pursuant to Internal Revenue Code section 368(a), where Robert Grosshandler transferred, assigned, delivered, and surrendered to the Company his pre-recapitalization shares and the Company issued post-recapitalization shares, among other pertinent terms. This exchange retired 1,000,000 Class A Common shares pre-recapitalization and issued 100,000,000 shares of Common Stock and 100,000,000 shares of Series A Non-Voting Preferred Stock, post recapitalization.
In preparation for the trading of its preferred stock on a market under the ticker symbol RWRDP, the Company concluded that certain provisions of the liquidation preference granted under the Certificate of Designations, Preferences, and Rights dated July 6, 2015 were unworkable, as the original issue price was not trackable through subsequent holders of the stock. On January 12, 2018 the Company amended the liquidation preference for the Series A Non-Voting Preferred Stock by consent of the holders of a majority of the Common and Series A Non-Voting Preferred Stock. The amendment reaffirmed that shareholders of record as of January 12, 2018 had a liquidation preference equal to the Original Issue Price of their shares and that subsequent holders of the stock will not have a liquidation preference.
Additionally, the amended language eliminated the liquidation preference for shareholders who acquire their shares subsequent to January 12, 2018.
NOTE 4: GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is a business that commenced principal operations in June 2015 and began to generate meaningful revenue in 2016. It has sustained net losses of $424,600 and $1,129,751 for the years ended December 31, 2018 and December 31, 2017, respectively. The Company’s ability to continue as a going concern for the next twelve months is dependent upon its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, and/or to obtain capital financing from its majority stockholder and/or third parties, including through the Offerings described in Note 6. It plans to incur significant costs in pursuit of its Offerings. No assurance can be given that the Company will be successful in these efforts. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| F-14 |
NOTE 5: RELATED PARTIES
Prior to June 19, 2015, the Company was subject to a three-party oral agreement with iGive.com Holdings LLC (“iGive”) and Outsourced Site Services, LLC (“OSS”), both related parties under common control with shared ownership and management (referred to herein collectively as the “Related Parties”). This agreement stipulated that iConsumer Corp. maintain a website at iConsumer.com that directed traffic to iGive.com (owned and operated by iGive). It maintained that website in such a way as to maximize the traffic to iGive.com. In return, the Related Parties covered all of the costs of maintaining the iConsumer.com website. After launch of the full iConsumer website on June 19, 2015, a site that promotes the iConsumer Corp. planned business operations, this agreement ceased, and iConsumer. Corp. became responsible for its own costs or entering into a formal agreement with either or both of the Related Parties or others.
Effective May 1, 2015, the Company entered into a software license and services agreement (the “License Agreement”) with Outsourced Site Services, LLC (“OSS”), a related party. In accordance with the terms of the License Agreement, the Company’s operations are being run on technology licensed from OSS and OSS is providing the Company with certain support services, as defined in the License Agreement. The fee charged by OSS covers a wide range of services, the majority of which are traditionally reflected in costs of operation. The fee covers executive management, administration, accounting, internal technology support, customer support, product development, general marketing, and communications (marketing and non marketing). A hard to quantify amount covers the care and feeding of retailers and intermediate network / technology providers, retailer recruitment, and similar activities. The fee does not cover legal fees incurred for such activities as SEC filings and other regulatory compliance. The Company has no employees.
For the use of these services and technology, the Company has agreed to pay OSS 20% of its gross revenue, as defined in the License Agreement. The License Agreement provides that in the event the Company wishes to assume responsibility for the support services provided by OSS, it can do so upon at least six months’ notice. In that event, the Company will pay 5% of its gross revenues to OSS. Since OSS is under the common control of Robert Grosshandler, he will have the power to determine whether the Company will continue to be able to rely on the OSS license, and the price it pays for the license. The License Agreement has a term of 20 years. As a result of these agreements the Company’s results of operations may not be indicative of the results that would have occurred if it operated independently.
As of December 31, 2018 the Company owed $268,489 to the Related Parties for expenses paid on the Company's behalf since inception, compared to $225,351 owed as of December 31, 2017.
NOTE 6: OFFERINGS
Subsequent to December 31, 2015, the Company began pursuing an offering (“Offering”). The Offering called for the Company to offer for sale under Regulation A, $2,000,000 of its Series A Non-Voting Preferred Stock at a price of $.045 per share. Sales of these securities commenced on September 29, 2016, upon qualification of the Company’s offering statement by the SEC. The offering was a continuous offering. It allowed for multiple closings. The first closing occurred in December 2016, with net proceeds of $147,525, representing the investments of 19 individuals. As of December 31, 2016, the Company had unfunded commitments for $7,000 which were paid in January 2017. The Company’s offering statement was amended, and on February 13, 2017 it was requalified by the SEC, to adjust the subscription agreement, and change the price per share from $.045 to $.09. The Company continued to sell shares for cash in the Offering through May 11, 2017. The Company incurred costs of $15,751.
In order to seek quotation of the Series A Non-Voting Preferred stock on the OTCQB market, FINRA rules required the Company to cease issuing shares in the Offering in order to receive the FINRA approvals necessary to facilitate quotation of its stock. It ceased issuing shares under the offering statement on May 11, 2017.
| F-15 |
FINRA issued the Company Series A Non-Voting Preferred stock the ticker symbol RWRDP in December 2017. The OTC markets subsequently began quoting RWRDP on the OTCQB market. In February 2018, the Depositary Trust Corporation made RWRDP DTC eligible, which allowed electronic quotation and trading. In March 2018 the first shares of RWRDP were traded on the OTCQB market.
