UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
| [X] |
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| |
|
| |
For
the quarterly period ended September 30, 2014 |
| |
|
| [ ] |
Transition
Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
| |
|
| |
For
the transition period from __________ to__________ |
| |
|
| |
Commission
File Number: 333-168775 |
iWallet
Corporation
(Exact
name of registrant as specified in its charter)
| Nevada |
27-1830013 |
| (State
or other jurisdiction of incorporation or organization) |
(IRS
Employer Identification No.) |
| 7394
Trade Street, San Diego, California 92121 |
| (Address
of principal executive offices) |
| (858)
530-2958 |
| (Registrant’s
telephone number) |
________________________________________________________________ |
| (Former
name, former address and former fiscal year, if changed since last report) |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[
] Yes [X] No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.
| [
] Large accelerated filer Accelerated filer |
[
] Non-accelerated filer |
| [X]
Smaller reporting company |
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[
] Yes [X] No
State
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 33,919,419
as of November 18, 2014.
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
These
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2014 are not
necessarily indicative of the results that can be expected for the full year.
iWallet
Corporation
Condensed
Interim Balance Sheets
September
30, 2014 and December 31, 2013
| | |
2014 | |
2013 |
| |
(Unaudited) | |
|
| Assets | |
| |
|
| Current
assets | |
| | | |
| | |
| Cash | |
$ | 1,021,008 | | |
$ | 250,718 | |
| Funds
held in attorney trust (note 8) | |
| — | | |
| 39,705 | |
| Accounts
receivable, net of allowance for doubtful accounts (nil) | |
| 52,035 | | |
| 4,575 | |
| Deposits
and deferred costs (note 9) | |
| 184,344 | | |
| 23,086 | |
| Inventory
(note 4) | |
| 107,219 | | |
| 20,361 | |
| Due
from shareholder (note 7) | |
| 127,794 | | |
| 61,833 | |
| | |
| 1,492,400 | | |
| 400,278 | |
| Intangible
assets (note 5) | |
| 101,778 | | |
| 96,715 | |
| | |
$ | 1,594,178 | | |
$ | 496,993 | |
| Liabilities | |
| | | |
| | |
| Current
liabilities | |
| | | |
| | |
| Bank
indebtedness - current (note 6) | |
$ | 4,618 | | |
$ | 5,539 | |
| Accounts
payable | |
| 103,931 | | |
| 126,317 | |
| Accrued
liabilities (notes 8,) | |
| 113,151 | | |
| 3,062 | |
| Due
to related party (note 7) | |
| 16,475 | | |
| 37,842 | |
| Advances
from investor (note 7) | |
| 474 | | |
| 69,678 | |
| Convertible
debentures (notes 8, 11 &12) | |
| — | | |
| 354,000 | |
| Tooling
commitment liability (note 9) | |
| 90,359 | | |
| 105,816 | |
| | |
| 329,008 | | |
| 702,254 | |
| Bank
indebtedness - long-term (note 6) | |
| 14,624 | | |
| 17,540 | |
| | |
| 343,632 | | |
| 719,794 | |
| Shareholder's
(deficiency) equity | |
| | | |
| | |
| Common
stock, par value $0.001, 75,000,000 shares authorized; 33,919,419 issued (December 31, 2013 - 10,000,000) (note 11) | |
| 33,919 | | |
| 10 | |
| Shares
to be issued | |
| 694 | | |
| — | |
| Additional
paid-in capital | |
| 3,128,889 | | |
| 1 | |
| Deficit | |
| (1,912,956 | ) | |
| (222,812 | ) |
| | |
| 1,250,546 | | |
| (222,801 | ) |
| | |
$ | 1,594,178 | | |
$ | 496,993 | |
Going
Concern (note 1); Commitments and Contingencies (note 13)
The
accompanying notes are an integral part of these condensed interim financial statements.
iWallet
Corporation
Condensed
Interim Statements of Operations and Comprehensive Loss
for
the three and nine month periods ended September 30, 2014 and 2013 (unaudited)
| |
3
months | |
3
months | |
9
months | |
9 months |
| |
ending | |
ending | |
ending | |
ending |
| |
September
30, 2014 | |
September
30, 2013 | |
September
30, 2014 | |
September
30, 2013 |
| Sales | |
$ | 64,476 | | |
$ | 13,139 | | |
| 102,615 | | |
$ | 45,145 | |
| Cost
of sales | |
| 45,216 | | |
| 6,307 | | |
| 80,469 | | |
| 25,988 | |
| Gross
profit | |
| 19,260 | | |
| 6,832 | | |
| 22,146 | | |
| 19,157 | |
| Expenses | |
| | | |
| | | |
| | | |
| | |
| Legal
and professional fees | |
| 478,313 | | |
| 4,695 | | |
| 698,342 | | |
| 21,046 | |
| Share
based compensation (note 11) | |
| 402,945 | | |
| — | | |
| 402,945 | | |
| — | |
| Debt
discount accretion (note 8) | |
| 289,991 | | |
| 1,382 | | |
| 289,991 | | |
| 2,358 | |
| Subcontractor
fees | |
| 77,883 | | |
| — | | |
| 186,983 | | |
| — | |
| Office
and general expenses | |
| 40,373 | | |
| 2,845 | | |
| 66,777 | | |
| 5,068 | |
| Research
and development | |
| 41,506 | | |
| — | | |
| 53,039 | | |
| 1,387 | |
| Travel | |
| 9,882 | | |
| 338 | | |
| 26,868 | | |
| 3,492 | |
| Interest
and other finance charges | |
| 2,131 | | |
| | | |
| 15,083 | | |
| | |
| Rent | |
| 7,500 | | |
| — | | |
| 12,000 | | |
| — | |
| Provision
for loss (recovery) on tooling commitment (note 9) | |
| (48,414 | ) | |
| — | | |
| (48,414 | ) | |
| 139,213 | |
| Amortization
of intangible assets | |
| 2,901 | | |
| 1,862 | | |
| 8,676 | | |
| 5,494 | |
| | |
| 1,305,011 | | |
| 11,122 | | |
| 1,712,290 | | |
| 178,058 | |
| Loss
before recovery of income taxes | |
| (1,285,751 | ) | |
| (4,290 | ) | |
| (1,690,144 | ) | |
| (158,901 | ) |
| Recovery
of income taxes (note 10) | |
| — | | |
| — | | |
| — | | |
| (4,247 | ) |
| Net
and comprehensive income (loss) | |
$ | (1,285,751 | ) | |
$ | (4,290 | ) | |
| (1,690,144 | ) | |
$ | (154,654 | ) |
| Net
and comprehensive loss per share basic and diluted (note 14) | |
$ | (0.05 | ) | |
$ | (0.00 | ) | |
| (0.12 | ) | |
$ | (0.02 | ) |
| Weighted
average number of shares outstanding basic and diluted (note 14) | |
| 26,310,468 | | |
| 10,000,000 | | |
| 14,111,132 | | |
| 10,000,000 | |
The
accompanying notes are an integral part of these condensed interim financial statements.
