NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of DiMi Telematics International, Inc. (formerly known as First Quantum Ventures, Inc.), a Nevada corporation (the “
Company
”), have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company's Form 10-K for the fiscal year ended August 31, 2013. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of May 31, 2014, and the results of operations and cash flows for the nine months ended May 31, 2014 and 2013. The results of operations for the nine months ended May 31, 2014 are not necessarily indicative of the results that may be expected for the entire fiscal year.
On October 28, 2011 First Quantum Ventures, Inc. (“
First Quantum
”) entered into a Share Exchange Agreement (the “
Exchange Agreement
”) with DiMi Telematics, Inc. shareholders. Pursuant to the Exchange Agreement, First Quantum issued 874,500 shares of common stock (pre-split) in exchange (the “
Share Exchange
”) for all outstanding shares DiMi Telematics, Inc. (“
DTI
”). As a result of the Exchange Agreement, DTI became a subsidiary of First Quantum. The Company assumed operation of DTI and entered the Telematics/M2M industry. On November 10, 2011, the closing of the Share Exchange occurred. In connection with the Share Exchange, (a) 150,000 shares of the Company’s issued and outstanding common stock were surrendered for cancellation and (b) the Company’s officers and directors resigned and the following individuals assumed their duties as officers and directors:
Name
|
|
Title(s)
|
Barry Tenzer
|
|
President, Chief Executive Officer, Chief Financial Officer, Secretary and Director
|
Roberto Fata
|
|
Executive Vice President – Business Development and Director
|
The Company accounted for the acquisition under the purchase method of accounting for business combinations. Under the purchase method of accounting in a business combination effected through an exchange of equity interest, the entity that issues the equity interest is generally the acquiring entity. In some business combinations (commonly referred to as reverse acquisitions), however, the acquired entity issues the equity interest. Accounting for business combinations requires consideration of the facts and circumstances surrounding a business combination that generally involves the relative ownership and control of the entity by each of the parties subsequent to the acquisition. Based on a review of these factors, the acquisition was accounted for as a reverse acquisition, i.e., the Company was considered the acquired company and DTI was considered the acquiring company for accounting purposes. As a result, the Company’s assets and liabilities were incorporated into DTI’s balance sheet based on the fair value of the net assets acquired. Further, the Company’s operating results do not include the Company’s results prior to the date of closing. Accordingly the accompanying financial statements are the financial statements of the DTI. In addition, the Company’s fiscal year end changed to DTI’s fiscal year end of August 31 following the closing.
The Company has retroactively reflected the acquisition in DTI’s common stock in a ratio consistent with the Share Exchange.
On March 15, 2012, First Quantum changed its name to DiMi Telematics International, Inc.
Nature of Business Operations
DTI is a development stage company formed on January 28, 2011 as Medepet Inc. as a Nevada corporation. During its first year of operations DTI redefined its business purpose and operation. On June 30, 2011, DTI changed its name from Medepet Inc. to Precision Loc8. On July 28, 2011, DTI changed its name from Precision Loc8 to Precision Telematics Inc. On August 10, 2011, DTI changed its name to DiMi Telematics Inc.
On July 28, 2011, DTI entered into an asset purchase agreement for the purchase of intellectual property.
DTI designs, develops and distributes Machine-to-Machine (M2M) communications solutions used to remotely track, monitor, manage and protect multiple mobile and fixed assets in real-time from virtually any web-enabled desktop computer or mobile device. Through our proprietary software and hosted service offerings, DTI is endeavoring to capitalize on the pervasiveness and data transport capabilities of wireless networks in order to facilitate communications and process efficiencies between commercial and industrial business owners/managers and their respective networked control systems, sensors and devices.
DTI is focused on the M2M market segments in which we can provide highly differentiated and value-driven solutions capable of unleashing tangible productivity gains, material cost reductions and quantifiable risk mitigation across an enterprise. Aside from the oversight and administration of our corporate, financial and legal affairs by the executive management team, our Company’s operating activities are centralized in three core areas:
•
|
Sales and Marketing
, which will employ both direct and indirect sales models utilizing an in-house business development team, partners and resellers and self-service through a service on-demand web interface.
|
•
|
Operations
, which will be responsible for managing daily activities related to monitoring and administering our cloud-based server operations; 24/7 client service/help desk; professional services and installation support; and quality assurance and testing of our
DiMi
software and hosting platform, as well as the implementation and ongoing administration of our hosted clients’ M2M communications platforms.
|
•
|
Product Development
, which will be charged with enhancing our existing M2M software applications and services and introducing new and complementary hosted products and applications on a timely basis.
|
Going Concern
The accompanying financial statements have been prepared contemplating a continuation of the Company as a going concern. However, the Company has reported a net loss of $315,327 for the nine months ended May 31, 2014 and had an accumulated deficit of $1,252,740 as of May 31, 2014. The Company has net working capital of $510,182 as of May 31, 2014.