In January 2018 the Company filed an offering statement under Regulation A with the SEC (“Follow On Offering”). The Company proposes to offer for sale in the Follow On Offering $15,000,000 of its Series A Non-Voting Preferred Stock at a price of $0.15 per share. That offering was qualified by the SEC on June 13, 2018.
As part of its review of the Follow On Offering in March 2018, the SEC informed the Company that it believed that the Company’s stock award activities (see Note 10) subsequent to February 13, 2018 may not have been exempt from the registration or qualification requirements under federal securities laws and may be subject to rescission The Company continues to believe that it has the right under the Stock Award program and its Terms of Service not to make awards under that program when there is not a qualified offering statement in effect, and that any award of shares that may have been recorded on a ledger was subject to those Terms. However, in light of the fact that it was in the interests of the Company to have a larger number of shareholders, the Company decided to treat shares relating to purchases after February 13, 2018 as being earned (subject to compliance with conditions such as the execution of a subscription agreement) and to offer a right of rescission to the holders of all such shares. On October 26, 2018 the Company’s rescission offer was qualified by the SEC. That offer expired on December 6, 2018. Two members took advantage of the offer, rescinding 1,824 shares and $48 in Bitcoin. The rescission offer had no material effect on the Company. The Company is awaiting completed documentation from the rescinding members to complete the transactions.
The Company’s Series A Non-Voting Preferred stock is quoted on the OTCQB market under the ticker symbol RWRDP. There is very little liquidity for RWRDP. The Company cannot guarantee that its securities will ever be tradeable on an exchange or have any substantial liquidity. These financial statements should not be relied upon as a basis for determining the terms of an offering as this information may not be current or accurate relative to the final terms of the offering.
The Company began pursuing a private placement of $2,000,0000 of convertible debt in June 2017. The Company had received $154,721 of the private placement as of December 31, 2017 and an additional $13,000 as of December 31, 2018. The debt has a term of three years, accrues interest for the first year at 8/12%, and requires interest only payments in years two and three of 8/12%. The debt is convertible into Series A Preferred Non-Voting stock at a price of $.075 per share at the option of the holder. This offering utilizes Regulation D 506(c) and is open to accredited investors only.
NOTE 7: RECENT ACCOUNTING PRONOUNCEMENTS
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
NOTE 8: SUBSEQUENT EVENTS
The Company has evaluated subsequent events through April 29, 2019 the date the financial statements were available to be issued. Based on the evaluation, no additional material events were identified which require adjustment or disclosure.
NOTE 9: GOVERNANCE
On July 6, 2015 the Company revised the Articles of Incorporation. The Company also ratified Bylaws formalizing the governance policies and procedures for the Company effective July 6, 2015.
On July 6, 2015 by an Action by Joint Written Consent of Sole Director and Sole Stockholder, the Company elected Robert Grosshandler to serve as a member of the Board of Directors and as an Officer of the Company in the capacity of Chief Executive Officer, President, and Secretary. It also set the number of directors of the Company at one, established an Audit Committee of the Company naming Robert Grosshandler as the sole member of such, set the fiscal year as the calendar year, and other actions.
| F-16 |
NOTE 10: EQUITY REWARD MARKETING PROGRAM - PROSPECTIVE DILUTION AND OTHER EFFECTS
The Company, in order to attract members, is offering members and others the opportunity to earn equity in the Company as a reward or additional reward for certain activities. This equity may be earned in exchange for, amongst other activities, becoming a member, recruiting other members, and utilizing the Company’s services to earn cash back on purchases at participating retailers.
Through its offerings (see Note 6), the equity earned is Series A Non-Voting Preferred Stock. The Company will not receive cash for any such equity earned. The Company valued this equity at $.045 per share through February 13, 2017. This valuation is the per share price ($.045) received in the Offering. Subsequent to February 13, 2017, the Company valued this equity at $.09 per share. This valuation is the per share price ($.09) received in the amended Offering beginning February 13, 2017. Subsequent to June 13, 2018, the Company valued this equity at $.15 per share, pursuant to the Offering qualified by the SEC on that date. The valuation will be adjusted from time to time to reflect the price in the then current offering. Equity distributed under this program will be dilutive to existing shareholders. If this marketing program is successful, the Company anticipates that significant dilution may result.
There are still significant hurdles to overcome to make this marketing program commercially reasonable and enable it to stay compliant with appropriate regulations, including but not limited to, state Blue Sky laws.
As of December 31, 2018 the Company had issued and transferred 2,089,455 shares of Preferred Stock equity under this marketing program to approximately 2,600 members, who thus became shareholders. The Company recognized a portion of the cost of this program as a marketing expense and the balance as a cost of revenues. It recognized a total of $270,087 in 2018 to reflect this expense.
As of December 31, 2018, approximately 50,000 members were due 14,223,960 additional shares under this program, but the Company had not yet issued and transferred these shares to its members. Until issued and transferred, the member may forfeit these shares for a variety of reasons, which include, but are not limited to, purchase returns and account inactivity. The Company will issue and transfer these shares upon receiving an executed subscription agreement and appropriate shareholder identification.
| F-17 |