iWallet
Corporation
Condensed
Interim Statement of Changes in Shareholder's (Deficiency) Equity
for
the nine month periods ended September 30, 2014 and 2013 and year ended December 31, 2013 (unaudited)
| |
| Shareholder's | | |
| | | |
| | | |
| | | |
| | |
| |
| Class
A Common Shares | | |
| Shares | | |
| Additional | | |
| | | |
| (Deficiency) | |
| |
| Shares | | |
| Amount | | |
| to
be issued | | |
| Paid-in
Capital | | |
| Deficit | | |
| Equity | |
| Balance, January 1, 2013 | |
| 10000000 | | |
| 10000 | | |
$ | — | | |
| (9989 | ) | |
| 4109 | | |
| 4120 | |
| Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (154654 | ) | |
| (154654 | ) |
| Balance. September 30, 2013 | |
| 10000000 | | |
| 10000 | | |
| — | | |
| (9989 | ) | |
| (150545 | ) | |
| (150534 | ) |
| Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (72267 | ) | |
| (72267 | ) |
| Balance, December 31, 2013 | |
| 10000000 | | |
| 10000 | | |
| — | | |
| (9989 | ) | |
| (222812 | ) | |
| (222801 | ) |
| Reverse recapitalization of Queensridge | |
| 9037147 | | |
| 9037 | | |
| — | | |
| (9037 | ) | |
| — | | |
| — | |
| Issuance of common stock units under private
placement | |
| 6662335 | | |
| 6662 | | |
| — | | |
| 1992038 | | |
| — | | |
| 1998700 | |
| Issuance cost – common stock units
under private placement | |
| — | | |
| — | | |
| — | | |
| (204790 | ) | |
| — | | |
| (204790 | ) |
| Issuance of common stock units to convertible
debenture holders | |
| 3222120 | | |
| 3222 | | |
| — | | |
| 673423 | | |
| — | | |
| 676645 | |
| Conversion benefit of convertible debentures | |
| — | | |
| — | | |
| — | | |
| 289991 | | |
| — | | |
| 289991 | |
| Issuance of common stock units for services (underwriters) | |
| 599610 | | |
| 600 | | |
| — | | |
| (600 | ) | |
| — | | |
| — | |
| Issuance of common stock units to management | |
| 4398207 | | |
| 4398 | | |
| — | | |
| 397853 | | |
| — | | |
| 402251 | |
| Shares to be issued to management | |
| — | | |
| — | | |
| 694 | | |
| — | | |
| — | | |
| 694 | |
| Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1690144 | ) | |
| (1690144 | ) |
| Balance, September 30, 2014 | |
| 33919419 | | |
| 33919 | | |
| 694 | | |
| 3128889 | | |
| (1912956 | ) | |
| 1250546 | |
The accompanying
notes are an integral part of these condensed interim financial statements.
iWallet
Corporation
Condensed
Interim Statements of Cash Flows
for
the nine month periods ended September 30, 2014 and 2013 (unaudited)
| |
|
2014 |
|
2013 |
| Cash flow from
operating activities |
|
|
|
|
| Net
and comprehensive loss for the period |
|
$ |
(1,690,144 |
) |
|
|
(154,654 |
) |
| Items not affecting
cash |
|
|
|
|
|
|
|
|
| Amortization
of intangible assets |
|
|
8,676 |
|
|
|
5,494 |
|
| Provision
for loss (recovery) on tooling commitment (note 9) |
|
|
(48,414 |
) |
|
|
139,213 |
|
| Recovery
of income taxes |
|
|
— |
|
|
|
(4,247 |
) |
| Debt
discount accretion |
|
|
289,991 |
|
|
|
— |
|
| Interest
accrued on convertible debentures |
|
|
13,645 |
|
|
|
— |
|
| Share
based compensation |
|
|
402,945 |
|
|
|
— |
|
| |
|
|
(1,023,301 |
) |
|
|
(14,194 |
) |
| Non-cash operating
items resulted from changes in: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
(47,460 |
) |
|
|
3,640 |
|
| Deposits
and deferred costs |
|
|
(128,301 |
) |
|
|
(3,800 |
) |
| Inventory |
|
|
(86,858 |
) |
|
|
13,742 |
|
| Accounts
payable |
|
|
(22,386 |
) |
|
|
(34,684 |
) |
| Accrued
liabilities |
|
|
110,089 |
|
|
|
44,949 |
|
| |
|
|
(1,198,217 |
) |
|
|
9,653 |
|
| Cash
flow from investing activities |
|
|
|
|
|
|
|
|
| Expenditures
on intangible assets |
|
|
(13,739 |
) |
|
|
(7,008 |
) |
| |
|
|
(13,739 |
) |
|
|
(7,008 |
) |
| Cash
flow from financing activities |
|
|
|
|
|
|
|
|
| Funds
repaid (advanced) to related party |
|
|
(21,367 |
) |
|
|
315 |
|
| Funds
advanced to shareholder |
|
|
(65,961 |
) |
|
|
(21,419 |
) |
| Receipt
of funds held in attorney trust |
|
|
39,705 |
|
|
|
— |
|
| Repayment
of bank indebtedness |
|
|
(3,837 |
) |
|
|
(4,798 |
) |
| Advances
from investor |
|
|
11,796 |
|
|
|
— |
|
| Proceeds
from issuance of convertible debentures |
|
|
228,000 |
|
|
|
31,915 |
|
| Proceeds
from issuance of common stock units for cash |
|
|
1,793,910 |
|
|
|
— |
|
| |
|
|
1,982,246 |
|
|
|
6,013 |
|
| Increase
in cash |
|
|
770,290 |
|
|
|
8,658 |
|
| Cash,
beginning of period |
|
|
250,718 |
|
|
|
13,462 |
|
| Cash,
end of period |
|
$ |
1,021,008 |
|
|
$ |
22,120 |
|
The
accompanying notes are an integral part of these condensed interim financial statements.
iWallet
Corporation
Notes
to Condensed Interim Financial Statements
September
30, 2014 and 2013 (unaudited)
1. Nature
of Business and Going Concern
iWallet
Corporation ("the Company") is engaged in the design, development, manufacturing and sales of bio-metric locking wallets,
which operate by scanning a user’s fingerprint to open the wallet.