DTI’s flagship M2M solution is “
DiMi
,” a proprietary, patent-pending, business intelligence and two-way communications platform that captures and seamlessly integrates real-time data from networked tracking, monitoring, alarm and alert systems, sensors and devices; and, in turn, centralizes this data onto an online command and control dashboard that is accessible 24/7 by a designated user or community of designated users through the secure
DiMi
Internet portal, found at
www.dimispeaks.com
.
With adoption of the
DiMi
M2M communication
s
platform, users can remotely control, monitor, manage and acquire data from their operational assets, providing the interface for lighting, temperature, humidity, keycard access, fleet management and many other vital systems that impact the enterprise.
DiMi
uses established secure technology standards (i.e. LONet, MODbus, BACnet and ELK) combined with a unique, proprietary software interface that keeps users connected to their asset management and control systems through any web-enabled computer or mobile device,
By providing dynamic, real-time access to critical information from a wide array of new or legacy sensors, GPS tracking tools and/or diagnostic devices – irrespective of their make, model or manufacturer,
DiMi
alerts or reports back to its users via familiar communication tools, like IM, email, HTML and text messaging. Users can even issue global commands to its asset management and control systems through the
DiMi
software interface. Moreover,
DiMi
leverages the collected knowledge of a particular asset or assets and compares it to historical performance metrics and other critical benchmarks through an integrated data management module, giving users insight that allow them to rapidly identify and implement proper preventive maintenance measures, efficiency improvements and other key operational activities.
DTI’s
DiMi
solution is currently being used to actively monitor property management systems in several high-rise commercial and residential buildings in New York City – all beta sites which have served to successfully prove out the
DiMi
technology and M2M communications platform. Moving forward, DTI intends to concentrate its
DiMi
commercialization efforts on marketing the solution to property management companies, commercial property developers, government/military installations, industrial facilities, retail and restaurant chains, colleges and universities, fleet managers, and any business or institutional concern with valuable fixed and mobile assets requiring remote surveillance, regular maintenance or general oversight.
Once a new client’s core M2M business needs have been confirmed, DTI will closely collaborate with the client to design the organizational and process modifications required to ensure a successful
DiMi
launch, offering full service project definition, management, user interface customization, implementation services and ongoing quality assurance and testing.
Cash and Cash Equivalents
For purposes of these financial statements, cash and cash equivalents includes highly liquid debt instruments with maturity of less than three months.
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
iPhone Application
The iPhone application is stated at cost. When retired or otherwise disposed, the related carrying value and accumulated amortization are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives being 3 years.
DiMi Platform
The DiMi Platform is stated at cost. Anticipated completion is the fourth quarter 2014. When retired or otherwise disposed, the related carrying value and accumulated amortization are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives being 5 years.
Intellectual Property
Intellectual property is stated at cost. When retired or otherwise disposed, the related carrying value and accumulated amortization are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives being 3 years up to 15 years.
Revenue Recognition
The Company recognizes revenue on four basic criteria which must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
Stock Based Compensation
The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.
Recent Accounting Pronouncements
On June 10, 2014, the Financial Accounting Standards Board (FASB) issued a new accounting statement that reduces some of disclosures and reporting requirements for development stage companies. The change will be in effect for the interim and annual reporting periods beginning after December 15, 2014. As of such date, among other things development stage entities will no longer be required to report inception-to-date information. The Company has elected early adoption of this pronouncement and will no longer being reporting inception-to-date information.
Net Loss per Share
Basic and diluted loss per share amounts are computed based on net loss divided by the weighted average number of common shares outstanding. Outstanding warrants to purchase of 1,268 common shares were not included in the computation of diluted loss per share because the assumed conversion and exercise would be anti-dilutive for the nine months ended May 31, 2014.