The
Company was incorporated on November 18, 2009 in the State of California and is located at 7394 Trade Street, San Diego, California
92121. On July 21, 2014 the Company merged with iWallet Acquisition Corporation (the “Acquisition Sub”), a subsidiary
formed by Queensridge Mining Resources, Inc. (“Queensridge”) for purposes of the Merger, which resulted in the Company
becoming a wholly-owned subsidiary of Queenridge. Immediately following the merger the Acquisition Sub merged with and into Queensridge.
Queensridge immediately changed its name to iWallet Corporation and is continuing the business of iWallet as its only line of
business.
The
Company began trading in the United States of America (“USA”) on the OTCQB Exchange under the ticker symbol IWAL.
The
condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America ("U.S. GAAP"), which contemplates continuation of the Company as a going concern.
As
of September 30, 2014, the Company has incurred a deficit of $1,912,956 (December 31, 2013 - $222,812) and has significant losses
and negative cash flows from operations. The Company completed a public listing transaction which raised additional funds and
includes warrant agreements which may provide additional funds. However, there is no certainty that the Company will be successful
in generating sufficient cash flow from operations or achieving and maintaining profitable operations in the near future to enable
it to meet its obligations as they come due. As a result there is substantial doubt regarding the Company’s ability to continue
as a going concern.
The
condensed interim financial statements do not include any adjustments relating to the recoverability and classification of the
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. All adjustments, consisting only of normal recurring items, considered necessary for fair presentation
have been included in these condensed interim financial statements.
2. Significant
Accounting Policies
Unaudited
Condensed Interim Financial Statements
These
unaudited condensed interim financial statements have been prepared on the same basis as the annual financial statements and should
be read in conjunction with those annual financial statements for the year ended December 31, 2013. In the opinion of management,
these unaudited condensed interim financial statements reflect adjustments, necessary to present fairly the Company's financial
position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily
indicative of the results expected for a full year or for any future period.
3. Recently
Issued Accounting Standards and Recently Adopted Accounting Pronouncement
Income
Taxes (ASC Topic - 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carry-forward, a Similar Tax Loss,
or a Tax Credit Carry-forward Exists" ("ASU 2013-11") was issued during July 2013. The FASB issued guidance
on how to present an unrecognized tax benefit. The guidance is effective for annual periods beginning after December 15, 2013.
Adoption of the accounting pronouncement does not have a material effect on these accompanying condensed interim financial statements.
On
May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard outlines
a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes
most current revenue recognition guidance. The accounting standard is effective for annual reporting periods (including interim
reporting periods within those periods) beginning after December 15, 2017. Early adoption is not permitted. The impact on the
condensed interim financial statements of adopting ASU 2014-09 will be assessed by management.
On
August 27, 2014, the FASB issued a new financial accounting standard on going concern, ASU No. 2014-15, “Presentation of
Financial Statements – Going Concern (Sub-Topic 205-40): Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern.” The standard provides guidance about management’s responsibility to evaluate whether
there is a substantial doubt about the organiziation’s ability to continue as a going concern. The amendments in this Update
apply to all companies. They become effective in the annual period ending after December 15, 2016, with early application permitted.
The impact on the condensed interim financial statements of adopting ASU 2014-15 will be assessed by management.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying condensed interim financial statements.
4. Inventory
| |
| September
30, | | |
| December
31, | |
| | |
| 2014 | | |
| 2013 | |
| Raw
materials and components | |
$ | 66,278 | | |
$ | — | |
| Finished
goods | |
| 40,941 | | |
| 20,361 | |
| | |
$ | 107,219 | | |
$ | 20,361 | |
5. Intangible
Assets
| | | | |
| | | |
| | | |
| September
30, | |
| | | | |
| | | |
| | | |
| 2014 | |
| | | | |
| | | |
| Accumulated | | |
| Net
Book | |
| | | | |
| Cost | | |
| Amortization | | |
| Value | |
| | Patents | | |
$ | 68,116 | | |
$ | 14,398 | | |
$ | 53,718 | |
| | Trademarks | | |
| 15,037 | | |
| 4,348 | | |
| 10,689 | |
| | Software | | |
| 40,000 | | |
| 2,629 | | |
| 37,371 | |
| | | | |
$ | 123,153 | | |
$ | 21,375 | | |
$ | 101,778 | |
| |
| | | |
| | | |
| December
31, | |
| | |
| | | |
| | | |
| 2013 | |
| |
| | | |
| Accumulated | | |
| Net
Book | |
| |
| Cost | | |
| Amortization | | |
| Value | |
| Patents | |
$ | 65,930 | | |
$ | 9,375 | | |
$ | 56,555 | |
| Trademarks | |
| 13,484 | | |
| 3,324 | | |
| 10,160 | |
| Software(i) | |
| 30,000 | | |
| — | | |
| 30,000 | |
| | |
$ | 109,414 | | |
$ | 12,699 | | |
$ | 96,715 | |
| (i) | The
Company purchased software from an arm's length third party in December 2013; accordingly,
although ready for use, the costs were not amortized as any amortization would have been
insignificant. |
| | Amortization
for the nine month period ended September 30, 2014 is $8,676 (September 30, 2013 - $5,494). |
| | Amortization
for the three month period ended September 30, 2014 is $2,901 (September 30, 2013 - $1,862) |
6. Bank
Indebtedness
The
bank indebtedness of the Company consists of a secured line of credit with a limit of $35,000 bearing interest at the annual prime
rate plus 1.25%, which as at September 30, 2014 and December 31, 2013 was 4.5%, and with monthly repayments determined as follows:
a) the
greater of:
| i) | two
percent (2%) of the outstanding principal balance outstanding on the last day of the
billing period, or |
b) accrued
interest since the date of the last payment.
On
termination of the line of credit, the amount will become due over a period determined by the creditor of between thirty-six and
eighty-four months, or over three to seven years, which at the time of the agreement was determined to be forty-eight months,
or four years.
The
line of credit is subject to various non-financial covenants that would constitute an event of default, notably: ownership change
or sale of the business; closure or failure to maintain the related checking account; insolvency or any bankruptcy proceedings;
or, any other defaults on other contracts with the creditor or with any other financial institution.
Security
for the line of credit is the cash in the chequing account held with the bank.
| |
| September
30, | | |
| December
31, | |
| | |
| 2014 | | |
| 2013 | |
| Line
of credit | |
$ | 19,242 | | |
$ | 23,079 | |
| Less: current
portion - estimated based on (a)(i) above | |
| (4,618 | ) | |
| (5,539 | ) |
| | |
$ | 14,624 | | |
$ | 17,540 | |
| | Principal
repayments estimated based on (a)(i) above as at September 30, 2014: | |
| | 2014
(remaining three months) | | |
$ | 1,155 | |
| | 2015 | | |
| 5,213 | |
| | 2016 | | |
| 5,213 | |
| | 2017 | | |
| 3,043 | |
| | | | |
$ | 14,624 | |
7. Related
Party Balances
| |
| September
30, | | |
| December
31, | |
| | |
| 2014 | | |
| 2013 | |
| Current
assets | |
| | | |
| | |
| Due
from shareholder | |
$ | 127,794 | | |
$ | 61,833 | |
| Current
liabilities | |
| | | |
| | |
| Due
to related party | |
$ | 16,475 | | |
$ | 37,842 | |
| Advances
from investor | |
$ | 474 | | |
$ | 69,678 | |
The
above balances are non-interest bearing, unsecured and due on demand. The related party is a shareholder of the Company and former
CEO.
The
advances from investor were funds advanced for purposes of covering operating expenses of the Company and $81,000 of these advances
were formalized into a convertible debenture during the period (note 8). At December 31, 2013, the investor was also serving as
interim Chief Financial Officer ("CFO") and accordingly these transactions constitute related party transactions; however,
on January 1, 2014 the investor resigned as interim CFO.
8. Convertible
Debentures
In
December of 2013, the Company entered into a series of secured convertible debenture agreements (the "convertible debentures")
with various investors amounting to $354,000, of which $39,705 was held in attorney's trust to fund related closing costs. During
the three months ending March 31, 2014 the Company closed on an additional $83,000 of convertible debentures with the same terms,
bringing the total convertible debentures outstanding as at March 31, 2014 to $437,000. During the three months ending June 30,
2014 the Company closed on an additional $226,000 of convertible debentures with the same terms, inclusive of $81,000 of advances
from investor formalized into a convertible debenture during the period (note 7), bringing the total convertible debentures outstanding
as at June 30, 2014 to $663,000. The convertible debentures bear interest at 5% per annum calculated monthly and payable on maturity
and had an original maturity date of June 30, 2014. During the quarter ended June 30, 2014, the Company extended the maturity
to August 15, 2014, including the formalization of the advances from investor in note 7. As at September 30, 2014, the amount
of interest paid is $13,645 upon conversion. The amount of interest accrued as of December 31, 2013 was $200.
Each
convertible debenture contains a conversion option contingently exercisable upon the approval from the Securities and Exchange
Commission or the TSX Venture Exchange for listing of its common shares. The conversion price is based on the price at which the
Company sells or issues common shares or units, less a discount of 30%. A unit would consist of one common stock and one common
stock purchase warrant entitling the holder to purchase one additional common share at an exercise price of $0.20 and with a term
of 24 months. Similarly, the Company has the option to force conversion upon approval of a public listing at the same conversion
price.
On
July 21, 2014, the Company completed the Transaction and forced conversion of the aggregate of $663,000 Convertible Debentures
and $13,645 of accrued interest into 3,222,120 common stock and common stock purchase warrants at an exercise price of $0.20 and
with a term of 24 months (see notes 11 and 12). Upon the occurrence of the public listing, the conversion feature of the Convertible
Debenture was “in the money” and is therefore deemed to contain a beneficial conversion feature. The conversion price
to the debenture holders is the price at which the Company issues common shares, less a 30% discount. The Company measured and
recognized the conversion feature as a debt discount and an adjustment to additional paid-in capital of $289,991.
9. Tooling
Commitment Deposit, Deferred Costs and Liability
On
May 26, 2011, the Company signed a contract with a supplier under which they are required to pay for tooling costs in addition
to their regular purchase orders (the "tooling commitment"). Under the terms of the tooling commitment the Company was
required to pay for 30% of the contracted tooling costs upon execution (the "tooling commitment deposit") and the remaining
70% over the purchase of 5,000 units over a nine month period (the "tooling commitment liability"). If 5,000 units were
not purchased within those nine months, then the remaining amount was due within thirty days.
As
of February 27, 2012, the Company had not reached the contracted level of purchases and an informal agreement to extend the period
was made; however, by December 31, 2012 the Company had not complied and as a result, the entire amount would have been considered
due.
On
August 24, 2013, the Company entered into a revised agreement with the supplier that extended the term another twelve months to
August 24, 2014. As of September 30, 2014, the Company had still not reached the contracted level of purchases however, a new
contract is under negotiation.
The
tooling commitment deposit is included in deposits and deferred costs and is capitalized into inventory as units are purchased
based on the 5,000 unit commitment. The tooling commitment liability becomes due and is recognized into accounts payable as units
are purchased and the corresponding deferred costs are capitalized into inventory, all of which is based on the 5,000 unit commitment.
During
2013, it was determined that based on the actual sales realized in 2013, the Company would likely not be able to meet the 5,000
unit commitment order. Accordingly, the deferred costs related to excess units was recognized as a provision for loss on the tooling
commitment of $139,213 in the condensed interim statement of operations and comprehensive (loss).
During
2014, the actual sales realized in 2014 exceeded initial budgeted sales. As such the Company recognized a recovery on the tooling
commitment of $48,414. This resulted in a reduction of the initial tooling commitment loss of $139,213 as of December 31, 2013
to $90,799 as of September 30, 2014.
| |
| September
30, | | |
| December
31, | |
| | |
| 2014 | | |
| 2013 | |
| Tooling
commitment deposit | |
$ | 36,701 | | |
$ | 41,119 | |
| Tooling
commitment deferred costs | |
| 85,490 | | |
| 100,947 | |
| | |
| 122,191 | | |
| 142,066 | |
| Provision
for loss on tooling commitment | |
| (90,799 | ) | |
| (139,213 | ) |
| Tooling
commitment deposit and deferred costs | |
$ | 31,392 | | |
$ | 2,853 | |
| Other
prepaid deposits and insurance | |
| 152,952 | | |
| 20,233 | |
| | |
$ | 184,344 | | |
$ | 23,086 | |
| Tooling
commitment liability | |
$ | 90,359 | | |
$ | 105,816 | |
10. Income
Taxes
The
Company calculates its income tax expense by estimating the annual effective tax rate and applying that rate to the year-to-date
ordinary income at the end of the period. The Company records a tax valuation allowance when it is more likely than
not that it will not be able to recover the value of its deferred tax assets. As of September 30, 2014 and 2013, the
Company calculated its estimated annualized effective tax rate at 0% and 0%, respectively. The Company had no income tax expense
on its $1,434,296 pre-tax loss for the nine months ended September 30, 2014. The Company recognized no income tax
expense based on its $158,901 pre-tax loss for the nine months ended September 30, 2013.