Management Estimates
The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
2. INTELLECTUAL PROPERTY
Intellectual property of the following:
|
|
May 31,
2014
|
|
|
August 31,
2013
|
|
Intellectual property
|
|
$
|
2,190
|
|
|
$
|
2,190
|
|
Less: amortization
|
|
|
581
|
|
|
|
482
|
|
Net intellectual property
|
|
$
|
1,609
|
|
|
$
|
1,708
|
|
DTI executed an Asset Purchase Agreement on August 28, 2011 which included various types of intellectual property. Amortization expense for the three months ended May 31, 2014 and 2013 amounted to $33 and $33, respectively. Amortization expense for the nine months ended May 31, 2014 and 2013 amounted to $99 and $99, respectively.
3. IPHONE APPLICATION
The Company’s purchase of an iPhone application was completed in September 2012. The total cost of the applications is $11,000 and is being amortized over a three year period.
|
|
May 31,
2014
|
|
|
August 31,
2013
|
|
Intellectual property
|
|
$
|
11,000
|
|
|
$
|
11,000
|
|
Less: amortization
|
|
|
6,417
|
|
|
|
3,667
|
|
Net intellectual property
|
|
$
|
4,583
|
|
|
$
|
7,333
|
|
Amortization expense for the iPhone application for the three months ended May 31, 2014 and 2013 amounted to $917 and $917, respectively. Amortization expense for the nine months ended May 31, 2014 and 2013 amounted to $2,750 and $2,750, respectively.
4. DiMi PLATFORM
The company has contracted for the development of software to develop and distributes Machine-to-Machine (M2M) communications solutions used to remotely track, monitor, manage and protect multiple mobile and fixed assets in real-time from virtually any web-enabled desktop computer or mobile device. Completion of the software is anticipated to be implemented by fourth quarter 2014. A total of $334,685 has been paid to develop the platform as of May 31, 2014.
5. EQUITY
Common Stock
The Company was formed in the state of Nevada on April 13, 2006. On February 20, 2014 the Company amended its articles of incorporation to increase the authorized shares from 500,000,000to 800,000,000 shares of common stock with a par value of $0.001and 50,000,000 shares of Preferred Stock with a par value of $0.001
On April 16, 2012 the Company issued a 1 for 1 stock dividend to current shareholders of record whereby the Company issued an additional 1,018,792 shares of common stock. On May 16, 2012 the Company issued an additional 1 for 1 stock dividend to current stockholders of record whereby an additional 2,138,585 shares were issued. The dividends include outstanding warrants. The Company has reflected the dividends as splits, which have been retroactively reflected in the financial statements.
On February 20, 2014, the Company effected a 1 for 100 reverse stock split of the Company’s outstanding stock.
On July 29, 2011, DTI issued 480,000 shares of common stock and 480,000 warrants for the purchase of common stock pursuant to an Asset Purchase Agreement for the purchase of intellectual property valued at $2,190.
During the period ended August 31, 2011, DTI issued 2,964,000 shares of common stock through stock purchase agreements in the amount of $312,000.
On September 12, 2011, DTI entered into a Securities Purchase Agreement for the sale of 6,000 shares of common stock at $4.170 per share. The Security Purchase Agreement includes 1,500 A warrants and 1,500 Class B warrants. On September 12, 2011, DTI received $25,000.
On September 28, 2011, DTI entered into a Securities Purchase Agreement for the sale of 48,000 shares of common stock at $4.17 per share in the amount of $200,000. The Security Purchase Agreement includes 1,200,000 Class A warrants and 1,200,000 Class B warrants.
On October 28, 2011 First Quantum entered into the Exchange Agreement with DiMi Telematics, Inc. shareholders. Pursuant to the Exchange Agreement, First Quantum issued 874,500 shares of common stock (pre-split) in the Share Exchange for all outstanding shares of DTI. As a result of the Share Exchange Agreement, DTI became a subsidiary of First Quantum. The Company assumed operation of DTI and entered the Telematics/M2M industry. On November 10, 2011, the closing of the Share Exchange occurred. In connection with the Share Exchange, (a) 150,000 shares of the Company’s issued and outstanding common stock were surrendered for cancellation and (b) the Company’s officers and directors resigned and the following individuals assumed their duties as officers and directors:
Name
|
|
Title(s)
|
Barry Tenzer
|
|
President, Chief Executive Officer, Chief Financial Officer, Secretary and Director
|
Roberto Fata
|
|
Executive Vice President – Business Development and Director
|
During the second quarter of its fiscal year 2012 the Company sold shares of common stock and warrants in the amount of $8,150. The shares and warrants were unissued as of February 29, 2012. During April 2012, the Company issued 202,000 shares of common stock and 163,000 warrants.