The
Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would
more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold,
the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the relevant tax authority. The Company recognizes interest accrued on uncertain tax
positions as well as interest received from favorable tax settlements within interest expense. The Company recognizes
penalties accrued on unrecognized tax benefits within general and administrative expenses. As of September 30, 2014
and December 31, 2013, the Company had no uncertain tax positions.
The
Company does not anticipate any significant changes to the total amounts of unrecognized tax benefits in the next twelve months.
In many cases the Company's uncertain tax positions are related to tax years that remain subject to examination by tax authorities.
The following describes the open tax years, by major tax jurisdiction, as of September 30, 2014:
Federal 2009
– present
State 2009
– present
11. Share
Capital
The
Company is authorized to issue 75,000,000 shares of Common Stock with a par value of $0.001 and had 33,419,429 shares of Common
Stock issued and outstanding as of September 30, 2014.
| |
| No.
of shares | | |
| Amount | |
| Balance
January 1, 2013 and December 31, 2013 (i) | |
| 10,000,000 | | |
$ | 10,000 | |
| Recapitalization adjustment (ii) | |
| 9,037,157 | | |
| 9,037 | |
| Issuance of shares under private placement
(iii) | |
| 6,479,002 | | |
| 6,479 | |
| Issuance of shares under private placement
(iv) | |
| 183,333 | | |
| 183 | |
| Issuance of shares for services (iii)(iv) | |
| 599,610 | | |
| 600 | |
| Issuance of shares to convertible debenture
holders (v) | |
| 3,222,120 | | |
| 3,222 | |
| Issuance of shares to employees (vi) | |
| 4,398,207 | | |
| 4,398 | |
| Balance September
30, 2014 | |
| 33,919,419 | | |
$ | 33,919 | |
On
July 21, 2014, the Company entered into a merger agreement with Queenridge Mining Resources Inc. (“Queensridge”) to
complete the Merger whereby all of the issued and outstanding common stock of the Company will be exchanged for shares of Queensridge.
(i)
The holder of the common shares of the Company exchanged their shares on a pro-rata basis for 10,000,000 newly-issued shares of
common stock prior to the closing of the Merger.
(ii)
The total number of Queensridge common shares issued and outstanding as of June 30, 2014 was 6,428,084 with a par value of $0.001
for a total of $6,428. On July 10, 2014 Queensridge completed a stock split transaction of the authorized and outstanding common
stock. As a result, the authorized shares of common stock capital increased to 34,113,790. On July 21, 2014 prior to the Merger,
Mr. Philip Stromer and certain other shareholders cancelled 25,076,643 shares. As a result, the remaining number of shares outstanding
prior to the Merger was 9,037,157.
(iii)
Concurrently with the Merger, the Company closed a Private Placement of 6,749,002 units (each a “Unit”) at $0.30 per
Unit for gross proceeds of $1,943,701. Each Unit consists of one share of common stock and one common stock purchase warrant exercisable
at $0.60 for a period of two years.
The
agent of the Private Placement received 583,110 broker Units at an exercise price of $0.60 per Unit for a period of two years.
Each Unit is comprised of one share of Common stock and one common stock purchase warrant exercisable at $0.60 for a period of
two years.
The
agent of the Private Placement received cash compensation of 9% of the gross proceeds of the financing for a total of $174,933
plus additional costs of $23,433 for legal expenses.
(iv)
On September 2, 2014, the Company closed an additional private placement of 183,333 units at $0.30 per Unit for gross proceeds
of $55,000. Each Unit consists of one share of common stock and one common stock purchase warrant exercisable at $0.60 for a period
of two years.
The
agent of the Private Placement received 16,500 broker Units at an exercise price of $0.60 per Unit for a period of two years.
Each Unit consists of one share of common stock and one common stock purchase warrant exercisable at $0.60 for a period of two
years.
The
agent of the Private Placement received cash compensation at 9% of the gross proceeds of the financing for a total of $4,950 plus
additional costs of $3,840 for legal expenses.
(v)
In connection with the closing of the Merger, the Company issued 3,222,120 units at a price of $0.30 per Unit upon conversion
of the Convertible Debentures for gross proceeds of $663,000 (see note 8). Each unit consists of one share of common stock and
one common stock purchase warrant exercisable at $0.20 for a period of two years from conversion date.
(vi)
On September 2, 2014 the Company entered into an agreement with the Chief Executive Officer (CEO) to issue 4,398,207 shares, or
15% of the Company’s outstanding common stock as of July 21, 2014 for a total value of $1,319,462. The shares will vest
as to 1,172,855 on each of September 2, 2014, August 31, 2015 and August 31, 2016, and 879,642 shares on August 31, 2017. As of
September 30, 2014 1,172,855 shares have been awarded to the CEO, with remaining amounts to be awarded on each anniversary date.
As at September 30, 2014 a total of $402,251 has been expensed as stock-based compensation using the graded vesting method.
To
account for subsequent dilution, the CEO is too maintained at 15% ownership at the end of the initial term August 31, 2017. Additional
equity shall be issued and vested on each anniversary date. Subsequent to the agreement, the Company completed a private placement
(note 11 (iv)) for 199,833
common stock. The member of management is to be issued an additional 29,975 common stock. As of September 30, 2014, $694 has vested
which are presented as shares to be issued and expensed as
stock-based compensation using the graded vested method.
12. Warrants
The
following is a continuity schedule of the Company’s common stock purchase warrants:
| |
| No.
of warrants | | |
| Exercise
Price | |
| Outstanding and exercisable, December
31, 2013 | |
| — | | |
| — | |
| Issued July 21, 2014 | |
| 6,479,002 | | |
$ | 0.6 | |
| Issued July 21, 2014 – broker
warrants | |
| 583,110 | | |
$ | 0.6 | |
| Conversion of convertible debentures | |
| 3,222,120 | | |
$ | 0.2 | |
| Issued September 2, 2014 | |
| 183,333 | | |
$ | 0.6 | |
| Issued September 2, 2014 – broker
warrants | |
| 16,500 | | |
$ | 0.6 | |
| Expired | |
| — | | |
$ | — | |
| Outstanding and
exercisable, September 30, 2014 | |
| 10,484,065 | | |
$ | 0.48 | |
The
following is a summary of the common stock purchase warrants outstanding as of September 30, 2014:
| | Exercise
Price ($) | | |
| No.
of warrants | | |
Expiry
date |
| | 0.6 | | |
| 7,062,112 | | |
21-Jul-16 |
| | 0.2 | | |
| 3,222,120 | | |
21-Jul-16 |
| | 0.6 | | |
| 199,833 | | |
2-Sep-16 |
| | | | |
| 10,484,065 | | |
|
13. Commitments
and Contingencies
Legal
Matters
From
time to time, the Company may be involved in a variety of claims, suits, investigations and proceedings arising from the ordinary
course of our business, collections claims, breach of contract claims, labor and employment claims, tax and other matters. Although
claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, the
Company believes that the resolution of current pending matters will not have a material adverse effect on its business, financial
position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on the Company
because of legal costs, diversion of management resources and other factors.
Warranty
Provisions
The
Company is also exposed to warranty contingencies associated with the iWallet and has recorded a provision for these for the period
ended September 30, 2014 of $5,840 and the year ended December 31, 2013 of $3,062 included in accrued liabilities, however, the
actual amount of loss could be materially different.
The
actual warranty claims for the nine month period ended September 30, 2014 is $6,227 (nine month period ended September 30, 2013
- $3,169) included in cost of sales. The actual warranty claims for the three month period ended September 30, 2014 is $3,200
(three month period ended September 30, 2013 - $286).
14. Basic
and Diluted Loss Per Share
Basic
and diluted loss per share is computed using the weighted average number of common stock outstanding. Diluted loss per share and
the weighted average number of shares of common stock exclude all potentially dilutive shares since their effect in anti-dilutive.
15. Segmented
Reporting
All
of the Company's long-lived assets are located in the United States.
During
the nine month period ended September 30, 2014, the majority of the sales were domestic; however total international sales accounted
for 8%. During the nine month period ended September 30, 2013, 54% of total sales were domestic while 46% of total sales were
international. Of the 54% of international sales, Canada accounted for 11% of total sales. No other individual countries were
in excess of ten percent of total sales.
During
the three month period ended September 30, 2014, the majority of sales were domestic; however total international sales accounted
for 5% of total sales. During the three month period ended September 30, 2013, 47% of total sales were domestic while 53% of total
sales were international. Of the 53% international sales, Canada accounted for 20% and New Zealand accounted for 13% of total
sales. No other individual countries were in excess of ten percent of total sales.
16. Risk
Management
Concentrations
of Credit Risk
The
Company’s cash balances are maintained in bank accounts in the United States. Deposits held in banks in the United States
are insured up to $250,000 per depositor for each bank by the Federal Deposit Insurance Corporation. Actual balances at times
may exceed these limits.
The
Company performs on-going credit evaluations of its customers’ financial condition and generally does not require collateral
from its customers. For the nine month period ended September 30, 2014, one customer accounted for 52% of the Company’s
total revenue (nine months ended September 30, 2013 – 10%).
For
the three month period ended September 30, 2014, one customer accounted for 82% of the Company’s total revenue (three months
ended September 30, 2013 – 35%).
As
at September 30, 2014 one customer accounted for 100% of the accounts receivable balance (December 31, 2013 – 100%).
Economic
Dependence
For
the period ended September 30, 2014 the Company purchased 100% (2013 - 100%) of its wallet inventory from one vendor.
The
accounts payable to this vendor is reflected in the carrying amount of the tooling commitment liability (see note 9).
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements.” These forward-looking statements generally are identified by the words “believes,” “project,”
“expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely
result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are
subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our
ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have
a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes
in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted
accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue
reliance should not be placed on such statements.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Company
Overview
We
were incorporated as “Queensridge Mining Resources, Inc.” on January 29, 2010, in the State of Nevada for the purpose
of engaging in mineral exploration. On July 21, 2014, we entered into a Merger Agreement with iWallet Corporation, a private California
corporation, whereby we acquired all of the issued and outstanding common stock of iWallet Corporation through a subsidiary. Following
this merger, we merged the subsidiary with and into our corporation, and changed our name to “iWallet Corporation”
as part of that process. As a result of entering into the Merger Agreement, we are in the business of designing and developing
biometric locking wallets and related physical, personal security products.
Description
of Business
We
are a designer and developer of innovative, physical, personal security products that incorporate the latest security and communication
technologies to protect against identity, personal and financial information theft. iWallet is a registered trademark in the United
States. Our flagship product is a biometric locking luxury storage case that protects cash, credit cards and personal information
with a proprietary fingerprint security system. The iWallet features a carbon fiber or aluminum chassis and protects credit cards
from being read by many types of RF devices in public spaces. Using a free app, iWallet owners can tether the iWallet to a supported
smart device. A proximity alarm sounds on both devices when separated by about five meters. In addition, GPS tracking capabilities
are expected to be available on future models.
We
are based in San Diego, California and our business was originally founded in 2009. The initial version of the iWallet generated
sales of over $700,000 in the first eighteen months following its launch. With improved designs and a better manufacturing partner,
iWallet is ready to re-launch the product on a larger scale. Established sales channels include Neiman Marcus in North America,
Harrods in England, Highline Peak Group in Canada, and NeedItWantItGadgets in New Zealand. Our prospective sales channels include
Dufry, Touch of Modern, Skymall, Travelsmith, Hammacher Schlemmer, and co-branding for Montblanc, Porsche Design, Ducati, Gucci,
and Bugatti. We own the trademark “iWallet” for secure luxury storage cases connected to smartphones in the USA and
have patents worldwide. We have been licensed by Apple Inc. as an official Accessory Developer.
Products
and Technology
At
this time, we are preparing to re-launch its flagship product and the iWallet 2.0. The suggested retail price will be $529. The
new iWallets are expected to have the following features:
| |
• |
Sleek, compact industrial design with
carbon fiber case |
| |
• |
Pairs with the owner’s cellular
phone via bluetooth technology |
| |
• |
Patented, exclusive tamper resistant
locking mechanism utilizes innovative fingerprint biometric reader for unlocking |
| |
• |
Unique latch control that only consumes
power during latching hence providing extended battery life |
| |
• |
RFID blocking capability for enhanced
wireless protection |
| |
• |
Speaker providing audible feedback |
| |
• |
GPS tracking capabilities |
Over
the course of the next twelve months, we intend to bring the following additional products to market:
| |
• |
Storage devices with co-branding luxury
partners |
| |
• |
A secure passport case called the iPassport |
| |
• |
A women’s iWallet version |
| |
• |
A secure mobile personal safe to store
pharmaceuticals in |
| |
• |
A smart “padlock” with
a biometric reader for gym lockers and other personal areas that require security |
We
hold over twenty patents and patent applications filed in various countries around the world. Our products are currently manufactured
under contract by a manufacturer based in Zhuhai, China, Apollo Electronics. The suppliers for our raw materials are currently
Future Electronics, Namiki Motors, Cotech Taiwan, Digital Persona, Avnet Electronics, Avnet Taiwan, and Apollo Electronics. Historically,
our largest major customer has been Neiman Marcus, which has been the source of approximately 52% of our gross revenues over the
past year. As we expand our sales and distribution channels, we expect that our customer base will diversify and that, in the
future, our revenues will not be dependent upon one or a few major customers.