On June 14, 2012 the Company entered into an exchange agreement with a major shareholder pursuant to which the Company issued 1,000 shares of Series A Convertible Preferred Stock in exchange for the surrender and cancellation of 1,000,000 shares of common stock held by the shareholder. All, and not less than all, shares of Preferred Stock would, provided that the Corporation would report earnings per share of less than $0.01 in its Annual Report on Form 10-K for its fiscal year ended August 31, 2013, be convertible, at any time and from time to time after the filing of such Annual Report, at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the aggregate Stated Value of all shares of Preferred Stock being converted by the Conversion Price of $0.001 per share. The Company’s earnings per share did not meet that threshold. If the Company had reported earnings per share equal to or greater than $0.01 in its Annual Report, then all such shares of Preferred Stock would have immediately been redeemed by the Company without any consideration payable to the shareholder. Shares of Preferred Stock converted into Common Stock shall be canceled and shall not be reissued.
On January 24, 2013 the Company entered into a Securities Purchase Agreement for the sale of 100,000 shares of common stock in the amount of $100,000.
On April 24, 2013 the Company entered into a Securities Purchase Agreement for the sale of 150,000 shares of common stock in the amount of $150,000.
On November 30, 2013 the Company received $450,000 in connection with the security purchase agreement on November 20, 2013 in the amount of $450,000. The Company will issue shares of common stock at a future date for satisfaction of the note. On March 13, 2014, 1,500,000 share of common stock was issued to satisfy the note.
On April 9, 2014 the Company entered into a Securities Purchase Agreement for the sale of 240,000 shares of common stock in the amount of $9,600. As of May 31, 2014, the shares were unissued. See “Subsequent Events” below.
On April 25, 2014 the Company entered into a Securities Purchase Agreement for the sale of 1,000,000 shares of common stock in the amount of $40,000. As of May 31, 2014, the shares were unissued. See “Subsequent Events” below.
Warrants
DTI issued 120,000 Common Stock warrants, at an exercise price of $17 per share, pursuant to an Asset Purchase Agreement on July 29, 2011 for the purchase of intellectual property. The warrants have an expiration date of four years from the issue date and contain provisions for a cash exercise. The estimated value of the warrants granted in accordance with the Asset Purchase Agreement was determined using the Black-Scholes pricing model and the following assumptions:
During the first quarter of its fiscal year 2011 DTI issued 33,750 Class A warrants at an exercise price of $17 per share and issued 33,750 Class B Warrants at an exercise price of $25 per share. The estimated value of the warrants granted in accordance with the Asset Purchase Agreement was determined using the Black-Scholes pricing model and the following assumptions:
Risk-free interest rate at grant date
|
|
|
0.39
|
%
|
Expected stock price volatility
|
|
|
200
|
%
|
Expected dividend payout
|
|
|
--
|
|
Expected option in life-years
|
|
|
2
|
|
Transactions involving warrants are summarized as follows:
|
|
Number of
Warrants
|
|
|
Weighted-Average Price Per Share
|
|
|
|
|
|
|
|
|
Balance August 31, 2012
|
|
|
126,750
|
|
|
$
|
17
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled or expired
|
|
|
-
|
|
|
|
-
|
|
Ending balance August 31, 2013
|
|
|
126,750
|
|
|
|
17
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding at May 31, 2014
|
|
|
126,750
|
|
|
$
|
17
|
|
Warrants Outstanding
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Remaining
|
Exercise
|
|
|
Number
|
|
|
Contractual
|
Prices
|
|
|
Outstanding
|
|
|
Life (years)
|
|
$
|
17
|
|
|
|
120,000
|
|
|
|
1.75
|
|
|
17
|
|
|
|
6,750
|
|
|
|
2.0
|
|
|
|
|
|
|
126,750
|
|
|
|
1.76
|
6. RELATED PARTY TRANSACTIONS
We currently lease approximately 500 square feet of general office space at 290 Lenox Avenue, New York, NY 10027 from our Vice President – Operations.
7. COMMITMENTS AND CONTINGENCIES
As of May 31, 2014 there are no continuing commitments and contingencies.
8. SUBSEQUENT EVENTS
On April 9, 2014 the Company entered into a Securities Purchase Agreement for the sale of 240,000 shares of common stock in the amount of $9,600. The shares were issued on June 13, 2014.
On April 25, 2014 the Company entered into a Securities Purchase Agreement for the sale of 1,000,000 shares of common stock in the amount of $40,000. The shares were issued on June 13, 2014.