We
hold both utility and design patents and patent applications. All of our current utility patents will remain in effect until September
14, 2027. The duration of our design patents varies by country. The expiration dates of our current design patents, by country,
is as follows:
| Canada |
June
10, 2023 |
| Europe |
December
9, 2036 |
| China |
December
12, 2021 |
| Japan |
May
18, 2032 |
| Russia |
December
13, 2036 |
| Singapore |
December
9, 2026 |
| Taiwan |
December
9, 2023 |
Market
and Competition Overview
Our
primary target demographic will be consumers who are in the market for high-end luxury secure storage cases and similar accessories.
We do not believe that the $500 approximate retail price to the end user will be an obstacle for our initial target demographic.
The carbon fiber process is labor intensive to manufacture. High net worth individuals appreciate the advantages of carbon
fiber construction and spend tens of thousands of dollars outfitting their automobiles and other accessories.
A
comparison of the iWallet to the leather or canvas sure storage accessories currently offered by several major fashion designers
is below:
| Brand | |
Model | |
Price | |
Material | |
Bluetooth
(Anti-theft/loss) | |
Fingerprint
Reader | |
RFID
Anti-Theft | |
Owner
Access Only |
| Cartier | |
Santos
de Cartier | |
$ | 380 | | |
Leather | |
| No | | |
No | |
| No | | |
No |
| Salvatore
Ferragamo | |
Bifold | |
$ | 350 | | |
Leather | |
| No | | |
No | |
| No | | |
No |
| Louis
Vuitton | |
Classic | |
$ | 565 | | |
Canvas | |
| No | | |
No | |
| No | | |
No |
| Gucci | |
Bifold | |
$ | 550 | | |
Canvas | |
| No | | |
No | |
| No | | |
No |
| iWallet | |
Slim | |
$ | 529 | | |
Carbon
Fiber | |
| Yes | | |
Yes | |
| Yes | | |
Yes |
We
believe the security, high technology, slim design, and carbon fiber construction of the iWallet can position it to compete for
a share of the luxury secure accessories market.
Sales,
Distribution and Growth Strategy
Our
plan for marketing and raising awareness for the iWallet includes the following strategies:
| |
• |
Sell and market at major trade shows
that attract global buyers such as the CES. |
| |
|
|
| |
• |
Align iWallet with a high profile celebrity
as the face for iWallet. |
| |
|
|
| |
• |
Optimize website to gain greater distributor
inquiry, continued media attention and wider market accessibility through links to other major potential purchasers. |
| |
|
|
| |
• |
Continue worldwide media attention,
primarily from BBC Worldwide, Fox News (Fox and Friends), and Discovery Channel. |
Our
established distribution channels for the iWallet, as originally launched, include the following:
| |
• |
Neiman Marcus in North America |
| |
• |
In Canada for Centurion (black card)
Amex members, who will be able to redeem points in exchange for an iWallet through Highline Peak Group |
| |
• |
NeedItWantItGadgets in New Zealand |
The
following are current prospective sales channels:
| |
• |
Private branding for Montblanc, Porsche
Design, Ducatti, Gucci, and Bugatti. We are currently in partnering or licensing discussions with all of these companies. |
| |
• |
Dufry, a global duty free company with
1,100 locations in 45 countries |
We
plan to increase our consumer off take within newly gained distribution at major regional high-end department stores, and to expand
to private brand stores. Together with our distribution partners, we are targeting major national retail channels. We believe
a partnership with any one leading national chain would be transformative. We intend to develop our website towards wider market
accessibility through links to other major potential purchasers. We will continue to be featured in ingadget.com and gizmodo.com,
where the iWallet has been dubbed “The Fort Knox of Wallets.” We will also begin limited selling efforts in key international
markets using further regional distributors in Europe, Asia, Canada, Australia, and South America. We are also in discussions
with distribution companies in key opportunity geographies.
Results
of Operations for the Three and Nine Months ended September 30, 2014 and 2013.
During
the three months ended September 30, 2014, we generated sales of $64,476. Our cost of sales was $45,216, resulting in gross profit
of $19,260. Our expenses for the three months ended September 30, 2014 were $1,305,011, and consisted of legal and professional
fees of $478,313, share based compensation of $402,945, debt discount accretion of $289,991, subcontractor fees of $77,883, office
and general expenses of $40,373, research and development of $41,506, travel expenses of $9,882, interest and bank fees of $2,131,
rent of $7,500, and amortization of intangible assets of $2,901. We also recorded a recovery of $48,414 on our provision for a
contractual tooling commitment. Our net loss for the three months ended September 30, 2014 was $1,285,751. By comparison, during
the three months ended September 30, 2013, we generated sales of $13,139. Our cost of sales was $6,307, resulting in gross profit
of $6,832. Our expenses for the three months ended September 30, 2013 were $11,122, and consisted of legal and professional fees
of $4,695, office and general expenses of $2,845, travel expenses of $338, interest and other finance charges of $1,382, and amortization
of intangible assets of $1,862. Our net loss for the three months ended September 30, 2013 was $4,290.
During
the nine months ended September 30, 2014, we generated sales of $102,615. Our cost of sales was $80,469 resulting in gross profit
of $22,146. Our expenses for the nine months ended September 30, 2014 were $1,712,290, and consisted of legal and professional
fees of $698,342, share based compensation of $402,945, debt discount accretion of $289,991, subcontractor fees of $186,983, office
and general expenses of $66,777, research and development of $53,039, travel expenses of $26,868, interest and bank fees of $15,083,
rent of $12,000, and amortization of intangible assets of $8,676. We also recorded a recovery of $48,414 on our provision for
a contractual tooling commitment. Our net loss for the nine months ended September 30, 2014 was $1,690,144. By comparison, during
the nine months ended September 30, 2013, we generated sales of $45,145. Our cost of sales was $25,988, resulting in gross profit
of $19,157. Our expenses for the nine months ended September 30, 2014 were $178,058, and consisted of legal and professional fees
of $21,046, interest and other finance charges of $2,358, office and general expenses of $5,068, research and development of $1,387,
travel expenses of $3,492, and amortization of intangible assets of $5,494, We also recorded a provision for loss on a tooling
commitment in the amount of $139,213 and a provision for recovery of income taxes of $4,247. Our net loss for the nine months
ended September 30, 2013 was $154,654.
Our
expenses and net loss for the three and nine months ended September 30, 2014 were larger than in the same periods last year primarily
due to increased legal and professional fees related to our preparations for becoming a public company, an increase in stock based
compensation, and debt discount accretion. Our sales have also increased as a result of our launch of the iWallet 2.0 and increased
marketing and distribution efforts.
Over
the course of the remainder of the current fiscal year, we expect that our sales will increase significantly as we continue with
our launch of the iWallet 2.0 and increase distribution of the product to various retailers and other outlets. In the final quarter
of 2014, we expect to see increased revenues due to a ramp up of orders from our luxury retail partners for the holiday selling
season. During 2014, we also made, and will continue to make, significant additional expenditures related to the continued development
and expansion of our business. Specifically, the hiring of our new CEO, an increase in our marketing initiatives focused on new
product introductions, new promotional and public relations materials, web site enhancements, and expenses related to new product
design and development will result in increased expenses during the latter half of 2014. Furthermore, as a public company, we
will incur significant legal, accounting and other expenses that we did not incur as a private company. As a result of these factors,
to achieve profitability we will need to, among other matters, significantly increase our customer base and our distribution channels.
We cannot assure you that we will be able to increase our revenue in this manner and achieve profitability on a consistent basis.
As we expect to continue to invest in the development of our business, this investment could outpace growth in our revenue, and
thereby impair our ability to achieve and maintain profitability.
Liquidity
and Capital Resources
As
of September 30, 2014, we had current assets of $1,492,400, consisting of cash in the amount of $1,021,008, deposits and deferred
costs of $184,344, inventory of $107,219, a loan due from a shareholder of $127,794, and accounts receivable of $52,035. Our current
liabilities as of September 30, 2014 were $329,008, and consisted of the current portion of long term bank debt in the amount
of $4,618, accounts payable of $103,931, accrued liabilities of $113,151, amounts due to a related party of $16,475, advances
from an investor of $474, and a liability for a manufacturer tooling commitment of $90,359. Our working capital as of September
30, 2014 was therefore $1,163,392.
In
the months prior to our reverse merger, we engaged in a bridge financing transaction raising a total $663,000 through the sale
of secured convertible promissory notes. Concurrent with the closing of the merger, these notes converted to 3,222,120 shares
of common stock and 3,222,120 warrants to purchase shares of common stock at a price of $0.20, exercisable for two years.
Our
bank indebtedness consists of a line of credit with a limit of $35,000, secured by cash on deposit in a checking account. The
line bears interest at a rate of prime plus 1.25%. As of September 30, 2014, the balance owed was $19,242.
Immediately
upon closing of our reverse merger, we closed a private offering of Units at a price of $0.30 per Unit, each Unit consisting of
one (1) share of common stock and one (1) warrant to purchase one share of common stock at a price of $0.60 per share, exercisable
for two (2) years. A total of 6,479,002 shares of common stock and 6,479,002 warrants were issued to subscribers in the offering.
The gross proceeds from the offering, prior to the deduction of agreed selling commissions and expenses, were $1,943,701. Net
of broker’s commissions and expenses, we received net proceeds of $1,745,335.
As
a result of the funds obtained through the offering, we believe that we have sufficient capital to execute our business development
plan for the immediate future. In order to continue our growth and development plan over the longer term, however, we will require
additional financing. Management is currently seeking additional equity financing in order to fund the long term development of
the company. There can be no assurance that we will be successful in raising additional funding, either through increased sales
and debt and/or other equity financing arrangements. If we are not able to secure significant additional funding, the long term
implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available
to us on acceptable terms or at all.
Off
Balance Sheet Arrangements
As
of September 30, 2014, there were no off balance sheet arrangements.
Going
Concern
As
of September 30, 2014, the Company has incurred a deficit of $1,912,956 (December 31, 2013 - $222,812) and has significant losses
and negative cash flows from operations. These factors create substantial doubt about our ability to continue as a going concern.
The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.
Our
ability to continue as a going concern is dependent on generating cash from the sale of our common stock and/or obtaining debt
financing and attaining future profitable operations. Management’s plans include selling our equity securities and obtaining
debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful
in these efforts.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
A
smaller reporting company is not required to include this item.
Item
4. Controls and Procedures
We
carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2014. This evaluation was carried out under the supervision
and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of September 30, 2014, our disclosure controls and procedures
were not effective. There have been no changes in our internal controls over financial reporting during the quarter ended September
30, 2014. Management determined that the material weaknesses that resulted in controls being ineffective are primarily due to
lack of resources and number of employees. Material weaknesses exist in the segregation of duties required for effective controls
and various reconciliation and control procedures not regularly performed due to the lack of staff and resources and additional
material weakness is our lack of a separate audit committee.
Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated
to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required
disclosure.
Limitations
on the Effectiveness of Internal Controls
Our
management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily
prevent all fraud and material error. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by
the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The
design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time,
control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may
deteriorate.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
We
are not a party to any other pending legal proceeding. We are not aware of any other pending legal proceeding to which any of
our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material
interest adverse to us.
Item
1A. Risk Factors
A
smaller reporting company is not required to include this item.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item
3. Defaults upon Senior Securities
None.
Item
4. Mine Safety Disclosures
Not
applicable.
Item
5. Other Information
None.
Item
6. Exhibits
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
| |
iWallet
Corporation |
| |
|
| Date: |
November
19, 2014
|
| |
|
| |
/s/
Jack Chadsey |
| By: |
Jack Chadsey |
| Title: |
Chief Executive
Officer and Chief Financial Officer |
CERTIFICATIONS
I, Jack B. Chadsey, certify that;
| 1. |
|
I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2014 of iWallet Corporation (the “registrant”); |
| 2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 19, 2014
/s/ Jack B. Chadsey
By: Jack B. Chadsey
Title: Chief Executive Officer
CERTIFICATIONS
I, Jack B. Chadsey, certify that;
| 1. |
|
I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2014 of iWallet Corporation (the “registrant”); |
| 2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 19, 2014
/s/ Jack B. Chadsey
By: Jack B. Chadsey
Title: Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the quarterly Report of
iWallet Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2014 filed with the Securities
and Exchange Commission (the “Report”), I, Jack B. Chadsey, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material
respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations
of the Company for the periods presented. |
| By: |
/s/ Jack B. Chadsey |
| Name: |
Jack B. Chadsey |
| Title: |
Principal Executive Officer, Principal Financial Officer and Director |
| Date: |
November 19, 2014 |
This certification has been furnished solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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